Spectacular Naivete

Jacob Rees-Mogg speaks slowly and clearly. He has a reputation for expressing clear ideas, some of which are out of kilter with contemporary fashion; notably his strictly orthodox Roman Catholic attitudes to homosexuality and the procreation of children. Yesterday lunchtime he excelled himself in a discussion of the Commons committee report on the Brexit situation on the BBC2 show, the daily politics.

He displayed an astonishing degree of ignorance about the realities of contemporary human aspiration and about the nature of world trade. In his view, the mass of the British people want cheap food and cheap clothes; therefore the UK should open its borders to imports from the countries that can supply the cheapest food and the cheapest clothes.

He did not mention the need to have countervailing exports of British goods and services to other countries, with which to earn the foreign exchange to buy the cheap imports. he did not seem to have any awareness that the countries - like Bangladesh - that are home to the cheapest clothes manufacture have the least capability to pay for the high-tech exports on which the future of the UK depends.

It is a recurrent theme of this blog that the most advanced country, the USA, will never grant to Britain [or to the EU] truly most-favoured access to their domestic market, because they are anxious to nurture their advanced economic sectors: which is best done by enabling their innovating firms to make big enough profits continue with the research and development programmes. Even before Trump, and certainly after Trump, they will be unashamed to prefer US technology, entertainment, financial services and other highly profitable areas of activity. It is part of the American culture to preserve, protect and defend their own firms and their intellectual property.

As the world's second economy, China is notoriously prone to require firms trading into China to share their intellectual assets with Chinese 'partners'. Japan has been closely chauvinistic throughout its modern economic history, and India is developing on similar lines.

Thus, if Brexit Britain went down the route prescribed by Mr Mogg there would be a monumental and rapidly expanding balance-of-payments deficit.

Even more significant, however, is the implicit ignorance shown by Mogg about the pattern of consumer aspirations that has developed all over the world. Yes, the class of hereditary paupers that was created by the Thatcher regime [and subsequently consolidated as part-salaried welfare dependants producing low levels of output per head under Blair, Brown and Cameron-Clegg-May] does want cheap food and clothing. But they also want smart phones, computer games, access to popular music and sports coverage. A major reason why they want cheap food is to have enough money [and access to credit] to buy the high-end products and services that are most fashionable. Such a living standard is accessible to the poorer members of an advanced-economy common market: it is not available on WTO terms to a rapidly-declining economy that is denied access for its exports to the richest countries in the world.

Mogg has revealed to me the extent to which the extreme Brexiteers live in cloud cuckooland.

Germany's Second State

It is a commonplace assertion that a cabal of German bankers and industrialists fixed Hitler's appointment as Chancellor in January, 1933, at a time when support among the electorate for the Nazis was waning. The business figures were scared that the Communists in alliance with the Social democrats could take power: then the Social Democrats would be dealt with and a Communist revolution would be achieved. To forestall that possibility, an alliance of the Nazis with other right-of-centre groups in parliament was cobbled together, and vonPapen was installed as vice-chancellor to provide a restraint on Hitler. vonPapen was easily set aside, but the Nazis followed policies that were endorsed, broadly, by both the bankers and the industrialists who got the orders for rearmament and the construction of the motorways.

Over the last weekend, as Mrs Merkel struggled to cobble a government together after her disastrous loss of seats in the parliamentary election, a cabal of German industrial and commercial bosses put out a statement to the effect that Brexit must be prevented. It looks likely that Germany will have to go through another election, in which the anti-immigrant, eurosceptic Alternative for Germany is likely to retain [or even improve] its share of the vote. If that election is to be avoided, Mrs Merkel must find coalition partners who will agree with the agenda suggested by the business lobby. If that election becomes necessary, Mrs Merkel will be replaced and a new coalition will have to be formed - probably on the lines of past left-right 'Grand Coalitions' that will start with the business sector resolution high on their agenda.

Several other European states want the EU to cut a deal with the UK, including the central European countries that have never submitted to Mrs Merkel's instructions to accept a share of the immigrants whose admission to the continent has caused her to loose her electoral power.

