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Astronomy Cuts Rumour Mill

Posted in Finance, Politics, Science Politics with tags BIS, cuts, funding, RCUK, STFC on October 18, 2010 by telescoper

Following on from my recent post of the STFC budget, and the comments thereon, I thought it might be useful to make the discussion a bit more prominent as the scale of the cuts is revealed this week and people feel the consequent need to work off nervous energy.

To get things started I’ve taken the liberty of paraphrasing some of Paul Crowther‘s comments (in italics):

\begin{paraphrase}

More or less 20% of the total STFC budget shifts across to UKSA from April 2011. This means the STFC budget will reduce from around £570m to around £455m even if the settlement is flat-cash. Grants for space science exploitation remain the responsibility of STFC even after the transfer of the other space activity to UKSA.

George Osborne has announced that ‘infrastructure’ cash from LFCF (Capital Fund) will go towards an upgrade of the Diamond light source. This is a different pot of money from individual Research Councils, but still part of the overall RCUK budget. The Drayson plan for STFC was always to separate Harwell operations (Diamond, ISIS, CLF) from the rest of STFC programmes, so support for Diamond upgrade is likely to come with operations cash too.

Putting these two items together, the STFC allocation will shrink and some of the remaining cash is going to be ring-fenced for Diamond operations. Assuming that the overall RCUK budget falls by 20% in near-cash terms and 50% in capital on Wednesday 20th and STFC not do worse than “average” across the RCUK portfolio, the cash+capital for the rest of the non-UKSA programme at STFC would fall by 25% or so, i.e. approx £100 million pounds less to spend per annum than at present.

In practice this might mean..

…Mothballing ISIS + CLF (£35m) AND withdrawing from ESO (£30m) AND cancelling all PP grants (£24m) AND stopping all accelerator R& D (£8m)…

… or some other equally hideous combination of items in the spreadsheet.

\end{paraphrase}

In other words this really would be “game over” for large parts of STFC science. Even if the cuts are at the level of 15%, which is apparently what the word on the street is saying, then there are still going to be extremely hard choices.

One nightmare possibility is that STFC not only cuts back on new research grants – as it has already done by approximately 40% over the past three years – but actually decides to claw back grants it has already issued. If this happens at the same time as the Treasury slashes HEFCE’s support for research through the QR element then many physics departments will go under very quickly, as they will no longer be even remotely viable financially.

We’re on the brink…

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Science is Vital – the Video

Posted in Finance, Politics, Science Politics with tags Science is Vital on October 18, 2010 by telescoper

A comment on my earlier post about the Science is Vital rally on 9th October included this video of the occasion. Actually it’s more a series of stills than a proper video, but if you look very closely around 39 seconds in you’ll see me lurking among the ~~ill-disciplined rabble~~ well-behaved demonstrators seeking to ~~overthrow the state~~ argue the case for science ~~and bring about the collapse of global capitalism~~ and try to dissuade the Treasury from huge cuts to the budget for research.

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STFC Budget 2010-11

Posted in Finance, Science Politics with tags astronomy, Particle Physics, STFC on October 14, 2010 by telescoper

Just a quick post to point out that the Science and Technology Facilities Council have released a reasonably complete breakdown of their current budget. I’m sure many readers working in astronomy and particle physics will find it interesting reading, though others will probably find it incredibly boring.

Here it is, for easy reference, in bits, generated by a clumsy cut-and-paste-technique wholly unbefitting the hi-tech nature of STFC, starting with the PPAN Programme:

and now the rest

For those of you not up with the accounting lingo, “near cash” means assets investments and other things that could in principle be exchanged for cash in a relatively short period of time.

These are, of course, the figures before the impending cuts take place….

There’s a much more legible version of the whole thing here.

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The Browne Stuff

Posted in Education, Finance, Politics with tags Browne Report, Higher Education, Universities on October 13, 2010 by telescoper

I’m basically in purdah this week, shuttling to and fro between Cardiff and Swindon on the business of the STFC Astronomy Grants Panel. However, I couldn’t resist a brief early morning post about yesterday’s news about the report on higher education funding by Lord Browne. I haven’t had time to read the report in full, so won’t comment in detail on it, but a few things did strike me from what I’ve picked up from the media. Perhaps others will add their views through the comments box.

