When politicians discuss the financial markets they generally appear to be talking about a parallel world. Pro or anti-regulation? Pro or anti-screwdriver? What matters is what the tool is used to achieve. Pro or anti-speculation? Speculation, or trading, is what markets are for – it is trading that makes a market work. ‘Unfair’ salaries – what is meant by ‘unfair’? And so it goes on, with vituperative epithets apparently replacing thought.
This has led financial regulators and the regulated to conclude that politics
and politicians are wholly damaging to the regulatory process. The massive regulatory agenda of the EU Financial Services Action Plan has been implemented throughout Europe, and subsequently analysed and developed, without any significant political input.
On one level this illustrates Europe at its best – as a mechanism for isolating and implementing technocratic solutions to practical problems in a way that does not require emotional and misleading political debate. This has led some to suggest that financial regulatory policy might, like interest rate policy, be best removed from government altogether and placed within separate, expert bodies.
The events of recent weeks should, if nothing else, have given the lie to this line of reasoning. Currently the markets need politicians more than ever. This may seem a strange thing to say in the aftermath of the collapse and renegotiation of the Paulson recovery plan in the US Congress, where many would say that electoral politics triumphed over effective market policy. However, the function of a politician is to mediate between what needs to be done and what the electorate (or, to be inclusive, the powers that be) wish to be done.
Kings, potentates or electorates are not required to have detailed policies to implement, but they may and do hold strong views on a wide variety of subjects.
A governance process that disregards those views will rapidly find itself out of a job. What we saw in the UK, the US, and will see across Europe, is that the electorate does not wish to see the system greased, oiled and restored to working order. Rather, it wishes to see a certain amount of carnage and wreckage – partly on the basis that dramatic unity requires a spectacular denouement, and partly because it feels it will teach those arrogant so-and-sos a lesson they won’t forget in a hurry.
Between these two world views the chasm appears unbridgeable. Straddling
it, with one foot perilously wedged in the fissures of each opposing cliff face, is the politician. Decoding political utterances at times like this is one of the great challenges, as speaker after speaker, from any and every political orientation, endeavours to demonstrate that they are both on the side of the people and on the side of reason. The politician must demonstrate to each side that they are unquestionably on theirs, for only in this way can they garner the trust that will enable them to make proposals that will be supported.
The conclusion from all this is that, at the moment, the market’s greatest need is for politicians. It is therefore somewhat unfortunate that, at the time of greatest need, they will be in such short supply. The government of the US, and the administration of the European Community, are about to be temporarily closed for business by the iron law of government, which states that, in order for there to be government, it is first necessary to determine who will govern. José Manuel Barroso’s European Commission must be replaced, a new European parliament must be elected, and the leader of the free world must, once selected, appoint an entire administration. During this extended interregnum there will be no mediation between the markets and the people. This will not make the world a safer, a better or a richer place.