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.

Schemes of Socialism

The newly selected Republican Vice-Presidential candidate for the forthcoming US General Election is quoted as likening Obamacare - the compulsory provision of health insurance for Americans - to the 'socialised medicine' that is common in European countries.

The Opening Ceremony for the recent Olympic Games in London included a hospital scene that may have convinced millions of Chinese and Americans that UK health services are primitive, with nurses in antique costumes putting two or more children in some beds. Within the United Kingdom there is mounting scepticism about the Conservative Party's promise that while they are in government 'the National Health Service is safe with us'. The minister in charge, Andrew Lansley, has shown himself to be a poor communicator and deaf to challenges; while implausible 'efficiency savings' are advanced as the cover for real-terms reductions in the funding that will be made  available to many components of the system.

It is notoriously a fact that research is constantly presenting new forms of treatment and new drugs that are often very expensive. The pharmaceutical companies spend massive amounts of money on research, which they can only recoup by selling drugs profitably. Thus health services, whether state funded, insurance funded or charging patients individually, have to pay for the research through the purchase prices they pay for the drugs. It is also  notorious that new treatments, including surgical and radiological and pharmaceutical procedures, prolong the lives of patients; so those individuals are likely to live longer as users of maintenance treatments. So if any healthcare system were to provide the best available treatment to all comers, free to the patient at the point of delivery, the costs would increase massively year on year. If the funding for a state system of healthcare is capped, it must follow that some treatments are unavailable to some patients; and some treatments are not available to any patients. This all creates stress points where the decisions are taken as to which treatments shall be available, to what categories of patients. In a country like the UK, where the National Health Service is hugely popular, voters resent restrictions on treatments and would always vote by a huge majority for untrammelled funding of the Service.

Politicians are coming to understand that for at least forty years the state has been raising more and more taxation - and also borrowing massive amounts of money - to maintain the NHS while paying ever more massive sums in benefits and 'tax credits' both to non-employed citizens and in wage subsidies to employees. This massive scheme of socialism has constantly been extended by both Labour and Conservative [and now by Conservative-led] governments; and it is an unavoidable fact that the spending is grossly excessive. There is no practicable means by which voters can be kept on-side with the sham democracy that still totters   on by default, if a government drawn from any of the existing parliamentary parties made a realistic attempt to reduce spending on health and benefits and all other government services [not least the defence of the realm and the law and order system]. The bathos of the present coalition government's situation is that they are actually borrowing more money, year on year, while they are claiming 'success' by reducing the rate of increase of borrowing that might occur without the cuts that they are making in public services and in defence.

The conclusion that US conservatives have reached, that any system of state-supervised compulsory healthcare becomes an intolerable burden on taxation [and that the same would apply to any open-ended permanent benefits system for people of working age] is born out by the British experience. Greece, Spain and Portugal are in varying degrees of proximity to bankruptcy because they have had similar systems. In the Greek case welfare costs have been accompanied by massive state spending on excessive public sector salaries, excessive pensions available from early ages, and tax avoidance on an heroic scale has ensured that the state met spectacular budget deficits by borrowing: time has now been called on that country.

To the American conservatives there is no difference in principle between Greece and the United Kingdom. They are not wrong as they hark back to the founding fathers of the republic and the great libertarians who have ensured that the massive scope of the US federal government has been restricted as compared to European countries. One of the many reasons why Americans strongly supported the foundation and the expansion of the European Union was that it presented a good prospect of becoming a federation like the USA, where there would be a balance between federal and state powers; leading to less 'big government' over the long term. The dishonest way in which the eurorats have tried to establish federalism by stealth meant that countries like Greece were able to act irresponsibly and continue to sell government bonds because international bond buyers assumed that Europe would collectively guarantee the debts of all the member countries. German voters are now determined not to be suckered in consequence of the eurolies that their government allowed to become common currency. The majority of Germans [and Finns, and Swedes, and Austrians, and Slovaks] are prepared to let Greece fail economically. Europe will then permanently be changed: jerked back into at least partial reality.