For a start it’s quite amusing how far wide of the mark most of the rumour-mongering about the report’s recommendations has been. In fact the proposals are far more radical than had been touted.
The suggestion of lifting the cap on fees entirely, and allowing universities to decide how much to charge for tuition, will delight the so-called “elite” universities, but will alarm those (like me) who worry about the impact on students from poorer backgrounds. Most difficult, however, as far as I’m concerned will be the impact on middle-grade universities who won’t know where to pitch themselves in the free market that such a move would create. We know that Oxbridge will be able to get away with charging pretty much whatever they like, and many of the former polytechnics will clearly go for the budget end of the market, but in between there will be tricky decisions to make.
The increased fee is to be offset by a cut of a whopping 80% (from £3.5bn to £0.8bn) in the teaching grant to English universities. A cut of this scale may well mean that some courses do not receive any direct contribution from the taxpayer at all (the so-called “unit of resouce”). If this goes ahead it will undoubtedly lead to course closures across the country. Although I would oppose a blanket cut of this scale, I’m not against the idea of withdrawing support from Mickey Mouse courses and concentrating it on important subjects.
It seems likely, and indeed there are already signs, that full implementation of the Browne proposals will be politically difficult for the ConDem coalition. In fact, unless some of the recommendations are diluted, this may well lead to a full-scale revolt. We’ll have to wait and see.
Vince Cable has endorsed the report, despite his own party’s previous opposition to raising tuition fees. Any resisual respect I had for him is going down the plughole very rapidly indeed.
Finally, I’ll just point out that, even if they are fully implemented, the draconian cuts to English higher education funding are not necessarily going to be replicated here in Wales (or in Scotland or Northern Ireland). The Welsh Assembly has issued a statement on the Browne report, but clearly doesn’t know what to do about it. If they make good decisions now, Welsh universities could prosper by bucking the English trend, but if they get it wrong….

Anyway, that’s all for this am. Got a train to catch!

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Number Crunching

Posted in Finance, Politics, Science Politics with tags banks, Science funding, Science is Vital on October 6, 2010 by telescoper

Only time for a (very) brief post this evening, as I’ve been in London all day and got back much later than expected.

In this morning’s Guardian there was a story about how the UK’s banks intend to pay out a whopping £7bn in bonuses this year. Banks. Remember them? They’re the organisations whose behaviour almost brought this country’s economy to its knees a few years ago and needed to be baled out by the taxpayer, at enormous cost to the public purse.

Meanwhile, the Science is Vital campaign is gearing up for Saturday’s rally. An article over on cosmic variance has raised the profile of this increasingly vocal campaign to stave off cuts which threaten to destroy Britain’s position as a leading scientific nation. The petition has now been signed by over 17,000 people (including the winners of this year’s Nobel Prize for Physics, announced yesterday).

It’s worth emphasizing the numbers behind this story too. The annual UK science budget, before the next round of cuts, stands at £3.2billion. That’s everything – particle physics, astronomy, chemistry, biosciences, and countless other things.

I need hardly point out the irony. The amount we’re waging an increasingly desperate fight to protect is less than half the amount to be spent on yachts and fancy cars by the people who got us into this mess in the first place. Some of us hoped the financial sector would show some contrition after the disaster of 2007. Fat chance! Their rescue by the taxpayer has probably just convinced them that however they behave they can always rely on Joe Public to get them out of trouble. It seems they’ve reverted to type.

So let’s have no more of the specious arguments about having to cut science in order to avoid having to cut, say, the National Health Service. Science isn’t as expensive as some people would have us believe, and it’s not a luxury either. It’s vital to our economic and cultural well-being. Each pound spend on science is worth a lot more to this country than two disappearing into a banker’s offshore tax haven.

In any case the government should just tax the greedy bankers’ bonus payments and use the money to increase the science budget. Better still, put pressure on the banks to themselves invest in science, alongside other areas of innovation, which we know will generate healthy profits for those brave enough to take a calculated risk, rather than going back to the old game of playing around with dodgy property-based financial speculations, which have a good chance of taking us down the plughole for good.

