Wednesday, October 28, 2009
As Prime Minister, Tony Blair had an unerring sense for the political, that is to say how things appeared rather than how they actually were. The obsession with appearances created a dangerous disconnect between what his government said and what it actually did. In the end the whole theatre of "spin" and presentation made the British people jaded and increasingly cynical about politics. In short "spin" became, in the eyes of the electorate, just another word for lie.
Although Mr. Blair now speaks a great deal about his religious faith, in office he did nothing to alter the constitutional bans that still officially exist against Roman Catholics. Indeed, it seems quite clear that Tony Blair broke these constitutional bans himself by occasionally taking Catholic communion. It may seem perhaps a small point, but it shows a man unwilling to make moral choices and content to break or bend rules when the moral choice would have been to change those rules. Given the importance that Roman Catholics place on Communion it is hard to forgive a man who built his government on lies and who now preaches loudly about faith.
The pernicious impact of Blairism on British politics can be seen in the way that David Milliband was being talked up as potential first holder of the office of President of the European Council- a transparent attempt by Gordon Brown to get a rival out of the way.
Now, we are told, it is Tony Blair who wishes to reenter the world of high level politics by becoming the first so-called "President of Europe". The ironic thing is that other EU countries think that by offering Mr. Blair the job, they are paying some kind of respect to the United Kingdom. In fact Mr. Blair remains deeply unpopular in Britain- and even after the two disastrous years of Gordon Brown, the British have still not forgiven a man rightly regarded as one of the most unscrupulous, false and damaging Prime Ministers in British history. In fact, the appointment of Mr. Blair to the office of President would be extremely damaging to the standing of the European Union in Britain - a standing which is hardly very high as it is.
There are plenty of people who think that, far from rewarding this man with the bevy of sinecures that he has managed to procure on the back of having been Prime Minister, the international community should instead charge Tony Blair as a criminal. Choosing Tony Blair as EU President would certainly infuriate most people in the UK and severely damage the relationship of the country with the EU. It would be a dangerously wrong decision.
Meanwhile the British government has now announced that it has pledged to support Mr. Blair's bid for office. Given Gordon Brown's unerring nose for failure, I think we can assume that the chances of Tony Blair actually getting the job are now pretty damaged- as they should be.
Monday, October 26, 2009
Several banks are now either owned by the state or rely on the state for their survival through a variety of measures- including the extremely expensive rescue of AIG. This, however, has not stopped the payment of this injected capital still going to staff rather than to rebuild bank balance sheets. When the bonus pool is larger than the value of state support, as it is in several instances, then effectively the shareholders -i.e. the state- are being robbed by the management and staff that they employ.
Neither, by the way, is the delayed payment of bonuses in shares a solution- it simply takes away a cash cost and replaces it with a dilution of the share capital- and the effect on shareholders can often be worse than if they paid out in cash. Thus George Osborne's demand that bonuses above £2000 should be paid in shares is not much of a solution.
By paying out bonuses on such a scale to employees who are only able to do business because of government capital, the management of these banks are flying in the face of the very capitalism that they purport to defend. If they choose to make such payouts as a private company, that is a matter for the shareholders- who are obviously happy to be ripped off. As the trustees of the state, it is extraordinary that government representatives did not reject the idea that the bonus pools should not be funded from profit, but from capital. It is creating the ultimate moral hazard in the financial system.
That is a significant cause of the original crisis: and has fed irresponsibility across the board. Osborne- as is becoming usual with his policy pronouncements- is taking aim at the wrong target. Instead of demanding that the total bonus pool be paid out of a fixed percentage of profits made, he has accepted that it should be paid out of capital- albeit in shares rather than cash. By setting the individual limit at £2000, he is only allowing the lowest clerks to get cash, but in any event it is more expensive to administer share payments rather than cash payments. Osborne's idea does nothing to address the fundamental problem that staff are generally being favoured at the expense of shareholders. Indeed by increasing costs and not reducing the overall pool to reflect profits, he ensures that the taxpayer gets an even worse deal.
As Mr. Osborne makes a speech in the City this morning, he may reflect that he is not particularly respected amongst the financial community. He is likely to continue to fail to assert his authority with this further badly thought out and even counter productive initiative.
Friday, October 23, 2009
Through the recent travails and sad ends of the careers of assorted hacks, fans know to expect the usual drivel dipped in poison - particularly if those journalists live a life that is shadowed by dark appetites or fractured by private vice.
There are dozens of journalists out there with secret and not-so-secret troubles, or damaging habits both past and present ; we all know who they are. And we are not being ghoulish to anticipate, or to be mentally braced for, their bad end: a long night, a mysterious stranger in the Groucho club, an odd set of circumstances that herald a sudden end to a once glittering career.
In the morning, the page has already been turned over before anyone reads the lofty concerns of a self appointed hypocrite. It is not exactly a new storyline, is it?
In fact, it is rather depressingly familiar, and somehow we completely expected it of her. Always her. But then I'm definitely not thinking what she's thinking.
In the nastiness around the Daily Mail, Moir was always bitchy, stupid and vile.
A founder member of Britain's Glenda Slagg tribute band, she was the group's self appointed queen bitch, even though her intelligence was too small to fit inside a Louis Vuitton credit card holder.
She was the excrement of the Daily Mail, an unpopular and illiterate additional after thought.