Britain has so far maintained its AAA credit rating: in defiance of the evidence that is all too apparent. The fake prosperity that engulfed and deluded the population for two generations is rapidly coming to an end. Both the safety net of benefits and the beloved National Health service are in danger: as are the equivalent systems in Italy and France, even though their different funding mechanisms partially obscure the parallels. The future is bleak.

Concern at the IMF: About What?

The Managing Director of the IMF has expressed concern about the probability that their forecasts for economic growth throughout the world must be downgraded. Her foreboding is justified by the regular downward revision of estimates for growth that are being published in various countries, especially in the light of the ongoing crisis in the eurozone and its potential negative impact on its trading partners in other parts of the world. In the face of such a negative mood among Economists, politicians, journalists, bankers and some business managers it is unsurprising that there is a growing feeling of unease among the general public.

During the so-called credit crunch of 2007-8 many governments tried to secure the future of banks in their territories by guaranteeing the deposits that people and businesses had placed in those banks. When banks could not meet depositors' demands for cash from their own resources the government supplied the money. Governments that had control of their own currencies, such as the US dollar and the British pound, could authorise their central banks to create 'new' money and make it available to the banks: some went further and actually create the money with which to buy control of threatened banks. In the USA this process was extended to the one insurance company, AIG, that had ruined itself by creating contracts by which it guaranteed to fund banks in certain circumstances which had been thought highly improbable until they happened to several big banks all at once.

In countries that did not have control of their money supply, notably those in the eurozone, the means available to governments to stabilise the economic situation were seriously constrained. For seven years before the credit crunch occurred the member countries of the eurozone issued bonds and bills [certificates of government debt] denominated in euros; and bonds that had been issued before the creation of the euro had become redeemable in euros. Those governments could not follow the lead of the Americans and the British in creating the money that they had to pay out to buy the bonds that fell due to be cashed: they had to borrow the necessary euros from the European Central Bank or the International Monetary Fund, or tap new funds created by other eurozone governments. In considering any of those options a government was faced with strict conditions attaching to any loan, that usually included the imposition of restrictive economic policies. At an early stage in the banking crisis the Irish government decided to guarantee all banks' obligations, raised a large loan and imposed dramatically restrictive conditions on the economy. Southern European members of the eurozone faced up to the crisis more slowly and then took the very different stance of demanding bail-out loans and prevaricated about imposing the conditions that they had accepted, threatening the northern eurozone countries with progressive economic collapse and political chaos. The northern eurozone countries regard this as simple cheating and are resisting any further concessions to the south unless they are accompanied by enforceable sanctions. Meanwhile the population of the whole Union is getting used to commentators covering the arguments about the possible withdrawal of some countries from the euro or the collapse of the entire venture. The fact that the eurozone is not coterminous with the European Union is widely understood: the Union could survive either the defection of some members or  the total collapse of the single currency.

The possibility of chaos in much of the EU - the world's largest economic bloc - is the cause of worry throughout the world economy. The shabby history of the Union - the political fudges, the pervasive unaccountability of the Brussels bureaucracy and the notorious 'democratic deficit' by which the eurorats have evaded public concerns in aggregating power in their own hands - has created the circumstances in which there is little mass empathy with any proposal to give more power to the Union. Spaniards and Italians would like the Union to be able to grab Germany's wealth and hand it to them in return for promises to which nobody gives the slightest credibility: Germany would never assent to such a scheme. The extension of another loan to Spain, agreed overnight, is an allocation of the existing funds which the Finns and the Dutch and the Slovaks and the Germans have already written off. This time round the northern eurozone members seem to be so little concerned about this further handout that they have agreed to give the Spanish government longer to impose austerity.

 And so the sorry saga drags on. Greece will leave the euro. With that example in their sights it is just possible that the Spanish, the Portuguese and the Italians will accept enough 'discipline' to keep the euro staggering along for a year or two. There is no hope of Europe leading the world economy to a new era of prosperity; and not much sign of the emergent economies or the US providing a 'motor' to drag the global economy into an era of growth. New thinking is needed, urgently.

