Corbyn’s European context and the challenge to turn popularity into power

After barely making it on to the ballot paper, Jeremy Corbyn beats even Tony Blair’s 1994 record and gathers 59.5% support for leadership. Anti-establishment parties have been sprouting in Europe but the fairly unique aspect of Corbyn’s success is his rise within an old and established party. Much is made of his (self-proclaimed) socialism. Yet, it is more likely that Corbyn gathered support not because he is a socialist but in spite of being one. Getting elected as a leader was the easy bit; leading will be the truly tricky part unless Corbyn proves to be a political virtuoso – and the European left will be watching.

For his opponents, it seems easiest to attack Jeremy Corbyn for being a socialist as the majority of voters are clearly without the slightest leaning in that direction. However, if personality matters as much as politics that tactic is bound to fail to scare voters away from him. To my mind, Corbyn was not voted for his socialism but in spite of it – in times of personality politics his ideas seem as much part of him as his beard compared to what I call patch-work politics stitched together from focus-group material and political advisers.*

Given the earlier success of Tony Blair and another charismatic politician Bill Clinton it became received wisdom that no political career could possibly be successful without their kind of flashy charisma. Also here, Corbyn disproves so far the accepted wisdom: he is serious at rallies and often grumpy in the media but what he says fits him like his beard.

Compared to recent political stars in Europe Corbyn is the only outsider in an old party to challenge the party elite and be voted as a leader. The last outsider achieving was Margret Thatcher elected as Tory leader in 1975. As Corbyn, she was not expected to last long. Famously, Thatcher and later Blair proved themselves to be eminent at capturing the nation’s mood. Briefly, Corbyn has done the same but a lasting success will only arise if he can use his popularity to create a Labour power base. The European left will be watching.

What matters is not left or right but the outsider-image

In times of slow growth and contraction, there has been no lack of new European parties of discontent and anger. The Italian Movimento Cinque Stelle, M5S rose on the fame of its leader Beppe Grillo, accountant and comedian, a year older than Corbyn. M5S has more or less imploded: Grillo was good at being angry in public but useless at organising a party machine.

The Greek Syriza, born on the old-style Greek left, shot to fame with its energetic leader Alexis Tsipras. Unable to fulfil his promises, he now fights an election and might be losing the surge that brought him to power in February. New political movements in Spain – the left Podemos, the activist “idignados” and Ciudadanos on the right – will no doubt influence the coming elections there. Again, unclear if these parties can turn popularity into power.

In the stable North long-simmering far-right anti-establishment sentiments have grown stronger in Finland, Sweden and Denmark. In Iceland, the Pirate party got 5% in the election in spring 2013, just enough to get into Parliament but has been scoring over 30% in polls since early this year.

Compared to once upon a time voters are now not only less wedded to one party but also travel back and forth between left and right. Considering the volatility of voters it seems to make more sense to see these new-comers as an expression of discontent with old parties rather than necessarily as a sign of swing to the left or right in the respective countries. It is more a question of who appeals strongest to the party-unfaithfuls and disillusioned at any given time.

This also seems to be the context for Corbyn – there is no indication that British voters are swinging to the left. After all, Ukip did well in last elections. Given the chance, voters turn against the political establishment and embrace something new.

The irony is that the new is now a 66 years old leftie backbencher, in Parliament since 1983, echoing the socialism of his youth, generally unknown to others than his Islington voters, whom he has served by mostly being in opposition to the Labour party leadership at any given time.

The lack of left response to 2008

The singular aspect of the Western crisis that surfaced in 2007 was the fact that it was created by banks and their, for the society at large, unhealthy and anti-social activities in the years up to 2007.

Strangely enough, Labour let itself be ensnared by the opposition’s narrative during the 2015 spring elections that it had mismanaged the economy during its years in power, 1997 to 2010. Fettered by this narrative Labour kept quiet about the fact that Labour and the Tories, united in its admiration for an apparently booming finance industry, shared the laissez-faire view of scaled-back regulation. During the boom, neither party worried about weak regulators and underfunded and little-loved Serious Fraud Office and Inland Revenue.

