Superficially, the easiest thing that could have been done by the EU in the last 24 hours would be to force Germany to open its coffers to 'save' the euro by buying all the bonds that may be issued or guaranteed by the puppet governments that have been installed in Greece and Italy, and may be installed in other economically failed countries. The spokespersons for the 'markets' - and representatives of the Obama Administration - will continue to press for a 'solution' on these lines whenever it appears that the new solution to the euro crisis is open to question.
In the 'markets' so-called hedge funds and other speculative investors have been stockpiling at-risk bonds when they could buy them cheaply, in the expectation that Germany would eventually be forced to 'support' them at higher prices. Germany has declared its commitment to the European Union, and to the euro, for decades and the marketeers think that pride and stubbornness will not let them back off from supporting the new dispensation. The Obama team of died-in-the-wool pre-2008 bankers have done pretty well to consolidate the position of their former employers since the big bail-out of the rationalised banks that were cobbled together in 2007-9.But they are well aware that the ramshackle result could begin to crack if the euro was disrupted, causing the US banks' holdings of euro debt to loose value. The US has been calling-in the moral obligation that is supposedly owed by Europe for US investment in defence during the cold war of 1947 to 1991. Time has moved on. The sensibly selfish basis for US policy, past and present, is clearly recognised and contemporary Europeans do not recognise a continuing obligation.
Germany in 2011-12 does not recognise an ongoing obligation specially to assist European countries that suffered occupation or destruction during the second world war. Huge reparations have been paid, the balance sheet has been cleared, and the anti-German current within Greek protest against financial stringency is self-defeating.
Germany should in no way feel obliged to assist a bankrupt state that got itself into the mess that its proconsular ruler is trying to resolve. Greece is uniquely in that perilous situation at this moment. The Greek people will suffer dramatically lower living standards for an indefinite future because Greek governments doled out more resources than the country had generated continuously for the past three decades. Though different parties won elections from time to time, each government had a popular mandate; and it is the misfortune of modern citizens in any state that they collectively carry responsibility for the accumulation of debts that the elctorate consented to being accumulated.Any Greek could have discovered that their huge salaries, early retirement ages and evasion of taxation were not only exceptional but also blatantly unaffordable when set against national economic data. The typical citizen may have chosen not to take cognisance of the facts: that dereliction alone stimulates fair-minded aliens to inhibit any sypathy for the unfortunate elderly who now have dramatically reduced living standards and no prospect of mitigation in their lifetime.
Economists have been allowed to dominate economic policy with the assertion that 'markets' are efficient. They have handed it down as 'scientific fact' that governments should so arrange affairs that markets are the drivers of the economy. This is utterly ludicrous. Markets are creations of human beings, and only have any life to the extent that human beings take part in them. The people exist under the protection of the state, they can make contracts because the state and its courts-of-law recognise them as legal persons. The companies that exist in markets are licensed to exist by the state. The contracts that people and companies make are only enforcible if the state's courts recognise them to be valid. The state has an unqualified precedence over any business structure and this is an inescapable fact: for Economists and their dupes to presume otherwise is profoundly dangerous.
People have an infinite capacity for cheating, crookery, and fraud; as much as they have the capacity to be creative in the arts and sciences. A few hundred people - mostly science graduates, many with PhDs - have become adepts in black arts that enable them to create derivatives and credit default swaps. They can - and some of them do - set up deals that are designed deliberately to exploit other market participants. They invent and trade in fantastic 'instruments' such as 'shadow shares' that enable a pension fund to put its money into bonds but in parallel with that to buy notional shares, with a promise that if the 'real' bonds fail and the notional shares retain value, then the firm that has sold the shadow share package is contractually obliged to give the pension fund value equivalent to the gap between the value of the bonds that they hold in comparison to the then value of the notional shares. The idea that any financial firm would be able to deliver on such a promise in the event of systemic market failure, without the sort of government support that the banks were given in 2008, is absurd. The contract - and the pension fund with it - would most probably be wiped out. But while the contract is operational [and untested] fees are paid to the conjurers, the pension fund managers get their salaries and the Trustees draw their fees or allowances: only the fund members stand to lose. The financial services providers have become even more blatant than they were before 2008 in the absurdity of the 'products' that they have offered; and the gullibility of their clientèle seems to be undiminished. The providers made Greek and Irish state debt appear to be sounder investments than they were, by enabling the holders of the bonds to 'hedge' those purchases with derivatives or ghost shares.
Markets that include such cajolery and sheer brass cheek among their trading methods, selling 'products' on which millions of peoples' future incomes depend which have no substance, are profoundly 'imperfect'. It is blatant that knowledge and understanding of the products and of the risks that are inherent in them are not equally understood by purchasers and the people who unknowingly depend on the outcome of the contracts. Essential rules of the system must be defined by the state, the traders must continue to be licensed by the state and the products must be subject to classification by the state. The infantile version of the Tobin Tax that has been proposed in the EU would have no significant impact in regulating the markets as they have evolved in London and New York. It would primarily be a regressive imposition on the day-to-day bank and insurance transactions of the mass of the population. If 'complex products' are to continue to be regulated as financial assets, much more intrusive regulation - more comprehensive than what is currently being proposed by the EU financial regulator - is needed.
But a completely different approach would be more sensible. At the very least, derivatives and most 'swaps'.and many futures and other 'asset classes' should be classified as betting slips; which is the simple truth. As bets, they should be regulated in the UK by the Gambling Commission, not the Financial Services Authorities. They should be subject to gambling tax and not susceptible to regulation by the EU Financial Services Commissioner and his empowering legislation. By trying to exempt Britain - specifically the 'City' - from any new restrictive EU financial services regulation David Cameron has had a Pyrrhic victory. He has not got any significant exemption for British financial services [which he repeatedly points out is 10% of the economy] and he does not have any inkling of the basic fact that much of the 'industry' that he is trying to protect is not finance, but gaming. The appropriate regulatory change should speedily be implemented: then the EU system of financial regulation would not apply.
It would make an amazing positive change to the continentals' perception of Britain and of the activities of the City if the suggested reclassification were to be carried out. If the British Treasury and Cabinet Office will ever be capable of taking this point, they can frame a regulatory regime that will be seen by the rest of the EU as exemplary. Britain's detractors would be wrong-footed and the rehabilitation of the UK would be facilitated. The City need not suffer any great loss of business, insofar as the players can convince their clients that the betting slips that they have been buying to hedge their investments will still serve the same purposes under a more appropriate and honest regulatory regime. I have only a scintilla of doubt that the City lobbies will oppose any reclassification of their 'proprietary' activities because their pride will be offended by their being classified as bookmakers and their greed will baulk at paying higher taxes on a different basis and possibly experiencing some loss of business. But the City and the government have a golden opportunity to escape the very real threat that the new Europe will much more massively deflate the City's income under its tightening and uncomprehending regulatory regime.