Unfortunately, the shambolic British Brexit secretary, David Davis, will flatter himself that his address to a business group in Berlin last week influenced at least the timing of this exercise of the influence of German's Second [or Secret] State's muscle; which has always been powerful within and behind Germany's politics. The massive economic success of Germany since the utter devastation of the country in 1945 has been driven by the lineal descendants of the people who put Hitler into power, and that lobby remains hugely powerful. Their recent announcement included a reference to the need for flexibility on the EU's principle of free movement of people, since it is well understood that immigration was a key element in the British people's vote for Leave; as it was the key to Mrs Merkel's electoral disaster in Germany itself.

Britain voted to 'leave the European Union'. The 'Tories for National Self-Destruction' [aka the headbangers] interpret that vote as meaning that the UK must leave the political club of Brussels and the Common Market. I have always assumed that it is only rational to split those two: we must leave the antidemocratic political institutions, but remain in the economic community [whether formally, or under the guise of a new trade deal]. That now looks feasible.

The Tories spent much of last week excoriating the MPs who have argued for such a solution. They will soon be vindicated. Then the real target for contempt, those who plan the economic devastation of the United Kingdom by quitting the European Economic Area, must be exposed and defeated. 

Derivatives: The Looming Disaster

As if the total failure of government in the face of Brexit was not enough of a problem for the British state all on its own, the potential catastrophe in the area of Financial Derivatives can make all other considerations trivial.

It is very hard for me - who has been a horrified observer of the development of this market through the thirty-or-so years when it has been in existence - to get my head round what is involved when derivatives meet Brexit. Most people have never had the time to understand this type of 'product', and have never felt the need to do so. Yet as far as the international financial community is concerned derivatives are by far the largest set of 'assets' that they trade in. The bankers have induced their customers, taking in all other financial traders and pretty well every firm that does real-world business, to take part in derivative business as part of the process by which unknowns and unforseeables can be wished away from the the business scenario.

As the financial world has plunged headlong into cyberspace, the possibility of counterfactual events unsettling the market has increased. In response, very clever people have developed ever-more 'advanced' derivatives. Back in the Thatcher era, when the concept was now, most derivatives were derived from real-world events; such as the incidence of severe thunderstorms in the American midwest. Insurers found that the damage that such storms could do to crops was severe; but it was highly specific to very small areas where the storm might well destroy the crop in one large field but leave the surrounding area unaffected. Meteorologists set up businesses, equipped with satellite observation and reasonably sophisticated computer programmes, that could certify whether a storm was likely to have hit a particular farm at a given map reference on a given date: this enabled an insurer of the crop to make a snap judgement, whether to accept the claim at once, or whether to investigate whether it was genuine.

This enabled a secondary business to be established, whereby the information derived about the probability of of an event [such as storm damage] occurring could be tidied-up and used as the basis of a bet on the probability of storms causing damage. Such contracts enabled insurers, and bankers who lent money to farmers, to hedge against the actual occurrence of damage. Most areas do not have storm damage in any period, so a derivative based on the probability of a storm occurring leads to no payout: but if a storm does occur, the insurer can claim against the contract and thus meet at least some of the costs of real storm damage.

Once real-event related derivatives were deemed to be viable, there was an explosive expansion of derivative contracts. The probability of an asteroid striking New York is pretty low: but a derivative can be envisaged to cover it, and offered to firms that may be anxious about concentrating their property investment in that city; and why not earthquake damage as well? Such contracts could support insurers' capital; but they soon became a means of dealing with any possibility for loss both in the real world and in the fantasy world that the derivative creators were  erecting in cyberspace. Nowadays, any improbable 'risk' can be subject of a derivative and companies are [effectively] required by their financial advisers to place their bets on the subject matter of the derivative that they want to sell.

This huge trade in bets based on synthetic probabilities is focused on the great financial centres in New York and London. The world, led by the other countries in the European Union has bought and sold derivative contracts that are legally based in the UK: and now some clever observers have pointed out that all London contracts - ever since the market was invented - have been governed by the law of England within the overall regulatory system of the EU. Some commentators have suggested that all these contracts would become void when the UK leaves the EU at midnight on 31 March 2019: unless they can all be re-written - which is an impossible task. The ministers in Mrs May's government do not even seem to be able to understand the need to keep lorries crossing the channel taking components to and from factories in the UK and on the continent: so how can they be expected even to listen to the apparently-esoteric arguments that will be put to them with increasing urgency about derivatives [and other 'products' like options]?

