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.
Showing posts with label eurorats. Show all posts
Showing posts with label eurorats. Show all posts
Tuesday, 10 July 2012
Friday, 25 May 2012
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.
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.
Friday, 17 February 2012
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.
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.
Wednesday, 4 January 2012
Not a New Year Economic Review
Thousands of Economists have written millions of words in forecasts for the performance of the economy in 2012; globally, country-by-country, through individual business sectors and from various perspectives.
Very few of the pundits are predicting that the eurorats can relieve the eurozone of the crippling problems that arise from the falsification and fudges that marked the establishment of the single currency. The European Union was founded on a fervent hope: that war in Europe could be prevented, permanently, by drawing all the potential belligerents into a single economic and political entity. Once in the Union, it was hoped that it would effectively be impossible for any state to leave it. There have been endless moves to lock member countries into an 'ever-closer Union': which is interestingly different from the historic US aspiration to create a 'more perfect Union'. European integrationists have been content to drive through notably-imperfect measures provided each fudge received the assent of the member states, however reluctantly the consent was conceded. Once the deal was done the outcome was regarded as irreversible. The creation of the euro was the most significant single step in that direction. It went spectacularly adrift in 2010, then it continued to be an unsolved crisis through 2011. 2012 will be the year in which reverse gear is likely to be engaged; and at least one of the members of the eurozone who have been strapped into ejector seats may actually be parachuted out of the system.
At the end of 2011 China reaffirmed its aspiration to put a man on the moon by 2020, which implies leapfrogging the USA and Russia and the EU in the application of complex and significant technologies. A reconditioned Soviet-era aircraft carrier has taken to the high seas under the Chinese flag. Chinese agencies are buying huge areas of farmland in Africa, to add to their mineral rights and construction interests on the continent; and while China refused to take any direct part in a eurozone rescue fund their central bank has boosted its contribution to the IMF [which may be used to assist the European Central Bank. on appropriate terms] and it has frankly been admitted that Chinese agencies will be happy to buy European companies that control significant ik [see my book PPE]. Alien commentators who predict worsening conditions for the Chinese economy in the coming years should take note of the extent of the 'unnecessary' spending that the Chinese state is making on strategic and prestige projects that will deliver only long-term dividends, if any. China can cancel or defer a huge range of massive discretionary spending if the more short-term interests of economic and social stability call for such retrenchment; so China is unlikely to experience any shock to the system that cannot be compensated by easily deliverable actions.
India has much less flexibility over budgetary allocations because of the immense complexity and confusion within the social and economic structures where thrusting modernism contends with ruthless traditionalism. Publicly announced plans are never fulfilled on budget and on time, and only very rarely is legal action taken against corrupt politicians and administrators [in sharp contrast to China where dozens of death sentences each year ensure that most party figures and administrators are cautious not to get caught: often by committing no offences].
Very broadly, Latin American countries are consolidating their improved political situation. Venezuela has a very uncertain future which may partially be resolved by the election that is due this year, and the uncertain health of the President adds a further imponderable. The most significant headline in the continent is probably the relative success of Brazil's measures to limit the destruction of rainforest: and this achievement has not significantly been at the expense of economic growth which is taking Brazil higher among the 'top ten' global economies. Democracy is not fully consolidated in depth throughout the continent but blatant abuse is rarer than at any time since the expulsion the Spanish governors early in the nineteenth century.