Away to the west Dublin has developed huge 'financial services' expertise that is currently underemployed. A swift-footed Irish government - safe within the carapace of the revamped eurozone - can go a significant way to develop a high-level bulk betting regime that could capture a great deal of the market that the City of London stands to loose. That threat [and the possibility that the Swiss may dabble in these markets] may help to persuade the City that here is a way forward.
Friday, 9 December 2011
Tuesday, 6 December 2011
Politicians: Out of their Depth?
Witty people who have never borne political or business responsibility can be highly vocal in expressing their criticism - and their ridicule, quickly descending into contempt - for office-holders who are struggling to pursue their ends in difficult, unpredictable and often adverse conditions. There are a large number of leaders at the present time who seem to have a limited [or even obtuse] perception of the situations that they are attempting to manage.Critical opposition is very often easier to mount than is reasoned presentation of feasible alternative options. Let us take a few examples that are in the News this evening.
In Moscow and other Russian cities there are small but significant demonstrations against the continuance of Vladimir Putin in office: either as Prime Minister or as President. These are at least matched numerically by demonstrating supporters of Putin's party; but it is notably oppositionists who are being arrested. In recent months, around the time of his announcement that he will again run for the Presidency of the Russian Federation, Putin has presented himself as a fitness fanatic, and a game hunter, and a supporter of the Arts, and a politico-economic polymath, and a populist who was astonished to hear boos directed at him when he came into the arena during a recent sporting event. He has done enough positive things for the country to enable him to seek re-election on the basis of that healthy record; but he seems to be unable to believe that. He also appears to lack any vision about how he can increase genuine popular support by tackling endemic problems that have emerged in a rapidly developing and changing socio-economic nexus. He has tried to project a 'personality' that is so multi-faceted as to be unsustainable, as well as fundamentally incredible; while he has been notoriously indulgent to corruption. He will never convince the punters that he is Superman; and by every device that he uses to try to demonstrate the impossible he increases the opportunities for satire. Even his fiercest critics have conceded that he has had every chance to gain the presidency by a real electoral majority: but now he is threatening his chances both by inviting ridicule at his antics, and by his toleration of cronyism and corrupt business practice, and by the exploitation of political and bureaucratic processes by venial officials who he retains in post. This is very sad for him [and it could be terminal, if he allows his personality to sink into megalomania] and it is tragic for Russia which he has demonstrated the ability to serve so well.
President Obama's gift, which is also his curse and his potential doom, is his fluency. He can be highly articulate both in set speeches and in off-the-cuff utterances; but the more he says off-script, the more apparent it is to the growing army of his critics that his understanding of issues is incomplete [at least], his power to analyse complex data appears to be exiguous, and he appears to have no attainable plans for delivering benefits to voters, despite the release of many billions of dollars by his administration and by the Federal Reserve system acting in cahoots with the federal government. The more Obama takes centre-stage and holds forth, the less credible he appears to be; the more money his administration spends, the less relevant he seems to be in the legislative process and yet he carries the primary blame for the lack of impact of the limited policies that are adopted.
The remarkable Prime Minister of India, Manmohan Singh, is constantly criticised for doing too much and to little to grow the economy, for obstructing measures of liberalisation and for letting in too much alien capitalism, for tolerating the residual curse of the caste system and for indulging capricious [and probably crooked] untouchable politicians, for being locked-in to party-political croneyism and for being meritocratic. All of which adds up to showing balance, moderation, and a positive skill in directing a cabinet of more than thirty ministers and in getting responses out of an immense, inert bureaucracy. This is an outstanding political achievement that is working to the economic and social benefit of a massive and fast-expanding population.
No such single figure prevails in China. The complex hierarchy of past, present and future holders of the highest posts in the echelons of the Communist Part - and thus of the state- is partially understood by foreign commentators; though all assessments of power shifts and secret alliances are subject constantly to revision. No system that channels humans who are heavily endowed with ambition and personality through the corridors of the Great Hall of the People and the courtyards of the Forbidden City can work as smoothly as the Chinese authorities would have one believe: but their system has responded remarkably well to the complex processes of liberalisation and hugely rapid economic change and development, delivering 9%+ economic growth despite the turmoil in global capital markets and its impact on American and European buyers of Chinese goods. In recent days various Chinese ministers and bank officials have popped up as expert spokespersons on the specific issues of the day; talking truth to the diminishing western powers, asserting China's independent assessment of policy options, emphasising that their country is now a responsible global superpower and demonstrating that this truly is the case.
The different modes of success of Indian and Chinese leadership do not betoken a general superiority of Asian political models, or of Asian politicians over the rest of the global crop. I have lost count of the succession of ineffectual Japanese Prime Ministers who have come and gone since I first had the privilege of being a visiting professor there; and the politics of South Korea hardly bear forensic examination. Thailand has a Prime Minister who was elected solely because she is somebody's sister; and the entire country is scared of what will happen when the revered King dies and his heir - generally regarded as a wastrel, or worse - claims the inheritance. Sri Lanka is a military dictatorship, Pakistan is prey to factions that assemble and undermine sullenly-consensual governments that exist by striking compromises with the military. Politics in Indonesia and Malaysia is being edged slowly in the direction of 'moderate Islamism', which also seems to be the trend is the Arab world from Saudi Arabia to Morocco. Iran is suffering an attempt at permanent revolution that could be ridiculous if it were not armed to be dangerous to its neighbours; while Iraq is the agonised outcome of more than half a century of conflict.
We have not yet glanced at the prevailing political mode in most Asian states, nor any in Latin America: so there is much of the world left to review in future blogs. One area that must briefly be mentioned in this wide-ranging look at the political effectiveness of various people and situations is Europe. Two countries - Italy and Greece - are directly ruled by EU Proconsuls; and half a dozen are constitutional monarchies where the party-political mix in government is pragmatic and is not existentially important. In France, Germany and the United Kingdom, despite very different rhetoric surrounding the relative position of the state government to the EU, it is clear that their politically-insecure leaders see the maintenance of the Union as the key priority. The original purpose of the Union was to prevent a third 'world' war: now it is seen as potentially [though not yet actually] an entity big enough to allow the European economy that is being overtaken by emergent powers to have a chance of survival on the world stage. The political leaders in the predominant EU member states, and [often more so] in the smaller states that follow them, are focussed on what Europe can do for the economic environment, and thus enable growth to return and eventually generate enough new wealth to transcend the present gloomy prospect. That was the proposition on which Heath 'sold' the EEC to the British Parliament and people, and Cameron and Merkel and Sarkozi are relying upon the same hope today. Not much fruit has sprung from Heath's planting of forty years ago and the politicians of 2011 understand that they cannot get away for long simply by saying that the long-term gains [when we are all dead] will make the short-term pains [that will be felt for several years of the immediate future] worth while. The message is impossible to deliver in a positive package, but that is the message to which the inescapable impact of the Iron Law of Wages has driven them. For European connoisseurs of politician rhetoric, if for nobody else, interesting times lie ahead.