Dubloons for the Dons

Today's German press is highly critical of the fudge by which the eurozone is to bail out the Spanish banking system with a fund of up to 100 billion euros, by means to be clarified at an indeterminate cost to the currency union in general and to Germany in particular. In some editorials the term 'blackmail' is used frankly; in others the same analysis is more delicately expressed. While Greece and Ireland were implicitly deemed to be 'small enough to fail' Spain [like Goldman or Morgan] has been treated as 'too big to allow it to fail'. The eurozone could survive without Greece and Cyprus; provided there was no domino effect on Spain or Italy: but the impression over the past week became a conviction that if Spain was allowed to collapse financially the eurozone would be under terminal threat and the whole European project would massively be enfeebled.

All the eurozone finance ministers were complicit in the round of conference calls that took place at the end of last week. All their governments have become almost-unconditionally susceptible to being organised by Germany into a superstate. The details of the fusion, and of the way the inner union will articulate with the non-euro EU member states must be settled quickly; and Germany will predominate in all the discussions. The vulnerabilities of Italy and France are so significant that neither will have a veto on the integration process: and the influence of the eurorats in Brussels will be diminished in favour of the smooth suits in Frankfort.

The first few hours of trading in international markets after the announcement of the purported loan-guarantee to the Spanish banks demonstrated that supernational gamblers would only give credibility to the package when they can see the funds actually allocated by the Germans. The package was announced on trust: and it was not trusted. The eurozone expressed an intention to support Spanish banks, in circumstances where no fund had yet been established from which the guarantee could be converted into a series of payouts. 'The markets' on which the prices of Spanish [and Italian] bonds have fallen since the 'rescue' was announced are only in a tiny proportion driven by real-world firms [such as pension funds] that hold such bonds as part of their long-term investment portfolios. The majority of recent purchases and sales of state bonds and of bonds issued by south European banks are speculative gambles: the 'value' of the bonds is utterly irrelevant to the gamblers, who are interested only in making a gain by rightly predicting a rise or a fall in the price of the euro in terms of dollars, sterling, yen or other currencies. The market reaction strengthens the Germans' hand: the Spanish deal - and any subsequent deal for Italy or France - will only have credibility if Germany actually places resources in the appropriate backing funds. Chancellor Merkel faces elections: she and her party will be annihilated if they are perceived to have sold the German taxpayer short. Serious negotiations must now begin, with the collapse of the euro as the imminent threat. The eurorats will posture around the periphery, but the power unconditionally rests between Berlin and Frankfort; the modern and the medieval capitals of the German Reich.

Britain has blundered into the position where most of the electorate want the UK to be separated from this whole mess: so it can't be all bad!

Greek Bondage, Eurobonds and Project Bonds

Greece is likely to leave the eurozone: I have said it ever since the bubble was exposed and it becomes more likely every week. More and more Greeks resent the restraints on public spending that have been imposed [not just by the EU, but more significantly by the IMF] to correct the inane profligacy that the eurorats studiously ignored for more than a decade. So intoxicated were the Brussels sprouts by their power to exploit the inertia and ignorance of the pseudo-statesmen who were notionally their political masters that they just pressed on with the delusory agenda  of full integration that assumed - contrary to available evidence - that all eurozone members were behaving 'responsibly' according to EU treaties and agreements. Ancient Greece was a slave-powered society: Greece today is bound by truly oppressive rules imposed by aliens. The Greek situation is so extreme that once it is tackled by measures that can be given a fair chance of bringing the economy into balance, the other enfeebled eurozone economies can be ring-fenced affordably to the rest of the European Union; possibly even including contributions from Sweden and other EU states that are outside the eurozone.

Investments that might be made in Greece after exit from the euro, by public sector and private investors from Europe and beyond, could support substantial growth of the 'real economy': but only if the investors are sure of the security of the investments. Foreigners will not invest if their assets could be written off by hyperinflation, or if they faced a high probability of being nationalised, or be immobilised by strikes that freeze the stream of revenue. Similar strictures would apply in any eurozone country where investment was sought for projects devised to strengthen productive resources or improve the infrastructure: Italy, Spain, Ireland, Portugal and - potentially - France.