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Stay of Execution

Posted in Education, Finance, Politics, Science Politics with tags George Osborne, June Budget, Research Funding, Science, STFC on June 22, 2010 by telescoper

Another beautiful summer’s day here in Cardiff just happened to be the day when the new ConDem government unleashed its much-feared budget. I suppose we were all expecting some combination of tax rises and spending cuts but nodody I know had managed to predict the details. A big rise in VAT (to 20%) is the headline figure most of the newspapers seem to be running with, but the other side is the one that caught my eye; average cuts of 25% in “unprotected” Whitehall departments. That means basically everything outside Health and Education, and “Education” doesn’t include Higher Education which falls within the remit of the Department of Business Innovation and Skills. Universities (in England; Scotland, Wales and Northern Ireland run their own budgets for HE) and the Research Councils are therefore bracing themselves for cuts of 25% or even more; if some departments are cut less than this average, then some will be cut more…

For informed comment, see here and here.

However, the details of how these cuts will be implemented – and, of particular relevance to me, how much the Science and Technology Facilities Council will be chopped – will have to wait until the Comprehensive Spending Review to be announced in October 2010. No doubt the STFC Executive will be using all their political skills and powers of persuasion to argue for a positive settlement. Like they did last time. In other words, we’re doomed.

Incidentally, you can hear Lord Rees’ scathing comments about the inept management of STFC here, although to so involves shaking hands with the devil that is iTunes.

There’s also a two-year freeze on public sector salaries – again, not entirely unexpected – but obviously that will only apply to those who keep their jobs after the departmental budgets are cut by a quarter.

Anyway, no point in griping. We all knew this was coming. The big question now is whether the increases in unemployment and tax rises will stop our feeble economic recovery in its tracks, and how badly the cuts in investment will jeoparside future growth. I’m not sufficiently knowledgeable about economics to comment sensibly on this.

Coincidentally today was also the day that STFC Council met here in Cardiff. Of course they did so behind closed doors, but they also had a quick tour of the buildings and a briefing by our Head of School, Swiss Tony Walter Gear. I’m told one of the Council members asked “Excuse me, but what is Planck?”. Apparently the question was posed by one of the non-scientists on STFC Council. So that’s alright then.

Still, there’s always the elimination of France from the World Cup to gladden the heart of an Englishman. Like STFC, the England football team will learn its fate soon eough …

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The Graveyard of Ambition?

Posted in Education, Finance, Politics, Science Politics with tags HEFCW, Leighton Andrews AM, Research Assessment Exercise, Research Excellence Framework, Wales, Welsh Assembly Government on May 23, 2010 by telescoper

The news today is full of speculation about the nature and extent of impending public spending cuts expected to be announced in the Queen’s Speech next Tuesday. Among the more specific figures being bandied about is a £700 million cut to the budget Department of Business, Innovation and Skills (BIS) which encompasses both scientific research and the university sector. It’s impossibly to say precisely where the axe will fall, but it’s very likely that university-based science groups in England will face a double-whammy, losing income both from HEFCE and from the Research Councils. The prospect looks particular dire for Physics & Astronomy, which rely for their research grants on the Science and Technology Facilities Council (STFC) which savagely cut back science research even before the credit crunch arrived. If STFC gets cut any further then the result will be even worse carnage un universities than we’ve experienced over the last year or two, especially since it looks like there will be no changes in its Executive.

Here in Wales the situation is even more complicated, as is explained in a long article in this week’s Times Higher. Cuts to the Research Councils will, of course, affect university research groups in the Principality as their remit covers the whole of the United Kingdom. However, responsibility for Higher Education in Wales is devolved to the Welsh Assembly Government. This means that any cuts to the University budget announced next week will not apply here (nor indeed in Scotland or Northern Ireland).

However, as I’ve blogged about before, it’s not obvious that this is good news for fundamental science in Wales. The Welsh Assembly Government’s blueprint for the shape of Higher Education in Wales, For Our Future, signals what could be dramatic changes in the way university funding is allocated here. There’s a lot of nervousness about how things will pan out.

Currently, most university funding in Wales comes through HEFCW in the form of recurrent grants. However the WAG has recently set up a Strategic Implementation Fund which in future supply 80% of all university funding. The new(ish) Minister responsible for Higher Education, Leighton Andrews (who will be giving a public lecture in Cardiff about the changes next week) seems to be determined to take control of the sector. It’s good to have a Minister who shows some interest in Higher Education, but I’m wary of politicians with Big Ideas.