For an explanation of the Iron Law of Wages, see Personal Political Economy which is accessible from this site.
No such single figure prevails in China. The complex hierarchy of past, present and future holders of the highest posts in the echelons of the Communist Part - and thus of the state- is partially understood by foreign commentators; though all assessments of power shifts and secret alliances are subject constantly to revision. No system that channels humans who are heavily endowed with ambition and personality through the corridors of the Great Hall of the People and the courtyards of the Forbidden City can work as smoothly as the Chinese authorities would have one believe: but their system has responded remarkably well to the complex processes of liberalisation and hugely rapid economic change and development, delivering 9%+ economic growth despite the turmoil in global capital markets and its impact on American and European buyers of Chinese goods. In recent days various Chinese ministers and bank officials have popped up as expert spokespersons on the specific issues of the day; talking truth to the diminishing western powers, asserting China's independent assessment of policy options, emphasising that their country is now a responsible global superpower and demonstrating that this truly is the case.
The different modes of success of Indian and Chinese leadership do not betoken a general superiority of Asian political models, or of Asian politicians over the rest of the global crop. I have lost count of the succession of ineffectual Japanese Prime Ministers who have come and gone since I first had the privilege of being a visiting professor there; and the politics of South Korea hardly bear forensic examination. Thailand has a Prime Minister who was elected solely because she is somebody's sister; and the entire country is scared of what will happen when the revered King dies and his heir - generally regarded as a wastrel, or worse - claims the inheritance. Sri Lanka is a military dictatorship, Pakistan is prey to factions that assemble and undermine sullenly-consensual governments that exist by striking compromises with the military. Politics in Indonesia and Malaysia is being edged slowly in the direction of 'moderate Islamism', which also seems to be the trend is the Arab world from Saudi Arabia to Morocco. Iran is suffering an attempt at permanent revolution that could be ridiculous if it were not armed to be dangerous to its neighbours; while Iraq is the agonised outcome of more than half a century of conflict.
We have not yet glanced at the prevailing political mode in most Asian states, nor any in Latin America: so there is much of the world left to review in future blogs. One area that must briefly be mentioned in this wide-ranging look at the political effectiveness of various people and situations is Europe. Two countries - Italy and Greece - are directly ruled by EU Proconsuls; and half a dozen are constitutional monarchies where the party-political mix in government is pragmatic and is not existentially important. In France, Germany and the United Kingdom, despite very different rhetoric surrounding the relative position of the state government to the EU, it is clear that their politically-insecure leaders see the maintenance of the Union as the key priority. The original purpose of the Union was to prevent a third 'world' war: now it is seen as potentially [though not yet actually] an entity big enough to allow the European economy that is being overtaken by emergent powers to have a chance of survival on the world stage. The political leaders in the predominant EU member states, and [often more so] in the smaller states that follow them, are focussed on what Europe can do for the economic environment, and thus enable growth to return and eventually generate enough new wealth to transcend the present gloomy prospect. That was the proposition on which Heath 'sold' the EEC to the British Parliament and people, and Cameron and Merkel and Sarkozi are relying upon the same hope today. Not much fruit has sprung from Heath's planting of forty years ago and the politicians of 2011 understand that they cannot get away for long simply by saying that the long-term gains [when we are all dead] will make the short-term pains [that will be felt for several years of the immediate future] worth while. The message is impossible to deliver in a positive package, but that is the message to which the inescapable impact of the Iron Law of Wages has driven them. For European connoisseurs of politician rhetoric, if for nobody else, interesting times lie ahead.
For an explanation of the Iron Law of Wages, see Personal Political Economy which is accessible from this site.
Rating the Eurozone
Even the most despicable people can make intelligent remarks and display real understanding. The same is true of organisations, even Rating Agencies. These firms made a huge amount of money by kitemarking gambling slips that they did not understand, as being investment-grade 'assets'; and thereby they contributed crucially both to the 'banking crisis' of 2007-8 and the crisis of government funding that is reaching a new crescendo.
Back in the nineteen-eighties, long before the financial innovators had started gambling in cyberspace, the Rating Agencies were taking fees and 'research funding' from companies to whose bond issues they then gave a positive rating. Directors of firms that administered pension funds, insurance reserves and investments charities used ratings as a way of justifying their allocation of the investments that they made. The national financial regulators accepted ratings as valid measures of the worth of different promises-to-pay in the future [which is what bonds are]. So banks accepted government bonds on the strength of their ratings; and governments accepted corporate and other governments' bonds on the strength of their ratings. We all know where that led the western world; and that the problem is still grinding on.
But now Standard & Poor's has stated a simple truth; If Germany and France commit all of their treasure into a support fund for junk and near-junk bonds that have been issued by lying governments [as 'the markets' have been demanding] they will have to give so much money to the market players [such as 'hedge funds'] that have stockpiled bonds at knock-down prices that their economic strength will be sapped. The way a rating agency expresses this is by reducing its rating of a government's debt. So they have said that if Germany opens its coffers to the rogues, then the rating of Bunds [German State Bonds] will fall: and this applies to at least five other Eurozone states' debt. That is simple sense!
Back in the nineteen-eighties, long before the financial innovators had started gambling in cyberspace, the Rating Agencies were taking fees and 'research funding' from companies to whose bond issues they then gave a positive rating. Directors of firms that administered pension funds, insurance reserves and investments charities used ratings as a way of justifying their allocation of the investments that they made. The national financial regulators accepted ratings as valid measures of the worth of different promises-to-pay in the future [which is what bonds are]. So banks accepted government bonds on the strength of their ratings; and governments accepted corporate and other governments' bonds on the strength of their ratings. We all know where that led the western world; and that the problem is still grinding on.
But now Standard & Poor's has stated a simple truth; If Germany and France commit all of their treasure into a support fund for junk and near-junk bonds that have been issued by lying governments [as 'the markets' have been demanding] they will have to give so much money to the market players [such as 'hedge funds'] that have stockpiled bonds at knock-down prices that their economic strength will be sapped. The way a rating agency expresses this is by reducing its rating of a government's debt. So they have said that if Germany opens its coffers to the rogues, then the rating of Bunds [German State Bonds] will fall: and this applies to at least five other Eurozone states' debt. That is simple sense!