The experience of several countries that have tried quantitative easing [usually explained as 'printing money'] is that the 'new money' is not used to buy industrial assets or  stock in material trade, but to enable the central bank to buy bonds that might otherwise plummet in price if there were no buyers. The propaganda machine says that the intention is to sustain real economic growth: in reality quantitative easing is an additional way of shoring-up 'banks' that brings a huge threat of future inflation of costs and prices [and an additional erosion of personal wealth]. The players in financial markets are very clear of the real nature of this charade and they will not support any such policy by buying bonds issued by a government that is not pursuing serious economic discipline. Thus in Europe there is a strong lobby - led by the less-responsible governments - for the creation of 'eurobonds' that would be guaranteed by all eurozone governments. The funds thus accumulated would be lent to countries and to banks that found it difficult to raise funds in other ways. In effect it would be slightly covert way of getting Germany to shore up financial institutions in Spain, Italy, Ireland, France [and possibly even Greece]. It is absolutely unsurprising that Germany is resisting this.

But now the evidence is unequivocal that the eurozone is in danger of collapsing, with or without Greece, so the Germans have indicated a willingness to consider issuing 'project bonds' with some sort of eurozone backing [perhaps through the European Central Bank]. This would stimulate employment and spending in member countries by building roads, airports, housing estates and other infrastructure that would have demonstrable material existence. The buyers of the bonds would become the indirect owners of the assets, and could be recipients of interest payments directly raised from the assets: this would give a limited guarantee that the money would be properly used according to the intention of the investors. That guarantee would only be as good as the legal system and the economic order within which the investment would take place. Politicians are fantasisers, liars and cheats: the investments would have to be ring-fenced from political  chicanery; then the idea may begin to take up some serious attention.

Eurorats Defend Their Fantasy

The tragedy of the new poor in Greece is being intensified by the continual ratchet of pressure from the rest of the eurozone and it is still unclear whether or not there can be an 'orderly' end to the present crisis. I reckon that it is possible, provided that they first settle their debts to the alien markets and then make as smooth an exit from the euro as can be arranged.

Between 1975 and 2009 many Greeks - including a smattering of the now-impoverished - enjoyed a standard of living that was much higher than they could rationally afford. Tax evasion was a national pastime, where those who had discretion to declare their income were [in their hundreds of thousands] recklessly cavalier: while those less-well-paid people who were taxed the due proportion of their incomes more systematically were hugely disadvantaged.

Despite the Greek middle classes' well-known chicanery and abuse of the tax system, and notwithstanding false declarations made by Greek ministers, and ignoring the fact that a US financial firm had provided the Greek balance-sheet with a massive nominal value of essentially-mendacious 'instruments' that were cynically represented as secure assets, the progenitors of the euro were happy to welcome the Greeks into the new currency system.The whole tissue of Greek lies and trickery was welcomed by the even more cynical gang of Euro-fanatics who concentrated on building a completely federal European Union. Abstract logic and historical experience agree that a single currency is only sustainable in a single state, which can be either unitary or federal: knowing this, the eurorats regarded the establishment of the euro as an immense step on the route to establishing a single government over the whole European Union. They knew that it must sometime be shown to be unworkable to control a modern monetary union on a basis of consensus among national governments. By that time, the credit and the commerce of the EU would be so heavily dependent on the euro that states would surrender sovereignty in order to maintain economic stability and save face. No politician with any understanding of democratic accountability should have taken so reckless a decision as to bring his or her country into the euro: in the UK even Balls and Brown recognised that, and were able to compel Blair for once to miss an opportunity for being filmed at the middle of the in-crowd at the treaty signing.

