Leading Europe

On this day -2 December - in 1804 a man originally called Nabuleone Buenoparte crowned himself Emperor in the Cathedral of Notre Dame, Paris. He grabbed the crown from the Pope, who was about to place it on Napoleon's head, on realising that he did not want even symbolically to receive the crown from anyone else. His empire was delineated as an enlargement of the monarchical France that had been toppled in 1792, but it effectively held sway over continental Europe from Gibraltar to the Russian border. After the fall of Napleon, in 1815, the old monarchies re-established their states under the tutelage of Russia at the Congress of Vienna; and in the revivified 'Congress System' that assembled in Paris in 1919 under the tutelage of the US President Woodrow Wilson a new and more subdivided set of sovereign entities was confirmed in the Treaties of Versailles and Trianon.

In 1935 Adolf Hitler began his campaign to reverse the Treaties. The Rhineland was remilitarised and Saarland was reincorporated into Germany. Attention was then focussed on incorporating Austria into 'Greater Germany' and thereafter in bringing the scattered German-speaking communities in Europe, and the territories where they were settled, also under rule from Berlin. The indigenous inhabitants who were not German would become subject peoples; and anthropological devices were bent to asserting the 'inferiority' of such people. After absolute defeat in a devastating war Germany was shrunk in size, and the scattered Germans who were able to reach the four zones of occupation - however grim the conditions in which they found themselves - were the lucky survivors.

With this experience behind them, the governments of the northern European monarchies and new regimes in the formerly fascist states that operated new Constitutions that were authorised by the victorious allies [US, the UK and France] faced a difficult future. Soviet communism had become established behind the 'iron curtain' in the middle of the continent. Defensive support from the US, and to a lesser but significant extent from the UK, was essential and came at the price of persevering with democratic institutions. Germany, in particular, took the message to heart and has developed into a genuinely democratic state whose citizens' views really counted. Thus in the euro crisis the German electorate has made clear the limits to which they are prepared to  pay for the past profligacy of countries that never met the criteria for membership of the eurozone.

The German Chancellor is called upon to lead the resolution of the euro dilemma, with foreigners asking her to lead in a direction that is not wanted by her people. She grew up in occupied East Germany; battered in school by the Communist version of German history. She has transcended those experiences and embraced democracy: and she is not prepared to impose intolerable burdens on German taxpayers at the behest of Obama, Cameron or anyone else outside the eurozone. Nor will she allow the fellow-members of the eurozone to despoil the assets that Germany has painfully accumulated since the nineteen forties. Germany wants to be a good democratic partner in Europe, not a new Reich with a wish to dominate.

A new settlement is needed for the euro: with or without retaining the fringe of spivs as members. Cameron is to visit Sarkozi today, to put down irrelevant markers: he is an impotent petitioner in relation to eurozone politics. Then over the weekend the serious talking that is scheduled to take place is likely to produce the basis for a new treaty by which the eurozone can be made manageable. That which will be defined as manageable, will probably be affordable. If Germany is to fund it, Germany must be satisfied by the new settlement. The crisis - for the moment - is a crisis of the euro: non-members depend on there being a solution that they cannot significantly influence. Eurozone members need a solution; and Germany needs it to be a democratic solution, so it must have a constitutional basis - a new Treaty. The odds are that Angela Merkel will take a modest place in proving that democracy can deliver success: that would be real leadership!

Meanwhile yesterday the Governor of the Bank of England has advised British banks to be ready for rough weather if either the success or the failure of the euro has adverse effects on non-eurozone countries. He suggested that banks should not pay bonuses, but hold the cash in their reserves. This shows a sublime ignorance that was repeated by the former Labour City Minister on the Today programme this morning. The overwhelming bulk of bonuses in 'banks' are not paid to managers or 'executives': they are paid to dealers, broadly in proportion to the purely notional return that they deliver in return for gambling in cyberspace. The more inventive and arcane are the contracts that they devise, in general, the less understood are the risks that the gambles might bring on to their firm's balance sheet. The bonuses are partly paid in shares - removing a proportion of the ownership of the firm from the other shareholders - and partly in cash that is taken from the regular business turnover of the firm. The cost of the bonuses is 'real' and obvious; the risks that the dealers' gambling incurs are unquantified and dangerous: but billions in taxation has been levied on the notional turnover of the gambling, and on the bonuses, so governments have not had any interest in terminating the problem.

Credibility and Credulity

In recent days an ages-old phenomenon of human relationships has become prominent. It emerges in questions such as:
# Can the Archbishop of Canterbury believe that he is being taken seriously, when it has taken the massive negative publicity about the Church that has followed the establishment of the squatter camp at Saint Paul's for him to speak with any clarity on the crisis that began four years ago?

# Can anyone believe that anarchist toughs and rent-a-crowd hangers-on will quietly leave Saint Paul's - on any date - as agreed by the 'Assembly' of middle and upper-class brats who have successfully attracted global media attention to their naive assertions? Will even the whole of the 'Assembly' pack their tents and go?

#  Can anybody really believe that Merkel and Sarkozi are prepared for their countries to bankroll Greece and Italy indefinitely and without limit which is the obvious corollary to their demand that the Greeks should vote for permanent subjection to the rules and exactions of both the EU and the Eurozone? And can the Greek Prime Minister survive in office until the date of the Referendum? And will the Greek government and parliament agree to allow Germany and France to specify the question to be put to their people?

