Tag Archives: Financial Crisis

Germany: The Illusionary Giant

It is a mistake to depict Germany as a hegemonic power; in fact, Germany is a illusionary giant.  It yields much less power within the EU than many believe and its influence is actually decreasing.

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[dropcap]“M[/dropcap]r. Tur Tur, the illusionary giant, is a gentle and modest person, and tragically alone because everybody is afraid of him when he seems to be a giant from the distance.” Increasingly, Germany’s stance in Europe looks like Mr. Tur Tur from Michael Ende’s fairy tale: Jim Button and Luke the Engine Driver. While I write these words, protesters are crowding the streets of Athens to protest the austerity measures that Greece has been subjected to. They blame the European giant: Germany. Clearly, when people make a national past-time out of burning your flag you have reached a special status as a country. This privilege is reserved for powerful and despised states (such as the US or Israel). For Germans this sight is new and understandably uncomfortable. They ask what they have done to deserve such treatment. The complexities of the financial entanglement escape the normal citizen and they perceive the behavior of Greek protesters as ungrateful at best; after all Germany has bailed out Greece with their tax money. The current German government has avoided explaining the benefits of the Euro and a stable Greece to its population leaving a lot of frustration on both sides; Greeks affected by the austerity measures and Germans mistreated for their charitableness. Germans have forgotten what happened when the former social democratic and green government reformed the social and unemployment system (in Germany the reforms are known as Hartz IV and Agenda 2010). The reforms brought down the government. And while it is those reforms that many today say are responsible for German stability and good performance, it is nothing compared to the revolution in Greek society that has been taken place over the past months.

This mismatch between public perception and reality extends further. Germany is really not the giant that many believe it to be. In addition to a lack of strategic visionGermany is losing political clout in Europe; it has lost key European allies and its ability to dominate the direction of anti-crisis policies in Europe. The Paris-Berlin axis was destroyed by the election of Francois Hollande, and other traditional allies have either withdrawn from rescue mechanisms or have increased the demand for regulation of recipient countries. In contrast to smaller countries, Germany cannot veto policies when such a veto might cause chaos on the financial markets. A German exit from the Euro is not a credible threat: it has long been noted that such a maneuver would lead to a rise of the new currency’s value and a disaster for the export-dependent German economy.

Domestically, Germany might be less stable than the mainstream perception currently suggests. Instability related to currency has high impacts on the German economy and a renewed crisis in the US economy would have a severe impact on German exports. For the past years Chancellor Merkel has dragged her feet on several important issues. The demographic development in Germany is dramatic, and dwindling immigration will soon have an impact on the country’s economy. When it comes to education Germany ranks far bellow the level that would be necessary for a major industrial nation today. Merkel’s government has taken any steps to address those issues and in general has proven to be rather inefficient when it comes to policy-making.

I have said before that it is a mistake to depict Germany as a hegemonic power; in fact Germany is a illusionary giant, it yields much less power within the EU than many believe and its influence is actually decreasing. With necessary reform left unattended, the economic success the perception is based on might also be a straw fire.

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Photo Credit: Pennello

Putin: From Hero To Zero?

As opposition grows in the former Soviet state, is Vladimir Putin’s credibility diminishing in the eyes of the Russian people despite his recent re-election?

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Putin

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[dropcap]A[/dropcap]s Putin took the oath to become President, an office he first occupied 12 years ago, he said that serving Russia “was the meaning of my whole life”. If that is the case then he certainly has done a good job so far. During the Putin era, Russia has changed considerably. The country has doubled its GDP, paid off its foreign loans, reasserted its regional influence and tricked the Russian citizens into thinking that Russia is an authentic democracy.

Yet not all is well in the quest for Putin to serve Russia without any hindrance. The protests seem to be only growing in strength and their cry for political representation and respect is growing louder. Putin could have left politics 12 years ago as a hero and as one of the best leaders of Russia. Yet he decided to come back for more and test the crowd’s patience. To understand why Putin decided to do that is not easy as not much is known about the man behind the steal exterior.