Sunday, 4 December 2011
Whose Century?
In announcing her decision to propose that India should become an approved customer for Australian uranium, the Prime Minister said that it was appropriate for Australia to become more accommodating towards India in this "Asian Century". China is already a huge customer for Australian minerals, and India buys significant quantities of those that are not subject to export constraints. It is very much in Australia's interests for everyone in the emerging regional economies to be allowed to bid competitively for supplies. Uranium is a special case among industrial materials, because it is exceptionally important in the replacement of fossil fuels as well as by reason of the risk that the mineral may be processed for weapons.
The involvement of Australian forces in Afghanistan must be taken into account in a decision to supply the aboriginal enemy of Pakistan with uranium. India and Pakistan have been at loggerheads since the calamitous decision was taken by Earl Mountbatten [as the final Viceroy, endowed with absolute dictatorial power] to allow the creation of an Islamic state within the dissolving imperial India. Tens of millions of Muslims remained in India where they have not notably been oppressed: while millions of Hindus died in partition and afterwards, and they have virtually been eliminated from Pakistani territory. Pakistan has nuclear weapons, and has exported the technology to make them to North Korea and to other rogue states; and elements in the Pakistani military are reported increasingly to be supporting Australia's opponents in Afghanistan. The only power with the means and the will to contain Pakistan is India: while India is hesitant to be placed in that position, not least because this could cause China to strengthen its ties with Pakistan and create two power-blocks in Asia. The geopolitical background is inescapable in this consideration of the implications of the opening of trade in uranium from Australia to India.
In speaking of an Asian Century Julia Gillard was not referring primary to actual or potential patterns of military alliance and engagement. She was expressing the conventional contemporary view that the growth of major Asian economies will mean that by 2099 China and India and Japan and probably Indonesia will be economic powers at least equal to the European Union and to the North American free trade area. Brazil and other economies off the Eurasian landmass will also be major powers; but the largest shift in global economic focus is already well advanced from the North Atlantic to the Indian Ocean and the west Pacific. Australia is near the hot spots, and is well resourced with minerals. But water is short in many parts of Australia much of the time; as it is becoming extremely hard to obtain water in large parts of China and in swathes of India. Pakistan's problems of governability have been enhanced in recent years by random assaults of drought and flood which have also affected neighbouring provinces of India.
Industrialisation and a high consumer living standard depend crucially on there being a high availability of potable water, washing water, plant-watering water and water of the quality appropriate for a huge range of industrial purposes. Cities, even more than rural communities, depend for their survival absolutely on the efficient disposal of human, animal and industrial waste; much of which is in the present phase of technology most effectively transported in water through sewerage systems to the appropriate treatment plant. This will only be an Asian Century - or an Australian Century - if the issues or water supply and sewage disposal are mastered proportionately to the level of population and to the operative mix of economic and social activities. This requires huge ongoing investment. A superabundance of people, ideas, techniques, minerals and sustainable energy sources will founder if the supply of water fails, or if sewerage is swamped.
So what of tired old Europe, and of the no-longer-so-super USA today? Will the gods of water treat them kindly? Not so far! Texas and neighbouring states have had record-breaking drought and heat last summer, and now air currents [most notably the Jet Stream] that normally track well to the north have in recent days brought exceptional snow and cold to the south-central USA and then proceeded south of their usual route to Europe, resulting in a record drought in most of the western continent. The Alps are almost without snow [such that my Club is contemplating cancelling their annual expedition], while the eastern Rockies in North America have an early abundance of the stuff. The Danube and the Rhine are at unprecedentedly low levels for the time of year, with ships grounded at several points along the Danube; while half the City Of Koblenz on the Rhine was evacuated today [December 4] for the disposal of a huge world war two bomb that had been exposed by a remarkably low flow on the river. In legendarily wet little Britain there are floods in the west, early snow in the north and intensifying drought in the south and east.
Nature usually corrects - and frequently over-corrects - for exceptional events such as storm, drought, forest fire or deep freeze: but there are no guarantees. Large areas of Africa have passed under desert in the past half-century: conservation was not helped by local agricultural practices but desertification was certainly not caused primarily by human agency. The historically massive Lake Chad has virtually disappeared. The climate-change lobby report each and every datum that contributes to a mass of evidence that the earth is warming; and spin it with the assertion that human agency is the primary source of the warming. The geological record shows constant change: hot and cold periods have alternated over millions of years, without previously having had the assistance of mankind.
In the absence of sufficiently satisfying scientific predictions as to the impact of the predicted climate change on humans, science-fiction writers have supplied scenarios; and those that have had the greater credence tend to be the most pessimistic. Against this background speculation about an Asian Century becomes more complex and broadly less optimistic. Water, alongside energy, has to be factored into all economic planning options. But there has always been a problem about prices:Adam Smith [1776] wrote of the 'paradox of value': diamonds - which then were ornamental only, they had no industrial uses as they do now - were highly priced, while water -which was absolutely essential to support life - was a free good for the farm-based population. Water is now rapidly becoming expensive, worldwide. It has been delivered to cities at huge cost since ancient times, and in this century as cities demand more water for direct human consumption [and for thousands of other purposes] the cost of supplying and removing it are increasing: and more and more often the cost is no longer picked up by the government: the charges are imposed on the users by creating a 'market' in water supply. The cost of installing abstraction, transport and storage facilities for 'wholesale' water, added to the cost of piping the water to millions of 'retail' users in homes and businesses, means that deliverers of water supplies are natural monopolies..The creation of a wholly fictitious 'market' in these circumstances, with shares issued to real investors and a regulator [in the UK this is OFWAT] makes pricing water a fabulous piece of fantasy: yet every human's need for water every day makes water supply a fundamental reality.
The Economics and the Politics of water [and of sewerage] present an increasingly important set of considerations that should influence all economic planning and projections. "The rain falleth upon the just and the unjust" and "the wind bloweth where it listeth", according to the oldest surviving religious texts. The availability of water will determine whether economic plans succeed, or are made nonsense. Schemes to ensure the future availability of water are phenomenally expensive in both monetary cost and in the toll on human, animal and vegetable ecosystems: and on the human psyche. The global economy would be hard pressed to address a hemispheric drought: yet in most economic planning an abundance of water is taken for granted. That is foolish.No modelling that I have ever seen, for example a projection of the future trend of the euro against the US dollar, has ever made allowance for a catastrophic long-term failure of the water supply. Recognition of this basic fact calls into question the whole apparatus of economic forecasting: so who can now show that this is definitively the Asian Century?
