The extreme Tory Brexiteers are not quite so thick that they all fail to realise that once the nation understands the extent of the damage that a 'hard Brexit' will do to the economy, the government will have to back away from that option. So their tactic has been to push as hard as possible for the government to adopt positions from which a complete retreat would be impossible.
As the government has started to publish slightly more precise position papers as a basis for negotiations with the extremely well-prepared team around M Barnier it is clear than common sense is still present in most of the arguments and suggestions that are appearing. And while this moderate position is developing, so the events in the economy - and the predictions to which they trend - show that the UK would be ruined to an incalculable extent if it withdrew from the European Free Trade Area. Mrs May has made sticking-points [or 'red lines'] on immigration and the the ECJ [the European Court of Justice]. The immigration issue has been somewhat clarified by the discovery that the number of international students remaining in the UK when their visas expire each year is certainly less than 20,000: not the hundred thousand of the May myth. Also, the largest flows of immigrants by country of origin are India, Poland and Pakistan: the immigration that has been unaffected by the European policy of freedom of movement - that has always been under British control - is massive; and it is that migration that is of most concern to many people. On the issue of the European Court it is evident that some compromise will be made, that allows the ECJ a role in Britain that is not 'above' the British courts.
Meanwhile, the economic data stack up against the idiotic assertion that the UK can survive as an economic power, and maintain the people's living standards, outside the cocoon of the European Economic Area. Britain's growth is lowest among the G8, productivity is not improving, the decline of the pound [now 18% against the euro, since the referendum] more than offsets any benefit that the UK gets from its exports seeming cheaper in other countries; and government policy continues to be hurtful to firms and their capacity to invest. Today the Chambers of Commerce point out that three policy initiatives that lie within Mrs May's concept of a caring society are laying a heavy toll on business and on employment. The living wage has been increased, while the productivity of labour generally is not increasing. Mandatory workplace pensions are part payable by employers, and employees who have their share of the contribution to pay are seeking wage increases to pay it, so it is a double-whammy for employers. And in addition, the introduction of the apprenticeship levy on firms [according to the number of people they employ] will better educate those who could well become unemployed in coming years, as technological change makes the skill that the apprentices acquire become redundant]. An economy that should be training the young in the mathematics and in the principles of engineering and coding that support IT and AI [artificial intelligence] is instead preparing young people for jobs whose obsolescence is virtually inevitable.
The economy's capability to employ the whole available population increasingly depends on investment, adaptation and the rising productiveness of industry and commerce, on which productivity improvements depend. Living standards are now falling, and people are feeling it. Real wages are still lower than before the crash of 2008; and although the USA has begun to rein in Quantitative Easing and raise interest rates, and the European Central Bank is expected to so the same soon [it may announce steps in that direction at Jackson Hole this weekend] there is no sign that the Bank of England under Mr Carney - who is to be absent from Jackson Hole - has the opportunity of the bottle to do similar things.
As the extreme fragility of the British economy becomes more apparent, the idiocy of the Cameron-Clegg-Osborne gang and of their 'project fear' becomes more obvious. One can have slender sympathy for Mrs May as the inheritor of the mess and the inheritor of Brexiteer bullying, but not very much. She is grown up, and should be able to recognise the weakness of her negotiating stance. If she does not act on that basis, she will attract odium even greater than that which has settled in the Cameron clique.
Showing posts with label euro. Show all posts
Showing posts with label euro. Show all posts
Friday, 25 August 2017
Saturday, 25 August 2012
Greece, Time and Eternity
The Greek Prime Minister is running around Europe, ostensibly to seek an extension of the timescale against which, he asserts, the Greek state will be able to achieve the cost and debt reductions that were promised in return for a loan that has already been received from the euro area and the IMF. He knows, as everyone he talks to knows, that his mission is impossible. Greece has neither the will nor the means to meet the requirements; and it is most improbable that politicians from the relatively-strong 'northern' eurozone member countries will dare to agree to lend Greece any more money to burn, because of the opposition of their own electorates. The exit of Greece from the eurozone is inevitable; and it will happen as soon as the zone has been able to agree on terms that will keep Spain, Portugal, Italy and Ireland within the system.
For more than two decades the Greek people were the over-indulged victims of a gigantic con, pulled on them by their politicians and bureaucrats, and by their Economists, acting in close concert with the eurorats who assembled the eurozone on the basis of an untrue prospectus and egregiously fudged data from various member states; among whom Greece was conspiculously mendacious [and, almost certainly, self-deluding]. The political future for Greece is deeply uncertain as living standards for wasters and for savers alike plummet into dire poverty. The one massively viable business sector - tourim - depends on the visitors feeling safe: if there are street riots, muggings on a vast scale, embezzlement of tourist companies' cash floats, and closure of hotels while the visitors are still in them, that will cause hundreds of thousands of tourists to opt for 'anywhere but Greece' for their annual over-exposure to solar energy.Greece faces anarchy - a Greek word - as the time for the resolution of the debt problem extends until an exhausted cohort of creditors agrees to a settlement of the debt at a monumental write-down; with everyone aware that the notional ultimate repayment will never happen.
The British peoples have similarly been deluded to the Greeks; and the present coalition government - like the Greek coalition - is trying desperately hard to achieve some sort of result that will vindicate its assertions that the austerity policy is 'succeeding'. But just as the Greeks are spending what they have most recently borrowed, within an economy that has declined significantly but which has not significantly been reconfigured; the British state is borrowing more than was projected and is doing massively less to stimulate growth that anyone believes necessary. The economy has shrunk for three successive three-month periods, with no sign that this trend will cease. The pound remains strong against the euro and the dollar simply because it is an alternative to those currencies as a short-term 'safe haven' for international investors, and among the assets denomiated in pounds that can still easily be sold are British government bonds. This is a precarious temporary solution to the conundrum of how to fund the excess of state spending [especially on benefits for the unproductive members of society]. George Osborne entered the government as the lead missioner for the doctrine of austerity, with full support from his colleagues: now he looks increasingly isolated. His former close ally, David Cameron, is less able to support Osborne as his own credibility has evaporated. Outside the national government, the Conservative Mayor of London has featured largely in the euphoric promotion of the Olympic Games by all the media; to an extent that begins to make him credible figure as a challenger for the Conservative Party leadership.The strong element of buffoonery in his persona is held to be an asset by many of the public, and probably makes him an ideal candidate to soften the members' pain as his party shrinks rapidly from the national political scene.