By observing how he ruled the state of Russia during his first term as President, it is possible to argue that Putin is certainly power hungry and has an uncontrollable need to regulate power using the institutions he built up himself. As his time as President wore on around the year 2004, Putin succumbed to the urges to consolidate control and purge potential rivals. The money which flooded in through oil and gas sales certainly helped Putin to stamp his authority and more importantly keep the Russian citizens happy by increasing their wages and pensions. The price that the people had to pay was authoritarian control under Putin and a lack of decent opposition, be it political opposition or a truly free press.

In exchange for loyalty (often in the form of votes), officials further down the bureaucratic chain, from regional governors to local police chiefs, can oversee their fiefdoms however they like, collecting millions or allowing abuse to flourish. On a more international level, the current Chechnya President Ramzan Kadyrov also sits in the pocket of Putin as he said in the Russian newspaper in 2009: “I am wholly Putin’s man. I shall never betray him; I shall never let him down. I would rather die 20 times.” Ultimately Putin has built a peculiar set of relationships. His game plan is: support me and I might support you back. Disobey me and you will regret it. Mikhail Khodorkovsky, the former multi billionaire Russian tycoon who was put in prison certainly learned the hard way not to disobey Putin.

Nevertheless, how will Putin be able to deal with the masses of protestors who disobey him? Russia’s profound economic and social transformation during Putin’s tenure has created for the first time a true middle class, largely comprised of educated urban professionals living in Moscow. As this section of Russian society has become more secure financially, they are beginning to worry about having a political voice. The recent upsurge in technological advances and internet access in Russia, with greater access to the Western media, has also helped to ensure that the middle class ask for more.

It is ironic how the same people who want Putin out are the ones who have to thank him for ensuring their economic and social stability. Some may call them ungrateful, yet in every normal democracy, it is the citizen’s right to ask for fair elections and last December’s parliamentary elections which were marked by widespread evidence of falsification certainly didn’t not meet the standard required by the people of Russia. The problem does not merely lie within the confines of urban cities; rising standards of living in small villages are leading to higher expectations and local grievances, whether about poor infrastructure or particularly corrupt officials with discontent directed back at Russia.

The way Putin has dealt with the above problems is simple: he has provided the citizens with choices and freedoms everywhere except politics. The Russians can now afford to open their own business, travel abroad on holiday and become part of the consumers as witnessed in the West. As long as the citizens are given the freedom to make something decent out of their lives, not many of them will bother protesting in the freezing Russian streets. Having said that, if Russia continues to feel the effects of the global economic crisis and financial stability continues to falter, the citizens may turn on Putin at the flick of a finger.

We are still yet to see where Putin takes Russia during his new Presidential term in office. If he plays his cards right, he may still keep his status as one of the best politicians in the country. However, if his bluff fails, he may end up going from hero to zero and he would have nobody to blame but himself.

The Sustained Role Of The US In European Security

Does the United States still have an important role to play in the security of Europe or has the rationale of the transatlantic relationship changed in recent years?
{Department of War Studies, King’s College London}

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Security guard

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[dropcap]P[/dropcap]rior to the fall of the Soviet Union in 1989, the relationship that Europe held with the United States was an essential component in the security of Europe. Yet, in the aftermath of the Warsaw Pact’s disintegration, some analysts had already written the obituary of the Atlantic alliance, prescribing a growing divergence in transatlantic relations and casting doubt upon the role of the United States in Europe’s security.[1] The neo-realist view is that the security collaboration across the Atlantic should have concluded with the end of the Cold War.[2]This argument has been made consistently throughout the years succeeding the fall of the Soviet bloc but the transatlantic relationship has maintained its position as the most important relationship in the world. However, the rationale of the relationship has changed in two fundamental ways: first, the removal of the Soviet threat altered NATO’s agenda and second, the United States’ challenge for its European allies to take more responsibility for their own defence has caused the latter to re-evaluate the balance of the alliance.

Despite the modified rationale of the relationship, this article will argue that the underlying principles of the partnership, the common threats that confront it and a conscious European effort to close the capability gap all indicate that the United States will continue to play a substantial role in the security of Europe for the foreseeable future. The first section will analyse how the shared values and economic interdependence of the transatlantic partnership remain central reasons that the United States will still contribute to the security of Europe. The second section will examine the changing focus of NATO and the common threats that the transatlantic partners face and will continue to counter. The third section will argue that the European members of NATO must increase their commitment to the partnership if America is to remain influential in European security.[3] The final section will summarise and conclude the key points that have been argued in this article.