In most EU countries a clique of civil servants have manoeuvred themselves into the posts that advise ministers on European policy, and such cliques typically behave as informal embassies of eurorats rather than as advocates of the national interest. Very few European states have constitutional arrangements whereby ministers coming newly into office can change their senior civil servants to reflect any 'deviant' policies on which the government was elected. Usually an incoming minister is surrounded by a pre-packed cabinet who have 'gone native' as aspirant eurorats, and if the minister is to any degree eurosceptic she or he is subjected to a barrage of 'education', information and intimidation with the intention of turning him or her into an evangelist in the 'European' cause. They provide speeches full of carefuly selected data for the minister to read, they flatter their victim on their 'growing understanding'; and they fill her with Belgian food, French wine, extravagant flattery and biassed commentary during their frequent visits to Brussels. Intimidation is a crucially important tactic in all Eurofederal politics. There is very rarely a perceptible advantage to the general electorate in any EU country from new policies that emanate from the Commission, so such policies are whenever possible presented as 'tidying up' existing rules and practices. Many rules and practices of the Union are absurd, oppressive, inept and open to corruption. Perfect examples of this are fishing quotas, and the market for authorisation of medical devices  that enabled the scandal of unacceptable silicon breast implants to occur.

Politicians who challenge such arcane and  corruptible devices are told that the matrix of measures by which some countries sought to gain from some sections of a Directive by letting others derive advantage from other provisions of the Directive is so finely balanced that the whole Union could unscramble if some palpably unsatisfactory provisions were challenged. The provisions of a Directive can only be changed by consensus of all the contracting parties: and [of course] this is usually impossible to achieve in the time that is made available under idiotic meeting protocols. In this way, slippage towards fuller union is taken under the pretexts of simplification and clarification and under pressure of time; and no steps in the reverse direction are tolerated.

The consequent 'democratic deficit' has been much discussed, especially in the peripheral countries of the Union: but there is no evidence that the inner coven in Brussels have become concerned at the rumblings of discontent. The recent riots in Greece are regarded rather as demonstrations of contumacy by the lower orders than indicators of absolute despair by ordinary, honest people. The eurozone finance ministers have been trying to tie down the entire Greek political class into promises of what they will do and say during and after the forthcoming election. The eurorats are demanding that all Greek politicians undertake to be accountable to Brussels bureaucrats and not to offer the people any option to vote against whatever impositions are to be required. This negation of democracy is especially offensive in the context  of  Greek history: the founding of a form of democracy - and the formulation of that word in ancient city-states, the fight for independence in the early nineteenth century, occupation in the Second World War, the rule of the colonels and the restoration of democracy. Since achieving independence Greece has defaulted on its debts half a dozen times and the eurozone finance ministers have all been briefed on this track record: they are right to be cautious; but they should not be so foolish as to demand the impossible.

Behind all this bluster lies the essential truth: if Greece exits the euro the momentum towards integration of  the EU will stop dead. The illogic of pressing forward with a false dream, erected on a raft of lies, will be inescapable. Doubts will lead to questioning, questions will produce painful answers. The European myth will falter: and then, then there could be hope of some honesty and common sense ventilating the corridors of Brussels: whether it gets into the meeting rooms depends on whether the politicians are scared enough to rediscover their primary duty of accountability to their home electorates.                              

Rating the Eurozone - Again!

One of the most depressing items in the British press this past week was a full-page advert from 'the Actuarial profession' announcing the huge number of people who have qualified by examination to join the ranks of those who have ruined private pensions and now threaten the future viability of general insurance. Actuaries can also find employment in Rating Agencies, those widely-despised institutions that did so much harm to the global financial system when they allowed their greed for fees to outrun even vestigial common sense.

Despite the bad publicity that they have received - and largely thanks to actuaries' nostalgic determination to give undue weight to Agency ratings [because there is no alternative to what they used to purport to do] - the Agencies continue to publish ratings; and often this has an impact that is disproportionate to its validity. But in some cases Agencies, desperate to rehabilitate their reputation and to rebuild their revenues, explain a rating change in terms that display insight and good observation of reality. Yesterday's downgrading of nine countries' sovereign debt was a fair commentary on the state of those economies in the context of the eurozone.