The Islamic world has been intrigued by the 'Arab spring' which began last year, but it is far too soon to jump to any conclusion that democracy must develop and become entrenched in countries where closed systems of government have been disrupted. It has proved naive to assume that the momentum of progress will spread to unseat other oppressive regimes. Iran continues to make bellicose gestures which are partially generated for the age-old reasons of distracting the population from domestic oppression and partially in reaction to aggressive murmurings from Israel and the United States. It is widely assumed that the USA is not capable [either logistically or psychologically] of waging a full-scale war with Iran, while Washington shares the Israelis' determination to do what can be done to prevent Iran from being able to wage nuclear war on Israel. The presumed progress of the Iranian weapons programme, and of the related missile development, will determine whether Israel is able to hold off from intervention of the sort that has already caused delays to the project. The stand-off between Israel and Iran is an important component of the 'Palestinian question', even though Iran is not an Arab country. As Zionist settlements continue to be developed in occupied territory, and the rhetoric arising from the settlers [and from their supporters in Israeli politics] becomes more strident, the chances of a 'two-state solution' diminish and the relevance of Tony Blair's hugely overstated role as a peacemaker is more conspicuously diminished. Israel will continue to be the most important external influence on US politics, less because of the power of the conspicuous 'Jewish lobby' within the USA than because of the the increasingly clear parallels between the fate of the Palestinians and that of the 'Indians' who were dispossessed and allowed to die as the Frontier was pushed out over the lands that became the continental USA. If West Bank settlements are offensive to human rights and probably contrary to International Law, so was the establishment of most of the towns and cities of the USA. Nobody should be surprised if the vast majority of Americans have no wish to contemplate the similarities of the two situations [see my book Fundamental Tensions]. The longer the standoff between Israel and the Palestinian Authority continues, the more the settlements will grow and the self-confidence of the settlers will increase. The harrassment and alienation of Palestinian families will increase and lead to demands for more vigorous reactions from the Authority [or from rival structures if the Authority continues to accept American money and influence]; and self-selected surrogates for the Palestinian cause - including Iran and terrorist groups - can cause a great deal of damage. This problem will not be resolved during 2012, and at worst it can disrupt many aspects of world business by restricting the open market supply of oil, by creating instability in various Gulf states, and through the damaging potential impact of random terrorist attacks on worldwide targets.
The simple term 'Sub-Saharan Africa' has implicitly confirmed an impression in other parts of the world that the continent was somehow subnormal in economic performance, and in democracy, in legality, in culture and social cohesion. The nineteenth century concept that Africa was [or contained] a 'heart of darkness': of cults, primitive religion, tribalism, low intelligence and slavery continued to be quoted. Positive developments over recent years have done very much to make traders in the other continents aware of the economic opportunities, and of the increasing legitimacy of some governments that have reasserted the rule of law and even suppressed corruption. In some part-Muslim countries violence against Christians is increasing; but such incidents are being reported internationally. The depressive mood of crisis that infests Europe is sharply in contrast to the optimism that has been spreading across Africa. Despite the awful failures like Somalia and Zimbabwe there is very much positive thinking in and about Africa: which is really good news.
These pointers to the prospects for the world in the next few years all pivot on political data, and the key fact that the economic prospects of the various countries are heavily influenced - if not absolutely determined - by their politics. But these signs do not point down any single path. In Latin America the strongest economic growth is apparent in countries with the best achievements in democratic politics, while in Africa the maintenance of the rule of law - which is essential for secure growth - is less closely associated with electoral democracy and constitutional legitimacy. India is proudly [and genuinely] the world's biggest democracy: but the institutions of the state are as much inhibitions on growth and development as they are supportive of progress. The European Union is recognised to have a 'democratic deficit': most voters resent the loss of powers by their state parliaments even though they recognise that significant benefits derive from a common market and a commitment to peace. There is a great and growing tension between the eurorats of Brussels and the mass electorate, which is not articulated adequately at the interface of the European Council of Ministers and the Commission of the EU. Japan is publicly a chaotic democracy, and works efficiently because there is an effective, secretive Imperialist elite that can get things done regardless of the apparent weaknesses of the official government; while in China omnipresent [and unabashed] manipulation by the Party also makes the formal constitutional institutions irrelevant. These Asian models have been successful. Japan's much-described 'decade of stagnation' has been statistical rather than experiential, and there is little doubt that most Chinese welcome economic development and would not swap it for democratic stagnation.
The world is a patchwork of different political models, each of which serves some economies better than others. There seem to be no general rules: the American belief in the universal export of Democracy is not generally accepted, especially by people who prefer improving living standards to the irregular opportunity to have a negligible impact on the outcome of an election. The unedifying state of US politics in this election year is likely to be the worst possible advert for democracy: Brazil's economic success is a shining example of it. We face interesting an uncomfortable times!.