We’ll have to wait and see what happens over the next year or so, but I think there’s an opportunity for Wales to do something truly radical and break away from systems that simply copy those in place in England with a much lower level of resource. Given that HEFCW has already been told how 80% of its funding should be administered, why bother with HEFCW at all? Scrapping this quango will remove a buffer between the universities and the WAG, which might be a dangerous thing to do, but will also save money that could be spent on higher education rather than bureaucracy. And while we’re at it, why doesn’t the WAG take Welsh universities out of the Research Excellence Framework? In the new era why should Welsh universities be judged according to English priorities?

On the teaching side, the WAG wants to see more flexible study options, more part-time degrees (including PhDs), more lifelong learning, and so on. I think that’s a reasonable thing to aim for given the particular socio-economic circumstances that pertain in Wales, but I can’t really see scope for significant numbers of part-time degrees in physics, especially at the doctoral level.

A crucial issue that has to be addressed is the proliferation of small universities in Wales. England has a population of 49.1 million, and has 91 universities (a number that many consider to be way too high in any case). The population of Wales is just 2.98 million but has 12 universities which is about twice as many per capita as in England. I for one think this situation is unsustainable, but I’m not sure to what extent mergers would be politically acceptable.

The WAG also wants to focus funding on “priority areas” that it perceives to be important to future development of industry in Wales, including health and biosciences, the digital economy, low-carbon technologies, and advanced engineering and manufacturing. Fair enough, I say, as long as “focus on” doesn’t mean “scrap everything else but”. The big worry for me is that research doesn’t feature very strongly at all in the WAG’s document, and it isn’t in good shape in any case. According to the last Research Assessment Exercise (RAE), only around 14% of Welsh research is of world-leading quality and most of that (90%) is concentrated in just four institutions (Aberystwyth, Bangor, Cardiff and Swansea).

Physics in Wales did particularly poorly in the RAE and in any case only involves three universities, Bangor having closed its Physics department many years ago. Indeed the RAE panel went out of its way to make unfavourable comments about the lack of coordination in Welsh physics – comments, I might add, that went entirely beyond the panel’s remit and should have attracted censure. Physics is also an expensive subject so if we are to do better in future we need additional investment. Cardiff University is doing its best bring this about, but I think we should explore closer ties with Swansea and explicit encouragement from the WAG.

STEM areas are woefully under-represented in Wales. Some think the WAG should seize the chance to boost this area of activity, but others think it’s already too late. According to the Times Higher,

Julie Lydon, vice-chancellor of the University of Glamorgan and the first female head of a university in Wales, says expertise in STEM will have to be developed in “distinct areas”. Given its small size, Wales must be careful to set itself realistic aims, she says.

The country faces a complex challenge, Lydon adds. “We don’t have anywhere near the range and extent of research (that we should) for our size. We’ve got to move it up a gear, and we’ve got to raise aspirations. We’ll do that in niche areas, and we’ll do that by partnership, not on our own.

“We haven’t the scope and scale; Wales isn’t a large enough sector to be able to do that across the board, but it’s an agenda that is slightly wider than the narrow view of STEM.”

A focus on STEM would neglect some areas in which Wales is strong, Lydon says. Thanks to investment from major employers such the BBC, disciplines such as media are growth areas and critical to the economy, but they are not strictly defined as STEM subjects.

No, media studies isn’t a STEM subject. Nor do I think Wales can continue to rely on its economy being propped up by public bodies such as the BBC. The expected round of wider public spending cuts I mentioned at the start of this piece will effectively scupper that argument and I’m sure privatisation of the BBC is on the new government’s agenda anyway. The future requires more ambition than this kind of thinking exemplifies. Sadly, however, ambition doesn’t seem to be something that the Welsh are particularly good at. Dylan Thomas’s phrase “The Graveyard of Ambition” was specifically aimed at his home town of Swansea, but it does sum up an attitude you can find throughout the country: a resolute determination to be mediocre.