This country is hurtling towards a disaster that will make the 2007-9 'crash' seem nothing. The calamity will occur in markets that the ministers probably don't want to understand: but those ministers will bear responsibility for the biggest-ever financial crisis if they continue on their present course. The headbanging Brexiteers are driving us all towards ruin: and if they succeed, they will plead innocence.

Ignorance and stupidity are no defence, in law or in the court of public opinion.

Good Old Ken

The MP for Rushcliffe [Nottingham] had agreed to stand down from the House of Commons, had the general election that cost Mrs May her majority not been held. If the last parliament had run to its full term, he would have retired with a good grace.

As things are, Ken Clarke ran again in the recent snap election, and is thus able to take a prominent part in the Brexit debate. As he emphasised in the Commons yesterday he has consistently supported the Tory party's pro-EU stance 'for the fifty years while I have been a member'. The Conservative Party was firmly in favour of remaining in the Union up to and during the referendum. Then Cameron ran away; and the party in a shuffling, sullen way declared that it was bound by the referendum result that almost none of them had expected.

As most of the party wallowed in stunned stupefaction, the tiny minority of Tory MPs who I call the headbanging Brexiteers stepped forward with the fantasy that the referendum vote obliges the UK to leave not only 'the European Union' but also the EEC and the European Economic Area. That this course of action would ruin the country - quickly - has not been considered by the loony right.The thousands of lorries that bring components to British factories from other factories located elsewhere in the common market, and take components the other way, are essential to the continuity of most of profitable UK industry, would be stopped dead in the event of a 'hard Brexit'. This would be calamitous: yet Mrs May is pressured to let it happen [largely, by letting David Davis spin out the sham negotiations until there is no time for rational argument to triumph].

Ken Clarke could be a powerful voice for commonsense; but instead he hankers after the Edward Heath vision of a Britain absorbed into Europe [thus removing the Irish question, as I mentioned the other day].

Britain must leave the corrupt sham democracy of the EU: that was the referendum result. But the economic benefits of the European Economic Area can be salvaged. It is tragic that Kenneth Clarke's obsession with a lost dream prevents such a competent political figure from pulling his weight at this crucial time.

Mrs May's Incomprehension

In an emotional Commons sitting yesterday, Mrs May displayed her total incomprehension of the realities of life for the very people she has said she wants to convince that 'Britain is a country that works for everybody'. She absolutely refused to pause in the roll-out of the new single benefit, even though Tory MPs had lined up to warn her of the stress that this was causing in households up and down the land. She lauded the principle of the benefit, and gloated that it was forcing people to take low-paid jobs [though, of course, she did not formulate it quite in those terms].

The government more generally have emphasised that people can get an advance of 50% of their benefit for the six-plus weeks they have to wait to draw the main sum; downplaying the speed with which repayment of the advance is required once receipt of the benefit is confirmed. It is a matter of indifference to the government whether the 'helpline' charges 50p+ per minute or is free: no doubt, if more people can access, it more of the callers will find it constantly engaged.

The same day, figures were produced that show that more than a quarter of young mothers all over the country and of the people in north-east England lead the large league table of people who are locked-in to low-paid jobs, with no hope of shifting to better situations in the short term. Thus more people are more deeply depressed than have ever been since the introduction of the welfare state; with the food banks planning for a bumper Christmas this year.

A long way beyond Mrs May's comprehension is the fact that as more people are driven into low-paid employment, that is also low-productivity employment.  So the more people 'gain' from the single benefit, the lower will be the average wage and the less will be the average output per head over the whole workforce: so the lower will be the average 'productivity' of labour: brilliant!