Very few of the pundits are predicting that the eurorats can relieve the eurozone of the crippling problems that arise from the falsification and fudges that marked the establishment of the single currency. The European Union was founded on a fervent hope: that war in Europe could be prevented, permanently, by drawing all the potential belligerents into a single economic and political entity. Once in the Union, it was hoped that it would effectively be impossible for any state to leave it. There have been endless moves to lock member countries into an 'ever-closer Union': which is interestingly different from the historic US aspiration to create a 'more perfect Union'. European integrationists have been content to drive through notably-imperfect measures provided each fudge received the assent of the member states, however reluctantly the consent was conceded. Once the deal was done the outcome was regarded as irreversible. The creation of the euro was the most significant single step in that direction. It went spectacularly adrift in 2010, then it continued to be an unsolved crisis through 2011. 2012 will be the year in which reverse gear is likely to be engaged; and at least one of the members of the eurozone who have been strapped into ejector seats may actually be parachuted out of the system.
At the end of 2011 China reaffirmed its aspiration to put a man on the moon by 2020, which implies leapfrogging the USA and Russia and the EU in the application of complex and significant technologies. A reconditioned Soviet-era aircraft carrier has taken to the high seas under the Chinese flag. Chinese agencies are buying huge areas of farmland in Africa, to add to their mineral rights and construction interests on the continent; and while China refused to take any direct part in a eurozone rescue fund their central bank has boosted its contribution to the IMF [which may be used to assist the European Central Bank. on appropriate terms] and it has frankly been admitted that Chinese agencies will be happy to buy European companies that control significant ik [see my book PPE]. Alien commentators who predict worsening conditions for the Chinese economy in the coming years should take note of the extent of the 'unnecessary' spending that the Chinese state is making on strategic and prestige projects that will deliver only long-term dividends, if any. China can cancel or defer a huge range of massive discretionary spending if the more short-term interests of economic and social stability call for such retrenchment; so China is unlikely to experience any shock to the system that cannot be compensated by easily deliverable actions.
India has much less flexibility over budgetary allocations because of the immense complexity and confusion within the social and economic structures where thrusting modernism contends with ruthless traditionalism. Publicly announced plans are never fulfilled on budget and on time, and only very rarely is legal action taken against corrupt politicians and administrators [in sharp contrast to China where dozens of death sentences each year ensure that most party figures and administrators are cautious not to get caught: often by committing no offences].
Very broadly, Latin American countries are consolidating their improved political situation. Venezuela has a very uncertain future which may partially be resolved by the election that is due this year, and the uncertain health of the President adds a further imponderable. The most significant headline in the continent is probably the relative success of Brazil's measures to limit the destruction of rainforest: and this achievement has not significantly been at the expense of economic growth which is taking Brazil higher among the 'top ten' global economies. Democracy is not fully consolidated in depth throughout the continent but blatant abuse is rarer than at any time since the expulsion the Spanish governors early in the nineteenth century.
The Islamic world has been intrigued by the 'Arab spring' which began last year, but it is far too soon to jump to any conclusion that democracy must develop and become entrenched in countries where closed systems of government have been disrupted. It has proved naive to assume that the momentum of progress will spread to unseat other oppressive regimes. Iran continues to make bellicose gestures which are partially generated for the age-old reasons of distracting the population from domestic oppression and partially in reaction to aggressive murmurings from Israel and the United States. It is widely assumed that the USA is not capable [either logistically or psychologically] of waging a full-scale war with Iran, while Washington shares the Israelis' determination to do what can be done to prevent Iran from being able to wage nuclear war on Israel. The presumed progress of the Iranian weapons programme, and of the related missile development, will determine whether Israel is able to hold off from intervention of the sort that has already caused delays to the project. The stand-off between Israel and Iran is an important component of the 'Palestinian question', even though Iran is not an Arab country. As Zionist settlements continue to be developed in occupied territory, and the rhetoric arising from the settlers [and from their supporters in Israeli politics] becomes more strident, the chances of a 'two-state solution' diminish and the relevance of Tony Blair's hugely overstated role as a peacemaker is more conspicuously diminished. Israel will continue to be the most important external influence on US politics, less because of the power of the conspicuous 'Jewish lobby' within the USA than because of the the increasingly clear parallels between the fate of the Palestinians and that of the 'Indians' who were dispossessed and allowed to die as the Frontier was pushed out over the lands that became the continental USA. If West Bank settlements are offensive to human rights and probably contrary to International Law, so was the establishment of most of the towns and cities of the USA. Nobody should be surprised if the vast majority of Americans have no wish to contemplate the similarities of the two situations [see my book Fundamental Tensions]. The longer the standoff between Israel and the Palestinian Authority continues, the more the settlements will grow and the self-confidence of the settlers will increase. The harrassment and alienation of Palestinian families will increase and lead to demands for more vigorous reactions from the Authority [or from rival structures if the Authority continues to accept American money and influence]; and self-selected surrogates for the Palestinian cause - including Iran and terrorist groups - can cause a great deal of damage. This problem will not be resolved during 2012, and at worst it can disrupt many aspects of world business by restricting the open market supply of oil, by creating instability in various Gulf states, and through the damaging potential impact of random terrorist attacks on worldwide targets.