The underlying public anger surfaced in the Occupy movements and grass-root activities, largely ignored by the old and established parties both in Britain and elsewhere. In the 2010 elections Liberal democrats rose on the 2008 anger but were unable to turn that surge of popularity into lasting power.

Yet, political elites might well have found a convincing response to 2008. Politicians on the right could argue for the capitalism of creation. It is not necessarily in the capitalistic spirit to let a sector, that in theory should be serving and nurturing the economy, tie up so much capital in its own money spinning activities that went so disastrously wrong, causing calamity for the rest of society.

More surprisingly, European established left parties have mostly not responded to the crisis in any meaningful way and Labour is one of them. No leading Labour politicians seems i.a. interested in a coherent investigation of the UK banks’ activities before and after 2007. One reason why I notice the underlying anger it that hardly a week goes by without hearing someone mention the Icelandic example of investigating financial fraud related to the 2008 collapse.

This silent space has been Corbyn’s to occupy, rhetorically asking if teachers, nurses etc. caused the financial crisis and weaving into it his anti-austerity stance. Quite remarkably, seven years on from 2008 and with the economy growing again, this old anger and frustration is still a fertile ground as Corbyn has now discovered and demonstrated.

From a private election machine to a party machine

According to Corbyn, he had an army of sixteen thousand volunteers working for him. Quite something in an era of shrinking membership in established political parties. It is difficult to believe that this machine was put together in only three months – more likely, supportive trade unions provided him with all it took to build a smooth-running operation.

If Corbyn the Labour leader translates his success into convincing policies backed by the Labour party he and his party will unavoidably become a leading light on the European left as New Labour once was. However, his challenges are formidable. He must i.a. enthuse the Labour party machine as he did with his own private election machine.

Corbyn must also grapple with anchoring his messages into policies that gather support within in the party. A received wisdom in politics is that no one goes anywhere without a supportive media. Given that Corbyn uses every opportunity to kick the media, possibly perceiving it as part of the establishment and to strengthen his outsider-image, it will be interesting to see how he fares versus the media: if he will change course and court it or if he continues his adversarial angry attitude.

When new Labour rose to power in 1997 they did not only lead Britain but set the tone for the whole of the European left. New Labour is no longer new but old and stale and the top-trend post has been empty for a while. The most recent contender was Syriza. With popularity and power Tsipris shot to fame among the European left who flocked to Greece to meet Syriza’s leading lights. I.a. Italian prime minister Matteo Renzi avidly courted Tsipras but, as others, quickly seemed to realise there was little to fetch.

The European left, lately poor of success stories, will be following Corbyn closely though his anti-EU stance will make some Europeans wary. As seen in many European countries over the last few years, anger and frustration may gather popularity; but unless sustained by action and comprehensive policies it has little staying power and wanders on to the next eye-catching political promise-bidder.

*See my earlier blog on Corbyn and patch-work politicians.

This blog is cross-posted with

It’s not just the currency

Paul Krugman writing in June 2012 on the UK-Spain interest differential, attributing it to the constraints of currency union -

Then there’s the lender of last resort issue, which turns out to be broader than even those who knew their Bagehot realized. Credit for focusing on this issue goes to Paul DeGrauwe, who pointed out that national central banks are potentially crucial lenders of last resort to governments as well as private financial institutions. The British government basically can’t face a “rollover” crisis in which bond buyers refuse to purchase its debt, because the Bank of England can always step in as financier of last resort. The government of Spain, however, can face such a crisis – and there is always the risk that fears of such a crisis, leading to default, could become a self-fulfilling prophecy. As DeGrauwe has pointed out, Britain’s fiscal outlook does not look notably better than Spain’s. Yet the interest rate on British 10-year bonds was 1.7% at the time of writing, whereas the rate on Spanish 10-years was 6.6%; presumably this liquidity risk was playing an important role in the difference.