Today Mrs May is off to Brussels, to reveal her equally profound incomprehension of the plain English, French and German in which she and David Davis [and their team] have been told what the EU expects before they are willing to talk about giving Britain special access to the EU single market after Brexit. The Tory headbangers have sent her a formal warning not to be led into making any 'concession' to the EU: as if the UK has any real choice in the matter. Of course, none of the clots who have issued the warning lives on the breadline. None of them are dependent on the minimum wage, or on the single benefit; indeed, many of them have no need to earn their current income at all as they are rentiers or pensioners [or both]. So none of them will be in the categories who would experience extreme deprivation in an economically-isolated UK; but there are millions of people in Britain whose precarious living standards would be smashed to smithereens under WTO Rules. Thus these Privy Councillors and party hacks are showing the same arrogance of affluence as Mrs May and her Secretary of State for Work and Pensions showed yesterday. They are flexing their power to destroy the Conservative Party: perhaps they should be allowed to do just that; before the final vote in Parliament on the implementation of Brexit is held.

Countdown to Humiliation?

Neville Chamberlain was apparent a man of almost-infinite vanity, who believed of himself the quotations [from Shakespeare's Hotspur, and others] that he used to extol his success at the time of national humiliation in the days of the 1938 Munich Agreement. Perversely, public anger then and at the outset of war was directed to his predecessor as prime minister, Stanley Baldwin, who had in fact had a much clearer view of Hitler and initiated the process of rearmament and [in particular] the expansion of the RAF and the widespread development of airfields that were to save the country in 1940. Chamberlain handed over to Churchill only when his illness made continuance in office impossible, and his death was buried in the fraught news of the nation's survival and eventual victory.

Mrs May may be equally delusional with Chamberlain, but I do not believe that she is. She is, however, mortally wounded [in political terms] by her failed general election: since which, she has seemed like a doped rabbit in the headlights, buoyed-up by a remarkable self-belief that she is unable to communicate to the nation that she very rarely troubles to talk to. Even during the election, that she called herself, she did not face up to confrontation, but took a tedious road-show around the country making absurd claims about her own strength and stability and risking losing the oldie vote by a totally silly launch of a plan to pay for home care with a 'death tax'. That might be a sensible basis for consideration: but it would have to be pondered deeply and planned carefully, not drawn up on a fag packet and launched during an election campaign that was already failing to match that of the antediluvian Marxist who had repackaged himself to capture the inexperience of younger voters.

Now Mrs May is gearing up to make only her second major speech this year in the Brexit issue: the one matter that will determine her reputation and the durability of her tenure of office. Early in the year, at Lancaster House, she vaguely talked about the sort of outcome that she hoped for from the negotiations with the EU on how Britain would stand after March, 2019. Many months later, she is to go to Florence tomorrow to make a speech whose content and tone - so it is rumoured - will be determined in the Cabinet Room in Downing Street today. Given Mrs May's propensity to take up pusillanimous positions with the advice of a kitchen cabinet of close advisers, there is a possibility that what is decided in Cabinet may be transmogrified en route to Florence: but the probability of Cabinet resignations may rule that out. However, some Cabinet members in the past have brought down prime ministers and government by resigning; and at least one egotist might be tempted to go - in the hope of future glory - if he is dissatisfied by her remarks.

Rumours about the content of her draft speech are scarce; but they include the suggestion that she will offer a [low] sum of money to the EU as a divorce settlement, spread over a couple of years after March 2019, if the EU will agree to a transitional phase that could well end in British membership of a redefined European Economic Area.

It still appears to be the case that a small number of Conservative buffoons in the Commons actually believe that Britain can walk out of the political AND economic aspects of the EU and survive economically from April 2019. If they were to have their way, supported as they are by a larger number of other MPs who would be prepared to risk a 'hard Brexit' with crossed fingers and justifiable doubts, they would be open to the same treatment as the Rumanian dictator got from the people after his fall.pe

Good for France? Maybe. Bad for Britain? Definitely!

Today is VE Day: the celebration of victory in 1945. One of the most amazing aspects of that victory is that deGaulle's France was counted as one of the winning allies. It was awarded a permanent seat on the UN Security Council, a small slice of the occupation of Germany and of Austria, a sector of Berlin and an honoured place in the conferences where post-war Europe was carved up between the USSR and the 'western allies'.