Moir came out as a bigot in 2009 after discovering that someone was planning to pay her lots of money to write in a newspaper.
Although she was had little intelligent and nothing nice to say, she became the meddlesome self publicist of sleazy journalism, albeit a deeply unreluctant one.
At the time, Moir worried that the revelations might end her ultra-right wing career as a put-down merchant, but she received an overwhelmingly positive response from the BNP. In fact, it only made them love her more.
All the official reports point to a natural death, with no suspicious circumstances, but that doesn't stop Moir - perhaps unforgivably - from stirring the grief of the family before Stephen Gately is even buried by trying to pin their boy's demise on the national consciousness as just punishment for gays and not a tragic accident.
Even before the post-mortem and toxicology reports were released by the Spanish authorities, she launched into rant mode.
But, hang on a minute. Something was terribly wrong with the way this incident could not be milked to make more money for Jan Moir, so she shaped and spun it into much more than a broken teacup in the rented cottage of journalistic standards.
Consider the way it has been largely reported, as if a menopausal hot flush in the grounds of the Bide-a-Wee rest home while hoeing the sweet pea patch could be taken as serious commentary.
The bile on this hypocrisy is so crusty-thick that it fails to obscure the bitter truth that lies beneath.
Daily Mail journalists don't give a toss about the truth but invent lies to fit their nasty, blinkered right wing bigotries. It is a shame that healthy and fit 33-year-old men who have just died can get no respect from the rancid nastiness that is routine in female journalists of a certain age.
Moir's family have always maintained that drink was not involved in the death wish of her career, but it has just been revealed that she had at least three gins on the night she wrote.
Another real sadness about Moir's career near-death is that it strikes another blow to the "we are not bigots" myth of the Daily Mail.
Gay activists are always calling for tolerance and understanding about right wing journalists, arguing that they are just the same as normal people. Not everyone, they say, is like Richard Littlejohn.
Of course, in many cases this may be true. Yet the recent career near-death of Chris Moyles, and now the dubious events of Moirs's last column raise troubling questions about what is happening.
It is important that the truth comes out about the exact circumstances of her acquiring this strange and lonely world view.
As a human being, I am sure she would want to set an example to any impressionable young journalist who may want to emulate what they might see as her glamorous byline.
For once again, under the carapace of glittering hedonistic pseudo celebrity, the ooze of a very different and more dangerous journalism has seeped out for all to see.
Sunday, October 18, 2009
What happens if Labour do indeed lose but the Conservatives can not gain a majority?
For the Liberal Democrats such a scenario could have many opportunities, but would also be fraught with peril. If the party has been resilient in holding its seats and the Parliament is evenly balanced, then Nick Clegg could have a certain freedom of movement. If, however, the Lib Dems have lost a large number of seats and the party can give neither side a mandate by themselves, then the Liberal Democrats face something close to a nightmare scenario: they become the victims of a hung parliament and not its arbitrators
Meanwhile, an inconclusive election would create political uncertainty at just the point when the economic crisis will have entered a new stage, with unemployment rising and government expenditure being forced up to match it. The negotiations for a new government may be taking place in an atmosphere close to crisis: Sterling would come under pressure and the markets would react poorly. If David Cameron was the leader of the largest party, the Queen is obliged to call him first to form an administration unless its is quite clear that he could not or would not take the mandate. The Conservatives could be in a position to form a minority government.
The problem for the Conservatives would be that they would probably not be able to get measures such as significant expenditure cuts through Parliament without the support of other parties. Cameron might defy Parliament and dare it to bring down his newly minted government in the hope that a second election could give him a majority. To my mind, this is the most likely scenario. It also demonstrates just how narrow the window of opportunity for the Liberal Democrats actually is- unless the second election returns a further inconclusive result.
In the end the Lib Dems want constitutional reform, and in particular the single transferable vote in General Elections. In my view, the public are more ready to accept that the constitutional system needs changing than they have ever been: it therefore makes sense to place these constitutional ideas at the forefront of the Liberal Democrat campaign. It gives the voters clarity about the key priorities for the party - and this also gives political legitimacy to demands for such changes in any possible coalition negotiations.
The way in which any inconclusive election result works out is critically dependent on small details that are essentially impossible to forecast: regional swing, value of incumbency, the relative strength of support of the third party and so on. However the Liberal Democrats are not doing themselves any favours by putting constitutional reform at the back of their list of priorities when for good reasons of political tactics as well as of political principle they should be at the front.
One hung Parliament might not be enough to gain the traction that the party needs to get the changes we think are necessary for our country. Two hung Parliaments would be an unarguable choice by the electorate in favour of political change. It is a moot point as to which way the voters will jump in 2010 and afterwards.
Wednesday, October 14, 2009
The reaction from the voters has been, to coin a phrase, "they're all in it together". Rarely have politicians been held in lower public esteem. The general conventional wisdom is that an MP is probably a greedy rogue who seeks to put their own interest first and country second, if at all. The time has come- seems to be the conventional wisdom- for a new broom to clean out the political class bag and baggage.
Many commentators like Rachel Sylvester believe that politics is set to be transformed by an influx of political virgins into the House of Commons, that indeed the next election will transform the conduct of British politics.
I wish I could share this view.
