Three Days To Go

On Sunday last the US Treasury Secretary said that the leaders of the Eurozone - France and Germany - had 'six days to save the world'. That leaves today, Thursday and Friday before the European Summit meeting convenes.

Chancellor Merkel has said that they are approaching a solution 'millimetre by millimetre' with no hurry to move towards the reputed French ambition to draw upon Germany's assets and strong reputation in an effectively unlimited bail-out fund for the whole of the Eurozone, including Greece. Mrs Merkel knows that her electorate are furious at the extent to which their assets have already been committed for the resuscitation of the common currency; and the significant Turkish minority are not reluctant to stress the idle and exploitative reputation of the Greeks. Merkel's government would face an electoral massacre next year if she risks ruining all that has been achieved since the foundation of the Federal Republic in order to rescue olive farmers who have been subsidised by the Common Agricultural Policy for implausibly-large numbers of trees whose 'existence' the overpaid bureaucrats vouched-for during their ten-hours of weekly attendance in the office between coffee time and lunch. It does not matter how far this is an unfair caricature of Greece: it is the embedded image that rests in sufficient truth to be sustainable.

Nobody can tell whether or not a domino effect would happen if Greece was simply shoved out of the Eurozone and given modest assistance from the IMF and the EU to soften the landing that would nevertheless be very hard indeed. With Greece out, would global speculators put so much 'pressure' on Portugese, Spanish or Italian state finances that they might also be pushed out, one by one? The apprehension that this could be so is a major factor in the consideration of options that have to be made by the European  leaders this weekend: the negative prospect of a serial unravelling of the Eurozone, the European Union and the 'European Dream' is strongly canvassed.

But there is an alternative vision that should quickly get more exposure. This begins with the fact that the Greeks have been vastly more untruthful and self-indulgent than Italians, Portuguese or Spaniards. Those three far-from-spotless countries have adopted stringency programmes that must be pursued rigorously, and possibly extended as the rest of Europe's governments also cut their 'systemic' public indebtedness while they all take specific short-term measures to stimulate sufficient economic impetus to break the depressive trend that at present is threatening to descend into another Great Depression. Dumping Greece would give the three most exposed countries the necessary shock to ensure that they really implement the undertakings that they have given. The more hardship the Greeks experience outside the eurozone, the more evidence there would be to encourage their Mediterranean neighbours to stick with the discipline that will be necessary to consolidate the bodged and ill-founded common currency into a valid international medium of exchange. The expulsion of Greece can mark the rebirth of the Euro. That is a desirable objective: a thoroughly good thing.

But if Greece is 'rescued' and fails to meet the almost-certainly unattainable targets that will be necessary to remain in the eurozone, there will be a huge temptation in Italy and Spain to soft-pedal on their austerity programmes: then the dominoes will begin to fall and the Euro will either collapse altogether or become the local currency for a hard core of Germany, Austria and the 'northern' Eurozone states whom the Germans trust.

In summary, if the Greeks are evicted, the Euro can have a future. If Greece is 'rescued', the chances of its survival are massively reduced.

Six Days To go

After a nugatory meeting of the G20 Finance Ministers over the last weekend, the world economic community is still waiting for France and Germany to overcome their significant differences about how the Greek crisis can be solved in a way that will assure the future of the euro. European Ministers are to have a 'summit meeting' over the next weekend: meanwhile, as the US Treasury Secretary put it, France and Germany "have six days to save the world". That is no less than the truth, about 'the world as we know it' . It will be important to follow that key story as the days go by; but it is even more important to understand what other realities the world community should be facing up to, regardless of whether or not the euro can be nursed into some sort of health.

I have just spent a couple of days in the Derbyshire Peak District, and on my return to London I noticed a phenomenon that I have not seen before: the leaves in the south are going brown before those in the north: normally spring comes earlier in the south, and the leaves remain on the trees longer in the south than in the north. I assume that this year's deviation is a consequence of the unusually dry weather in the south and east of the country, which has left the trees exhausted and deprived of nutriments. Parts of Derbyshire have also been drier than usual in the past year, but not sufficiently to have a comparable effect on the trees. Crop yields in the south and east - Britain's heaviest agrarian regions - are down this year. As the global population trend is raising more awareness that countries [and economic communities, if they can survive] must become more nearly self-sufficient, given that that they must export surpluses of what they produce if they want to continue to be able to buy crops that their climate will not sustain. Meanwhile, if it is implemented, EU environmental legislation will massively reduce the rights of farmers to access rivers and ground water when rainfall is insufficient to support the growth of the crops, and will increase the charges that the government makes for the permitted abstractions: so food is likely to become both more scarce and more expensive.

Another key sign is exemplified today by the Prime Minister meeting the main gas and electricity suppliers to ask them to lower their charges, at least to 'vulnerable' customers: and this at a time when the government is pursuing environmental targets that will require the companies to invest massively in 'green' energy supplies. The cost of that capital spending can only be repaid from charges to customers in the future. So it is becoming dearer to heat as well as to eat, in response to deliberate government policy: and that is happening in more and more households across Britain this year, as real incomes fall.

It remains fashionable, almost compulsory, in journalistic circles and in academia to scoff at the few commentators who advance a worst-case Malthusian proposition that the world is close to the point where it cannot feed the population that will be born in the next few years. And even when the possibility of a crisis of overpopulation in some faraway countries is allowed, it is assumed that this will not affect the old advanced economies. Yet it is now speculated by demographers that the ageing of the indigenous European population will lead to massively increased immigration of culturally alien Africans and Asians. Japan has absolutely refused to allow immigration to dilute the racial structure; and Europeans are becoming increasingly resentful of immigrants who draw on the benefits system while they 'outbreed' the indigenous population. Opposition to immigration has usually been based on racial and/or religious grounds: which means that people have muted their expressions of concern because of the existence of laws against 'racial hatred' . Ambitious politicians will soon recognise that dependent immigrants will cost so much in benefits that the rate of benefit for all claimants - indigenous and immigrant - will be reduced [at least in real terms] and large immigrant families will be seen relatively to benefit. Then opposition to immigration will become 'economic' rather than 'racist', which will make it respectable.

As the economic squeeze intensifies, the date at which this grim forecast for socio-political consequences will be applicable comes closer. That gives increased importance to the downward revision of unprejudiced forecasts for the British economy: the announcement by the Item Club today is consistent with the worsening prospect.