Rudd steps into the maelstrom

Monday, 13 October 2008 

It is possible to detect a creeping admiration from even some unlikely quarters in the media for the way Rudd is handling the financial crisis.

Comparisons have been made to Howard’s tightening of gun laws after the Port Arthur massacre. However, Annabel Crabb was much closer to the scale of the crisis by comparing it to Howard’s war-time pose during the War on Terror. Yet this is still missing that this is not just a financial crisis, but a political one too and getting involved in it opens many more political dangers for Rudd.

In the US the crash has not just exposed the inability of the President to influence Congress but the alternatives lacking from either of the candidates who will be replacing him. Obama is a passive recipient of the shift in the campaign towards the economy but it not because he has grabbed control of the agenda with a plan to deal with the crisis. (You would think if he had one, now would be the time to push it and consolidate his hold on the White House. It does not bode well for what he will do if he gets there). In Europe, as well, the unity they keep talking about has fallen apart just when they need it. The political classes on both sides of the Atlantic have tried to recover their poise and show some coherence to sceptical financial markets. But all global coordination has amounted to is a meaningless half point cut and the high-powered photo calls we saw in Washington on the weekend.

It may be true that some in Labor and the media are seeing this as a chance for Rudd to gain authority. Yet there are several contradictions in what he is doing. First, while on the one hand Rudd is reassuring everyone that Australia’s financial system is one of the strongest in the world, he is then acting as though it is one of the weakest. The support Rudd has just announced for Australian banks goes beyond anything announced by most other countries, arguably even those two financial basket cases, Ireland and Iceland.

Rudd is facing the same problem other governments are facing. In looking to be decisive, he is forced to act and talk in a way that undermines confidence further. Just as Bush spooked the markets by talked of financial Armageddon if his bail-out plan was not passed, Rudd’s actions have now made a run and collapse of Australia’s banks a possibility that needs to be dealt with.

If Australia’s banks are so strong, why the need for this exceptional assistance? The media parrots the answer given to them by the government that this drastic action is needed to prevent savings going to other countries that have offered some guarantees. But by leap-frogging the assistance given by other countries, Rudd has raised the bar even further still. It was this sort of beggar-thy-neighbour move by Ireland that started the slanging match in the EU two weeks ago. While Rudd and Swan talk of the importance of international cooperation, the government’s move has just made it harder. It shows just how difficult it will be to get any meaningful international framework established when the global move of capital accentuates the differing interests of the national governments.

A breakdown of the international political agenda is not good news for a government reliant on it. Whereas Howard saw one forged when he was in New York on 9/11, Rudd saw another blown away in New York at the beginning of this month as the climate change agenda was sidelined by the financial turmoil. Rudd now appears to be undermining it at home as well.

One of the main arguments of the government so far was that its reforms had an economic rationale. This is the argument that it especially applied to its climate change program. Rudd and Swan called it the ‘greatest economic issue of our time’ and maintained that the economic cost of not taking action was worse than doing so. Now Swan’s unwillingness to speculate whether the emission-trading deadline is still on track has undermined that message. Even if the government presses ahead, it has implicitly given into the right’s argument that this may be an environmental benefit, but with an economic cost.

Rudd has had several advantages so far in dealing with the crisis. Obviously it has helped that the banks have held up better than elsewhere (although the endorsement Rudd was brandishing from the WEF is probably not much more meaningful as the top-fifth ranking it gave to the now non-existent Icelandic banking system. Australia’s banks are vulnerable for precisely the reason the government gave for its move yesterday.) It also helps that Australia does not have the sort of close economic ties that made Ireland’s EU partners bad-mouth its government when it took such unilateral action.

Rudd also benefits from a weak opposition. Bolt was right on Insiders that no-one will care that Turnbull pre-empted some of the government’s initiatives. Turnbull probably did more damage by the way he took credit for them and his continuation of Nelson’s populism is losing what friends he had in the press and the party. But those who are drawing political conclusions from what is happening to world leaders at this stage of the crisis are missing the plot. Outside some US Republicans, bailing out banks and pumping liquidity into the economy is hardly going to be unpopular. Paying for it might be though. It is difficult to see where the political leaders are that have the authority to apply the tough measures it would need. Here though Rudd may not be too badly off. After all, one important plank of his agenda, climate change, may be eroded but the new one may pretty well have the same message, which he could be quite good at selling. Austerity.

Posted by The Piping Shrike on Monday, 13 October 2008.

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