As Steve Richards points out in the Independent, the selection of candidates by parties has created a cadre of mediocre place holders- and with the exception of a few rather gimmicky open primaries, it will be those selected by a small number of party stalwarts that will form the bulk of the new intake.
Here, of course, is the the rub: it is not the electorate that chooses most of the MPs, it is the small number of party members in each constituency, and as the membership of every party falls, the number of appropriate candidates falls too- and the selectors come from an ever narrower background. The stranglehold of the two and a half party system is reducing the quality of the House of Commons to that of a sixth form debating society. The qualities that make a successful politician: party loyalty, and an avoidance of controversy are not the qualities that make for outstanding or inspirational leadership. Churchill, who famously "ratted and then re-ratted" would not even make the short list of most party selection committees.
The professionalisation of politics has created an insipid and ignorant political class, and really what can one really know about politics, if all you know is politics. Outside experience in the new House of Commons will be even rarer than it is at present. Unless the new intake are prepared to rebel against the straight jacket of the party whip a lot more often, and their electorate are prepared to support them, the British Parliament will be ever more irrelevant and powerless.
The treatment that the Sir Thomas Legg has meted out to MPs may satisfy some inchoate sense of vengeance, but it is patently unfair to arbitrarily apply retrospective rules. The inquiry was supposed to single out the most egregious wrong doers and punish them. In fact it has been a full frontal assault on all MPs, regardless of their wrong doings.
Doubtless there will be a big influx of new MPs at the next election as a result, but the authority of Parliament has been undermined by the misjudgements of an elderly civil servant and the foolish Prime Minister who gave him an unclear mandate. As we contemplate a Parliament of political virgins, it seems pretty unlikely that they will be wise, and almost certain that they will be foolish.
I almost feel that the United Kingdom is taking on the character of the drunk and lecherous uncle at a wedding. Wrapped up in a sense of victimhood and self righteousness, we no longer accept responsibility for our own actions.
On Saturday the usual bunch of British stags were drinking in the old town of Tallinn. The Stag himself was wearing a Borat style man-kini- as close to naked as seemed to make no difference (it was 8 degrees). His middle aged and flabby body (I assume a second marriage) was a pretty revolting sight. The Brits were too drunk to even to notice the Bosnian football fans at the very next bar, it was after all already 11.00 in the morning. They did not notice that the rest of the square was looking at them with mild disgust and a certain pity.
It seemed a metaphor for the whole condition of Britain. Our MPS represent US. If we will neither punish nor reward the individual MPs, but continue to vote for a given party regardless, then we deserve nothing more than the government and the opposition that we have. The political sphere will shrink further, the country will continue its decline unchecked.
We will have only ourselves to blame.
Monday, October 12, 2009
For we previously charged both Jews and Greeks, that they are all under sin
The Legg report on British MPs expenses looks to be a fiasco: by saying that so many MPs are guilty it means that individual culpability is diminished. It lets the most guilty off the hook while also tarring the essentially innocent with the brush of corruption.
A truly terrible result that will undermine faith in British democracy to the point of crisis.
In that sense, the Conservative conference was a significant change of tack- George Osborne has been prepared to set out a clear policy of a pay freeze and deep cuts in public expenditure. For this he was lauded in the media as being rather brave. That the financial burden of the state is too large is now frankly pretty obvious, yet the way in which the Conservatives are likely to attempt to reform the public sector will most likely be counter productive, and will end up increasing the overall burden on the tax payer.
For most Conservatives it is pretty much axiomatic that the private sector is a more efficient provider of services than the public sector, but this is to overlook one critical aspect of the private sector. It is not just that the private sector seeks to maximise profits- frankly I don't have a problem with that- it is also that the private sector takes on the risk of a project.
The problem is that most contracts awarded by the public sector to the private sector give the opportunity for the private sector to make profits, but do not necessarily share the risk fairly. With Private Finance Initiative (PFI) or Public-Private-Partnership (PPP) projects what typically happens is that the public sector contracts the administration of a project to the Private sector and its agreed that both sides will subscribe a fixed amount of capital. That is fine if the project is completed on time and to budget, but since most projects are not completed on time or under budget. The result is that the Private partner (usually a company specially created for the project) runs out of capital. The consequence is that if things go right, the private sector makes a profit, but if things go wrong, the public sector has to pay for it. In other words, it is still the public sector that carries the ultimate risk of the project.
There are many examples of the public sector being forced to bail out PPP or PFI projects. The London Tube network was a large project that was ultimately underwritten by the taxpayer, not the private partners. In the end, when considering each project, neither Ministers not civil servants asked the key question "what happens if this project goes bankrupt?". If they did and the answer was that the state would have to either take on the project itself or subscribe more capital, then the public sector is still taking the risk and therefore the project should either not be financed in this way or most likely it should not leave the public sector.
Nevertheless, the Conservatives have focused on the generally greater operational efficiency of the private sector as an ideological reason why the public sector should be shrunk. It is not wholly without truth that much of the public sector is a cost centre and therefore should be kept within strict limits. Though many choose public sector jobs, such as teachers, nurses, prison officers out of altruism, it also means that the overall quality of management is probably lower than where the profit discipline dictates some tough minded decision making.