The simple term 'Sub-Saharan Africa' has implicitly confirmed an impression in other parts of the world that the continent was somehow subnormal in economic performance, and in democracy, in legality, in culture and social cohesion. The nineteenth century concept that Africa was [or contained] a 'heart of darkness': of cults, primitive religion, tribalism, low intelligence and slavery continued to be quoted. Positive developments over recent years have done very much to make traders in the other continents aware of the economic opportunities, and of the increasing legitimacy of some governments that have reasserted the rule of law and even suppressed corruption. In some part-Muslim countries violence against Christians is increasing; but such incidents are being reported internationally. The depressive mood of crisis that infests Europe is sharply in contrast to the optimism that has been spreading across Africa. Despite the awful failures like Somalia and Zimbabwe there is very much positive thinking in and about Africa: which is really good news.
These pointers to the prospects for the world in the next few years all pivot on political data, and the key fact that the economic prospects of the various countries are heavily influenced - if not absolutely determined - by their politics. But these signs do not point down any single path. In Latin America the strongest economic growth is apparent in countries with the best achievements in democratic politics, while in Africa the maintenance of the rule of law - which is essential for secure growth - is less closely associated with electoral democracy and constitutional legitimacy. India is proudly [and genuinely] the world's biggest democracy: but the institutions of the state are as much inhibitions on growth and development as they are supportive of progress. The European Union is recognised to have a 'democratic deficit': most voters resent the loss of powers by their state parliaments even though they recognise that significant benefits derive from a common market and a commitment to peace. There is a great and growing tension between the eurorats of Brussels and the mass electorate, which is not articulated adequately at the interface of the European Council of Ministers and the Commission of the EU. Japan is publicly a chaotic democracy, and works efficiently because there is an effective, secretive Imperialist elite that can get things done regardless of the apparent weaknesses of the official government; while in China omnipresent [and unabashed] manipulation by the Party also makes the formal constitutional institutions irrelevant. These Asian models have been successful. Japan's much-described 'decade of stagnation' has been statistical rather than experiential, and there is little doubt that most Chinese welcome economic development and would not swap it for democratic stagnation.
The world is a patchwork of different political models, each of which serves some economies better than others. There seem to be no general rules: the American belief in the universal export of Democracy is not generally accepted, especially by people who prefer improving living standards to the irregular opportunity to have a negligible impact on the outcome of an election. The unedifying state of US politics in this election year is likely to be the worst possible advert for democracy: Brazil's economic success is a shining example of it. We face interesting an uncomfortable times!.
Wednesday, 26 October 2011
Back to the Mighty Markets
The Morning Posting
Though the media are still saying that the European Union and the Eurozone are under all sorts of threats from 'the Markets', the immediacy and seriousness of the threat is being downgraded. Back in prehistory Harold Wilson said that "a week's is a long time in politics": and time seems to be moving more quickly in this century. Commentators have not stopped mentioning the fact that 'markets' are a major source of pressure on the politicians and their advisers as they forgather again in Brussels; but they have been forced to respond to the demand of their readers and listeners for the nature of the threat to be specified. The press and broadcast commentators have begun to admit that the risk is not from 'markets' as such, but from individual users of and traders in financial instruments who tend to pursue a form of herd behaviour.