Greece has run out of plausible politicians: the current prime minister is a technocrat who was effectively appointed by the EU; though he then managed to gain a reluctant endorsement from the electorate.
The British Conservative and Liberal-Democrat parties are busily undermining any myth of their relevance or their competence. Despite the appalling legacy that the last Labour government left to the country, they probably need one more short stint in power finally to destroy their own credibility. Then - as in Greece - politics will be voided.
For more than two decades the Greek people were the over-indulged victims of a gigantic con, pulled on them by their politicians and bureaucrats, and by their Economists, acting in close concert with the eurorats who assembled the eurozone on the basis of an untrue prospectus and egregiously fudged data from various member states; among whom Greece was conspiculously mendacious [and, almost certainly, self-deluding]. The political future for Greece is deeply uncertain as living standards for wasters and for savers alike plummet into dire poverty. The one massively viable business sector - tourim - depends on the visitors feeling safe: if there are street riots, muggings on a vast scale, embezzlement of tourist companies' cash floats, and closure of hotels while the visitors are still in them, that will cause hundreds of thousands of tourists to opt for 'anywhere but Greece' for their annual over-exposure to solar energy.Greece faces anarchy - a Greek word - as the time for the resolution of the debt problem extends until an exhausted cohort of creditors agrees to a settlement of the debt at a monumental write-down; with everyone aware that the notional ultimate repayment will never happen.
The British peoples have similarly been deluded to the Greeks; and the present coalition government - like the Greek coalition - is trying desperately hard to achieve some sort of result that will vindicate its assertions that the austerity policy is 'succeeding'. But just as the Greeks are spending what they have most recently borrowed, within an economy that has declined significantly but which has not significantly been reconfigured; the British state is borrowing more than was projected and is doing massively less to stimulate growth that anyone believes necessary. The economy has shrunk for three successive three-month periods, with no sign that this trend will cease. The pound remains strong against the euro and the dollar simply because it is an alternative to those currencies as a short-term 'safe haven' for international investors, and among the assets denomiated in pounds that can still easily be sold are British government bonds. This is a precarious temporary solution to the conundrum of how to fund the excess of state spending [especially on benefits for the unproductive members of society]. George Osborne entered the government as the lead missioner for the doctrine of austerity, with full support from his colleagues: now he looks increasingly isolated. His former close ally, David Cameron, is less able to support Osborne as his own credibility has evaporated. Outside the national government, the Conservative Mayor of London has featured largely in the euphoric promotion of the Olympic Games by all the media; to an extent that begins to make him credible figure as a challenger for the Conservative Party leadership.The strong element of buffoonery in his persona is held to be an asset by many of the public, and probably makes him an ideal candidate to soften the members' pain as his party shrinks rapidly from the national political scene.
Greece has run out of plausible politicians: the current prime minister is a technocrat who was effectively appointed by the EU; though he then managed to gain a reluctant endorsement from the electorate.
The British Conservative and Liberal-Democrat parties are busily undermining any myth of their relevance or their competence. Despite the appalling legacy that the last Labour government left to the country, they probably need one more short stint in power finally to destroy their own credibility. Then - as in Greece - politics will be voided.
Saturday, 3 December 2011
Conservatives and Europe: More of the Same
Jacques Delors - one of the all-time heroes of the European Project - has taken the opportunity of a press interview to damn the present condition of the EU, the establishment of the euro under a fake prospectus with a plenitude of false data, and the dangers of the 'Germanic view' of financial discipline.
Meanwhile the German view is absolutely prevelant in negotiations on the future of the whole project: in the absence of the current expectation by market participants that Germany would in the end 'rescue' at least a core of the present eurozone there could not be any 'value' in the euro or in any bond issued in euros. The immensely effective and intellingent - though often obtuse - French state machine that Napoleon established on the remnants of Louis XIV's omnipotent bureaucracy has failed to marshal arguments that can trump Bundeskanzler Merkel's simple housekeeping economics [which is massiviely supported in Germany]; so France will agree to a German plan, with minor modification. The full concept of fiscal union will take years to implement, and will probably cause the eurozone to shed up to a dozen member states on the way, but it will eventually come about.
The little-used second verse of the British National Anthem says:
"May She defend our Laws,
And ever give us cause
To sing with heart and voice
God save The Queen."
Successive premiers have advised the Queen to breach that sentiment, and probably her Coronation Oath; to which she has dutifully acquiesced in line with her clear understanding of her constitutional duty. It is probable that her Diamond Jubilee will be accompanied by the increase of the power of Brussels over Britain, even though the UK will not be joining the euro and may even be repatriating trivial aspects of labour law. In those terms it is a sad thought that in the jubilee year there will be almost no reference to the third verse of the anthem, in which is a plea that the Almighty will deal with those who would undermine the Monarchy:
"Confound their politicks," and "Frustrate their knavish tricks."
Cameron will not see his policy as a knavish trick. He will be persuaded - as his predecessors were - that there is no future for the United Kingdom outside the EU. So he will risk his already-tenuous popularity, and probably his position, in the pursuit of what he will perceive to be the national interest. It is not easy to imagine such a smooth operator adopting the role of a martyr, but it is probably going to be his fate; and his Liberal Democrat allies will do nothing to save him from the dilemma that will send him down that path.