At the Jackson Hole Federal Reserve Bank of Kansas City central bankers symposium yesterday, one of the more interesting papers, by Faust and Leeper –

Why, if Spanish debt was in safe territory, did its 10-year bond yields begin to rise in 2011? Figure 14 suggests that more than bond-market vigilantism was in play. During the decade of good fiscal housekeeping, Spanish inflation was chronically above union-wide inflation, at times by more than a percentage point. Thoughtful observers would note that in a monetary union, Spain’s persistently higher-than-union-wide inflation rates could damage the country’s competitiveness and future growth prospects. With weak future economic growth come lower tax revenues and higher social safety-net expenditures that reduce the expected flow of Spanish primary surpluses and shift the country’s fiscal limit in toward prevailing and growing debt levels. Whether from lack of competitiveness or some other source, Spain did experience a second dip in economic growth from 2011 through the middle of 2013. Unemployment continued the upward march that it began during the recession, rising well above 20 percent before peaking at 27 percent in February 2013. These developments raised concerns about Spain’s ability to finance government debt that rose from 69 to 92 percent of GDP between 2011 and 2013. Movement of debt toward Spain’s fiscal limit coincided with an inward shift in the country’s limit distribution, a combination that Bi’s (2012) fiscal limit analysis predicts would raise risk premia.
Fiscal limits tell us that debt-GDP ratios are an incomplete—and potentially misleading— summary of a country’s fiscal health. What matters is the distance between current debt and the fiscal limit distribution. The position and shape of that distribution, in turn, depend on the great many factors that determine the discounted value of future primary surpluses. As the Spanish and U.S. fiscal stress examples illustrate, interactions between cyclical outcomes (inflation and unemployment) and longer-run developments (fiscal financing and sustainability) run in both directions to compound the confounding dynamics.

Bottom line: the interest differential that seemingly favoured the UK over Spain is about more than the Bank of England’s ability to finance the government in a crisis. It’s also about the other factors which determine the likelihood of such a crisis in the first place.

Growth is a driver of migration. Get used to it.

A seriously important blog post. Migration is a problem of success, not failure.

As sub-Saharan Africa increasingly rises out of deep poverty, more people can afford to emigrate and are aware that life might be better somewhere else. The propensity to migrate is positively correlated with real per-capita GDP. In Latin America, however, the correlation is negative. Potential migrants are likely to be better off at home, except the poorest of the poor.

The conclusions we can draw from this are salutary. First of all, they’re not going away. The development train has left the station, and one of its effects is that migration has become an option. Perhaps the pressure will reduce as more countries reach the middle-income level, but it’s not as if there aren’t plenty of migrants from Latin America to the US.

Second, neither calling for more development aid (that you have no intention of delivering) or giving lectures on corruption and good governance will help at all, because migrants, as opposed to refugees, are not motivated by desperation but rather by hope. Nor will yelling about “benefits”, because they’re not beggars but economic migrants in the truest sense of the word.

It’s also worth pointing out that the distinction between a refugee and a migrant is a spectrum rather than a bright line – if you can’t think of a way to persecute people by economic means you’re not trying, and as Rick points out above, development encourages movement for refugees, too.

Third, very visibly, they are following the same routes trade follows, carrying their smartphones and wearing their FC Barca shirts. You can’t have 44-tonne trucks driving in two or three days from Dover to eastern Turkey and not have people moving along the same roads.

The overwhelming conclusion is that we’ll just have to live with them. Punkt, ende. However I expect a lot of squirming on the hook before this sinks in. Like the War on Drugs or the rules of the eurozone, immigration is one of those issues where nobody believes in the system, nobody would design anything like it again, but it stumbles forward by the sheer inertia of incumbency.

What is happening to the soft Eurosceptics?

A while ago I wrote at the Pol that British public opinion had been moving steadily towards staying in the European Union. I used the YouGov poll series as my source. This is a different polling firm, Survation, but it is telling that their basic result is 45% YES, 37% NO, 18% DK. They also provide a breakdown of voters by level of conviction.