Throughout economic history there has been a series of 'bubbles' when far more investors have offered far more money than has seemed sensible after the event, for 'assets' that suddenly seem so attractive that almost every investor wants a slice of them. Nineteenth and Twentieth-century History regarded as absurd the boom in shares of ownership of black tulip genetics in seventeenth-century Holland: but it seems slightly less absurd today when it can be viewed as a 'false dawn' of the modern capabilities of genetic engineering. No doubt, there will be future bubbles in shares in businesses that make breakthroughs in the application of genetic science. Early in the eighteenth century, even though Scotland had already experienced a boom and a horrible bust of shares in a company for colonisation in Central America, the whole of the now-United Kingdom experienced a huge bubble in the value of shares in the South Sea Company. People who bought the shares early and then sold while the market was still rising made fortunes. Then far more people found their family nest-egg of gold or silver coins, or sold assets to get cash, which they became desperate to spend on shares: so there appeared people willing to create companies in which they sold shares - even including a company 'whose purposes will duly be disclosed'. Suddenly someone recognised that most of these companies had no real assets: some had paid dividends out of the money shareholders had given them, but there was no evidence that they would yield dividends even for a couple of years. The most percipient few investors were able to sell the shares for at least as much as they paid for them, but then more and more people tumbled to the truth and sought to sell: a sales panic ensued and most of the new companies vanished. The South Sea Company survived, in a much diminished state; then over the decades the lesson was shelved. The nineteenth century saw a succession of 'railway booms' as that technology spread around the world; Brazil had a 'rubber boom' [ended when Brits stole rubber genetics and installed plantations in Malaysia and Ceylon]; and the twentieth century had alarming stock-market booms and crashes. The dawn of a new millennium brought the dot-com bubble, and then followed uncontrolled expansion of a huge range of financial instruments which inevitably led to the greatest crash of all.
In every case the markets in which assets have been sold were simply media: the booms and busts were caused by the human psyche. Economists and journalists have written extensively about 'sentiment' and 'animal spirits', which was wholly appropriate: they also wrote about 'market sentiment' which was absurd.A major complicating factor is the fact that investors' optimism or pessimism is influenced strongly by cheerleaders: media commentators, 'analysts', rating agencies, Central Banks' statements and actions, government policy, opposition warnings and the lucubrations of Warren Buffet and other 'sages' or 'gurus'.
Market participants' behaviour could become so irrational that they sold Euros or Italian Government Bonds regardless of how much of the purchase-price they had lost, ignoring the fact that Europe is more than rich enough broadly to maintain the exchange rate of the Euro against the US Dollar and the Yen; and Italy is rich enough to unwind any perceived excess of government debt over a period of years. Any such asset-sellers would hurt the funds for which they are responsible, perhaps irreparably. Thus it is in their interests to preserve the medium-term 'value' of their holdings. As long as the Eurozone governments can show that they have the capability of maintaining medium-term assets-in-being [having dumped Greece, which is an unsustainable basket-case] they do not need to assemble trillions of dollars-worth of cash-on-the-table today. So they won't pile the cash up pointlessly: they don't need to. Markets have nothing to do with it. Market participants need strong nerves and common sense, and if fund managers should begin to behave destructively their employers should get rid of them - without any bonus or severance packages beyond the statutory minimum.
Evening Posting
After this afternoon's European Union 'summit' meeting no mighty new bail-out fund has been created, no immediate step has been taken towards 'fiscal union' of the Eurozone, and Italy has been forced into a humiliating promise to retrench further than had been intended by the busted Berlusconi government. The crunch on Greece is still being prepared; and there may yet be weeks of chatter before the banks are softened-up sufficiently to take the write-down of Greek state debt that will be necessary whether or not some means are found to keep Greece in the Euro The German Parliament has accepted a minimalist proposal from the Chancellor, who is far more concerned about German public opinion than she is about relations with France [though her speech this morning bizarrely referred to a threat that there could be a return to the era of wars in Europe if the EU should collapse].
After this evening's non-news had broken the immediate reaction of participants in 'the markets' was to raise stock prices a little. The politicians have made it clear that they are concerned to preserve the Eurozone: but are nowhere near panicking: they would not be stampeded into the sort of measures that US politicians [in particular] have been demanding from them. The eurorats' favoured technique of proceeding at snails'-pace towards consolidation of all power and wealth in their own hands has worked again.