Tory Eurosceptics demand 'repatriation' of powers from the eurorats of Brussels. This is such an arcane demand, in the current situation of the European Union, that the British Prime Minister can only make himself a figure of ridicule in his peers' eyes if he does anything significant to pursue their demands.This incredulity would apply not just to the leaders of the other EU members, but to Putin and Hu and Singh and Obama who are all being advised that a stable Europe is necessary for their own countries' economic success. So Cameron will go the way of Heath who lied systematically about the implications of EEC membership; of Thatcher, who talked tough yet signed up to the EEC becoming the EU; and of Major who flannelled and equivocated while he squeezed the UK into the Maastrich Treaty. Blair's 'offence' in agreeing to the tidying-up excercise of the Lisbon Treaty was relatively trivial and was popular in his own party. The last three Tory Prime Ministers eventually ignored grassroots opinion in their party to drag the United Kingdom more inextricably into the European system [whose surviving founders, not least Delors, now regard with despair]. Cameron will continue in that tradition, whetever rhetorical devices he may deploy while he diminishes his credibility among his rank-and-file as he is pushed along the lonely and painful route that lies ahead.
Meanwhile the German view is absolutely prevelant in negotiations on the future of the whole project: in the absence of the current expectation by market participants that Germany would in the end 'rescue' at least a core of the present eurozone there could not be any 'value' in the euro or in any bond issued in euros. The immensely effective and intellingent - though often obtuse - French state machine that Napoleon established on the remnants of Louis XIV's omnipotent bureaucracy has failed to marshal arguments that can trump Bundeskanzler Merkel's simple housekeeping economics [which is massiviely supported in Germany]; so France will agree to a German plan, with minor modification. The full concept of fiscal union will take years to implement, and will probably cause the eurozone to shed up to a dozen member states on the way, but it will eventually come about.
The little-used second verse of the British National Anthem says:
"May She defend our Laws,
And ever give us cause
To sing with heart and voice
God save The Queen."
Successive premiers have advised the Queen to breach that sentiment, and probably her Coronation Oath; to which she has dutifully acquiesced in line with her clear understanding of her constitutional duty. It is probable that her Diamond Jubilee will be accompanied by the increase of the power of Brussels over Britain, even though the UK will not be joining the euro and may even be repatriating trivial aspects of labour law. In those terms it is a sad thought that in the jubilee year there will be almost no reference to the third verse of the anthem, in which is a plea that the Almighty will deal with those who would undermine the Monarchy:
"Confound their politicks," and "Frustrate their knavish tricks."
Cameron will not see his policy as a knavish trick. He will be persuaded - as his predecessors were - that there is no future for the United Kingdom outside the EU. So he will risk his already-tenuous popularity, and probably his position, in the pursuit of what he will perceive to be the national interest. It is not easy to imagine such a smooth operator adopting the role of a martyr, but it is probably going to be his fate; and his Liberal Democrat allies will do nothing to save him from the dilemma that will send him down that path.
Tory Eurosceptics demand 'repatriation' of powers from the eurorats of Brussels. This is such an arcane demand, in the current situation of the European Union, that the British Prime Minister can only make himself a figure of ridicule in his peers' eyes if he does anything significant to pursue their demands.This incredulity would apply not just to the leaders of the other EU members, but to Putin and Hu and Singh and Obama who are all being advised that a stable Europe is necessary for their own countries' economic success. So Cameron will go the way of Heath who lied systematically about the implications of EEC membership; of Thatcher, who talked tough yet signed up to the EEC becoming the EU; and of Major who flannelled and equivocated while he squeezed the UK into the Maastrich Treaty. Blair's 'offence' in agreeing to the tidying-up excercise of the Lisbon Treaty was relatively trivial and was popular in his own party. The last three Tory Prime Ministers eventually ignored grassroots opinion in their party to drag the United Kingdom more inextricably into the European system [whose surviving founders, not least Delors, now regard with despair]. Cameron will continue in that tradition, whetever rhetorical devices he may deploy while he diminishes his credibility among his rank-and-file as he is pushed along the lonely and painful route that lies ahead.
Saturday, 26 November 2011
Democratic Deficit
One of the discredited Rating Agencies has downgraded Belgian government debt: apparently on the grounds that they have not had an established government for well over a year. The cause of the bickering between political parties arises from an excess of democracy, that pretty well ensures that there is never a predominant party with a parliamentary majority. Belgium's policy options are restricted by the fact that the state is a member both of the European Union and of the euro: the national capital, Brussels is overshadowed by a few buildings within that city from which the EU is run and by Frankfort where the European Central Bank is located. Every opinion and brand of Flemish nationalism is represented in the Belgian Parliament; as are all the factions and aspirations of the French-speaking Walloons. This wonderfully democratic outcome is impotent: the politicians can't agree formally how to share out ministerial posts, so they have just shuffled the pack and carried on from week to week as 'caretaker' ministers; and operationally it doesn't matter. But cosmetically it looks untidy, so Standard & Poors have chosen to give Belgium a kick by reducing their rating from AA+ to AA: this will license market traders to have a whirl at making a bit more money by selling Belgian debt short: a great game for the insiders, and a worry for ordinary folk, who know that policy on trade and industry is made by the EU, and well understand that the euro is completely beyond influence from any Belgian government.
A Belgian is President of the EU Council of Ministers, but he has no power: he can merely try to co-ordinate 27 heads of state and heads of government. The EU Parliament remunerates it members exceptionally well, in the combination of salary [related to the local parliamentary salary in the members' home countries] and EU expenses; but they have no real power. The Commissioners are nominated by the governments of the member states without any convincing pretence of democratic consent. Britain's Commissioner is a Labour Party hack who has never held national elected office, was totally unknown to the public on her appointment [made in haste when the sitting Commissioner was recalled to serve in Brown's despairing government], and whose rare appearances on the British TV News cause a surge of national embarrassment.The democratic deficit on the EU probably exceeds 100%.