Underlying Principles and the Transatlantic Economy

The association between the United States of America and Europe runs much deeper than a mere relationship of utility and convenience. Common values of freedom, justice and liberty have laid the foundations of the transatlantic partnership for over sixty years and institutions such as NATO form the glue that binds the Atlantic partnership together. An American dominated NATO remains the vehicle for transatlantic security and defence co-operation and a commitment to protect the values of the alliance was re-iterated in NATO’s most recent Strategic Concept document.[4] The rationale of the transatlantic relationship did indeed alter with the dissolution of the Soviet Union but the fundamental principles which formed the bedrock of the transatlantic link remain intact. Presently, Europe represents a zone of peace and democracy and, despite the lack of a common external enemy in the modern security environment, the same remains true today: the United States still has a substantial role to play in European security affairs since the values which underpin the relationship remain as established today as they ever have been. Hillary Clinton added strength to this claim in her recent speech in Paris, outlining that the United States will continue to ensure that peace and security is maintained in Europe for the foreseeable future as the transatlantic bond is an illustration of their shared values.[5]

Nevertheless, it has not been a smooth ride for the relationship since the fall of the Berlin Wall; the advent of the Iraq War in 2003 particularly raised divided opinion on both sides of the Atlantic. Commentators proclaimed that the division over the Iraq War was the biggest crisis in the relationship’s history [6] whilst George W. Bush’s public approval ratings in Europe plummeted to levels never seen before.[7] However, the crisis has been successfully surmounted and today, the transatlantic link remains unbroken, which begs the question: how has the relationship survived despite the worst crisis in its history? It is hard to disregard the fact that a change of leadership aided an improvement in relations after Bush’s tenure; the arrival of Barack Obama at the Oval Office evidently rejuvenated public opinion towards the United States on the European side of the Atlantic whilst Nicolas Sarkozy’s rise to office brought France back into NATO’s integrated military command in 2009.[8] Although did the relationship ever really look in danger of coming to an end? Stanley Sloan has deliberated with the notion that NATO and the transatlantic partnership may be a ‘permanent alliance’ based upon its shared values, history and respect for sovereignty and, even if the partnership may not be everlasting, it is hard to see it coming to an end anytime soon.[9] The alliance has weathered many storms such as the Suez crisis in 1956, Bosnia in the 1990s and the more recent war on terror and the fact that it has remained intact throughout is a testament to its resiliency. Therefore, it is logical to deduce that the United States will continue to hold an important role in the defence of Europe in the near future because of the bond that is shared across the Atlantic.

Additionally, the transatlantic economy is vastly interdependent as the financial crisis of 2008 evidently demonstrated. Through the deep economic integration between both sides of the Atlantic, it is estimated that approximately fifteen million jobs are created and five trillion dollars in commercial sales is generated annually[10]; the economic importance of the transatlantic relationship is obvious as it still accounts for over half of global GDP despite the global recession.[11] As the largest and most significant economic partnership in the world it would surely be too great a risk for the United States to not play a considerable role in European security; the transatlantic economy is so intertwined that it is not purely European interests that are at stake in the security of Europe but also American interests. In this light, the neo-liberalist viewpoint that the transatlantic nations will continue to co-operate on security issues as a result of parallel security aims, common economic interests and comparable ideals and political identities becomes a reasonable assumption.[12] This section has demonstrated how shared economic interests and the underlying principles of the transatlantic relationship will keep the United States significantly involved in European security, the next section will argue that common security interests will maintain America’s role in the security arena of Europe.