Though the media are still saying that the European Union and the Eurozone are under all sorts of threats from 'the Markets', the immediacy and seriousness of the threat is being downgraded. Back in prehistory Harold Wilson said that "a week's is a long time in politics": and time seems to be moving more quickly in this century. Commentators have not stopped mentioning the fact that 'markets' are a major source of pressure on the politicians and their advisers as they forgather again in Brussels; but they have been forced to respond to the demand of their readers and listeners for the nature of the threat to be specified. The press and broadcast commentators have begun to admit that the risk is not from 'markets' as such, but from individual users of and traders in financial instruments who tend to pursue a form of herd behaviour.
Throughout economic history there has been a series of 'bubbles' when far more investors have offered far more money than has seemed sensible after the event, for 'assets' that suddenly seem so attractive that almost every investor wants a slice of them. Nineteenth and Twentieth-century History regarded as absurd the boom in shares of ownership of black tulip genetics in seventeenth-century Holland: but it seems slightly less absurd today when it can be viewed as a 'false dawn' of the modern capabilities of genetic engineering. No doubt, there will be future bubbles in shares in businesses that make breakthroughs in the application of genetic science. Early in the eighteenth century, even though Scotland had already experienced a boom and a horrible bust of shares in a company for colonisation in Central America, the whole of the now-United Kingdom experienced a huge bubble in the value of shares in the South Sea Company. People who bought the shares early and then sold while the market was still rising made fortunes. Then far more people found their family nest-egg of gold or silver coins, or sold assets to get cash, which they became desperate to spend on shares: so there appeared people willing to create companies in which they sold shares - even including a company 'whose purposes will duly be disclosed'. Suddenly someone recognised that most of these companies had no real assets: some had paid dividends out of the money shareholders had given them, but there was no evidence that they would yield dividends even for a couple of years. The most percipient few investors were able to sell the shares for at least as much as they paid for them, but then more and more people tumbled to the truth and sought to sell: a sales panic ensued and most of the new companies vanished. The South Sea Company survived, in a much diminished state; then over the decades the lesson was shelved. The nineteenth century saw a succession of 'railway booms' as that technology spread around the world; Brazil had a 'rubber boom' [ended when Brits stole rubber genetics and installed plantations in Malaysia and Ceylon]; and the twentieth century had alarming stock-market booms and crashes. The dawn of a new millennium brought the dot-com bubble, and then followed uncontrolled expansion of a huge range of financial instruments which inevitably led to the greatest crash of all.
In every case the markets in which assets have been sold were simply media: the booms and busts were caused by the human psyche. Economists and journalists have written extensively about 'sentiment' and 'animal spirits', which was wholly appropriate: they also wrote about 'market sentiment' which was absurd.A major complicating factor is the fact that investors' optimism or pessimism is influenced strongly by cheerleaders: media commentators, 'analysts', rating agencies, Central Banks' statements and actions, government policy, opposition warnings and the lucubrations of Warren Buffet and other 'sages' or 'gurus'.
Market participants' behaviour could become so irrational that they sold Euros or Italian Government Bonds regardless of how much of the purchase-price they had lost, ignoring the fact that Europe is more than rich enough broadly to maintain the exchange rate of the Euro against the US Dollar and the Yen; and Italy is rich enough to unwind any perceived excess of government debt over a period of years. Any such asset-sellers would hurt the funds for which they are responsible, perhaps irreparably. Thus it is in their interests to preserve the medium-term 'value' of their holdings. As long as the Eurozone governments can show that they have the capability of maintaining medium-term assets-in-being [having dumped Greece, which is an unsustainable basket-case] they do not need to assemble trillions of dollars-worth of cash-on-the-table today. So they won't pile the cash up pointlessly: they don't need to. Markets have nothing to do with it. Market participants need strong nerves and common sense, and if fund managers should begin to behave destructively their employers should get rid of them - without any bonus or severance packages beyond the statutory minimum.