The new Italian and Greek Prime Ministers are described as 'technocrats'. The 'technology' that they are supposed to understand is Economics, the discredited subject whose practitioners sanctioned and applauded all the excesses that have created the crises in business and in personal and in governmental debt; that none of the 'Atlantic economies' has yet begun to addressed effectively for the long term. They personally applied their Economics in bringing their countries into the tissue of lies and false hopes that enabled a very disparate group of countries to create the euro. They went on to occupy cushy roles in the unaudited EU mechanism and now have been set up as proconsuls for their cronies. They are part of the problem, not of any radical solution.
Germany has a carefully drafted democratic constitution, with a special court to protect it and a Chancellor who grew up as a subject of a militarily occupied satellite state. She is committed to democratic principles and is accutely aware of the fraud that was committed by the founders of the euro. She is reported to be viscerally unwilling to legitimate the lunacy that has created the state debts of those eurozone countries that have systematically [and knowingly] lived beyond their means by 'monetising' those obligations under a German guarantee. So she is pressing for something like a democratic structure to be created, within which at least part of the eurozone can move close to fiscal union [a united tax and budgetary system]. Ms Merkel is not prepared to guarantee past follies and frauds in the mean time.
The EU has never been even slightly democratic: the 'European project' is the imposition of an elite who have drawn on the widespread fear of European wars to justify their own job-creation machine. Any currency zone that adopts Merkel's principles will certainly be smaller that the eurozone of seventeen states that is just about surviving into another week. A German-led outcome may be a eurozone shorn of the weaker bretheren, or it may be a Neumark zone comprising Germany, Austria, Croatia, the Netherlands, Luxembourg, Slovakia, Finland and Estonia, probably Belgium, and possibly France, Poland, Latvia and Lithuania. The Czech Republic, Hungary and the Scandinavian EU members would probably be welcome to apply to join once the system were up and running. The 'Club Med' countries would not be considered for candidacy until their devalued euro - or their separate currencies - had well stabilised and their balance of payments was restored.
Britain's desperate imbalance of payments and its structural budget deficit would become even more conspicuous when it drew comparison with the Neumark bloc. It would become clearer that party politicians cannot solve the problems, and the yaa-boo antics of the House of Commons and in the TV 'question' programmes would move from being a national joke to become recognised as evidence of the failure of the entire political structure. The British situation is worse than that of the EU: it is worse than a democratic deficit: it is an advanced case of defective democracy. This tragedy has been developing for several decades: in Can Britain Survive? [1971] Ken Watkins and I wrote:
"...there is a kind of auction of popular programmes carried on by the major parties, in which the highest bidder tends to win the lot. Since the parties do not wish to commit political suicide they are, willy-nilly, compelled to act accordingly. The fact that this inhibits them from tackling the fundamental structural weaknesses in the in the economy can be seen from the study of the elections since the end of the Second World War."
The same political auction game has continued unabated for forty more years! The deep defects of democracy, British-style, will not easily be corrected; and yet only when that correction has taken place can a rational economic strategy be formulated: then implemented over several decades. If the democratic defect is not corrected by completely fresh democratic means; a less democratic solution is quite likely to intervene.
The oldest current Constitution in the world, that of the USA, is not directly under threat. But American commentators from all segments of the political spectrum are worried about a failure of their institutions to provide clear policy in a very grave national crisis. Franklin D Roosevelt was - in effect - given exceptional powers to lead the economy out of depression, and he continued to exercise exceptional powers, sanctioned by Congress and unimpeded by the Supreme Court, for the Second World War. Harry S Truman had barely begun the process of surrendering the special powers when the emergence of the Cold War brought the Marshall Plan. Then came the Korean War, then the long stalemate of the nuclear confrontation. After 1991 the US was the unique superpower and the Clinton presidency was the first 'normal' incumbency since the mid-nineteen-thirties. It led to impeachment proceedings and a reassertion of party politics over constitutional propriety. George W Bush was continuing with the diminished role when 9/11 created a crisis and led to two overseas wars. The role of the Commander-in-Chief was once again unquestioned, and guided by the Vice-President and Secretary of Defence it transcended constitutional propriety. The limits to US global power were challenged and the end of hegemony was slowly acknowledged. Obama came into office in a diminished power and he has faced the full force of a resurgent, if uncomfortable, congressional democracy. His fluency became his greatest failing: he was unable to listen to and to interpret the diverse dialogues that had been unleashed by the collapse of the financial system and the weakening of the military-industrial complex. The attempts at bold initiatives to deal with the human consequences of the crisis that he has promoted seem to be based on the European welfare state from the nineteen-fifties: which the Europeans themselves are having to abandon under the burden of debt with which it saddled them. The result is that the USA has its own, very specific demcratic deficit: it is a real and urgent stress-point, that has been confronted by a dialogue of the deaf in a polarised Congress that exactly mirrors the depth of division in the country. Meanwhile, the prophets of economic Armageddon are having a bonanza.
A Belgian is President of the EU Council of Ministers, but he has no power: he can merely try to co-ordinate 27 heads of state and heads of government. The EU Parliament remunerates it members exceptionally well, in the combination of salary [related to the local parliamentary salary in the members' home countries] and EU expenses; but they have no real power. The Commissioners are nominated by the governments of the member states without any convincing pretence of democratic consent. Britain's Commissioner is a Labour Party hack who has never held national elected office, was totally unknown to the public on her appointment [made in haste when the sitting Commissioner was recalled to serve in Brown's despairing government], and whose rare appearances on the British TV News cause a surge of national embarrassment.The democratic deficit on the EU probably exceeds 100%.
The new Italian and Greek Prime Ministers are described as 'technocrats'. The 'technology' that they are supposed to understand is Economics, the discredited subject whose practitioners sanctioned and applauded all the excesses that have created the crises in business and in personal and in governmental debt; that none of the 'Atlantic economies' has yet begun to addressed effectively for the long term. They personally applied their Economics in bringing their countries into the tissue of lies and false hopes that enabled a very disparate group of countries to create the euro. They went on to occupy cushy roles in the unaudited EU mechanism and now have been set up as proconsuls for their cronies. They are part of the problem, not of any radical solution.