Common Security Interests

In modern times, European integration and the enlargement of NATO and the European Union has assembled a Europe that is as stable as it has ever been in its history; the notion of a war on the continent now borders on the absurd. With the dissolution of the Soviet Union, the main threat to Europe’s security since the signature of the North Atlantic Treaty in 1949, NATO’s raison d’être had vanished and the alliance had to establish a new justification for its existence. So, after the Balkan wars of the 1990s, the attacks of 9/11 and with a seemingly secure Europe, a NATO dominated by the United States consequently undertook a new global agenda to combat modern security threats that may endanger its member states.[13] This transformation process has been a success and a recent survey confirmed that a majority of respondents from the US (77%) and Europe (62%) agree that NATO must be equipped to operate in the global arena to facilitate the protection of its members.[14]

Yet, several analysts have questioned the commitment of the US to the security of Europe for the reason that they are currently focusing their attention upon defence issues that lay outside of European territory.[15] It is true that NATO is presently concentrating its efforts upon global issues such as Iran, terrorism, Afghanistan and anti-piracy efforts in the Horn of Africa and there are certainly differing threat perceptions within NATO over where the alliance’s focus should be. For example, the Baltic States are more concerned with the threat of an aggressive Russia on their doorstep rather than global security issues. However, the view that these global issues are not of significant importance to the security of Europe is myopic as these issues unquestionably threaten the security of Europe, if albeit, indirectly. The fact that, internally, Europe is as safe as it has ever been means that the foremost threats to its security are now emanating from outside of its borders; this does not suggest that the United States will have an insignificant involvement in its defence.

Common threats that populate the modern security environment are diverse in the challenges that they present to the alliance and consist of concerns such as economic security (as mentioned above), the Middle East peace process, energy security, cyber warfare, violent extremism, rogue states and nuclear proliferation.[16] Moreover, in spite of Obama’s recent ‘reset’ policy, Russia’s attack on Georgia in 2008 provided a stark reminder of the potential threat that the former Soviet Union poses to European security and that it cannot be taken for granted. Together with a volatile and nuclear armed North Korea now under the control of the youthful Kim Jong-un, an Iran intent on the development of nuclear arms and fertile terrorist hotbeds such as Somalia, Pakistan and Afghanistan still prevalent, it is clear that the world is not a safe place. For that reason, George Robertson, the former NATO-Secretary General, is realistic when adopting the view that the West ‘still has business in confronting the dark side of globalisation’.[17]

In light of these security threats, the US cannot afford to significantly reduce their involvement in the security of Europe and, regardless of the various criticisms thrown at them, the missions in Libya and Afghanistan illustrate what the alliance can achieve when the US and its European allies co-operate on security matters; this is precisely why NATO remains the most relevant and necessary military alliance today.[18] A strong and stable Europe is in America’s economic and security interests and the common threats that America and Europe both face reasonably suggest that, through NATO, the United States will indeed remain an important player in European security for a considerable time to come.  The next section will analyse how the European members of NATO rely on an alliance dominated by the US and how they must increase their contribution to the alliance if they wish to maintain American interest in the security of Europe.

Rebalancing The Alliance

The United States is the most powerful nation in the world and it is logical for European nations to have aligned themselves with such a force to ensure their security in a hostile and ever-changing security environment. Yet, European reliance upon US resources has become excessive; in 2010 the United States contributed an enormous 72.4% of the total NATO budget compared to 50% ten years prior.[19] The transatlantic alliance is undoubtedly top-heavy with Britain, France and Germany combined only contributing 14.52% of the total NATO budget in the same year whilst the other twenty three NATO members supplied a mere 13% of the budget.[20] Distinguished figures on both sides of the Atlantic have been critical of Europe’s dependence upon the United States’ resources and have warned of the possibility that the United States may reconsider its role in European security unless the European allies endeavour to visibly close this apparent capability and commitment gap.[21]

Jaap de Hoop Scheffer has referred to NATO as a ‘timeless alliance’ yet if the European members of NATO are not assertive, American support in the security affairs of Europe may dwindle.[22] To lose the vital support of the most valuable member of the alliance would only be to the detriment of European security and for this reason, the majority of the European members of NATO desire to maintain America’s considerable involvement in their security affairs and view the alliance as a way of sustaining US focus upon their defence.[23] Subsequently, as a result of the United States’ intense participation in European security to date, there appears to be an embedded European complacency that their American partner will constantly support Europe in its security affairs. Thus, the burden-sharing debate, which has been prevalent throughout the alliance’s history, has been growing louder by the year.