# Can anyone take seriously the ideas of the medical nannies who are demanding that extra taxes should be imposed on alcohol, salt and fat in order to change popular habits? Do the doctors not understand anything about the realities of consumer behaviour in modern society [as set out in my Personal Political Economy]?

Politicians and leading eurorats live in a world of high security, chauffeured cars and filtered news; as does an Archbishop and the President of a medical Royal College. But the organisations that they lead all have agents on the ground, deep in the miserable lives of the 'deprived': and almost all of these people have contributed to endless focus groups, studies, discussions, outreach exercises, social experiments and educational initiatives whose cumulative effect is considerably less than the local impact of the most impressive exercises in self-help. In seeking to answer each of the above questions one finds that grass-roots wisdom rarely reaches the general national consciousness, and hardly ever forms a basis for public policy. Public policy, in the churches and the royal colleges as much as in the state, follow the precepts of authoritarian academic hierarchies, who present the 'received wisdom' that is rarely concordant with the experience of the mass of citizens, not just of the 'deprived'. The academics think they are well-meaning, though they accept their subjection to the hierarchies of their 'disciplines'. Removing these disparities, between the professions and the people, and between the economic and social  professors' dogma and observable reality, are crucial to resolving the present disconnection between power and people. These are even more important issues even than addressing transitory phenomena like the  future of the Euro or the tax on salt.

Intelligence and Common Sense

Quarter of a century as a university academic and two decades in the City have taught me that some of the people of highest academic attainment, who can be hugely articulate, are either obtuse on some issues, or unconsciously filter unwelcome realities of everyday life from their observation, or uncritically accept political opinions [as was the case with many of the scholarly communist die-hards of the nineteen-sixties and seventies]. Some remarkably able individuals combine all these characteristics. I have no idea whether or not Rowan Williams falls into one or more of these categories, but his behaviour and utterances indicate that he may well fall into the range.

His outpouring in the Financial Times today is an example. He writes as the Archbishop of Canterbury, aware that the heathen press [largely by quoting 'liberal' Christians] has gleefully dissected the conspicuous failure of the Chapter of Saint Paul's Cathedral to cope with the aftermath of the chaos by which the police allowed rent-a-crowd to come to rest next to their church. Appropriately he expresses sympathy with a carefully constructed argument for reform of the global economy that was recently promulgated by the Vatican. Much of this is simply restatement of classical church doctrine: some of which has been seen as impractical in an essentially secular business world. Rowan Williams chooses to add an emphatic endorsement to the Sarkozi-led campaign to introduce a global 'Robin Hood Tax' on all banking transactions.

The concept of a tax on transactions was adumbrated forty years ago by James Tobin, who proposed that there should be a levy on foreign exchange transactions which were growing in number and volume on a purely speculative basis, unrelated to the requirements for foreign currencies in 'real' international trade. The objective was to check the growth of the economically pointless money-making scam, which brought good earnings to the clever dealers who were creating a new market; and healthy profits to the firms that bankrolled their dealing. The current 'Robin Hood' proposal is not closely related to Tobin's idea. The context is the aftermath of a near-collapse in what is called 'the banking system', which is still being played-out with millions of jobs lost and declining living standards being imposed on the people of dozens of countries that had broken the Iron Law of Wages. The general public have become increasingly well aware that at least some people who are rather confusingly described [and stigmatised] as 'bankers' are still receiving remuneration that is a great multiple or nurses' or teachers' wages for performing 'socially useless' functions. The Sarkozi idea is to 'punish' the 'banks' with a tax on all transactions, the money to go to socially desirable causes in the 'real economy' [or maybe, actually, to help governments to service the debts that they have incurred in rescuing the banks].

Such a tax would merely be a nuisance. If it is imposed on transactions like paying wages, putting money into personal accounts and taking it out, issuing mortgages and other everyday 'retail' transactions, it will simply be levied on the [relatively] poor;  making them marginally worse off. If it is imposed on 'wholesale' transactions by some countries and not by others, it will simply remove trade and national income from the taxing countries to those that do not charge it. And if it is levied at the rate that is proposed [around 0.3% of the deal] it will not be at all painful for the financiers. It is a silly idea, based on misunderstanding reality.

There is a ground for a much larger tax - more than 10% [maybe much more] - on all those transactions that are unquestionably the issue of betting slips: derivatives, most swaps, and all futures that do not explicitly assure funding for demonstrable transactions in the 'real economy'. All this 'casino banking' should be recognised for what it is: gambling. It should be regulated in each country by the Gambling Commission - or the equivalent - and it should simply be banned in countries where gambling of other kinds is prohibited. It does not provide any 'financial service' to the economy that produces human subsistence. Some derivatives are used to 'hedge' some socially-useful transactions by pension funds and other essential agencies: alternative 'products' can be used for these purposes, and these should be used after exiting positions can be unwound during a transitional period. If the gambling continues, and with it the risk of instability in the finance sector is potentially increased, the citizens of the countries where it is permitted will at least be able to see the extent of the risk to which they are exposed because the tax returns will show how much is being transacted in this speculation. If there is some socially-useful aspect to this whole business, as some defenders of the system have claimed, it will also become clear and the regulatory system could be adjusted accordingly.