Unfortunately George Osborne made a dramatic error in his speech outlining how he intends to control the ballooning costs of the public sector. His proposal to freeze all public sector salaries essentially destroys the ability of public sector management to reward their key staff, while the implied corollary of workers with frozen salaries "keep their job" also means that poor performers are less likely to be disciplined. In short Mr. Osborne, as the result of his pretty woeful ignorance of basic management has essentially created a layabouts charter. Instead of capping the total amount of the budget for salaries, he is proposing to cap individual incentives.
Perhaps it is intended that increasing the inefficiency of the public sector will create demands for increased privatisation, but judging by the mood music from elsewhere in project Cameron praising the state sector, I rather doubt it. I see this as a mistake pure and simple.
Meanwhile this failure to understand the basics of management will probably lead to an ideological commitment to greater "competition" in the public sector. Yet the so-called competition will be essentially meaningless, because it will be between entities that are both ultimately backed by the full faith and credit of the British taxpayer. The result is that instead of reducing costs, this fictitious competition will actually increase it. A good example is in the PFI in the Ministry of Defence. Military PFI projects, because they are both secret and involve protecting the lives of our service personnel are typically given quite a loose cost control. The consequence has been both an explosion of costs and, as the private contractors struggle to make a profit, severe cuts in the quality of the equipment in the field. It is now not unfair to say that the Ministry of Defence budget is in meltdown.
The problems of the UK public sector lie not in the absence of competition but the absence of effective administration. Only a few senior civil servants and virtually no politicians have qualifications like an MBA that would allow them to understand the scale of the managerial problems that they face. Mr. Osborne is no exception to this melancholy rule. Unless he gets back to the drawing board fast, he is likely to be a spectacular failure in his first really managerial job.
As one bunch of student politicians seems set to succeed another, my belief that only a dramatic reform of the system of government can stop the decline of the UK or even its break up, grows ever stronger.
Friday, October 09, 2009
The repeated bubbles of the Greenspan years at the US Fed created a long term credit environment that was so relaxed that it was essentially uncontrolled. The US created credit conditions that promoted massive borrowing which increased the wealth held in possessions but reduced the wealth held in cash- indeed created a negative net cash position. Yet the side effect was also to reduce the value of saving so that the holders of cash were not able to gain sufficient reward for them to even want to hold their wealth in money. A twenty year long largely debt-fuelled, gigantic spending spree was the result. In the end, this super cycle of credit growth ended with the credit providers being forced to recognise that the quality of their assets (i.e. the loans they had made) were not what they were said to be.
This final recognition was the result not just of the dramatic expansion of lending to poor quality credit, but the way that this poor quality credit was distributed unexpectedly across the entire system through the use of credit accumulators such as collateralized debt obligations. As the financial system began to recognise their losses it quickly became clear that the scale of these losses could not be sustained without massive government intervention.
The conventional way of dealing with the crisis would have been the restructuring of bank balance sheets and for the short term at least, a significant contraction in the overall level of credit in the economy. However, Ben Bernanke, the Chairman of the Fed, and several other major policy makers believed that the scale of the credit contraction that they were looking at was so severe that it would have cause an economic crisis of an even bigger magnitude that the Great Depression of the 1930s. As historians of this period they thought that they had the answer, which was to reduce the impact of the contraction of the credit by increasing the monetary mass in the economy by a level that would, to a great extent, off-set the monetary contraction.
In a way, what these policy makers were doing made a certain amount of sense: they were trying to ease the impact of the credit crunch so that the credit system could have time to restructure itself without a massive fall in lending that would have caused the global economy to hit the wall and make the existing credit problems still worse. However, there is an increasingly significant side effect from the policy: holders of cash in the currencies were these policies are running are still facing negative interest rates and therefore the relative attractiveness of holding US Dollar or Sterling assets has fallen sharply. Other economies without such "Quantitative Easing" policies have therefore become more attractive. Furthermore, China which has become the primary manufacturing market on the planet, has found that their immense US Dollar surpluses have lost a significant percentage of their value, even though the Chinese have managed to avoid the giant appreciation in the Yuan that the current situation justifies. Using the Dollar as the base currency used to make sense, since the Greenback has been the global reserve currency for decades. Oil and most commodities are priced in Dollars, and it is the worlds largest economy.
Now, however the scale of the twenty year debt binge in the US has undermined the value of the Dollar, and many now believe that that American currency can no longer be seen as the ultimate store of value that its "reserve currency" status implies.
The counterpart to fall of the Dollar in the financial crisis has been the increase in the value of gold. Gold is often used as a store of value in a crisis, and there is a direct relationship between global instability and a higher price of gold. As the Dollar fell, allowing US to pay back its US Dollar debts in smaller amounts of Euros, Yuan or Yen, Investors have questioned the place of the Dollar as the reserve currency and the price of gold has continued its long term upwards trend.
More and more commentators suggest that the Dollar's days as the reserve currency are indeed essentially over, but though several secret discussions are said to be taking place about a global basket of currencies, including the Euro, Yen and Yuan as well as the Dollar (and potentially gold too) to replace the greenback, this has not yet taken place.
