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Reality intrudes

Reality intrudes

Winston Churchill once remarked that "democracy was the worst form of government, apart from all the others that have been tried." Given that over the past quarter-century, democracy has taken the place of communism in Europe, apartheid in South Africa, one-party rule in Taiwan and many parts of Africa, and will hopefully go on replace tyrannical kleptocracy across the Middle East and Burma, it would be churlish to regard it as anything other than a Good Thing.

Yet there are times when, indisputably, the need for politicians to court each other and public opinion gets in the way of things that need to be done, or causes them to abandon an unpalatable task before it is complete.

There's a danger of this happening right now. Thanks to the multi-billion euro pawn-shop operation run by the European Central Bank, Europe's financial system is looking in better shape. True, Greece has technically defaulted and may yet leave the euro. But the chances of that bringing down the whole edifice are smaller - and politicians across the continent are taking their foot off the pedal.

In Spain, prime minister Mariano Rajoy has brazenly played to the gallery by telling the eurocrats to go stuff their deficit targets. In France, president Nicolas Sarkozy is facing an uncomfortably tight re-election battle - so instead of getting France's fiscal house in order, he is busy bashing bankers and devising new ways to squeeze the rich. Dutch coalition parties are eyeing early elections. The most structural progress in Europe is being made by Italy, whose technocrat cabinet was parachuted in, and does not need to worry about facing the electorate (although ironically, Mario Monti's government is popular with both voters and creditors).

Over in the US, sensible debate about how to sort out the country's mountainous fiscal problems has been conspicuously absent from the Republican primaries, as it probably will be from the presidential election campaign later this year. That's because any durable solution to America's debt must include both tax rises (a no-go for Republicans) and cuts in entitlement spending (heresy for Democrats).

And here at home, the great debate about next week's Budget is not about how best to get the economy growing. It's about whether or not to do away with the 50p tax rate, and replace it with a 'tycoon tax' or a 'mansion tax', whether to fiddle with changes to child benefit so they alienate slightly fewer voters, or whether to change pension rules yet again.

Chris Dillow rightly points out that Budgets have negligible impact on the real economy. But as Moira O'Neill reminds us, the continuous tinkering with things like pensions can lead to investors - who are also voters - simply abandoning such products altogether.

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By Jonathan Eley,
15 March 2012

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Jonathan Eley

Jonathan joined Investors Chronicle in 2000 as a specialist in resources stocks. He launched our website in his previous role as Online Editor before becoming Editor between 2009-2012. Jonathan now edits FT Money.

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