Wales is indeed a small country. So is Scotland (population about 5 million), but the Scots have for a long time placed a much higher premium on science and university education generally than the Welsh (and even the English) and they have a thriving university sector that’s the envy of other nations (including England). I think it’s time for a change of mentality.

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Into the Blue

Posted in Education, Finance, Politics, Science Politics with tags HEFCE, HEFCW, SFC, STFC on May 12, 2010 by telescoper

So there we are. Britain has a new government. For the time being. Last night David Cameron became the Prime Minister of a coalition government involving the Conservative and Liberal Democrat parties (as I predicted). This is hardly a surprise given the arithmetic; Labour and the LibDems wouldn’t have had enough seats to command a majority anyway. It took five days from the election for the new Prime Minister to take over, much longer than the few hours it normally takes when there is a conclusive result, but nowhere near as long as it takes on the continent where coalition-building involves smaller and more diverse parties. In the UK the three main political parties are all centre-right, at least when it comes to economic policy, and they share a great deal of common ground, so I never thought there would be much problem with the Conservatives and LibDems coming to a deal, which they have done.

Another prediction I got right was that Gordon Brown would resign as leader of the Labour Party, which he has also done. Who will lead the Labour Party now, and for how long, is anyone’s guess.

My third prediction was that the coalition government would fall within a year and there’ll be another general election. As for that, we’ll have to wait and see. It is, after all, a marriage of convenience. I think it won’t be long before a big row develops and the coalition unravels. There’s a lot of overlap between the two parties, but it’s a long way from the left of the LibDems to the right of the Tories. I give it 6 months to the first vote of confidence, assuming the Queen’s Speech passes.

Now that we have a government once more, the unreal business of electioneering is going to be set aside and all the facts that the media have kept quiet about during the election campaign will start to come out. For example, a story in the Financial Times of 11th May (yesterday), which has clearly been on the spike for the duration of the election campaign, reveals how huge cuts in university funding are set to fall hardest on science departments. Vice-chancellors have been making contingency plans for 25% cuts in recurrent funding for some time now, and there’s an obvious temptation to cut the more expensive subjects first.

I’ve already confessed my annoyance that the main parties connived to keep the details of the deep cuts they were all planning to implement out of the election campaign. Now we’re going to find out the true extent of what’s in store, and it’s too late to change.

Niels Bohr once said “Prediction is very difficult, especially about the future”, and I have no idea whether I’m being overly pessimistic here, but here are some of the things I think will affect my own life as an astrophysicist working in a British university.

First, it’s now clear that there’s no chance of a reversal in the fortunes of STFC. There never was much of a chance of that, to be honest. It’s more likely now that STFC will now face further cuts on top of what it has endured already. Fundamental science in the UK is in for a very lean time.

Second, university funding – the part that comes directly from central government – will be cut by at least 25%, probably more. This could be achieved in a number of ways. The unit of resource (the payment made per student by the government to a university) could be cut. The number of students funded could be cut. Students could be charged higher fees or have less generous loan arrangements. These options are by no means exclusive, of course. They might all happen.

University V-Cs will have to make very difficult decisions where to make savings: some may tighten budgets across the board; others may shut entire departments to save the rest.

Another issue with university funding, however, is that it is not entirely the preserve of central government. The Scottish Assembly runs higher education in Scotland, not the Westminster government. The Scottish Funding Council has generally funded universities more generously than HEFCE has in England. It’s also much less likely to implement higher tuition fees. More generally, with only one Scottish Tory MP in Westminster and a Scottish Nationalist-flavoured Assembly government, there’s no way of knowing what will happen in Scotland or, indeed, how much strain will be generated there by an English Tory government very few Scots voted for.

In Wales its a bit different. Here higher education is run by the Welsh Assembly government, which currently comprises a Labour-Plaid Cymru coalition. With the Westminster government consisting of an alliance between the other two major parties in Wales we have two levels of administration roughly orthogonal to each other. In principle, the WAG could decide to protect the university system in Wales against the level of cuts being imposed in England, but since we already get a lower unit of resource from HEFCW than HEFCE allocates to English universities, I doubt we’ll be any different in future.

So this is where we’re headed: fewer science departments with fewer staff with increased teaching loads with less time to do research and with less funding to carry it out and vanishing career opportunities for the scientists they’re supposed to be training.