The value of a currency depends on investor returns and the confidence that those returns can be sustained. Yet the credit crisis has drained confidence and the policies of quantitative easing are so ruinously expensive that they can not be considered as long term solutions. Sterling in particular, as a medium sized currency, is vulnerable from every angle: a beneficiary from the global credit binge, the UK has a highly inflated housing market, and a diminishing productive capacity, not only in manufacturing, but in services as well. The UK economy has many of the most extreme problems of the US, but it does not have the size of the economy that can give it stability in the long term. Certainly many Chinese market players do not expect that Sterling can survive as an independent currency. As for the US itself, confidence remains elusive, and other concerns such as "peak oil"- i.e. the end of the hydrocarbon energy bonanza- and the fears about the impact of climate change are creating an atmosphere that suggests that the systemic upheavals of the past two years are not a passing crisis, but instead presage a far more unstable economic environment and, as an undemocratic China asserts itself more aggressively, an existential risk to the systems that we have known since 1945.
As the markets wax and wane under the tides of confidence, there is a growing fear that the policies that the US and the UK are following are not only unsustainable in the long term, which is not really a matter of debate, but that they will cause permanent damage to the economies of both countries. The impact is not just that we may see further considerable instability in the Anglo-Saxon markets, but that we are entering a long term crisis with dramatic and highly unpredictable consequences.
Thursday, October 08, 2009
Faced with the explosion in the costs of the public sector, Osborne's answer is simply to freeze salaries across the board. It is certainly the case that labour costs have run out of line, but the deal that Osborne offers is essentially "accept a pay freeze and keep your job". This is not public sector reform: indeed it pretty much guarantees that the motivated staff will leave and the quality of public sector personnel will fall.
Mr. Osborne's supposedly "eye catching" and "brave reform" in effect strangles the ability of public sector management to carry out the necessary streamlining of the system: they can not fire under performing staff and they can not incentivize the staff that they want to keep.
This is not public sector reform: it is the abandonment of such reform. The signal that the freeze sends will send to staff is very clear- no matter what you do you will be paid the same and keep your job. You can not be incentivized and you can not be fired.
From Teachers and Nurses to Prison Officers, the unintended consequences of Mr. Osborne's abject ignorance of basic management will be the exit of good quality staff and an overall decline in the effectiveness of those who remain.
It is, in other words, precisely the kind of disaster that only someone who has never managed any kind of business could seriously suggest as a sensible policy.
Dan Hannan had the nerve to say that the Conservatives were the true heirs to the Manchester Liberals. The difference though is that the Manchester Liberals were competent.
George Osborne is already demonstrating that he will be a foolish, ignorant, ineffectual and incompetent Chancellor of the Exchequer. The fact that the current incumbents are equally incompetent is not much of a comfort.
I said I was going to blog, but to be honest, this piece from The Times by Ben McIntyre says it all so precisely that I don't need to repeat him.
I think the Conservative alliance is absurd, but it is not absurd because of their alliance with Roberts Zile. It is absurd because it represents a failure of political courage by David Cameron and foolish blind alley for the Conservatives. The Tories' determination to regard any support for the European Union as part of a conspiracy against mainstream right wing values has actually cut them off from all the major mainstream right wing parties across the EU. Eventually they will have to row back from this extremist position, but the price of their folly will be a lot more than the political embarrassment that some of the more extreme parties inside the new Conservative grouping may yet still cause them. It has alienated a huge number of potential political allies and marked the Conservatives out as irrational, spitting Europhobes rather than any kind of constructive force that might seek to put British interests in the European Union above ignorance and prejudice against the EU.
Wednesday, October 07, 2009
It is actually an immensely difficult task to make the choice, not only because Russia is quite a multi national state, but also because the list of Russian talent is amazingly strong, nevertheless I have made as eclectic selection as I could:
1. Alexander Pushkin- the most beloved Russian poet
2. Yuri Gagarin, the first Human being to go into space
3. Peter Ilych Tchaikovsky- supreme romantic composer
4. Andrei Sakharov- brave dissident, had he lived Russia would not be facing today's moral crisis
5. Andrei Rublov- beautiful and inspiring icon painter
6. Anna Akhmatova- light of the silver age of Russian poetry
7. Ivan Pavlov- psychologist of the conditioned reflex
8. Sergei Rachmaninov- master of piano composition
9. Dimitri Mendeleev- creator of the periodic table of elements
10. Pyotr Stolypin- A Reformer who might have stopped the Revolution
Comments, as always, are most welcome
There are now several commentators who are arguing that the global market rally is "too much too fast". George Soros, Nouriel Roubini and Robert Prechter have all independently issued warnings about the potential for market volatility.
This comes on top of serious emerging problems with the US Dollar and the growing crisis in Latvia which could have serious consequences across Europe. The dramatic spike in the price of gold to hit new highs is a reflection of a profound sense of underlying crisis, despite the market rallies in stocks that are in anticipation of a resumption of global growth.
In fact the rally is actually part of the problem- there remains insufficient banking liquidity to fund the kind of asset inflation that the market is now pricing in. As UK house prices also return to their previous- unsustainable- levels, the stage is being set for a brutal market rout.
The quantitative easing intended to ease recession is instead undermining confidence in several currencies, especially the US Dollar. I think that there is now a very real risk that this autumn we will finally see a market capitulation that reflects the fundamental underlying problems in the US economy. The rise in the value of gold reflects the general view that the United States no longer has the economic capacity to maintain the Dollar as a reserve currency. While people have been expecting a gradual shift to a more multi-polar currency regime, the fact is that the instability in the markets is such that there is a real likelihood of a sudden, wrenching adjustment too.
