Not a squalid little deal!

Mrs May's agreement with the Northern Irish DUP has a 'headline' cost of £1billion in extra cash to be available for the Northern Ireland Executive to spend. But that is not even the beginning of the cost [and I refer to the cash cost, leaving aside the reputational damage that is being done to keep  this weak and wobbly government in office, but not truly in power]. Retaining the 'triple lock' on state pensions and retaining the free winter fuel for all will cost billions more, and the deal may well last for the five years for which the parliament could remain in being. Given that some demands from Scotland, Wales and English regions will have to be met if the Tories are to have any hope of winning future election, estimates of the ultimate total cost of the deal seem to be running upwards of fifty billion pounds in the next few years. This drives a coach and horses through the residue of Osborne's austerity which Philip Hammond's Treasury Team was seeking to maintain. Thus it will be necessary for the government to increase its borrowing while the Tories negotiate with the DUP on the possible increases in taxes that Mr Hammond already knows will be necessary. Since the DUP-Tory agreement is on the basis of 'confidence and supply' the DUP will have an effective veto on any tax increases: so the overwhelming probability is that state borrowing in the coming year will be several tens of billions of pounds more than had been foreshadowed in any of Mr Hammond's [actual or imagined] spreadsheets.

I am sure that Mrs May's grasp of economic reality is slight, and that she has not yet comprehended anything of the hydra-headed monster that she has attached to her government. Austerity was becoming intolerable to the electorate as its effects on policing, schools and hospitals became apparent. The departure on sea trials of HMS Queen Elizabeth - the biggest ship ever assembled in Britain - was accompanied by comment that she went without any aircraft, amid rows about how many 'planes could ever be afforded to fly from her. Almost all the other areas of the armed services are being robbed of funds to make some sort of show of fitting out Queen Elizabeth properly, which means that Britain's power of self defence is significantly diminished at a time when perceived threats are increasing. Mrs May's new monster, that she will not be able to control, is the myriad demands for more money that will come from every sector of the public services and every region of the country. Ryedale in North Yorkshire has been given press coverage as one of the two areas on England most deprived of reasonably-fast broadband, and that part of the country has a special plea that may become irresistible if Scotland and Wales are allocated extra money for communications: and so it will go on, inexorably, for longer that than Mrs May can hold on to power.

Should Mr Corbyn come into power, he would find that all the key-turning jobs have been done for him, by default. The military are virtually prostrated. Austerity is being overcome by sectoral and regional demands that will become irresistible. Government borrowing will be high, and Mr Corbyn and his clique would have no compunction in 'taxing the rich' to fund even more state spending. In those circumstances the stock market will collapse and the pound will decline rapidly in external exchange: so a radical government could claim justification for radical measures to establish control of a 'socialist' economy.

The Tories will remain desperate to prevent Corbyn having access to the electorate. So they will have to try to control the monster that they have released. How they do this will be fascinating to watch: or perhaps the Tories have finally lost that ruthless determination to survive that has sustained then for centuries?

Brexit and a Chance of Liberating London

We are now learning that the decaying corridors of the Palace of Westminster have been alive with an undercurrent of negotiation between the parties, as the Tory party has confronted its near-defeat in the general election. If Mrs May is able to pull off her shabby compromise with the Democratic Unionist Party, to enable her to face up to 'confidence and supply' votes in the Commons, her ministers will [apparently] go ahead with building a Grand Coalition in the form of a Commission or Committee on Brexit. Potentially this can accommodate all parties around a set of principles similar to those set out in this blog last week: separating the UK from the 'political' aspects of the European Union while keeping the country within the 'economic' community [possibly as a member of EFTA and the European Economic Area].

Soon, there will be a large literature on how the Remainer May became - to all appearances - an Arch-Brexiteer, reckless of the national interest: and how that Arch-Brexiteer May was so comprehensively rejected by the nation. With her defeat, and the consequent imperative to accede to the demands of the DUP [particularly the softening of austerity and the need for a 'soft' border in Ireland] a sensible consensus can be envisaged. This will all become swathed in legend, as everybody involves gathers around the new Brexit forum and carefully forgets what they actually said in May and the first week of June, 2017.

One issue of importance is prominent in today's press, however, and I want to stress here how important it is that the UK should be the apparent looser in this debate. This is the question of the location and regulation of the market in euro derivatives. Currently the market is overwhelmingly located in London, in terms of where the contracts are datelined and in specifying that any disputes are to be settled under The Law of England; though the actual trading is in cyberspace. The amount that is traded is reported to be around a trillion euros a day: that is, one thousand thousand million euros [given that a modern 'billion' is a thousand million]. European-based bankers and the European Central Bank and some members of the Commission and the Parliament think that this market should be datelined and contracted in a eurozone country under EU law. I strongly agree. Let the European system, the eurozone system, accept all the risk that is inherent in that market. The content of the market is not money, is not comprised of 'real' assets or assets exchangeable in any meaningful way for 'real' assets: it is an Everest of betting slips. It is a bigger accumulation of debts than that which is still being sorted out from the 'crash' a decade ago. The British state and the Bank of England should be pressing as hard as possible for that market to exit the UK: even as the UK softens the official perception of Brexit.

London-based traders would remain more adept at devising and trading in these bets than their continental rivals, once the datelines are shifted to Frankfort or Paris [or both], and their turnover would not saddle the British state with an immeasurably great potential burden. There would be no downside to that shift of responsibility: and as there is no possibility of Britain joining the euro, the regulation of the market should piously be passed to the eurozone. The UK economy need loose nothing but a burden.