There are substantially more hard YES voters than hard NOs. Interestingly, there are fewer soft YES voters than soft NOs (12% vs 14%), which is good news for the YES – they have fewer potential switchers from their side, and more potential gains from the NOs.

Survation polled the same question back in May, and they got 47% YES 40% NO 13% DK. However, at the time they had a different relationship between soft and hard votes; 30% soft-YES, 16% hard-YES, 27% soft-NO, 12% hard-NO.

Clearly there’s movement from the “soft” category to the “hard” category. It’s not the same for the NOs as it is for the YESs, though. The percentage of hard YESs has doubled (16% to 30%), while that of soft-YESs has fallen only 4 percentage points (16% to 12%). The percentage of hard NOs has increased rather less (13% to 23%), while the soft NOs have roughly halved (28% to 14%). Although both camps seem to be firming up their vote, the YESs are gaining overall and the additional voters are coming from the soft NOs. This is roughly what I predicted in the Pol.

This is fascinating, given that since May we’ve had the #Grexit drama and a massive refugee crisis. Perhaps, though, when bits of Kent can’t restock the shops because the M20 is full of lorries parked up due to disruption at the Tunnel and the port of Calais, it’s unusually obvious that we are in fact part of Europe, and it’s not as if leaving the EU would change anything. Does anyone imagine the tunnel would be bricked up, or the flow of trade down the M20 just stop? No. Does anyone seriously want that? I doubt it.

Greek politics and poisonous statistics – an on-going saga

Why the Troika and the EU member states find it so difficult to trust Greece

The word “trust” has been mentioned time and again in reports on the tortuous negotiations on Greece. One reason is the persistent deceit in reporting on debt and deficit statistics, including lying about an off market swap with Goldman Sachs: not a one-off deceit but a political interference through concerted action among several public institutions for more then ten years.

As late as in the July 12 Euro Summit statement “safeguarding of the full legal independence of ELSTAT” was stated as a required measure. Worryingly, Andreas Georgiou president of ELSTAT from 2010, the man who set the statistics straight, and some of his staff, have been hounded by political forces, also Syriza. Further, a Greek parliamentary investigation aims at showing that foreigners are to blame for the odious debt, which should not be paid while there is no effort to clarify a decade of falsifying statistics.

In Iceland there were also voices blaming its collapse on foreigners but the report of the Special Investigation Committee silenced these voices. – As long as powerful parts of the Greek political class are unwilling to admit to past failures it might prove difficult to solve its results: the excessive debt and deficit.

“This is all the fault of foreigners!” In Iceland, this was a common first reaction among some politicians and political forces following the collapse of the three largest Icelandic banks in October 2008. Allegedly, foreign powers were jealous or even scared of the success of the Icelandic banks abroad or aimed at taking over Icelandic energy sources. In April 2010 the publication of a report by the Special Investigation Committee, SIC, effectively silenced these voices. It documented that the causes were domestic: failed policies, lax financial supervision, fawning faith in the fast-growing banking system and thoroughly reckless, and at times criminal, banking.

As the crisis struck, Iceland’s public debt was about 30% of GDP and budget surplus. Though reluctant to seek assistance from the International Monetary Fund, IMF, the Icelandic government did so in the weeks following the collapse. An IMF crisis loan of $2.1bn eased the adjustment from boom to bust. Already by the summer of 2011 Iceland was back to growth and by August 2011 it completed the IMF programme, executed by a left government in power from early 2009 until spring 2013. Good implementation and Iceland’s ownership of the programme explains the success. For Ireland it was the same: it entered the crisis with strong public finances and ended a harsh Troika programme late 2013; its growth in 2014 was 4.8%.