The involvement of Australian forces in Afghanistan must be taken into account in a decision to supply the aboriginal enemy of Pakistan with uranium. India and Pakistan have been at loggerheads since the calamitous decision was taken by Earl Mountbatten [as the final Viceroy, endowed with absolute dictatorial power] to allow the creation of an Islamic state within the dissolving imperial India. Tens of millions of Muslims remained in India where they have not notably been oppressed: while millions of Hindus died in partition and afterwards, and they have virtually been eliminated from Pakistani territory. Pakistan has nuclear weapons, and has exported the technology to make them to North Korea and to other rogue states; and elements in the Pakistani military are reported increasingly to be supporting Australia's opponents in Afghanistan. The only power with the means and the will to contain Pakistan is India: while India is hesitant to be placed in that position, not least because this could cause China to strengthen its ties with Pakistan and create two power-blocks in Asia. The geopolitical background is inescapable in this consideration of the implications of the opening of trade in uranium from Australia to India.
In speaking of an Asian Century Julia Gillard was not referring primary to actual or potential patterns of military alliance and engagement. She was expressing the conventional contemporary view that the growth of major Asian economies will mean that by 2099 China and India and Japan and probably Indonesia will be economic powers at least equal to the European Union and to the North American free trade area. Brazil and other economies off the Eurasian landmass will also be major powers; but the largest shift in global economic focus is already well advanced from the North Atlantic to the Indian Ocean and the west Pacific. Australia is near the hot spots, and is well resourced with minerals. But water is short in many parts of Australia much of the time; as it is becoming extremely hard to obtain water in large parts of China and in swathes of India. Pakistan's problems of governability have been enhanced in recent years by random assaults of drought and flood which have also affected neighbouring provinces of India.
Industrialisation and a high consumer living standard depend crucially on there being a high availability of potable water, washing water, plant-watering water and water of the quality appropriate for a huge range of industrial purposes. Cities, even more than rural communities, depend for their survival absolutely on the efficient disposal of human, animal and industrial waste; much of which is in the present phase of technology most effectively transported in water through sewerage systems to the appropriate treatment plant. This will only be an Asian Century - or an Australian Century - if the issues or water supply and sewage disposal are mastered proportionately to the level of population and to the operative mix of economic and social activities. This requires huge ongoing investment. A superabundance of people, ideas, techniques, minerals and sustainable energy sources will founder if the supply of water fails, or if sewerage is swamped.
So what of tired old Europe, and of the no-longer-so-super USA today? Will the gods of water treat them kindly? Not so far! Texas and neighbouring states have had record-breaking drought and heat last summer, and now air currents [most notably the Jet Stream] that normally track well to the north have in recent days brought exceptional snow and cold to the south-central USA and then proceeded south of their usual route to Europe, resulting in a record drought in most of the western continent. The Alps are almost without snow [such that my Club is contemplating cancelling their annual expedition], while the eastern Rockies in North America have an early abundance of the stuff. The Danube and the Rhine are at unprecedentedly low levels for the time of year, with ships grounded at several points along the Danube; while half the City Of Koblenz on the Rhine was evacuated today [December 4] for the disposal of a huge world war two bomb that had been exposed by a remarkably low flow on the river. In legendarily wet little Britain there are floods in the west, early snow in the north and intensifying drought in the south and east.
Nature usually corrects - and frequently over-corrects - for exceptional events such as storm, drought, forest fire or deep freeze: but there are no guarantees. Large areas of Africa have passed under desert in the past half-century: conservation was not helped by local agricultural practices but desertification was certainly not caused primarily by human agency. The historically massive Lake Chad has virtually disappeared. The climate-change lobby report each and every datum that contributes to a mass of evidence that the earth is warming; and spin it with the assertion that human agency is the primary source of the warming. The geological record shows constant change: hot and cold periods have alternated over millions of years, without previously having had the assistance of mankind.
In the absence of sufficiently satisfying scientific predictions as to the impact of the predicted climate change on humans, science-fiction writers have supplied scenarios; and those that have had the greater credence tend to be the most pessimistic. Against this background speculation about an Asian Century becomes more complex and broadly less optimistic. Water, alongside energy, has to be factored into all economic planning options. But there has always been a problem about prices:Adam Smith [1776] wrote of the 'paradox of value': diamonds - which then were ornamental only, they had no industrial uses as they do now - were highly priced, while water -which was absolutely essential to support life - was a free good for the farm-based population. Water is now rapidly becoming expensive, worldwide. It has been delivered to cities at huge cost since ancient times, and in this century as cities demand more water for direct human consumption [and for thousands of other purposes] the cost of supplying and removing it are increasing: and more and more often the cost is no longer picked up by the government: the charges are imposed on the users by creating a 'market' in water supply. The cost of installing abstraction, transport and storage facilities for 'wholesale' water, added to the cost of piping the water to millions of 'retail' users in homes and businesses, means that deliverers of water supplies are natural monopolies..The creation of a wholly fictitious 'market' in these circumstances, with shares issued to real investors and a regulator [in the UK this is OFWAT] makes pricing water a fabulous piece of fantasy: yet every human's need for water every day makes water supply a fundamental reality.
The Economics and the Politics of water [and of sewerage] present an increasingly important set of considerations that should influence all economic planning and projections. "The rain falleth upon the just and the unjust" and "the wind bloweth where it listeth", according to the oldest surviving religious texts. The availability of water will determine whether economic plans succeed, or are made nonsense. Schemes to ensure the future availability of water are phenomenally expensive in both monetary cost and in the toll on human, animal and vegetable ecosystems: and on the human psyche. The global economy would be hard pressed to address a hemispheric drought: yet in most economic planning an abundance of water is taken for granted. That is foolish.No modelling that I have ever seen, for example a projection of the future trend of the euro against the US dollar, has ever made allowance for a catastrophic long-term failure of the water supply. Recognition of this basic fact calls into question the whole apparatus of economic forecasting: so who can now show that this is definitively the Asian Century?
Saturday, 3 December 2011
Conservatives and Europe: More of the Same
Jacques Delors - one of the all-time heroes of the European Project - has taken the opportunity of a press interview to damn the present condition of the EU, the establishment of the euro under a fake prospectus with a plenitude of false data, and the dangers of the 'Germanic view' of financial discipline.
Meanwhile the German view is absolutely prevelant in negotiations on the future of the whole project: in the absence of the current expectation by market participants that Germany would in the end 'rescue' at least a core of the present eurozone there could not be any 'value' in the euro or in any bond issued in euros. The immensely effective and intellingent - though often obtuse - French state machine that Napoleon established on the remnants of Louis XIV's omnipotent bureaucracy has failed to marshal arguments that can trump Bundeskanzler Merkel's simple housekeeping economics [which is massiviely supported in Germany]; so France will agree to a German plan, with minor modification. The full concept of fiscal union will take years to implement, and will probably cause the eurozone to shed up to a dozen member states on the way, but it will eventually come about.
