The Post-Crash City: Urban Economies Conference, Centre for Urban Research, University of York, 5 July 2013.

1. A Greek Tragedy on the London
Stage
The City of London, the Greater
Euroland Crisis and the Urban Dark
Age to Come
Simon Parker
CURB, University of York

2. Capital
The City is, collectively, astonishingly wealthy. It earns 19 per cent of Britain’s GDP. People don’t
mind that in itself but they do mind City bonuses. Last year, these amounted to a truly boggling
£19 billion, all of it paid at the end of the year. In London, the effect of that money has become
almost entirely toxic. I’m not talking here about middle-class envy – the resentment increasingly
expressed among the ‘middle-class poor’ about how unfair it is that these bankers get paid so
much for contributing so little. That resentment seems to me to be largely hypocritical, a middle-
class resentment of one of the few forms of inequality that doesn’t benefit them. But City money
is strangling London life. The presence of so many people who don’t have to care what things cost
raises the price of everything, and in the area of housing, in particular, is causing London’s
demographics to look like the radiation map of a thermonuclear blast. In this analogy only the
City types can survive close to the heart of the explosion. At this time of year, when the bonus
stories come out, you can understand why. A bar announces that it is offering the most expensive
cocktail in the world: £35,000. That buys you a shot of cognac, a half bottle of champagne, a
diamond ring and the attentions of two security guards to protect you for the rest of the evening.
A deli, at the special request of a customer, creates a £50,000 Christmas hamper. Word gets out,
and another customer immediately orders two more. The expense of London is forcing people
further and further out of the city, and making life harder and harder for the ones who remain.
John Lanchester, LRB, Cityphilia, 2008.

3. Government Sachs
Around 2002 in particular, various
investment banks offered complex
financial products with which
governments could push part of their
liabilities into the future," one insider
recalled, adding that Mediterranean
countries had snapped up such products.
Greece's debt managers agreed a huge
deal with the savvy bankers of US
investment bank Goldman Sachs at the
start of 2002. The deal involved so-called
cross-currency swaps in which
government debt issued in dollars and
yen was swapped for euro debt for a
certain period -- to be exchanged back
into the original currencies at a later
date.
-Der Spiegel, February 8, 2010
Mario Draghi, the president of the
European Central Bank, was a Goldman
Sachs partner and Mario Monti, the
Italian technocrat prime minister, was
formerly an adviser to Goldman.
Mark Carney spent 13 years at Goldman,
joining after he graduated from Harvard,
and worked for the bank in London,
Toronto, New York and Tokyo. His
appointment cements Goldman’s
reputation as a bank whose reach
extends into the highest echelons of
central banking and government.
- Daily Telegraph, 27 Nov 2012.

4. IMF: We got it wrong…
There are also political economy lessons to be
learned. Greece’s recent experience
demonstrates the importance of spreading
the burden of adjustment across different
strata of society in order to build support for
a program. The obstacles encountered in
implementing reforms also illustrate the
critical importance of ownership of a program,
a lesson that is common to the findings of
many previous EPEs (ex-post evaluations).

5. …but the EU was to blame.
• the EC tended to draw up policy positions by
consensus, had enjoyed limited success with
implementing conditionality under the
Stability and Growth Pact, and had no
experience with crisis management. The
Fund’s program experience and ability to
move rapidly in formulating policy
recommendations were skills that the
European institutions lacked.

6. No we weren’t
• "We fundamentally disagree," said a European
Commission spokesman.
• "With hindsight we can go back and say in an
ideal world what should have been done
differently. The circumstances were what they
were. I think the Commission did its best in an
unprecedented situation.”
• “We tend to forget that when the discussions
were taking place the situation was much, much
worse. The fear of contagion and the high
volatility…”

7. The Bankers: It’s Politics stupid…
At the start of the crisis, it was generally
assumed that the national legacy problems
were economic in nature. But, as the crisis has
evolved, it has become apparent that there are
deep seated political problems in the
periphery, which, in our view, need to change
if EMU is going to function properly in the long
run.
-J.P. Morgan, 2013

8. The political systems in the periphery were established in the
aftermath of dictatorship, and were defined by that experience.
Constitutions tend to show a strong socialist influence, reflecting
the political strength that left wing parties gained after the defeat
of fascism.
Political systems around the periphery typically display several of
the following features: weak executives; weak central states
relative to regions; constitutional protection of labor rights;
consensus building systems which foster political clientalism; and
the right to protest if unwelcome changes are made to the political
status quo.
The shortcomings of this political legacy have been revealed by the
crisis. Countries around the periphery have only been partially
successful in producing fiscal and economic reform agendas, with
governments constrained by constitutions (Portugal), powerful
regions (Spain), and the rise of populist parties (Italy and Greece).
– J.P. Morgan, 2013.

9. Brothers, sisters we do need this
fascist groove thang…
There is a growing recognition of the extent of this
problem, both in the core and in the periphery. Change
is beginning to take place. Spain took steps to address
some of the contradictions of the post-Franco
settlement with last year’s legislation enabling closer
fiscal oversight of the regions. But, outside Spain little
has happened thus far. The key test in the coming year
will be in Italy, where the new government clearly has
an opportunity to engage in meaningful political
reform. But, in terms of the idea of a journey, the
process of political reform has barely begun.
-J.P. Morgan, 2013.