The market is banking on a V-shaped recovery, the reality is that at best it will be U-shaped, and, in fact with so many potential nasties lurking in the global economic wood-shed, we could be on the brink of a double dip.
The risks are now very high and if not yet time to take to the hills, the fact is that the global crisis is entering a new and potentially far more unstable phase.
Have a nice day.
Tuesday, October 06, 2009
Now concerns about Latvia are once again increasing. The emergency financing from the IMF and the EU needs to be rolled over and the government is going through a budget process that is contemplating massive cuts in expenditure, despite the fact that the Latvian economy has already shrunk by nearly 20% year on year. As the respite given by summer tourism now comes to an end, the Latvian government is facing what looks like a moment of truth.
Although both Estonia and Lithuania have enacted generally coherent and organised responses to the economic crisis, Latvia's leaders have descended into a wave of recrimination, as they attempt to settle old scores. Time is running out: the budget must be passed by October 23rd and international commentators are warning that the country must bite the bullet on government expenditure or lose the support that is currently in place.
As I have argued before, I do not see why the Baltic States should continue their slash and burn attempt to gain early entry into the Euro by squeezing living standards so aggressively. To my mind, the domestic debt that is denominated in Euros should be redenominated in local currency and then the currency should be repegged. However the policy makers in all three capitals, Tallinn and Vilnius perhaps even more than Riga, have been determined to stick out the crisis without a currency adjustment. The result has been a sharp adjustment in wage rates and a drastic fall in domestic demand. To be quite fair this has eliminated many of the most serious imbalances and current account deficits have been replaced by surpluses. However Latvia, unlike the other two states, has had to take on the burden of a major banking collapse after they were forced to nationalise Parex Banka, which represented around 20% of the local banking market. The cost of this burden is crushing the life out of the Latvian government budget and with it any chance of a spending stimulus that would be the Keynesian answer to the crisis.
The irony is that the IMF and others now feel able to walk away from Latvia because they judge that the contagion effects will no longer carry the systemic risk that was feared last year. The global recovery makes it more likely that assistance to Latvia will not be forthcoming. In this light even the recent rights issue of Swedbank looks less like prudence and more like preparation.
However a forced devaluation of the Lats and probable sympathetic shock to the Estonian Kroon and Lithuanian Litas could indeed have significant knock-on effects across the Euro zone. Aside from the effective breakdown of ERM II that such a devaluation would bring, it could also be that a sudden spike in the risk premium for states inside the Eurozone may put serious pressure on some member states, notably Ireland and Greece- yet these are still protected by their membership of the single currency. It is the EU member states that are not in the Eurozone that could see more aggressive attacks against their currencies.
Though such commentators as Ambrose Evans-Pritchard see the potential threat that Latvian devaluation might offer to the Euro, it is the non Euro currencies, such as the Swedish and Danish Krone and the Polish Zloty that may end up taking more collateral damage. Nor is Sterling immune. There is still considerable market disquiet over the UK policy of quantitative easing, and the gigantic deficits this involves, and of course there remains political uncertainty- an uncertainty that in the event of a hung Parliament could be more prolonged than investors are now considering likely.
The crisis is gathering, and if the storm finally breaks in the shape of a devaluation of the Lats the consequences could be significant and unexpected damage across the continent. If the Latvians are now going to be cut loose by the IMF and the ECB, we will at least know where to point the finger if Latvia has the same impact as the fall of Lehman Brothers did last year..
Time to fasten your seat belts, it could be a very bumpy ride this autumn.
Firstly there is no doubt that the "antis" are beginning to accept defeat. Even the bumptious and increasingly erratic Dan Hannan points out that a referendum on Lisbon alone makes very little sense. He argues that the referendum should be an in-or-out question and he will be campaigning to leave. So perhaps the first result of the ratification of the Treaty of Lisbon will be greater clarity in the argument: the debate moves on from the abstruse language of treaties to a straight yes or no question. The problem for the "Better off out" supporters is that they have no realistic answer for the question of how Britain can benefit from going it alone in a world where being America's most loyal ally only elicits indifference- even from the US itself. As the post-1945 institutions begin to reform to reflect the relative decline of the USA, the big winners are the big powers: China, Brazil, India and indeed the European Union. A country of only 60 million with a sickly economy that is continuing a long term secular decline will have increasingly less control over its interests as a second rate power.
Eventually, as we always seem to, the United Kingdom despite indifference and hostility will belatedly decide to join the expanding European Project. Ever since the Messina conference the UK has allowed other member states to dictate the forms of Europe, pretended that they are not relevant and then had to play catch up. I suspect that this pattern has not been broken by our failure to adopt the Euro: in the end we will probably adopt the single currency in our own interests and indeed also opt-in to several pieces of legislation, such as the single arrest warrant and -hopefully- Schengen, that we are currently opted out of.
Does this mean that the "antis" are right and in fact their is a conspiracy to subvert the United Kingdom?
No, of course not, the fact is that greater economic and political co-operation amongst the European States is essential in certain spheres in order to protect our common economic and political interests in the face of American, Chinese or even Russian competition. Though the European Union is a flawed institution, if it did not exist something very much like it would be created. The emotional response that these right-wing Conservatives have towards the EU is often barely rational- and in a straight choice I am confident that the British electorate would vote- as they did in 1975- to remain a member.