Yet from August 1940 to the middle of 1944 France was effectively occupied by the Germans: though a small sector of the country called Vichy France [after its capital] was run as a Nazi puppet state. Most of the French nation acquiesced in the situation; a great hero of the First World War served as Head of the Vichy State and a leading politician acted as his first minister. Many more French men and women than has ever been admitted collaborated actively with the Germans. Nevertheless, Churchill was able to persuade Roosevelt to accept deGaulle as a junior partner in the alliance, and for his own reasons Stalin went along with that. deGaulle and his 'Free French' set about purging the most conspicuous collaborators. They executed Laval and imprisoned the extremely aged Petain. But they allowed most of the old establishment to reinvent themselves as democrats in a 'Fourth Republic' that eventually collapsed in its own corruption, to make way for the current Fifth Republic.

It was commonly said, in Britain as I was growing up, that "The French will never forgive us for saving them in two World Wars" and that has proved to be tragically true.

Today France has a new President-Elect, who was not born when the Fifth Republic was established. He has a great reputation as a pianist, an Economist, a banker and a chancer. Like Donald Trump, he owes his elevation to no party, though in the coming days we will see a coalition of the longstanding parties forming to give him a comfortable majority in both houses of parliament. He has said - in English, in Downing Street - that he will do all that a President of France can do to encourage financial services firms, especially banks, to move from London to Paris; and he will act vigorously and knowledgeably to frame both EU regulations and the negotiators' brief in the Brexit talks to the maximum extent possible to impede the continuance of London's lead in world finance. Fortunately, the French legal system and the capacities of French nationals cannot be changed enough, fast enough to enable Paris to take over London's role; but he may be able to engineer things so that New York is a net gainer from Brexit, rather than Paris or Frankfort.

Everything that Macron has said in the election campaign marks him out as a fresh face fronting a typical, traditional member of the French elite. As an Economist who is surrounded by Economists, his promises to 'restore' the social structure and the economy will prove nugatory. There is very little that he can do to reduce the alienation of the largest Muslim population in Europe, or to eradicate terrorism. He will court President Tusk and Chancellor Merkel, be polite to Donald Trump and woo the Chinese for French trade, especially in finance. Having worked in international banking he can not be unaware of his huge disadvantage: the world is not going to learn French to trade with him: he knows that he must use English as Mrs Merkel uses Russian, and this will always emphasise the limitations of aliens trading with and within France.

In summary, he may be able to do a few good things for ordinary French people, as a new front for the French establishment; but he will be a damned nuisance to Brexit Britain.

What is Spain Up To?

Spain has already inflicted huge economic sanctions on its citizens: 25% unemployment [at least], reduced pensions and increased age of retirement, underfunded schools and hospitals, bankrupt local authorities, tens of thousands of incomplete and unsold dwellings, increased taxes ... and the catalogue could go on and on. While the banks have borrowed from EU institutions and from foreign banks even in recent days, the markets are betting against the Spanish state being able to submit formally to the conditions that would be applied to a formal 'bailout' by the European Union, the European Central Bank and the International Monetary Fund. Since it is generally understood that the conditions on any formal baliout would be very harsh, why should the Spanish government not have done what the Greeks did: take the bailout as soon as possible, and blame the Germans [and the rest of the EU]  for the harsh treayment meted out to the population?

Simplistically, Prime Minister Rajoy is asserted to be over-endowed with Spanish pride; which makes him exceedingly reluctant to submit to mere north Europeans. More realistically, he has hoped to be able to avoid a bailout altogether. Meanwhile, his government has demonstrated that the Spanish state is sufficiently robust to be able to enforce very hard economic policies. Most importantly he has emphasised and demonstrated the huge difference between the Spanish situation, and the popular response to it, and that of Greece. Spain has presented strong evidence against the domino theory.

Greece will some day fairly soon be forced to withdraw from the euro; but that need not precipitate a gaderene rush by specluators to force Portugal, Sapin or Italy also to fail to manage their economy withon the eurozone.

Whenever Spain now applies for a bailout, on conditions that it will partially be able to dictate, that will not be a signal for the progressive withdrawal of all the weaker southern states from the euro. Spain has not just bought time for itself to get agreed terms; it has ensured that the gulf between Greece and the rest has become consolidated. Yes, there are demonstrations verging on the riotous in Spain; dismay affects most of the population some of the time, and some of the population all of the time; but there is not yet the degree of hopelessness and despair that now characterises the vast majority of Greeks.