For Greece it was a different story: high budget deficit and high public debt were chronic. From 1995 to 2014 it had an average budget deficit of -7%. Already in 1996, government debt was above 100% of GDP, hovering there until the debt started climbing worryingly in the period 2008 to 2009 – far from the prescribed Maastricht euro criteria of budget deficit not exceeding 3% and public debt no higher than 60% of GDP. Both Greek figures had however one striking exception: they dived miraculously low, below their less glorious averages in time for joining the euro. Yet, only the deficit number ever went below the required Maastricht criteria, which enabled Greece to join the euro in 2001.

Greece had an extra problem not found in Iceland, Ireland or any other crisis-hit EEA countries: in addition to dismal public finances for decades there is the even more horrifying saga of deliberate hiding and falsifying economic realities by misreporting Excessive Deficit Procedure, EDP and hide debt and deficit with off market swaps.*

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Ireland and Greece, again

Hans-Werner Sinn has an op-ed in Saturday’s New York Times calling (again) for a Greek exit from the Euro, a recommendation on which he agrees, as he notes, with Paul Krugman and Joseph Stiglitz. Part of his argument is that is that an official lending “bailout” program within the Euro won’t work because it will impede the necessary decline in local prices to make Greece competitive again within the single currency. His evidence that not getting a bailout improves competitiveness is … Ireland:

Take the case of Ireland. Like Greece, Ireland became too expensive, as interest rates fell sharply during the introduction of the euro. When the bubble burst, in late 2006, no fiscal rescue was available. The Irish tightened their belts and underwent a drastic internal devaluation by cutting wages, which in turn led to lower prices for Irish goods both in absolute and relative terms. This made the Irish economy competitive again.

But, you might object, I have a clear memory of Ireland getting a Troika bailout? Indeed –

Granted, Ireland also received fiscal aid. But that came much later, toward the end of 2010, and when it came, the internal devaluation stopped almost immediately. Twelve of the 13 percentage points of the Irish decline in relative product prices came before that date.

This interpretation of Ireland plays an important role in Sinn’s recommendation for Greece: it showed that it’s possible to manage a real devaluation without a bailout, but Greece began too late and had too far to go for this route to be feasible, hence it should leave the Euro.

But is this valid?

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IMF: Eastern Mediterranean country with unfair debt service requirement

From new IMF report on a certain country –

The case for fiscal adjustment is also grounded in fairness. Without it and with ever more debt, interest payments will soar to some 12 percent of GDP, or about 40 percent of total spending, crowding out essential social programs and infrastructure projects and largely benefitting public debt holders at the expense of the less-privileged. Thus lack of fiscal adjustment is also costly and inequitable.

That country where debt service will ever more crowd out social spending and be increasingly unfair: Lebanon.


Remember Roland Pofalla? Sure ya do. The minister in charge of Angela Merkel’s private office, and therefore Germany’s intelligence services, who vehemently denied anyone had been spied upon when the Snowden leaks hit. Pofalla denied everything, on the basis that the Americans had told him so. When it became clear from the documents that huge amounts of mobile network data were available in XKEYSCORE from a German source, he said it came from the German army’s field ELINT team in Afghanistan.

At every turn he denied everything, and it may have been him who invented the talking point that European intelligence services picked things out like a harpoon, rather than scooping everything up like a trawler, like the horrible Americans. This would later be used repeatedly to justify French surveillance legislation and was presumably coordinated with them. Of course, you can’t “pick out” items of signals intelligence without first scooping them up and examining them to see if they’re the ones you want to “pick out”.

Now it turns out they were listening to Pofalla’s mobile phone, on the number he still uses today.

Water under the bridge

From that Eurogroup Greece prior actions draft still under discussion in the middle of the night in Brussels –

There are serious concerns regarding the sustainability of Greek debt. This is due to the easing of policies during the last twelve months, which resulted in the recent deterioration in the domestic macroeconomic and financial environment.

It’s a truly remarkable statement that concerns about the sustainability of Greek debt only arose in the last year, since the 2010 IMF bailout — an event that everyone, including the IMF, seems to have forgotten — was only rammed through by ignoring the normal IMF debt sustainability criterion.

UPDATE: The identical statement is in the final draft.