Cyprus is in some ways a Greek dependency and though its economic situation, notably the state debt as a percentage of Gross National Product, is less stressed than that of Greece the interdependency of the two economies [and especially of Cypriot banks with Greek banks] makes the smaller country's finances very weak because Greece is chronically weak. So it is appropriate that Cyprus joins Italy, Portugal and Spain in being down-rated by two notches on the Standard and Poor's scale. This downgrade, the most recent of a significant series, reduces Portuguese state bonds to 'junk' status. Italy, Spain and Portugal have recently had new governments which are pledged to enforce whatever packages of restrictive measures are necessary to secure continuing support from the eurozone and from the IMF [the International Monetary Fund]. It is utterly impossible to predict how far the populations of these countries will tolerate the high taxation and the worsening standard of living that will have to continue for an indefinite future period if the deficits are to be eliminated.

Slovakia, Slovenia, Ireland and Austria join France in having their state debt de-rated by one grade. Austria and the two states that were parts of Hungary for centuries before 1919, Slovenia and Slovakia,  have deep economic ties with Hungary which is outside the eurozone and has recently conducted policies that are on [and sometimes beyond] the boundaries of democratic acceptability. Austrian Banks, in particular, have lent heavily to Hungarian banks - borrowing that was largely used to fuel a housing bubble - and the chances of repayment in full have become negligible. So downgrading those three countries' state credit ratings is entirely reasonable. Ireland is managing the macroeconomics of crisis very well, but the depression is becoming more intense, emigration is rising and the banks [which are mostly state-owned] are having to accept larger and larger losses on bad loans that were made in the years when Ireland claimed the nickname of The Celtic Tiger.


France is the greatest casualty of the downgrading, and the most appropriate. President Sarkozy has tried hard to persuade Chancellor Merkel to use Germany's accumulated reserves to support the debts of all the governments whose countries are in the eurozone. Aware that German voters deplore the idea of covering feckless southern peoples for their foolish economic management, and for lying abut the liabilities that they have accumulated, Markel has tried to cap the commitment that Germany would make to bail-out funds. At the same time, Germany and France have led the eurozone [as such] in demanding that the most indebted states in the system must adopt strict austerity. Looking at this scene, Standard and Poor's analysts have built forward projections for what might be the economic future for each eurozone country: and the result is that the countries that are being compelled to restrict their state spending while maximising taxation cannot be expected to grow their national economies fast enough to begin to generate earnings that will enable them both to carry on servicing their debts and to invest in new industries, in high technology and in innovative business structures. The more successfully the austerity measures bite into the economic system, the less resilient and dynamic the economies of the chronic debtor states will be.

The only means open to a Rating Agency to issue a practical warning in support of such an observation is to downgrade their rating of the debt issued by the countries concerned. That makes it more expensive for them to borrow money, so it reduces the chances of the government adopting Keynesian methods to revitalise the economy. It makes a self-fulfilling prophesy of the Agency analysis: and the predicted negative outcome has a high probability of eventuation. Lower [or negative] growth in much of Europe will further imperil the collective viability of the eurozone: and it could possibly undermine the European Union as such. The very policies that are being imposed on eurozone countries in the cause of responsibility and stability may well cause greater chaos, despair and socio-economic dissolution than has yet been imagined. In this context, S&P's small adjustment to sovereign debt ratings may well be a harbinger of a very nasty future. In earlier centuries Europeans of all traditions accepted the validity of cautionary tales like the Prodigal Son, of axioms like 'waste  not, want not' and of adages such as 'you will reap what you have sown'. In the last third of the twentieth century clever fools thought that they could defy both traditional morality and simple arithmetic. They were wrong, and the price that future generations might have to pay for that folly remains beyond computation.

In short-term practical affairs, what will be the impact of Standard and Poor's downgrading of all those countries' state debts?