Germany has a carefully drafted democratic constitution, with a special court to protect it and a Chancellor who grew up as a subject of a militarily occupied satellite state. She is committed to democratic principles and is accutely aware of the fraud that was committed by the founders of the euro. She is reported to be viscerally unwilling to legitimate the lunacy that has created the state debts of those eurozone countries that have systematically [and knowingly] lived beyond their means by 'monetising' those obligations under a German guarantee. So she is pressing for something like a democratic structure to be created, within which at least part of the eurozone can move close to fiscal union [a united tax and budgetary system]. Ms Merkel is not prepared to guarantee past follies and frauds in the mean time.
The EU has never been even slightly democratic: the 'European project' is the imposition of an elite who have drawn on the widespread fear of European wars to justify their own job-creation machine. Any currency zone that adopts Merkel's principles will certainly be smaller that the eurozone of seventeen states that is just about surviving into another week. A German-led outcome may be a eurozone shorn of the weaker bretheren, or it may be a Neumark zone comprising Germany, Austria, Croatia, the Netherlands, Luxembourg, Slovakia, Finland and Estonia, probably Belgium, and possibly France, Poland, Latvia and Lithuania. The Czech Republic, Hungary and the Scandinavian EU members would probably be welcome to apply to join once the system were up and running. The 'Club Med' countries would not be considered for candidacy until their devalued euro - or their separate currencies - had well stabilised and their balance of payments was restored.
Britain's desperate imbalance of payments and its structural budget deficit would become even more conspicuous when it drew comparison with the Neumark bloc. It would become clearer that party politicians cannot solve the problems, and the yaa-boo antics of the House of Commons and in the TV 'question' programmes would move from being a national joke to become recognised as evidence of the failure of the entire political structure. The British situation is worse than that of the EU: it is worse than a democratic deficit: it is an advanced case of defective democracy. This tragedy has been developing for several decades: in Can Britain Survive? [1971] Ken Watkins and I wrote:
"...there is a kind of auction of popular programmes carried on by the major parties, in which the highest bidder tends to win the lot. Since the parties do not wish to commit political suicide they are, willy-nilly, compelled to act accordingly. The fact that this inhibits them from tackling the fundamental structural weaknesses in the in the economy can be seen from the study of the elections since the end of the Second World War."
The same political auction game has continued unabated for forty more years! The deep defects of democracy, British-style, will not easily be corrected; and yet only when that correction has taken place can a rational economic strategy be formulated: then implemented over several decades. If the democratic defect is not corrected by completely fresh democratic means; a less democratic solution is quite likely to intervene.
The oldest current Constitution in the world, that of the USA, is not directly under threat. But American commentators from all segments of the political spectrum are worried about a failure of their institutions to provide clear policy in a very grave national crisis. Franklin D Roosevelt was - in effect - given exceptional powers to lead the economy out of depression, and he continued to exercise exceptional powers, sanctioned by Congress and unimpeded by the Supreme Court, for the Second World War. Harry S Truman had barely begun the process of surrendering the special powers when the emergence of the Cold War brought the Marshall Plan. Then came the Korean War, then the long stalemate of the nuclear confrontation. After 1991 the US was the unique superpower and the Clinton presidency was the first 'normal' incumbency since the mid-nineteen-thirties. It led to impeachment proceedings and a reassertion of party politics over constitutional propriety. George W Bush was continuing with the diminished role when 9/11 created a crisis and led to two overseas wars. The role of the Commander-in-Chief was once again unquestioned, and guided by the Vice-President and Secretary of Defence it transcended constitutional propriety. The limits to US global power were challenged and the end of hegemony was slowly acknowledged. Obama came into office in a diminished power and he has faced the full force of a resurgent, if uncomfortable, congressional democracy. His fluency became his greatest failing: he was unable to listen to and to interpret the diverse dialogues that had been unleashed by the collapse of the financial system and the weakening of the military-industrial complex. The attempts at bold initiatives to deal with the human consequences of the crisis that he has promoted seem to be based on the European welfare state from the nineteen-fifties: which the Europeans themselves are having to abandon under the burden of debt with which it saddled them. The result is that the USA has its own, very specific demcratic deficit: it is a real and urgent stress-point, that has been confronted by a dialogue of the deaf in a polarised Congress that exactly mirrors the depth of division in the country. Meanwhile, the prophets of economic Armageddon are having a bonanza.
Thursday, 10 November 2011
Markets and Memories
Twenty years ago Britain was struggling to retain membership of the European Exchange Rate Mechanism [ERM]. Ministers railed against pessimistic forecasts from market analysts, whom they stigmatised as 'teenage scribblers' - people whose exposition of the current market situation was uninformed by memories of previous difficult periods for the value of the British pound. The struggle was lost: Britain had to withdraw from the ERM and George Soros came away from his speculative involvement as a much richer man.
Italy stayed within the ERM: as a very specially privileged member. Under the rules of the System the other member countries had to take action to ensure that the market 'value'of their currencies remained within 2.5% of the median value of all the members' currencies: except the Italian Lira which was allowed to deviate from the median by 7.5% [and was informally allowed to get worse than that]. So the strongest currency - often the German Mark - could be 2.5% above the line, while Italy was [officially] 7.5% below: that was a 10% gap in Italy's favour.
It was therefore to be expected that when the Euro was created the other members of the old ERM club were habituated to turning a blind eye to detailed deviation by Italy from the strict entry criteria that were notionally imposed. Given that Italy was allowed to do this, the Greeks considered themselves licensed to take the trickery further. The manipulators of 'The European Project' carried with them huge optimism bias. They convinced themselves that all would be best in the best of all possible Europes if an all-inclusive Euro drove forward continental prosperity.
The teenage scribblers of 2011 have no significant historical awareness and no relevant understanding; consequently they have advised their clients to make the Eurozone situation much worse. When the dust has settled on the slowly developing crisis of 2007 to 2014 the memory will fade; and the next panic will collapse .