The little-used second verse of the British National Anthem says:
"May She defend our Laws,
And ever give us cause
To sing with heart and voice
God save The Queen."
Successive premiers have advised the Queen to breach that sentiment, and probably her Coronation Oath; to which she has dutifully acquiesced in line with her clear understanding of her constitutional duty. It is probable that her Diamond Jubilee will be accompanied by the increase of the power of Brussels over Britain, even though the UK will not be joining the euro and may even be repatriating trivial aspects of labour law. In those terms it is a sad thought that in the jubilee year there will be almost no reference to the third verse of the anthem, in which is a plea that the Almighty will deal with those who would undermine the Monarchy:
"Confound their politicks," and "Frustrate their knavish tricks."
Cameron will not see his policy as a knavish trick. He will be persuaded - as his predecessors were - that there is no future for the United Kingdom outside the EU. So he will risk his already-tenuous popularity, and probably his position, in the pursuit of what he will perceive to be the national interest. It is not easy to imagine such a smooth operator adopting the role of a martyr, but it is probably going to be his fate; and his Liberal Democrat allies will do nothing to save him from the dilemma that will send him down that path.
Tory Eurosceptics demand 'repatriation' of powers from the eurorats of Brussels. This is such an arcane demand, in the current situation of the European Union, that the British Prime Minister can only make himself a figure of ridicule in his peers' eyes if he does anything significant to pursue their demands.This incredulity would apply not just to the leaders of the other EU members, but to Putin and Hu and Singh and Obama who are all being advised that a stable Europe is necessary for their own countries' economic success. So Cameron will go the way of Heath who lied systematically about the implications of EEC membership; of Thatcher, who talked tough yet signed up to the EEC becoming the EU; and of Major who flannelled and equivocated while he squeezed the UK into the Maastrich Treaty. Blair's 'offence' in agreeing to the tidying-up excercise of the Lisbon Treaty was relatively trivial and was popular in his own party. The last three Tory Prime Ministers eventually ignored grassroots opinion in their party to drag the United Kingdom more inextricably into the European system [whose surviving founders, not least Delors, now regard with despair]. Cameron will continue in that tradition, whetever rhetorical devices he may deploy while he diminishes his credibility among his rank-and-file as he is pushed along the lonely and painful route that lies ahead.
Meanwhile the German view is absolutely prevelant in negotiations on the future of the whole project: in the absence of the current expectation by market participants that Germany would in the end 'rescue' at least a core of the present eurozone there could not be any 'value' in the euro or in any bond issued in euros. The immensely effective and intellingent - though often obtuse - French state machine that Napoleon established on the remnants of Louis XIV's omnipotent bureaucracy has failed to marshal arguments that can trump Bundeskanzler Merkel's simple housekeeping economics [which is massiviely supported in Germany]; so France will agree to a German plan, with minor modification. The full concept of fiscal union will take years to implement, and will probably cause the eurozone to shed up to a dozen member states on the way, but it will eventually come about.
The little-used second verse of the British National Anthem says:
"May She defend our Laws,
And ever give us cause
To sing with heart and voice
God save The Queen."
Successive premiers have advised the Queen to breach that sentiment, and probably her Coronation Oath; to which she has dutifully acquiesced in line with her clear understanding of her constitutional duty. It is probable that her Diamond Jubilee will be accompanied by the increase of the power of Brussels over Britain, even though the UK will not be joining the euro and may even be repatriating trivial aspects of labour law. In those terms it is a sad thought that in the jubilee year there will be almost no reference to the third verse of the anthem, in which is a plea that the Almighty will deal with those who would undermine the Monarchy:
"Confound their politicks," and "Frustrate their knavish tricks."
Cameron will not see his policy as a knavish trick. He will be persuaded - as his predecessors were - that there is no future for the United Kingdom outside the EU. So he will risk his already-tenuous popularity, and probably his position, in the pursuit of what he will perceive to be the national interest. It is not easy to imagine such a smooth operator adopting the role of a martyr, but it is probably going to be his fate; and his Liberal Democrat allies will do nothing to save him from the dilemma that will send him down that path.
Tory Eurosceptics demand 'repatriation' of powers from the eurorats of Brussels. This is such an arcane demand, in the current situation of the European Union, that the British Prime Minister can only make himself a figure of ridicule in his peers' eyes if he does anything significant to pursue their demands.This incredulity would apply not just to the leaders of the other EU members, but to Putin and Hu and Singh and Obama who are all being advised that a stable Europe is necessary for their own countries' economic success. So Cameron will go the way of Heath who lied systematically about the implications of EEC membership; of Thatcher, who talked tough yet signed up to the EEC becoming the EU; and of Major who flannelled and equivocated while he squeezed the UK into the Maastrich Treaty. Blair's 'offence' in agreeing to the tidying-up excercise of the Lisbon Treaty was relatively trivial and was popular in his own party. The last three Tory Prime Ministers eventually ignored grassroots opinion in their party to drag the United Kingdom more inextricably into the European system [whose surviving founders, not least Delors, now regard with despair]. Cameron will continue in that tradition, whetever rhetorical devices he may deploy while he diminishes his credibility among his rank-and-file as he is pushed along the lonely and painful route that lies ahead.
Friday, 2 December 2011
Leading Europe
On this day -2 December - in 1804 a man originally called Nabuleone Buenoparte crowned himself Emperor in the Cathedral of Notre Dame, Paris. He grabbed the crown from the Pope, who was about to place it on Napoleon's head, on realising that he did not want even symbolically to receive the crown from anyone else. His empire was delineated as an enlargement of the monarchical France that had been toppled in 1792, but it effectively held sway over continental Europe from Gibraltar to the Russian border. After the fall of Napleon, in 1815, the old monarchies re-established their states under the tutelage of Russia at the Congress of Vienna; and in the revivified 'Congress System' that assembled in Paris in 1919 under the tutelage of the US President Woodrow Wilson a new and more subdivided set of sovereign entities was confirmed in the Treaties of Versailles and Trianon.
In 1935 Adolf Hitler began his campaign to reverse the Treaties. The Rhineland was remilitarised and Saarland was reincorporated into Germany. Attention was then focussed on incorporating Austria into 'Greater Germany' and thereafter in bringing the scattered German-speaking communities in Europe, and the territories where they were settled, also under rule from Berlin. The indigenous inhabitants who were not German would become subject peoples; and anthropological devices were bent to asserting the 'inferiority' of such people. After absolute defeat in a devastating war Germany was shrunk in size, and the scattered Germans who were able to reach the four zones of occupation - however grim the conditions in which they found themselves - were the lucky survivors.