The whole situation is classically tragic, but redemption for Greece is vastly different - and much more painful to achieve - than is the possibility to turn the Spanish economy round within the eurozone.

The Euro: What's New?

The European Central Bank [ECB] has now put a modest amount of flesh on the bare bones of a contingency plan that is a long way from being implemented. If Spain or Italy [or France] asks for help from the EU - maybe something short of an appeal for a Greek-style bailout - and if the EU and the IMF agree terms with the government, the ECB may buy bonds issued by that government. These could either be bonds that are already in the market, or new issues of bonds that will have three years or less to run before they must be bought back by the issuing government. Some government spending in the target country [provided that the borrowing falls within the approved strategy] will be funded by new euros issued by the ECB, if any country qualifies for the scheme.

The ECB's balance sheet will be increased if this should happen; on the debit side by its liability for the new issue of euros and on the credit side by an equivalent notional 'value' of bonds. All the member-countries of the eurozone own the assets and liabilities of the ECB, and the bigger they allow its balance sheet to grow, the more deeply they will be committed to backing the whole dodgy structure. Many news media on 7 September 2012 copied the bizarre assertion [whose originator I have not yet been able to identify]  that this new policy would have the 'opposite effect' to that of the Reparations that were payable after the First World War. The sheer idiocy of this wild assertion makes it notable, and it may even prove memorable.

Reparations - money to pay for repairs - was demanded by the states that had participated in the war and had not collapsed at the end of it; as had the empires of Russia and Austria. Republican Germany was required to accept the Peace of Versailles, which included reparations; and Keynes made his name internationally by publishing The Economic Consequences of the Peace, a book that predicted the disaster that would inevitably follow. It is not clear how far, if at all, Keynes's analysis influenced members of the US Senate when they refused to ratify the Treaty; but history teaches that this decision - which seemed catastrophic at the time - was ultimately of no importance. The Treaty could be blamed for hyperinflation and economic catastrophe in Germany: and thus for the emergence of Hitler; and the Senate had no part in it.

The German electorate and the managers of the Bundesbank [the German central bank] are now united in regarding the ECB's new plan as being very adverse for Germany. By opening up the balance sheet of the common currency to weak regimes in southern Europe, the Germans and the Austrians and the Dutch [with others] find themselves forced into the situation where they will have to back the ECB, or withdraw from the eurozone: which would have catastrophic effects for the whole continent. The relatively feckless countries will have the power to undermine the strong: those who have worked hard and saved will be penalised to service the accumulated debts that were incurred by reckless welfare state awards [and by massive corruption] in another group of states. The European lie is well understood, now; but those who were conned cannot work out how the truth can triumph. The coming months will be extremely fraught for all who live in the eurozone: and for all whose economies rely on trade with the zone.

The USA and China, Russia and India, have a massive interest in this situation and have no influence over it. Britain, Sweden and Denmark have seats in all non-eurozone  EU gatherings: they could thus be in the unique position of power-brokers, but there is no sign that they have any useful advice or suggestions to offer to their beleaguered neighbours.

Keynes would have had an answer; but he was unique!

Access to Justice

The USA leads the world in the density of lawyers among the population, and the 'financial services' sector is virtually unable to take any action without engaging expensive lawyers. By contrast, the former communist countries have relatively underdeveloped legal professions; and in some cases - not least, Russia - the subordination of the courts to dominant political forces makes their independence non-credible. Because of its British imperial history, India has a massive legal 'profession' and the courts are slow-acting, arcane and little trusted because of the methodologies used by lawyers [including judges] to maximise their own earnings.