For the British, it is a hopeful sign that the Agencies continue to shrug off demands from some downgraded eurozone states for Britain's debt also to be downgraded; but that happy state will not continue unless the maintenance of austerity in state spending by the UK is balanced by economic growth and a marked reduction in the balance of payments deficit. Positive growth of the UK economy has to be seen by the middle of 2013 - at the latest - or downgrading will be inescapable.

Meanwhile, the eviction of Greece from the euro is unavoidable: the key question is, whether France and Germany choose to continue supporting Greek governments until the whole eurozone collapses, or whether Greece will be expelled [or allowed to slink away] soon, enabling the rest of the system to avoid a general implosion. If Greece is put out of the system quickly, the euro can probably survive as the common currency in sixteen enfeebled countries; but even then the subsequent three years will be a precarious period. Standard and Poor's may have the French spitting venom in their direction just now, but they gain brownie points for being of sound judgement on his point, this time round.

Credibility and Credulity

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

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

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

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

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

Classic Cocking Up

Greece
Now a turn-up for the books! No serious commentator thought that Greece would ever be able to squeeze living standards cruelly at the behest of the EU - and of Germany, in particular [as displayed in the viciously silly 'Nazi' propaganda]. Nobody could say exactly how the impossibility would be articulated. Now we know!

In a brilliant piece of intuitive populism, the Greek government has opted for a referendum. This will enable the vast majority of the population to refuse to give effect to the EU requirements. The country will have to default on its public debt, and drop out of the Eurozone. Within the zone, all hands will turn to preventing contagion from running to Italy: 'the markets' will not focus on Spain or Portugal, but go for the big scalp. The EU and the Eurozone should be able to defeat the markets if they really summon up the will and exercise the relative power of governments. More of that in the coming days.

As far as the Greeks are concerned, they will be on their own: presumably within the EU on a similar footing to Romania [unless they opt out, which is unlikely]. They will be subject to the Laws of Political Economy, which few [if any] of their Economists understand. The experience will be painful.If any reader wants to get ahead of the game, and learn the Laws, link to Personal Political Economy via this site.

Saint Paul's Cathedral
has now endured all the reputational risk that is available in the present incident: so the only sensible course is to achieve the removal of the 'protesters' and the attendant mob within a few days. The incident will then be a single event in the popular memory, over and done with [ideally] in three weeks.

Then the toil will begin.

The Bishop has taken charge of the cathedral, and has indicated that his priority will be to restore the church's role as the leading commentator and preacher on Ethics in business and public life: as Dean Inge was in Saint Paul's pulpit in the interwar years, when he became a nationally known irritant to the powerful and complacent. His books of sermons and his essays sold hundreds of thousands of copies.

This prophetic reality will not be achieved quickly: it will take the cathedral years to recover from its concentration on magnificent services and raising tens of millions of pounds for a magical restoration. The Bishop has a formidable intellect and a great presence: but even his abilities [as well as his time] will be stretched, and he must stay the course in his new leadership role.

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!

Three Days To Go

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

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

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

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

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

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

Hold on, Slovakia

The Slovak parliament yesterday declined to be bullied by the Brussels eurorats into committing a sum equal to a whole year's budget to the initial rescue fund for Greece. There will now be immense bribery, bullying and propaganda to force a reversal of that decision: thus reaffirming the profound hatred of the rats for democracy and national sovereignty.

Every politically-aware European knows that the initial fund [if it is approved] is already insufficient, and much larger contributions are already being computed. It is also recognised that such a fund could only be managed by a eurozone Treasury: removing financial sovereignty from the member states. The Slovaks have only had their own state since 1993, and [despite many frictions] their economic progress has been spectacular. They have every reason to be proud of their economy, yet their standard of living is still far below that of the Greeks: they have every right to decline to be milked to subsidise wastrels and liars.

Eurorats and most members of the European Parliament [who 'go native' very quickly] will deplore the 'inflamatory' language in this blog, if it comes to their attention. But it is important that the strength of feeling is understood: merely trying to suppress it and to deny it exposure in the media will briefly drive it underground - only to emerge in ugly rightist movements.

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.