The focus on the Treaty of Lisbon has distracted attention away from the real issues of economic reform and restructuring, and once British membership of the EU is confirmed I hope that there is renewed energy in the determination to reform not the structures of the organisation, but the conduct of business there.
The antis have already lost and, though they will continue their die-hard campaign, the fact is that the pendulum is already swing away from them. David Cameron knows that membership of the EU is only controversial with his own right wingers, and is therefore being quite astute to ignore their call for a referendum on Lisbon at all costs.
In the end the ratification if Lisbon is a game changer, and I believe that the British will take a pragmatic decision to make the best of it and get the EU to work better in the interests of the UK. I suspect that the power of the die-hard antis will decline- becoming an irrelevance even inside the Conservative Party. A different atmosphere is already discernible after the Irish vote and I suspect in the coming months the debate will gradually become less rancorous- I certainly hope so.
Monday, October 05, 2009
The United Kingdom, however, does things backwards. Although non European citizens still need to fill in a landing card and be interviewed by an immigration officer, there is now a special kind of hell reserved for European travellers, including British Citizens.
The lines to show your European passport are now regularly over an hour long, and at certain times of the day they can extend to three hours at Heathrow. In other words, I regularly waste a huge amount of time lining up to enter my own country. It is frankly a disgrace. The immigration officers are up in arms at the conditions they now have to work in- and I can not say I blame them. The slow speed is not helped by each passport now being put into a machine reader to be checked: the new chip-passports are slower to be read than the documents that they replaced.
Of course the wonder is why the UK still insists on such checks- they are fairly useless when few -if any checks- are made when passengers are departing from the UK. The whole process- irritating "UK Border" signs and all- is a pathetic cravenness by Labour ministers to the Daily Mail agenda of stupidity.
As a resident of a Schengen state- inside the borderless area of the EU- I cross most other borders easily and quickly all the time- that is, right up to the time when I have to come to the country of my birth and citizenship. Now the news is that the immigration service will charge you £50 in order to skip the queue. It would be hard to find a more flagrant example of rip-off Britain. The other day my flight into Heathrow arrived at the same time as a Libyan Arab Airlines flight from Tripoli. The passengers on that flight, going through the Non-EU entry process were through in about 15 minutes, while my flight from another EU state- Denmark- were still being processed an hour later. I do not think that I would have felt happier if, having paid my £50, I was processed in the same time as the Libyans.
The fact is there is a perfectly obvious solution: The UK should join the Schengen area. Then there would be no delay to arrivals from the EU, who are already cleared to enter when they crossed the external border of the Schengen zone. The immigration officers would not have the tedious and pointless job of checking tens of thousands of EU passport holders but could instead focus on other areas: including the tracking down of the large number of illegal migrants already in the UK. The Mail will point to the camp of potential illegal migrants in Northern France as evidence that border controls should not be relaxed. My comment to that is firstly, there is nothing to stop regular patrols around the channel tunnel and south coast- and in any event these illegals are not the people who present themselves to an immigration officer at Heathrow anyway.
These pointless, expensive and intrusive checks serve no purpose. It is time to recognise this and also to enact what most other EU states regard as a major benefit of joining the EU in the first place: free movement across borders.
As I contemplate the easy travel I will have to Luxembourg next week with the likely delay I will have at Heathrow the week after, I am growing more understanding of the large number of frequent travellers who no longer make the UK their main base.
A three hour line after a tedious flight is not the kind of "Welcome Home" that the UK can be very proud of.
Sunday, October 04, 2009
Like an increasing number of people I read much of my news online. I will focus on certain stories and try to get differing points of view. However the UK tabloid press generally has pretty awful websites, so I typically don't bother to read them.
When in the UK I will sometimes go and buy an actual newspaper, and I vary them; with the Independent probably being first preference, then the FT, the Daily Telegraph, the Times and then the Guardian. Of course when I do this I will see the front pages of the other newspapers. Sometimes the Sun amuses with some absurd pun, or the Daily Express with some shrill screech of paranoid outrage, or the Mail with some sanctimonious and unpleasant bigotry. However I don't take these papers seriously as sources of information. Indeed on the rare recent occasions- usually flying on SAS for some reason- that I read the Mail beyond the front page I am generally astonished at the low standards of journalism. Essentially the Mail, the Express or the Sun will dress up opinion as fact and then attempt to create some kind of spurious campaign to demonstrate that they are "in touch with the people" and therefore have some place of influence.
However such nastiness is as much alienating as it is anything else. I was so disgusted with some Mail bigotry against foreigners that I have now vowed not to read the filthy rag ever again. As even the circulation of the Sun continues its inexorable decline, I for one would not miss these papers much. Meanwhile the troubles at the Independent and the Observer are equally serious.
In short the "dead tree press" seems to be dying itself.
Perhaps the fact that journalism has become a closed world where many journalists are not just from the same high schools and universities, but the same families as well may be part of the decline. Certainly the power of the fourth estate as part of the establishment is demonstrably not what it was.
Perhaps it is the hackneyed writing, the ugly and ignorant opinions or the simple tedium of the drudgery of a weekly column (I sympathise!), but it is hard to point to a single columnist with grace or style. The parodies of journalists in Private Eye: Glenda Slagg, Phil Space, Polly Filler, Mary-Ann Bighead ring very true to life.