Still, at least the bankers will get their bonuses.

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The Day After

Posted in Finance, Politics with tags General Election on May 7, 2010 by telescoper

I wasn’t planning to stay up last night watching the General Election results come in, but in the end I stuck with it until about 3am, basically hoping to understand what was going on. Even by that hour there didn’t seem to be a particularly clear pattern emerging, so off I went. I had a revision lecture this morning as well as a lot of other things so I didn’t fancy an all night sitting.

Whenever there’s a General Election I always pay attention to constituencies I used to live in to see how things are changing. Broxtowe (the constituency that contains Beeston, where I used to live when I worked at Nottingham University) changed hands from Labour to the Conservatives. It had been a Conservative marginal in 1997 when it was won during the New Labour landslide. It seemed fairly typical for seats like that to revert to what they were pre-Blair. Brighton – remarkably – returned Britains first ever Green Party MP. Bethnal Green returned to the Labour fold after a flirtation with George Galloway’s Respect party.

Meanwhile here in Cardiff the results were as mixed as elsewhere. My own constituency, Cardiff West, stayed Labour, as did Cardiff South (and Penarth). The Vale of Glamorgan reverted to its pre-1997 Tory hue, unsurprisingly. The Labour candidate in Cardiff North was the wife of former Welsh Assembly leader Rhodri Morgan and it was a definite surprise to see that seat turn blue too. Cardiff Central remained Liberal Democrat.

As it has turned out the exit polls got it just about right, with the Conservative Party leading the popular vote (36%) and number of seats (306), but not enough to make an overall majority. Labour (28%, 258 seats) and Liberal Democrats (23%, 57 seats) between them have a majority of the votes cast but don’t have enough seats to form a coalition. It’s a well and truly hung Parliament and we look set for days of discussions to see what kind of agreement can be reached between which parties. Gordon Brown remains Prime Minister until some kind of resolution is reached. We live in interesting times.

Although the election results were extremely interesting by virtue of their puzzlingly inhomogeneous variation across the country, they really amount to little more than a sideshow compared with the spreading panic on international markets. The markets fell sharply, not because of the hung parliament but as part of a worldwide panic over the knock-on effect of the Greece and Portugal sovereign debt problems. The contagion could be very dangerous if Greece can’t convince traders that it’s not going to default and in an attempt to do so its government has put together a severe austerity package. Cue violent unrest. The Greeks live in even more interesting times than us.

I’m not going to pretend that I have the slightest clue how either of these things will pan out, but I’m not very optimistic about the forthcoming months. I hope I’m wrong. We’ll see.

The other thing that struck me was the story of people being unable to vote because of long queues at the polling stations near 10pm when they closed. At first I wasn’t at all sympathetic. Polls are open from 7am until 10pm, so there’s no need to turn up with only 5 minutes remaining. However, it then emerged that some polling stations couldn’t cope with the large turnout and people had been queuing for hours by the time the doors closed. The turnout was 65% nationally, higher than last time but by no means ridiculously high. In fact I think it’s a shame the usual turnout isn’t very much higher than this. However, turnout seems to have been much higher in certain wards and the staff unprepared for the demand, sometimes with insufficient ballot papers and sometimes with out-of-date copies of the electoral register. I don’t mind saying that I found this level of incompetence deeply shaming. We can’t afford to be so careless with our democratic system. It doesn’t matter if only a few hundred people were affected. It’s the principle that matters.

Over the next few days there’ll be a lot of discussion about electoral reform. Perhaps the fact that our current electoral system seems to be showing signs of neglect might generate some impetus for change, quite apart from the scandals of MPs fiddling their expenses. I’ve always been on the fence over proportional representation. Our system is absurd in some respects, delivering huge majorities in the Commons to parties with only a modest share of the popular vote. On the other hand our country is so divided that it’s not obvious what the short-term consequences of changing to PR would be. It seems likely, for one thing, that fringe parties such as the neo-fascist BNP would actually be represented in Westminster. I find that a repulsive prospect, but putting up with people you can’t abide is one of the consequences of democracy.