In an age of austerity, where the impact of the global economic crisis is being felt around the world and the United States is winding down two expensive wars in Iraq and Afghanistan, American support is not guaranteed.[24] The United States cannot achieve its foreign policy goals unaided anymore and, with the rise of China in mind, Barack Obama has been increasingly multilateral in his search for partnerships in the world.[25] Nonetheless, American politicians have been quick to quell fears that the United States has become less committed to Europe and have provided assurances that Europe and its security does indeed remain a priority despite defence cuts.[26] Still, American policy towards Europe has certainly changed. On his first trip to Europe, President Obama asserted that the United States were no longer ‘looking to be patrons of Europe’, but to be ‘partners of Europe.’[27] Washington wishes that its European allies began to pull their weight in the relationship and shoulder their fair share of the burden if they are to keep playing such a pivotal role in Europe’s defence.

It is necessary that Europe becomes more self-sufficient if they are to deal with their own security problems. The recent Libya campaign, for example, confirmed the wide capability gap between the United States and the European participants.[28] Yet, the fact that America pulled back and left Britain and France to take the lead role in this successful mission marked the instigation of the change that Washington wishes to see in the relationship. As Lord Robertson affirmed, Obama has ‘forced the European nations to confront their own destiny’[29] and it is how the Europeans continue to react to this challenge that will somewhat determine how important a role the United States’ will play in its security. If the European allies make a conscious effort to rebalance the alliance and the Americans begin to see a return for their input then any possible friction within the alliance over the burden-sharing debate will surely evaporate and the United States will continue to contribute significantly to the security of Europe.

Conclusion

It is realistic to conclude that the United States does still have an important role to play in the security of Europe in spite of changes to the rationale of the relationship. The arguments put across in this article to support this claim are numerous. The underlying principles and history that have shaped the partnership represent a relationship not of mere pragmatism but of a much deeper value that will ensure the two sides of the Atlantic are forever associated. In addition, the transatlantic link is institutionally and economically entrenched meaning that it would be damaging to the American economy to diminish their part in the protection of Europe. The alliance has proven its resiliency and withstood numerous crises including its most notable crisis over the Iraq War and it will surely continue to survive these predicaments in the near future. Despite the defeat of the Soviet threat it was founded to offset, NATO has managed to successfully transform its agenda and adapt to the modern security environment and the second section demonstrated that there are a plethora of common security threats that the transatlantic partners will persistently counter together despite the diverse threat perceptions and strategic cultures within Europe. The fact that NATO provides America legality for its actions abroad, combined with these common security threats, point towards the United States remaining the key player within NATO and therefore maintaining an important role in European security.

The danger is that American support in European security affairs will decline if the European allies do not react to the burden-sharing dilemma assertively and with haste because the transatlantic alliance is undoubtedly top-heavy. If the European allies want to eradicate this friction within the relationship and preserve American influence in European security affairs then they have to address the current imbalance within the alliance; Libya was a positive start and if they continue in the same vein then the United States will undoubtedly continue to play a substantial role in European security. To summarise, the rationale of the relationship may have changed but the values and interdependent economies of the partnership, the institutional links, common security threats and NATO’s new global agenda all indicate that the United States is likely to retain an important role in the security of Europe.

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[1] Robert Kagan famously asserted that ‘Americans are from Mars and Europeans are from Venus’. Kagan (2004), p.3; Kissinger, ‘The End of NATO’, The Washington Post, (1990), p. 23; Krauthammer (2002), ‘Re-Imagining NATO’, Washington Post, p. A35.

[2] Simoni (2011), p. 27; Mearsheimer (1990).

[3] The case for greater US-EU cooperation will not be developed here.

[4] NATO Strategic Concept 2010.

[5] Clinton Speech, Paris, (2010).

[6] Allin (2004), p. 663; Sloan (2010), p. 253.

[7] ‘Global Public Opinion in the Bush Years (2001-2008)’, Pew Research Centre (2008).

[8] ‘Obama More Popular Abroad’, Pew Research Center (2010); Kaufman (2011), p. 77; Transatlantic Trends (2010), p.5.

[9] Sloan (2010), p. 281.