With this experience behind them, the governments of the northern European monarchies and new regimes in the formerly fascist states that operated new Constitutions that were authorised by the victorious allies [US, the UK and France] faced a difficult future. Soviet communism had become established behind the 'iron curtain' in the middle of the continent. Defensive support from the US, and to a lesser but significant extent from the UK, was essential and came at the price of persevering with democratic institutions. Germany, in particular, took the message to heart and has developed into a genuinely democratic state whose citizens' views really counted. Thus in the euro crisis the German electorate has made clear the limits to which they are prepared to pay for the past profligacy of countries that never met the criteria for membership of the eurozone.
The German Chancellor is called upon to lead the resolution of the euro dilemma, with foreigners asking her to lead in a direction that is not wanted by her people. She grew up in occupied East Germany; battered in school by the Communist version of German history. She has transcended those experiences and embraced democracy: and she is not prepared to impose intolerable burdens on German taxpayers at the behest of Obama, Cameron or anyone else outside the eurozone. Nor will she allow the fellow-members of the eurozone to despoil the assets that Germany has painfully accumulated since the nineteen forties. Germany wants to be a good democratic partner in Europe, not a new Reich with a wish to dominate.
A new settlement is needed for the euro: with or without retaining the fringe of spivs as members. Cameron is to visit Sarkozi today, to put down irrelevant markers: he is an impotent petitioner in relation to eurozone politics. Then over the weekend the serious talking that is scheduled to take place is likely to produce the basis for a new treaty by which the eurozone can be made manageable. That which will be defined as manageable, will probably be affordable. If Germany is to fund it, Germany must be satisfied by the new settlement. The crisis - for the moment - is a crisis of the euro: non-members depend on there being a solution that they cannot significantly influence. Eurozone members need a solution; and Germany needs it to be a democratic solution, so it must have a constitutional basis - a new Treaty. The odds are that Angela Merkel will take a modest place in proving that democracy can deliver success: that would be real leadership!
Meanwhile yesterday the Governor of the Bank of England has advised British banks to be ready for rough weather if either the success or the failure of the euro has adverse effects on non-eurozone countries. He suggested that banks should not pay bonuses, but hold the cash in their reserves. This shows a sublime ignorance that was repeated by the former Labour City Minister on the Today programme this morning. The overwhelming bulk of bonuses in 'banks' are not paid to managers or 'executives': they are paid to dealers, broadly in proportion to the purely notional return that they deliver in return for gambling in cyberspace. The more inventive and arcane are the contracts that they devise, in general, the less understood are the risks that the gambles might bring on to their firm's balance sheet. The bonuses are partly paid in shares - removing a proportion of the ownership of the firm from the other shareholders - and partly in cash that is taken from the regular business turnover of the firm. The cost of the bonuses is 'real' and obvious; the risks that the dealers' gambling incurs are unquantified and dangerous: but billions in taxation has been levied on the notional turnover of the gambling, and on the bonuses, so governments have not had any interest in terminating the problem.
In 1935 Adolf Hitler began his campaign to reverse the Treaties. The Rhineland was remilitarised and Saarland was reincorporated into Germany. Attention was then focussed on incorporating Austria into 'Greater Germany' and thereafter in bringing the scattered German-speaking communities in Europe, and the territories where they were settled, also under rule from Berlin. The indigenous inhabitants who were not German would become subject peoples; and anthropological devices were bent to asserting the 'inferiority' of such people. After absolute defeat in a devastating war Germany was shrunk in size, and the scattered Germans who were able to reach the four zones of occupation - however grim the conditions in which they found themselves - were the lucky survivors.
With this experience behind them, the governments of the northern European monarchies and new regimes in the formerly fascist states that operated new Constitutions that were authorised by the victorious allies [US, the UK and France] faced a difficult future. Soviet communism had become established behind the 'iron curtain' in the middle of the continent. Defensive support from the US, and to a lesser but significant extent from the UK, was essential and came at the price of persevering with democratic institutions. Germany, in particular, took the message to heart and has developed into a genuinely democratic state whose citizens' views really counted. Thus in the euro crisis the German electorate has made clear the limits to which they are prepared to pay for the past profligacy of countries that never met the criteria for membership of the eurozone.
The German Chancellor is called upon to lead the resolution of the euro dilemma, with foreigners asking her to lead in a direction that is not wanted by her people. She grew up in occupied East Germany; battered in school by the Communist version of German history. She has transcended those experiences and embraced democracy: and she is not prepared to impose intolerable burdens on German taxpayers at the behest of Obama, Cameron or anyone else outside the eurozone. Nor will she allow the fellow-members of the eurozone to despoil the assets that Germany has painfully accumulated since the nineteen forties. Germany wants to be a good democratic partner in Europe, not a new Reich with a wish to dominate.
A new settlement is needed for the euro: with or without retaining the fringe of spivs as members. Cameron is to visit Sarkozi today, to put down irrelevant markers: he is an impotent petitioner in relation to eurozone politics. Then over the weekend the serious talking that is scheduled to take place is likely to produce the basis for a new treaty by which the eurozone can be made manageable. That which will be defined as manageable, will probably be affordable. If Germany is to fund it, Germany must be satisfied by the new settlement. The crisis - for the moment - is a crisis of the euro: non-members depend on there being a solution that they cannot significantly influence. Eurozone members need a solution; and Germany needs it to be a democratic solution, so it must have a constitutional basis - a new Treaty. The odds are that Angela Merkel will take a modest place in proving that democracy can deliver success: that would be real leadership!
Meanwhile yesterday the Governor of the Bank of England has advised British banks to be ready for rough weather if either the success or the failure of the euro has adverse effects on non-eurozone countries. He suggested that banks should not pay bonuses, but hold the cash in their reserves. This shows a sublime ignorance that was repeated by the former Labour City Minister on the Today programme this morning. The overwhelming bulk of bonuses in 'banks' are not paid to managers or 'executives': they are paid to dealers, broadly in proportion to the purely notional return that they deliver in return for gambling in cyberspace. The more inventive and arcane are the contracts that they devise, in general, the less understood are the risks that the gambles might bring on to their firm's balance sheet. The bonuses are partly paid in shares - removing a proportion of the ownership of the firm from the other shareholders - and partly in cash that is taken from the regular business turnover of the firm. The cost of the bonuses is 'real' and obvious; the risks that the dealers' gambling incurs are unquantified and dangerous: but billions in taxation has been levied on the notional turnover of the gambling, and on the bonuses, so governments have not had any interest in terminating the problem.