I have an open mind on electoral reform and I’d like to hear the arguments for and against different systems of PR aired properly. Presumably the Liberal Democrats will want a referendum on this as part of the price of their support in a coalition, so no doubt there’ll be a lot of chat about this.

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House of Cards

Posted in Finance, Politics with tags Credit Rating, General Election, Greece, Portugal on April 29, 2010 by telescoper

There’s now only a week left until polling day in the General Election, and I’ve managed to avoid blogging about it as much as possible. The main reason for this is that I feel almost entirely disconnected from the whole thing, as if it’s all a bit unreal. One of the things in the news this week sparked a memory of something I wrote a few weeks ago which, in turn, made me realise why I find it difficult to take this election seriously.

It emerged on Tuesday that the international money markets had downgraded Greece’s credit rating to “junk” status. Portugal and, more recently, Spain have since been downgraded too, but not as far as Greece. Yet. The reason for this downgrading is that analysts doubt whether these countries will be able to control their public spending sufficiently in order for them to honour huge levels of sovereign debt. The probability that Greece in particular will default in a big way has been growing steadily, according to the calculations of financial experts, and has now reached the level at which traders are adopting strategies that essentially involve betting on this actually happening.

The consequence of all this turmoil is that Greece would have to borrow money at huge levels of interest – over 15% – in order to carry on. The eurozone countries – particularly Germany – are trying to put together a package that that can be paid back at less ruinous rates, but while they continue to debate the details the panic continues.

The knock-on effect of a Greek default would be to remove money from the balance sheets of banks and financial institutions around the world. If a bank has holdings of Greek debt, and the Greeks default, then the bonds become worthless and billions of pounds disappear off its balance sheet. Some British banks are exposed in this way, but nowhere near as much as France, Germany and Switzerland.

The baleout of Greece may work, but if it doesn’t it looks likely that Greece will be ejected from the euro and will have to take drastic measures to set its house in order. Fine, you might say. They’ve been living beyond their means for too long. That’s true. But so has Spain, which suffered even more than the UK from a housing bubble that went pop and is left with a huge budget deficit. Spain is too large an economy to be rescued, even by Germany. A default there, and there’s a real possibility of a chain reaction that will probably mean curtains for the euro and possibly a real meltdown of the global financial system. I’m just surprised that it has taken since 2007 for phase 2 of the global financial crisis to start. I think the contagion is still spreading.

By some measures, our economy is in even worse shape than Spain’s. However, the reason the markets haven’t downgraded us yet is that we’ve been given a stay of execution by the imminent general election. I’m sure analysts will be looking for very prompt and effective action to tackle our budget deficit if they are not going to put us through the wringer like they did with Greece. Greece, Portugal and Spain are all relatively recent democracies and it’s not obvious their governments can deliver huge public spending cuts and survive the resulting social unrest intact. They certainly haven’t managed to convince the markets they can anyway.

What’s clear from the UK general election campaign is that none of the main political parties is willing to go public about the scale of the challenge facing whoever takes office after the election. The recent budget did a bit of trim around the edges here and there, and the party manifestos talk about the odd billion here and there in savings, but these are dwarfed by the real scale of our deficit. It seems the politicians have agreed to keep quiet about this to avoid frightening the electorate. When the votes are counted we’re going to get a rude awakening. The general election campaign is just a bizarre masquerade that’s too ridiculous to get involved in.

The scale of what could happen here is indicated by what’s happening in Ireland. Politicians here are talking about a public sector pay freeze. Ireland is actually cutting salaries in the public sector by up to 20%. I think the next UK government is going to have to do something similar or we’ll suffer the same fate as Greece. These next three years are going to be very grim for those of us working in the public sector, or at least for those who decide to stay in the UK.

We generally like to think we’re a mature democracy that’s a bit more sensible that all those mediterranean hotheads and that we’ll be able to grin and bear it for the sake of the economy. However, I’m old enough to remind the Winter of Discontent and it’s by no means obvious to me that cuts on the necessary scale will go through without sustained opposition. If – as seems likely – we end up with a coalition government with a fragile majority, this sort of thing could easily bring it down. If the markets see political instability in the UK they will certainly start downgrading our credit rating too. Public borrowing will become more expensive, deeper spending cuts will be needed, and Britain be well and truly scuppered.

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In the Dark