[10] Hamilton & Quinlan (2011), p. 13; Shapiro and Witney (2009), p. 24.

[11] Hamilton & Quinlan (2011), p. 20.

[12] Mix (2011), p.6; Simoni (2011), pp. 24-7.

[13] See Aybet and Moore (2010).

[14] Transatlantic Trends 2010, p. 6.

[15] Guérot (2011), pp. 55-6; Kuykendall (2010), p.111.

[16] NATO Strategic Concept 2010.

[17] Robertson speech, Chatham House (2011).

[18] Transatlantic Trends 2011 survey showed that NATO is still seen as essential by 62% of both EU and U.S. respondents.

[19] NATO Defence Expenditures (1990-2010).

[20] Ibid.

[21] Gates speech, London (2011); Major speech, Chatham House (2011); Rasmussen speech, Warsaw (2011).

[22] Scheffer speech, Chatham House (2009).

[23] Alcaro (2011), p. 20.

[24] Jones (2011), p. 152.

[25] Kuykendall (2009), p. 110.

[26] Clinton, Foreign Policy (2011); ‘Obama to recall US troops from Europe’, Financial Times, 9 April 2011; Panetta speech, Carnegie Europe (2011); Lindley-French (2010), p. 50.

[27] Obama speech, Strasbourg (2009).

[28] Panetta speech, Warsaw (2011).

[29] Robertson speech, Chatham House (2011).

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Bankers’ Bonuses From A Military Viewpoint

Why are bankers seemingly immune from selfless determination?

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I hope this doesn’t seem like a rant against Bankers. It isn’t, but it does ask some questions in my naivety regarding the financial sector. Talented people justifiably attract appropriate salaries, but what about bonuses when they become so large to be considered excessive and incompatible with performance? Over a military career lasting 25 years I don’t remember meeting anyone who was blatantly ‘in it’ for the money. Yes, the money (post-Thatcher) in Britain’s Armed Forces was good and financial bonuses were occasionally offered as retention incentives, but it wasn’t money that motivated people to go to work, and it certainly wasn’t pay that made them endure the irritations of Service life, it’s hardships, or dangers. Instead, many people were motivated by factors such as patriotism, professionalism, and a sense of duty. Cynics might add that being unable to find a job outside the institutional bubble of military life might have kept people in, but it cannot be denied that large numbers of very talented and committed people worked very hard without excessive financial reward.

The same can be said of other professions too. Plenty of people become doctors, teachers, police officers, fire-fighters, nurses, charity workers and so on because they are motivated by more than a desire to get fabulously rich. So conceptually, why are bankers seemingly immune from such selfless determination? In a case like RBS where UK tax payers are so closely linked to the bank’s success, why is it inconceivable that someone would want to captain the bank’s return to profit because they want to do ‘their bit’ for society and the common good? Surely, RBS provides a golden opportunity for people with talent to bolster their long-term credentials, even if in the short-term it brings little reward (an awkward conversation to have with a spouse if you are both used to a level of benefit or income). This isn’t to insist that bankers must be altruistic and self-sacrificing, or to eschew an ethic that allows people to earn a big wage but, if true, the apparent insistence that good bankers can only be found and retained because they are given vast bonuses on top of their salary is an indictment of the values that shape the profession.

One might have hoped that turning round RBS or other banks in difficulty would be a challenge that attracts people who want to establish their reputation for excellence, make a positive difference, boost their professional CV or improve their chances of receiving a knighthood or other honour, but no, it seems a better draw and influence is having a contract that includes very large bonuses. Curbing what much of society sees as excessive rewards sets two alarms ringing in the City: not being able to attract the best talent in a competitive market, and sparking an exodus of staff to overseas banks. Well, in such austere circumstances is it time to see if these concerns are real or imagined? If the top tier of bankers wouldn’t seek jobs that didn’t include vast bonuses, what about those who are just behind them in the queue? Are there not people with talent who are ready for accelerated promotion who would willingly take the short-term ‘pain’ in the present climate for much longer-term gain? And how many people would actually leave the UK for foreign shores because their appetite for wealth might not be sated? 100? 10,000? And if they left, would that be a bad thing for society?