12. You couldn’t make it up…but the
ratings agencies actually did.
The Financial Crisis Inquiry Commission published a
case study in 2011 of Moody’s…and discovered that
between 2000 and 2007, the agency gave nearly
45,000 mortgage-backed securities AAA ratings.
In just one year Moody's awarded AAA ratings to 30
mortgage-backed securities every day, 83 percent of
which were ultimately downgraded. "This crisis
could not have happened without the rating
agencies,” - FCIS.

13. Chronicle of a crisis foretold
Greece’s economic boom was propelled by large foreign-
funded fiscal deficits that enabled demand to outpace
output.
The global crisis threatened the continued financing of this
growth model. After the Lehman shock in September
2008,spreads on Greek government bonds over 10-year
bunds jumped to 300 bps compared to about 50 bps before
the crisis.
Standard and Poor’s downgraded Greece from A+ to A in
January 2009 citing a loss of competitiveness worsened by
the global financial crisis. Against this backdrop, Greece had
become extremely vulnerable to a stop in private capital
flows.
IMF

14. Source: EU Banking Structures 2010
• Greek expansion of financial
sector modest compared to UK,
Ireland and Cyprus.
• Greek public debt was 129 per
cent of GDP at end-2009, with
75 per cent held by foreigners.
• At the beginning of the crisis in
2007 it was 110 per cent and by
2013 it had risen to 170 per
cent.
• Luxembourg is off the map, its
former PM Jean-Claude Juncker
–since 2005 leader of the
Eurogroup - also once governed
the World Bank. Luxembourg
thrives as a destination for
global hot money because it
has one of the most
deregulated and secretive
banking regimes in the EU.

15. The Threadneedle and the damage
done

16. UK manufacturing output
before and after the crash

17. Forever blowing bubbles…
• Property speculation in urban land created the
bubble that led to the crash
– The parliamentary report found that in the three
years after the crash, £25 billion of UK corporate
loans, mostly involving commercial property, had
gone wrong; the figure amounted to 20 per cent
of the loan book.
– John Lanchester, LRB.

18. Eurotrash
“A possible additional effect arose from banks paying more
attention to internal pricing policies. Misaligned internal pricing of
funding costs during the crisis seem to have contributed to the
incentives of business units to leverage and maximise volumes”.
See EU banks’ funding structures and policies, ECB, May 2009
Translation:
Euribor, [is] the Eurozone version of Libor…in very many cases these
banks would be more likely to turn themselves into lap dancing
clubs than make unsecured loans to each other. The rates are
largely fictional – and not realist fiction.
John Lanchester, LRB.

19. Eurocash
In 2012, the overall impact on government debt
resulting from past and present support for
financial institutions was estimated at 5.2% of
GDP for the EU and 5.5% for the euro area.
(Eurostat 2013)

20. The Biggest of Treasure Islands:
The City of London
The question we should ask ourselves about these
incidents is why they happened in London, and why
London has become the global capital of this kind of
trading, and what the costs and consequences are
for us as a society. That’s a large question and it’s
strange that in all the fury and rhetoric and
publicity swirling around the City, it has gone largely
unasked: are we benefiting from the fact that
London is a global financial centre, or do the costs
outweigh the benefits?
- John Lanchester, LRB.

21. UK plc agent to The City of London
• Osborne opposed any cap on bank bonuses as
agreed by the EU Council and Parliament in April
2013.
• The Corporation of London has threatened to
sue in the ECJ on the grounds of a breach of the
principle of subsidiarity.
• Osborne and Cameron have also staunchly
opposed the establishment of the European
Banking Union.

22. The subsidiarity of penury
• Local government in England and Wales is now half
way through a period of significant funding reductions.
Central government grant funding to local authorities is
being cut by over a quarter in real terms (£7.6 billion)
between 2011 and 2015
• Local authorities' funding continues to be cut yet the
number of statutory duties they have has stayed the
same, and in some areas, such as adult social care, the
demand for services is increasing. If these trends
continue there is a risk that the worst-affected
councils will be unable to meet their statutory
obligations, and that serious questions will arise
about the viability of some councils.
- Dept for Communities and Local Government: Financial sustainability of local authorities - Public Accounts
Committee, June 2013.

23. No European Financial Stability Facility (EFSF) for Local
Authorities
• The Department's procedures for managing serious problems
with local authorities' finances or service provision are
designed for dealing with one-off failures, often the result of
internal and unique factors within an individual council.
• In the current funding environment, however, there is an
increased risk that a number of councils become financially
unsustainable - with the example of West Somerset Council,
deemed "not viable" by an LGA report, serving as an early
warning sign. The Department must clarify its role and
responsibilities in the event of multiple financial failures of
local authorities, and draw up contingency plans for
intervention.
• i.e. No Plan A, B or C…as only sovereign debt defaults matter
not the social and economic disruption caused by sub-state
failure

24. The lights are going out even in Germany…
• FRG has 130 billion euros
in combined municipal
debt
• Goslar in Bavaria needs to
cut its spending by 50% to
balance its books.
• Turning the street lights
off at midnight has
ushered in a new dark age
even in the heart of the
most successful economy
in Europe

25. Is the urban dark age inevitable?
• Post-agrarian states do not increase their wealth
by aggrandizing territories and seizing lands and
natural resources…the key to post-agrarian
wealth is the complicated task of nurturing
economic diversity, opportunity, and peace
without resort to oppression. Dark Ages and
spirals of decline are in prospect for agrarian
cultures that can’t adapt themselves to
generating wealth through human ingenuity,
knowledge and skills. Jane Jacobs, 2004, 164.