Germany needs an explanation for Hitler. One of the strongest is the idea that the hyperinflation of the early nineteen twenties caused the economic and social chaos that made even Nazism seem preferable. So millions of Germans are well primed to vote against any policy that could lead to excessive inflation, including 'quantitative easing' by the European Central Bank. Hence Chancellor Merkel has stood out against the ECB following the line taken by the US Federal Reserve and the Bank of England. So in this context selective historical recollection is of very dubious value; but it is very powerful. Whether or not it is more powerful than 'the markets' we will son see.
Italy stayed within the ERM: as a very specially privileged member. Under the rules of the System the other member countries had to take action to ensure that the market 'value'of their currencies remained within 2.5% of the median value of all the members' currencies: except the Italian Lira which was allowed to deviate from the median by 7.5% [and was informally allowed to get worse than that]. So the strongest currency - often the German Mark - could be 2.5% above the line, while Italy was [officially] 7.5% below: that was a 10% gap in Italy's favour.
It was therefore to be expected that when the Euro was created the other members of the old ERM club were habituated to turning a blind eye to detailed deviation by Italy from the strict entry criteria that were notionally imposed. Given that Italy was allowed to do this, the Greeks considered themselves licensed to take the trickery further. The manipulators of 'The European Project' carried with them huge optimism bias. They convinced themselves that all would be best in the best of all possible Europes if an all-inclusive Euro drove forward continental prosperity.
The teenage scribblers of 2011 have no significant historical awareness and no relevant understanding; consequently they have advised their clients to make the Eurozone situation much worse. When the dust has settled on the slowly developing crisis of 2007 to 2014 the memory will fade; and the next panic will collapse .
Germany needs an explanation for Hitler. One of the strongest is the idea that the hyperinflation of the early nineteen twenties caused the economic and social chaos that made even Nazism seem preferable. So millions of Germans are well primed to vote against any policy that could lead to excessive inflation, including 'quantitative easing' by the European Central Bank. Hence Chancellor Merkel has stood out against the ECB following the line taken by the US Federal Reserve and the Bank of England. So in this context selective historical recollection is of very dubious value; but it is very powerful. Whether or not it is more powerful than 'the markets' we will son see.
Thursday, 27 October 2011
Gambling
Today's news contains much good, and many items where it is clear that risk is being accepted by governments on behalf of populations who have little understanding of what is at stake. We will take three instances.
One.
27 October 2012 is the twenty-fifth anniversary of the 'Big Bang' in the City of London and the wider British financial market. A tightly managed group of self-regulated professions whose members largely bore personal financial responsibility for their actions [and set their own ethical standards] was replaced by an open marketplace. Foreign firms bought the stockbrokers and jobbing firms and began to use them as bases for gambling on an ever-expanding scale on their own account, abandoning the former focus on customer relations. Their leaders spoke about accepting and managing 'risk'; until 2007 when their frozen gambling debts were so great that governments had to bail them out to prevent systemic collapse of the economy. Because they paid a huge amount of tax on their reckless transactions the financial markets became the great favourite of British governments [especially the Brown-Balls Labour lot]; and it remains conventional wisdom that their 'markets' are essential components of the British economy. So there is yet more risk eventually to be absorbed by a debilitated economy; and little evidence that the politicians have a better understanding of this situation than did their predecessors in 1987 [except Ken Clarke, who is still there and may have learned a lot].
Two.
The Eurozone leaders have gone home to bed after a very late night session, content that they have shored up the system for an indeterminate period during which they will move slowly towards some sort of fiscal union. The longer the negotiations go on, the more risky situations will arise and the more scared the less-well-managed economies will periodically become, and the more the Germans will have their way in determining the shape and structure of the final deal.
Like it or not, there is now a 'two-tier' European Union. The in-crowd of the Eurozone have huge benefits and massive risks in their refreshed situation. Their banks have been bullied into surrendering 50% of the cash that the Greek state notionally owes them: and the whole Eurozone will now try to compel the Greek government to stay in the Euro and eventually pay up their remaining debts in Euros rather than in a putative devalued Drachma.
The outer circle is composed of the willing Euro-abstainers like Britain, the Czech Republic and Sweden and of the reluctant who have simply not passed the economic tests that Greece should never have been allowed to self-certify - especially Poland. There is little probability that the outer ten will have the slightest wish to seek the sort of coherence that is essential among the insiders. Some of them will still seek admission to the Eurozone. Some may form informal alliances, such as the former members of EFTA who joined the EEC together in 1973 [Sweden, Denmark and Britain] and may forge a new relationship with the other ex-EFTA members Norway and Switzerland who are in the European Economic Area but outside the European Union. If this step were taken it could prove an attractive alternative option for Poland but may not be attractive to the Czechs or Hungarians. There is all to play for: no option is risk-free, but there are now clear options.
Three.
The British Office for National Statistics has announced that Britain can expect the population to exceed seventy million by 2030. This is perceived to be 'good news', in that millions of immigrants and their children will be of working age, offsetting a steep forecast risk that there will be a doubling of the number of people over ninety years of age who will impose heavy costs on health and social services. This assumption entails huge risks; not least the fact that there is already a growing anti-immigrant sentiment. That politicians have either ignored the hardening of the popular mood, or stigmatised it as 'racist', is a major risk for the coherence of the country. There are real worries about Muslim colonisation of the country [and, indeed, of the Continent], which will not be assuaged by bland political reassurances. Demography is becoming dicey!
One.
27 October 2012 is the twenty-fifth anniversary of the 'Big Bang' in the City of London and the wider British financial market. A tightly managed group of self-regulated professions whose members largely bore personal financial responsibility for their actions [and set their own ethical standards] was replaced by an open marketplace. Foreign firms bought the stockbrokers and jobbing firms and began to use them as bases for gambling on an ever-expanding scale on their own account, abandoning the former focus on customer relations. Their leaders spoke about accepting and managing 'risk'; until 2007 when their frozen gambling debts were so great that governments had to bail them out to prevent systemic collapse of the economy. Because they paid a huge amount of tax on their reckless transactions the financial markets became the great favourite of British governments [especially the Brown-Balls Labour lot]; and it remains conventional wisdom that their 'markets' are essential components of the British economy. So there is yet more risk eventually to be absorbed by a debilitated economy; and little evidence that the politicians have a better understanding of this situation than did their predecessors in 1987 [except Ken Clarke, who is still there and may have learned a lot].