Of course there are ‘good’ bankers in the UK, and perhaps many bemoan the excesses they see in their own profession. It annoys them to be tarred with the same brush and they might relish the chance to make a positive contribution to the greater good or make sugnificant changes ‘at the top’, but are denied the opportunity to do so. They may feel aggrieved by sweeping statements that criticise all bankers because of the actions of a select few whom the media has fixated on. Yet if the financial sector is populated by a number of people who don’t need the expectation of a whacking bonus to go to work in the morning, will they be able to dominate how the sector behaves? To function properly society needs bankers and great talent or hard work should receive an appropriate wage, but that is not what the British public is unhappy about. Like the military, perhaps bankers live in their own little bubble, only now widespread austerity has burst it. This reflection is an ill-informed theoretical view perhaps from someone outside the financial sector, but it may resonate with many people and still contain valid questions that deserve an airing.

Goodwin & Bankers’ Bonuses: A Convenient Distraction

Fred Goodwin: a ‘lightning rod for public anger over bank excess’.

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[dropcap]S[/dropcap]o Fred Goodwin – the banker who gained notoriety for his role in the near collapse of the Royal Bank of Scotland that contributed to the banking crisis in the UK – has lost his knighthood. Bankers’ rewards, from knighthoods, to pensions, to bonuses, have consistently hit the headlines since the global financial crisis triggered the UK economy onto an austerity path.

But the row over whether bankers’ individual remunerations are deserved, which Goodwin has come to personify, serves as a convenient distraction from the abject failure of political leaders to deal with the challenges of governing the global financial system, and the risky financial services sector in particular.

The public debate about the financial crisis, in the UK at least, has been allowed to be almost entirely framed around the public deficit and on bankers’ rewards at a time of austerity and public subsidy.

Of course it is obscene that individuals, particularly those whose personal failure has contributed to the misery inflicted on thousands who have lost their jobs and homes, should receive more in one bonus than the average family receives in a lifetime. But fury about bankers’ bonuses is just a smokescreen clouding the thornier issue of how regulatory shortcomings, arising from neo-liberal dogma that the free market rules, have created a dangerous and unstable global financial system.

It should come as no great surprise to advocates of the self-interest driven model of the contemporary capitalist economy that bankers, amongst others, attempted to maximise profits and their personal gain. Chucking virtual rotten eggs at them for greed and irresponsibility might deflect attention from politicians and regulators, but it does not come close to recognising the scale of the task of economic governance in a precarious and interdependent world.

What is surprising, or at least disappointing, is the failure of political leaders to grasp the paucity of the current global governance arrangements underpinned by an ideological rigidity that exposes the world’s citizens to another economic meltdown.

Attacking former Labour Prime Minister and Chancellor of the Exchequer Gordon Brown for overspending on public services is comfortable territory for Conservative Chancellor George Osborne because it fits into his ideological core beliefs. Apportioning due blame for under-regulation during the boom years would reveal the collective failure of previous parliaments to even have a serious debate about how to govern complex, interdependent, global markets so that they serve, not rule, the world’s citizens.

As politicians try to win the rhetorical war of words on bankers’ pay at the despatch box, it will be interesting to witness how they might explain any future financial crises which may occur, given their reluctance to face up to the need for radical reform to mitigate against the worst excesses of free market capitalism.

The media has described Fred Goodwin as a “lightning rod for public anger over bank excess.” Whilst voters are understandably angry about the size of bankers’ rewards, it does not necessarily follow that they equate political action on top pay with tackling the causes of the financial crisis. If politicians are not careful they will find themselves behind the public mood. The “Occupy” protests have tapped into something – as Ipsos MORI reports that a majority of the public have some sympathy with the cause – it just is not clear what, as yet.

The majority of the world’s citizens did not cause the latest financial crisis, but are paying the price. Political leaders got the bankers they deserve, but we deserve political leaders who are worth putting our and our families’ needs above the greed of a few.

Capitalism is a construct as much as any other, and therefore human beings have the potential to shape as well as respond to it. We need a new deal to govern the global economy that puts people in the driving seat of progress, not markets. Whether we have the political leaders to meet the challenge remains to be seen.