The former sovereign of both India and the USA is, unsurprisingly, deeply in thrall to its lawyers. British lawyers talk, often and cleverly, about the rule of Law and access to Justice, as if Law and Justice were absolutes of which they are devoted and humble servants. Laws are promulgated in the name of the Queen, and Justice is supposedly delivered by judges who are acting directly as representatives of the Queen under the unconditional authority of a medieval monarch. The second verse of the National Anthem summarises the formal situation:
            May she defend our laws
            And ever give is cause
            To sing with heart and voice  
             God save the Queen!
In those terms the last ten Prime Ministers - and especially the Conservatives Heath, Thatcher and Major - have led their governments and parliament in a series of effectively traitorous actions under which they have used the Queen's authority to accede to European Union treaties and laws, and to interpretations of the European Convention on Human Rights by the Court that was established under the Convention, that result in a situation where only a minority of British laws are made by the traditional constitutional process. In most cases laws and regulations established by the EU are adopted into British law without even a pretence of debate in parliament. As a more loyal follower of the Constitution than her ministers, Queen Elizabeth II, has acquiesced in the policies that her ministers assure her are approved by the nation through their elected representatives, even though this has vastly diminished her ability [through her government] to defend the laws that the nation supports. She has similarly acquiesced in the removal of her ability to defend the nation through the series of cuts in defence spending, and by permitting huge laxity in immigration law and in the administration of immigration processes.

While successive governments have effectively diminished the sovereignty of British laws and institutions vis-a-vis those of the EU, the numbers of people engaged in the 'legal professions' [Barristers, Solicitors and Legal Executives] have burgeoned both on the basis of indigenous law and EU law and as the central component of the massive 'human rights industry'. As part of their programme to reduce the rate of increase in state borrowing the current government has cut spending and services in the courts and has also reduced the budget for 'Legal Aid', the system by which the Exchequer pays fees to lawyers to act for defendants in criminal cases and for litigants in some classes of civil [social and contractual] cases. All public prosecutions are paid for by the taxpayer. There thus remains a massive force of courtroom lawyers, the majority of whom are at least partially funded by the state. The other lawyers who sell their services to the public, especially to firms, rely on the fact that their clients could be put to huge expense if they try to make deals without recourse to lawyers that could then open them up to prosecution by the state or to litigation by other firms and people; so people and businesses buy legal services to gain a measure of reassurance.

In earlier centuries people accused of petty offences, such as drunken assault or vandalism or motoring offences which cause no injury, were taken next day to a court of their 'peers' [ordinary folk like them] where lay magistrates would dispense 'summary jurisdiction'. The only lawyer involved was the Clerk to the Court; modest penalties would be imposed there and then, and that would be the end of it. Now, even for trivial offences, people are allowed access to a lawyer at the state's expense: such a person can try to maximise their earning from any case by getting hearings deferred, challenging even the most obvious evidence, impugning the competence and integrity of police officers [requiring them to spend a huge amount of their time on trivial record-keeping] and making appeals whenever possible. This causes huge delays in the dispensation of justice. Cases are often heard months after the event, when witnesses are not available and [when they are available] their memories are not fresh; and with a frequency that cannot be assessed witnesses - both attendees and absentees - have been intimidated into withdrawing or modifying witness statements or into absenting themselves from the court. There is a great deal of reason to believe that near-universal access to lawyers [at no cost to the criminal] works against the achievement of truth in the courts and thus the administration of justice.

Thousands of people have set up in business as human rights lawyers and hundreds of them specifically as immigration lawyers. They know that a huge proportion of their clients will become dependants of the state who will produce only progeny. They know that the national economy is failing: but they blithely take their fees from the state and push the cases for more people to be added to the millions who live on the state. The legal professions collectively have committed the huge injustice of reducing the average living standard of ordinary people.

Of course, the massively remunerated cohort of City lawyers are major contributors to the huge turnover of the precarious finance sector and of the always safe insurance industry: overall the so-called financial services have provided significant turnover for the economy and paid a lot of taxation and the law is an indispensable part of those businesses. At least, they all pay the lawyers' fees out of their earnings: and London attracts worldwide business as a centre for arbitration and litigation.

As with almost every other aspect of British society, the 'parasitic' band of lawyers who themselves earn near-average incomes impose a net cost on the mass of the population who have modest incomes and falling living standards: while the highly affluent minority of lawyers take their place among the rich and privileged minority whose incomes and living standards are continuing to rise. Right across the piece, however, the key fact is that  the Law has become ever more obviously the field in which lawyers make the best living that they can: public benefit and Justice are still quoted, but with diminished sincerity; and every increase in what lawyers extol as  access to justice can only realistically be estimated in cash. High-flown rhetoric on the subject is mere hot air.

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.

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.