Thursday, 1 December 2011
Central Banks to the Rescue: Again!
In a significant concerted move a consortium of central banks [the currency-issuing banks of major countries] have jointly offered funds to the International Monetary Fund [IMF] which it will lend to central banks that decide they need it to lend to banks within their jurisdiction. This seems arcane to ordinary people who are only conscious that the purchasing power of their wages and/or benefits is going down while credit is getting harder to get and more expensive.Having urged people to borrow on their credit cards and in enlarged mortgages over many years of apparent prosperity, the banks are now notably unaccommodating to families and to small businesses. So if the banks are 'helping' people less, how can it be that they need to borrow more? And why should their central banks - which habitually lend to banks in their countries - want to borrow money from the IMF? If most of the major central banks have money to lend to the IMF, why are they not just lending it to banks in their own territory?
The US Federal Reserve [supported by other central banks] will indirectly give limited but significant support to the euro. International banks have begun to show their lack of confidence in the durability of the euro by selling bonds denominated in euros and buying US dollars and assets denominated in dollars. Despite the deficit on US finances, the size and strength of the US economy can still be trusted; while nobody can say how great would be the chaos that would follow if the euro collapsed. What would French government bonds be worth, in yen or pounds sterling, after a collapse of the euro? Anybody's guess is as good as anybody else's; but most commentators would reckon that French bonds would be worth more than Greek bonds, when most euro-denominated bonds were catastrophically devalued. German bonds might increase in value after a euro collapse; but the whole scenario is beyond anyone's capability accurately to forecast. So governments and central banks have adopted the view that everything must be done to prevent it happening. This is understood to mean that the European Central Bank must have enough dollars to be able to buy enough bonds to keep the market going. If the dollars are made available by the IMF, there will be strings attached: IMF loans are always conditional on the assisted country [or economic union] maintaining agreed economic policies. So the European Central Bank will be required to enforce discipline on member states' governments, or refuse to buy bonds that they have issued and let them be bankrupted. This suits the Germans very well, and worries the French who do not want the European project to be fractured by some of the reckless Club Med states dropping out of the eurozone [and maybe out of the EU as well].
So the new funding via the IMF is another step in the pathetic saga of governments and central banks making up new policy and risking inflationary pressure on the whole economy in order to 'calm the markets'. This determination to propitiate the financial trading corporations - generically known as 'banks' - shows that the governments are still scared by bankers' behaviour.
Yet the banks are created under the company law of individual countries, and are granted licenses to trade in other countries under each nation's laws. Their units of account are currencies issued by the central banks of sovereign states. Sovereign states can give instructions to central banks and central banks could enforce much greater discipline on banks than they have done in the past couple of decades: if that control was applied, and looked like failing, new rules could be imposed by governments. There is a fear that some countries would adopt new rules and others would not [or would apply them in a non-standard way], to their short-term advantage and to the disadvantage of other countries' economists. So there is to be a new round of buying the banks' quiescence while the political negotiations about the future management of the eurozone drag on. The stock markets globally rose on the news: and a superficial, brittle sort of 'confidence' returned; notwithstanding the increased risk of worldwide inflation.
The Chinese central bank took separate synergistic action to increase lending to the faltering manufacturing and property sectors. So the real confidence that has very slightly been increased by the central banks' actions on November 30, 2011 is that the political masters of all the major economies are capable of working together. There is no indication that the beggar-your-neighbour policies that intensified the global depression in the early nineteen thirties will be allowed to emerge. There is a good chance that governments will eventually become scared enough to act on Franklin D Roosevelt's most famous dictum, that "the only thing to fear is fear itself": it is especially true of the fear of bankers, but it seems that things will have to get much worse before the politicians grasp the nettle.
The US Federal Reserve [supported by other central banks] will indirectly give limited but significant support to the euro. International banks have begun to show their lack of confidence in the durability of the euro by selling bonds denominated in euros and buying US dollars and assets denominated in dollars. Despite the deficit on US finances, the size and strength of the US economy can still be trusted; while nobody can say how great would be the chaos that would follow if the euro collapsed. What would French government bonds be worth, in yen or pounds sterling, after a collapse of the euro? Anybody's guess is as good as anybody else's; but most commentators would reckon that French bonds would be worth more than Greek bonds, when most euro-denominated bonds were catastrophically devalued. German bonds might increase in value after a euro collapse; but the whole scenario is beyond anyone's capability accurately to forecast. So governments and central banks have adopted the view that everything must be done to prevent it happening. This is understood to mean that the European Central Bank must have enough dollars to be able to buy enough bonds to keep the market going. If the dollars are made available by the IMF, there will be strings attached: IMF loans are always conditional on the assisted country [or economic union] maintaining agreed economic policies. So the European Central Bank will be required to enforce discipline on member states' governments, or refuse to buy bonds that they have issued and let them be bankrupted. This suits the Germans very well, and worries the French who do not want the European project to be fractured by some of the reckless Club Med states dropping out of the eurozone [and maybe out of the EU as well].
So the new funding via the IMF is another step in the pathetic saga of governments and central banks making up new policy and risking inflationary pressure on the whole economy in order to 'calm the markets'. This determination to propitiate the financial trading corporations - generically known as 'banks' - shows that the governments are still scared by bankers' behaviour.
Yet the banks are created under the company law of individual countries, and are granted licenses to trade in other countries under each nation's laws. Their units of account are currencies issued by the central banks of sovereign states. Sovereign states can give instructions to central banks and central banks could enforce much greater discipline on banks than they have done in the past couple of decades: if that control was applied, and looked like failing, new rules could be imposed by governments. There is a fear that some countries would adopt new rules and others would not [or would apply them in a non-standard way], to their short-term advantage and to the disadvantage of other countries' economists. So there is to be a new round of buying the banks' quiescence while the political negotiations about the future management of the eurozone drag on. The stock markets globally rose on the news: and a superficial, brittle sort of 'confidence' returned; notwithstanding the increased risk of worldwide inflation.
The Chinese central bank took separate synergistic action to increase lending to the faltering manufacturing and property sectors. So the real confidence that has very slightly been increased by the central banks' actions on November 30, 2011 is that the political masters of all the major economies are capable of working together. There is no indication that the beggar-your-neighbour policies that intensified the global depression in the early nineteen thirties will be allowed to emerge. There is a good chance that governments will eventually become scared enough to act on Franklin D Roosevelt's most famous dictum, that "the only thing to fear is fear itself": it is especially true of the fear of bankers, but it seems that things will have to get much worse before the politicians grasp the nettle.
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