Two.
The Eurozone leaders have gone home to bed after a very late night session, content that they have shored up the system for an indeterminate period during which they will move slowly towards some sort of fiscal union. The longer the negotiations go on, the more risky situations will arise and the more scared the less-well-managed economies will periodically become, and the more the Germans will have their way in determining the shape and structure of the final deal.
Like it or not, there is now a 'two-tier' European Union. The in-crowd of the Eurozone have huge benefits and massive risks in their refreshed situation. Their banks have been bullied into surrendering 50% of the cash that the Greek state notionally owes them: and the whole Eurozone will now try to compel the Greek government to stay in the Euro and eventually pay up their remaining debts in Euros rather than in a putative devalued Drachma.
The outer circle is composed of the willing Euro-abstainers like Britain, the Czech Republic and Sweden and of the reluctant who have simply not passed the economic tests that Greece should never have been allowed to self-certify - especially Poland. There is little probability that the outer ten will have the slightest wish to seek the sort of coherence that is essential among the insiders. Some of them will still seek admission to the Eurozone. Some may form informal alliances, such as the former members of EFTA who joined the EEC together in 1973 [Sweden, Denmark and Britain] and may forge a new relationship with the other ex-EFTA members Norway and Switzerland who are in the European Economic Area but outside the European Union. If this step were taken it could prove an attractive alternative option for Poland but may not be attractive to the Czechs or Hungarians. There is all to play for: no option is risk-free, but there are now clear options.
Three.
The British Office for National Statistics has announced that Britain can expect the population to exceed seventy million by 2030. This is perceived to be 'good news', in that millions of immigrants and their children will be of working age, offsetting a steep forecast risk that there will be a doubling of the number of people over ninety years of age who will impose heavy costs on health and social services. This assumption entails huge risks; not least the fact that there is already a growing anti-immigrant sentiment. That politicians have either ignored the hardening of the popular mood, or stigmatised it as 'racist', is a major risk for the coherence of the country. There are real worries about Muslim colonisation of the country [and, indeed, of the Continent], which will not be assuaged by bland political reassurances. Demography is becoming dicey!
Friday, 30 September 2011
Sklovakia should stand firm
Slovakia has very recently been noticed by many international media ccommentators as a possible obstacle to the quiet confirmation of the already-spent first tranche of the eurozone's bailout package for Greece.
Now that the Bundestag has voted in favour - as was always to be expected - parliamentary approval remains to be secured from half a dozen member states: with the Slovaks likely to vote last. Their vote is expected to take place in about a month's time, and the consensus view of outsiders is that the majority of factions will accept the obligation to be 'good Europeans' in the way that the eurorats of Brussels seek to impose on all their vassals.
This will give time for a much better test of the ability of the Greek government to deliver what they have promised in terms of job cuts, salary and pension reductions, and sales of public assets [and of the appetite of markets to buy Greek assets and take on their depressed workforces]. The current Greek policy must stand the test of time - obviously a much longer timescale than the next month - but the next month might give indicative evidence of the viability of the policy.
The Slovaks had to open up their books and admit the most exhaustive checks of their acceptability for euro membership; in a way that none of the founder members were tested. There is no reason why they should feel the slightest obligation to help international fraudsters, which is what the Greeks who managed their country's entry to the euro were. The other founder members can be construed as co-conspirators with the Greeks, because the facts were transparent at the time.
So if the Slovaks delay - or even defeat - the passage of the package of eurozone aid, they must be exonerated from the original sin.
Fear of the consequences of the bailout collapsing and causing a distressed default by Greece, followed by other countries and a global depression, will probably impel the Slovak parliamentarians to allow the package to proceed, in the end. But they have a good right to decide when that decision will be taken, and to raise a warning to the whole eurozone that they cannot take for granted the support of all the members for whatever is decided in the back-corridors of Brussels.
Now that the Bundestag has voted in favour - as was always to be expected - parliamentary approval remains to be secured from half a dozen member states: with the Slovaks likely to vote last. Their vote is expected to take place in about a month's time, and the consensus view of outsiders is that the majority of factions will accept the obligation to be 'good Europeans' in the way that the eurorats of Brussels seek to impose on all their vassals.
This will give time for a much better test of the ability of the Greek government to deliver what they have promised in terms of job cuts, salary and pension reductions, and sales of public assets [and of the appetite of markets to buy Greek assets and take on their depressed workforces]. The current Greek policy must stand the test of time - obviously a much longer timescale than the next month - but the next month might give indicative evidence of the viability of the policy.
The Slovaks had to open up their books and admit the most exhaustive checks of their acceptability for euro membership; in a way that none of the founder members were tested. There is no reason why they should feel the slightest obligation to help international fraudsters, which is what the Greeks who managed their country's entry to the euro were. The other founder members can be construed as co-conspirators with the Greeks, because the facts were transparent at the time.
So if the Slovaks delay - or even defeat - the passage of the package of eurozone aid, they must be exonerated from the original sin.
Fear of the consequences of the bailout collapsing and causing a distressed default by Greece, followed by other countries and a global depression, will probably impel the Slovak parliamentarians to allow the package to proceed, in the end. But they have a good right to decide when that decision will be taken, and to raise a warning to the whole eurozone that they cannot take for granted the support of all the members for whatever is decided in the back-corridors of Brussels.
