Gordon Campbell on Cunliffe’s likely role (and France)

Later this afternoon, we’ll find out just how the new Labour leader David Shearer has managed the difficult task of rewarding his faction while bringing some of his opponents back into the tent. Since David Parker is almost certain to get the new shadow Finance portfolio opposite Finance Minister Bill English, Shearer’s immediate task is how to include defeated leadership contender David Cunliffe, and to mollify him for the added humiliation of losing his shadow Finance role.

Just guessing… but one solution would be to pit Cunliffe against Steven Joyce in a shadow Commerce/Economic Development role. Clearly, Cunliffe’s talents cannot be wasted entirely. Nor can he be given a reason to sit out the next term brooding in his tent like Achilles, until such time (post-Shearer) as the caucus comes around to apologise.

Using Cunliffe to mark Joyce would also be a highly ironic outcome, given that Joyce is the 800 pound gorilla on National’s front bench. So the reward for Cunliffe will be to do most of the heavy lifting for his caucus opponents during the next term, while Parker gets the far easier job of marking Bill English. I’m guessing that this will be how Shearer will use Cunliffe – I have no inside knowledge – but it would be a gesture of caucus unity that might appeal to Cunliffe’s vanity. They don’t want me, but they need me etc etc…

Meanwhile the Cunliffe foot soldiers most likely to feel the lash from being on the losing team will be Charles Chauvel and Lianne Dalziel. Incredibly, Chauvel has reportedly got offside with some Wellington-based Labour MPs by his consistent support for Cunliffe, despite the (irrelevant) fact that a few troops close to Grant Robertson and Annette King were deployed to help his battle against Peter Dunne in Ohariu. Such are the irrational resentments of Labour’s internal clan politics.

Need it be pointed out that if talent is meant to be the guiding principle, that Chauvel – now likely to be demoted – is patently more talented than Nanaia Mahuta, who is bound to be promoted because, because… she supported Cunliffe, but can’t be punished because Labour needs to maintain its momentum within Maoridom. Sigh.

And now, France. Hate to sound apocalyptic but… "Le ciel nous tombe sur la tête!” In the next few days, the expected credit downgrade of France by the Standard and Poors credit rating agency has the potential to spoil everyone’s Christmas.

The least of these worries is that the S&P credit downgrade will reportedly cost French taxpayers an extra $4 billion a year over the next ten years. Tough on them, given that – as the French have been trying to argue – Britain’s debt position is even worse, so why isn’t S&P coming down harder on the Brits? Good question. That aside, this likely credit downgrade will erode France’s ability to contribute significantly to the save-the-euro plan recently thrashed out in Brussels, thereby making that rescue plan look even less credible than before.

That’s important because… only by having Germany and France pumping in truckloads of dollars to the European Financial Stability Facility does the Brussels plan have any chance of saving Greece, Portugal etc etc from default and eventual departure from the euro – which in turn, would result in the disintegration of the entire European Union project.

Hitherto, budget balancing measures have been the focus of the Eurozone response. Yet budget balancing measures alone were never going to be enough, as former British Prime Minister Gordon Brown told the American journalist Charlie Rose a couple of weeks ago. Policies to promote economic growth, Brown stressed, were also essential:

Europe has three problems, really, and none of them have been properly addressed. One is obviously the fiscal problem itself, the second is a banking problem, and the third is a growth and competitiveness problem. And unless you deal with each of these and deal with them as a group, you’re not going to get the recovery that’s necessary. Low growth will cause deficits to continue to be high.

[Rose] : So which problem should be the top priority?

You’ve got to deal with the three problems together. You need to have measures for growth that allow you to continue to reduce your deficits. One of the problems we face is that, with tough austerity in Greece and Spain and Portugal, growth is not recovering. Therefore, revenues become difficult to collect. We failed to understand that there’s a financial sector problem that’s got to be dealt with, and there’s a competitiveness problem. What should happen now is, first of all, the [European Financial Stability Facility] has got to be strengthened. You’ve got to send a message to the markets that Europe has come together to sort out this problem, and it’s going to create a firewall that is strong enough. You’ve then got to have a longer-term plan for reforming the euro.

Are you talking about the inflexibility of the euro?

[The U.S.] can print dollars, but you’ve also got wage flexibility that is greater than Europe’s. You’ve got greater interstate mobility. People are prepared to travel and migrate within America. And you’ve got a central budget of 25 percent of your GDP. So you’ve got a budget that can actually intervene when you’ve got problems in some of the poorer states and some of the most difficult areas. Europe’s budget is only 1 percent of GDP. And we have got far bigger differences between the states in Europe than you have in the U.S., where perhaps the gap between the poorer states and the richer states is about 1.5 to 1. In Europe, it could be as much as 4, 5, 6 to 1.

Depressed, yet? Obviously… the Eurozone has far deeper problems than the cartoon depictions of thrifty Germans and wasteful, indolent Greeks and Italians who need a taste of the fiscal lash to get their houses in order. That was never the main problem.

In good times, the weaker Eurozone members were captive markets for the Germans – who had wanted them within the euro all along, lest they become low wage/lowcost industrial competitors for Germany, if kept outside it. (The likes of George Friedman in Stratfor have also cited Germany’s geographical advantage over southern Eurozone nations, by dint of Germany’s proximity to river-borne trade routes.)

So, just as the Eurozone recessionary problems weren’t grounded in bad behaviour by the lazy, wasteful Greece and Italy, they can’t be solved by simply tightening the spending screws on those countries. If only because, during a recession, policies to tighten the screws are likely to choke off the revenues that make repayment even remotely feasible, while wiping out those diligent members of the middle class in countries such as Greece, who had been dutifully paying their taxes all along.

Policies to promote growth, in the midst of a recession? That need should be ringing a bell in New Zealand as well – where to date, the Key government has been behaving as if the only job that government needs do is to balance the budget, ASAP.

Balancing the budget is relatively easy, if you’re not on the receiving end of the pain. Policies to promote growth – which are necessary to create a sufficient number of well paying jobs to meet the real and aspirational goals of the middle class – is the far harder part of the economic development equation. That’s why the contest between Joyce and Cunliffe over the policy options to promote economic growth will be the real battleground of this second term.

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