Evening Posting
After this afternoon's European Union 'summit' meeting no mighty new bail-out fund has been created, no immediate step has been taken towards 'fiscal union' of the Eurozone, and Italy has been forced into a humiliating promise to retrench further than had been intended by the busted Berlusconi government. The crunch on Greece is still being prepared; and there may yet be weeks of chatter before the banks are softened-up sufficiently to take the write-down of Greek state debt that will be necessary whether or not some means are found to keep Greece in the Euro The German Parliament has accepted a minimalist proposal from the Chancellor, who is far more concerned about German public opinion than she is about relations with France [though her speech this morning bizarrely referred to a threat that there could be a return to the era of wars in Europe if the EU should collapse].
After this evening's non-news had broken the immediate reaction of participants in 'the markets' was to raise stock prices a little. The politicians have made it clear that they are concerned to preserve the Eurozone: but are nowhere near panicking: they would not be stampeded into the sort of measures that US politicians [in particular] have been demanding from them. The eurorats' favoured technique of proceeding at snails'-pace towards consolidation of all power and wealth in their own hands has worked again.
Wednesday, 12 October 2011
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.
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.
Friday, 30 September 2011
Sklovakia should stand firm
Slovakia has very recently been noticed by many international media ccommentators as a possible obstacle to the quiet confirmation of the already-spent first tranche of the eurozone's bailout package for Greece.
Now that the Bundestag has voted in favour - as was always to be expected - parliamentary approval remains to be secured from half a dozen member states: with the Slovaks likely to vote last. Their vote is expected to take place in about a month's time, and the consensus view of outsiders is that the majority of factions will accept the obligation to be 'good Europeans' in the way that the eurorats of Brussels seek to impose on all their vassals.
This will give time for a much better test of the ability of the Greek government to deliver what they have promised in terms of job cuts, salary and pension reductions, and sales of public assets [and of the appetite of markets to buy Greek assets and take on their depressed workforces]. The current Greek policy must stand the test of time - obviously a much longer timescale than the next month - but the next month might give indicative evidence of the viability of the policy.
The Slovaks had to open up their books and admit the most exhaustive checks of their acceptability for euro membership; in a way that none of the founder members were tested. There is no reason why they should feel the slightest obligation to help international fraudsters, which is what the Greeks who managed their country's entry to the euro were. The other founder members can be construed as co-conspirators with the Greeks, because the facts were transparent at the time.
So if the Slovaks delay - or even defeat - the passage of the package of eurozone aid, they must be exonerated from the original sin.
Fear of the consequences of the bailout collapsing and causing a distressed default by Greece, followed by other countries and a global depression, will probably impel the Slovak parliamentarians to allow the package to proceed, in the end. But they have a good right to decide when that decision will be taken, and to raise a warning to the whole eurozone that they cannot take for granted the support of all the members for whatever is decided in the back-corridors of Brussels.
Now that the Bundestag has voted in favour - as was always to be expected - parliamentary approval remains to be secured from half a dozen member states: with the Slovaks likely to vote last. Their vote is expected to take place in about a month's time, and the consensus view of outsiders is that the majority of factions will accept the obligation to be 'good Europeans' in the way that the eurorats of Brussels seek to impose on all their vassals.
This will give time for a much better test of the ability of the Greek government to deliver what they have promised in terms of job cuts, salary and pension reductions, and sales of public assets [and of the appetite of markets to buy Greek assets and take on their depressed workforces]. The current Greek policy must stand the test of time - obviously a much longer timescale than the next month - but the next month might give indicative evidence of the viability of the policy.
The Slovaks had to open up their books and admit the most exhaustive checks of their acceptability for euro membership; in a way that none of the founder members were tested. There is no reason why they should feel the slightest obligation to help international fraudsters, which is what the Greeks who managed their country's entry to the euro were. The other founder members can be construed as co-conspirators with the Greeks, because the facts were transparent at the time.
So if the Slovaks delay - or even defeat - the passage of the package of eurozone aid, they must be exonerated from the original sin.
Fear of the consequences of the bailout collapsing and causing a distressed default by Greece, followed by other countries and a global depression, will probably impel the Slovak parliamentarians to allow the package to proceed, in the end. But they have a good right to decide when that decision will be taken, and to raise a warning to the whole eurozone that they cannot take for granted the support of all the members for whatever is decided in the back-corridors of Brussels.
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