Friday, 23 September 2011
Crisis and Perspective
Without moving from my desk in 114 Batovce I can look down the village green past the baker's shop and the news kiosk to the church, surrounded by red tiled roofs; and beyond to the hills that mark the northern limit of the Danube Plain. In a short walk I can see the manifold evidence of an improved standard of life in the EU, NATO and [latterly] the eurozone: we have improved roads, restored buildings, an up-to-date supermarket and a useful general store that occupies the old Co-op premises. The veg man still sets up his stall three times a week, good local wine is between two and three euros a bottle and a half-litre of excellent beer in the pub costs less than one euro. We have an excellent local administration, led by a sensitive and intelligent Mayor. Economic growth is strong; and while unemployment is rising jobs are still being created in modern factories in the major cities.
Slovakia was emerging from the mire of communism - and still outside the European Union - when lying became institutionalised among the EU insiders; most obviously in the late 'eighties in the matter of the ERM [exchange rate mechanism], the scheme under which the currencies of member states were meant to 'converge' as a first step towards creating a common currency. If the exchange rate of any member currency moved to more than 2.5% above or below the average value of all the member currencies, the central bank and the government of that country had to take the necessary measures to bring the exchange rate back into conformity with the rules. There was a huge amount of fudging of figures: so although the range between the most divergent country above the average and the most divergent below the average was supposed to be a maximum of 5%, much higher diversion was tacitly tolerated. Not even that fudge could accommodate Italy, so the Italians were allowed a special range up to 7.5%: making the 'official' maximum divergeance between the lira and the currency furthest from it in strength 10%. Britain was a Johnny-come-lately into the system, tried to keep the rules with gold-plated rigidity, almost bankrupted the Bank of England in the process, and withdrew in ignomony in 1992.
The core EU countries then proceeded to create the common currency, the euro, on the understanding that the 'weaker bretheren' might not always be efficient in action or honest in their reporting of it. Member governments retained their power over taxation and spending policy, which they were supposed to exercise in accordance with the 'Growth and Stability Pact' so that the economic policies of the eurozone might converge and make the currency viable. Among the first to breach the Pact were France and Germany; and thereafter hypocrisy was institutionalised alongside making false returns and empty promises.
New members continued to join the euro, presumably hoping that there was enough validity in what was said in support of the system by the leaders of the major EU member states; and Slovakia was admitted on January 1, 2009.
Now the Slovaks have become pretty well aware of the rotten state of the EU. They presented the lowest turnout of any member state in the latest European Parliament election, and their parliament has hesitated to agree to any bail-out for profligate medacious south Europeans: they may still decide to stop any drain of their resources into the black hole created by the debts of the 'pigs' [Portugal, Ireland, Greece and Spain]. They are probably prepared to surrender more economic sovereignty to a strong and honestly-run eurozone [one national magasine a couple of weeks ago had a front cover asking 'IS THIS THE END OF SLOVAKIA?' as a sovereign state]; but that is a far cry from continuing to accept the pack of lies on which the currency was originally floated.
David Cameron is free to demand 'action' from the euro-states: but following the news from a village in one of the healthier member economies one becames aware of the seriousness of the issues that have to be resolved before the longer term future of the euro can be defined. On the same day [22/9/11], Cameron told the United Nations that they had a duty to oppose oppressive regimes that attacked their own people; and failed to mention Zimbabwe. That is the same sort of selective blindness as that which enabled European politicians and Brussels eurorats to con seventeen nations into accepting the euro: so, as usual, we have the pot describing the kettle as smoke-tarmished.
Slovakia was emerging from the mire of communism - and still outside the European Union - when lying became institutionalised among the EU insiders; most obviously in the late 'eighties in the matter of the ERM [exchange rate mechanism], the scheme under which the currencies of member states were meant to 'converge' as a first step towards creating a common currency. If the exchange rate of any member currency moved to more than 2.5% above or below the average value of all the member currencies, the central bank and the government of that country had to take the necessary measures to bring the exchange rate back into conformity with the rules. There was a huge amount of fudging of figures: so although the range between the most divergent country above the average and the most divergent below the average was supposed to be a maximum of 5%, much higher diversion was tacitly tolerated. Not even that fudge could accommodate Italy, so the Italians were allowed a special range up to 7.5%: making the 'official' maximum divergeance between the lira and the currency furthest from it in strength 10%. Britain was a Johnny-come-lately into the system, tried to keep the rules with gold-plated rigidity, almost bankrupted the Bank of England in the process, and withdrew in ignomony in 1992.
The core EU countries then proceeded to create the common currency, the euro, on the understanding that the 'weaker bretheren' might not always be efficient in action or honest in their reporting of it. Member governments retained their power over taxation and spending policy, which they were supposed to exercise in accordance with the 'Growth and Stability Pact' so that the economic policies of the eurozone might converge and make the currency viable. Among the first to breach the Pact were France and Germany; and thereafter hypocrisy was institutionalised alongside making false returns and empty promises.
New members continued to join the euro, presumably hoping that there was enough validity in what was said in support of the system by the leaders of the major EU member states; and Slovakia was admitted on January 1, 2009.
Now the Slovaks have become pretty well aware of the rotten state of the EU. They presented the lowest turnout of any member state in the latest European Parliament election, and their parliament has hesitated to agree to any bail-out for profligate medacious south Europeans: they may still decide to stop any drain of their resources into the black hole created by the debts of the 'pigs' [Portugal, Ireland, Greece and Spain]. They are probably prepared to surrender more economic sovereignty to a strong and honestly-run eurozone [one national magasine a couple of weeks ago had a front cover asking 'IS THIS THE END OF SLOVAKIA?' as a sovereign state]; but that is a far cry from continuing to accept the pack of lies on which the currency was originally floated.
David Cameron is free to demand 'action' from the euro-states: but following the news from a village in one of the healthier member economies one becames aware of the seriousness of the issues that have to be resolved before the longer term future of the euro can be defined. On the same day [22/9/11], Cameron told the United Nations that they had a duty to oppose oppressive regimes that attacked their own people; and failed to mention Zimbabwe. That is the same sort of selective blindness as that which enabled European politicians and Brussels eurorats to con seventeen nations into accepting the euro: so, as usual, we have the pot describing the kettle as smoke-tarmished.
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