I guess within a couple of decades we will soon look back on The Sun rather as we do to the "Penny Dreadfuls" or the news sheets of the 18th century- a quaint curiosity.
Saturday, October 03, 2009
The problem for the Liberal Democrats is that the media narrative continues to be defined by a two party system. The media assume that politics is a binary choice and that sooner of later it comes down to which other party the Lib Dems choose, and here's the rub: the Liberal democrats are actually very divided about both strategy and tactics in dealing with the other two parties. Electorally our primary battle remains with the Conservatives - we contest more seats against the Tories than against Labour, and historically a recovery of the Conservatives generally means the eclipse of the Liberal/Liberal Democrat vote. The result is that the battles between Conservative and Liberal Democrat seems to have far more needle than might seem strictly necessary. It certainly helps explain why so many Lib Dems in the conference hall wanted to mix it at least as much with the Conservatives as with the dying Labour administration. Indeed, listening to Shirley Williams, it was hard not to think that the only values of the party that the leadership recognised were those of Social Liberalism. It was therefore a certain irony that in the past defectors from Labour have been welcomed, while defectors from the Conservatives were sometimes received with short shrift.
Yet the fear of being swamped by a resurgent Conservative tide may be misplaced. A recent poll of marginal constituencies suggests limited Conservative inroads into the Liberal Democrats, indeed the Lib Dems may yet gain seats over all. The question now becomes one of what our ideological battlelines should be. Clearly Nick Clegg is now setting out his positions to attract a large block of defecting Labour voters, and so it is understandable that Social Liberalism is being given more prominence over Economic Liberalism. Indeed I did see on a blog recently- which shall remain nameless- that the Economic Liberalism of the German FDP was the "wrong" Liberalism. Anyone who could write such nonsense needs to go through a crash course in Liberal history and values. It does serve, however to underline the frustrations of the more Libertarian Liberal Democrats- and Jock Coats' comments may be unpopular, but his concerns about some Lib Dem positions are well taken.
The fact is -as the conference demonstrated- the party needs to pull its socks up if it is going to be a success in government. It is not an accident that the Scottish Liberal Democrats are more economically Liberal than the English Party. The Scottish Party- unlike the Federal Party- has had to face the responsibilities of government, and if power forces compromises, it also forces you to clarify what your real priorities actually are. In Scotland we had to set out several clear policies: free personal care for the elderly, for example, and as part of a coalition negotiation to make sure that as many of these policies as possible could actually happen. However, the Scottish Liberal Democrats also had to define the ethos of the party far more clearly. In Scotland that meant defining ourselves against the Labour establishment. Though, in the short term we have been somewhat drowned out by the rise of the SNP, nevertheless the Scottish Party remains much more ideologically coherent than the Federal Party now is and is set to be quite resilient at the next general election.
This then poses a question for the Liberal Democrats. let us assume, as now seems likely, that the Conservatives obtain the largest share of the vote but that they fall short of a working majority after the next election. The Liberal Democrats may have a choice as to whether to put either a Conservative or Labour Prime Minister into office. It could be the dream scenario for the Lib Dems.
What will the leadership do about it?
On the evidence of Bournemouth, they may be tempted to think of it in terms of political tactics. However in my view, the time has come to think strategically and to put the Liberal Democrat ideas of constitutional reform firmly at the top of the political agenda. Instead of talking about whether the choice is David Cameron or Gordon Brown in office- which for the majority of Liberal Democrats is the choice of being hanged or being shot- we must talk about what we would insist upon in order to support any other government. Party strategists fear that this is an admission of weakness, yet, in my view it propels the policy choices, and not the party choices to the front of public notice.
If either Gordon Brown or David Cameron wanted Liberal Democrat support there must be a full programme of constitutional reform. The House of Lords and the House of Commons should be thoroughly reformed- and the total number of Parliamentarians must fall. The constitutional place of Parliament must be restored, with clear lines drawn between Westminster, Cardiff, Holyrood and Stormont. The political power of the Crown prerogative- i.e. the Prime Minister- must either be placed under Parliament or the PM should be directly elected. Above all, there must be a change to a voting system that allows all parties gaining more than 5% of the vote to be represented fairly in Parliament so that every elector has an equal chance of getting the MPs that they vote for. No more "safe seats"- the 21st century of "Rotten Boroughs"- must be allowed. In my view explaining to the electorate that the vast majority of rogue expenses claims came from MPs with "safe seats" usually wins the argument.
The Liberal Democrat leadership, by waffling about Social Justice, is missing the point: the party has been in the vanguard of demands for a complete overhaul of the political process for decades, and now there is an opportunity to show with great clarity that the Liberal Democrats are asking not just for a change in the party of government, but a change in the system of government. Bournemouth was a cantankerous and waffly waste - yet if Nick Clegg wants to snatch victory from the jaws of defeat, now is the time to revert to the deepest roots of the Party and its highest principles.
As of today I do not see such clarity and without it, the challenges of facing the economic crisis; the decisions to made in Afghanista; the need for radical changes to the public sector, and the profound sense of national ennui can not be addressed either. The Liberal Democrats need to renew their focus and order their priorities. Discipline and leadership are now required from Nick Clegg, Chris Fox and all the leaders of the party.
Without it then the Lib Dems will face decline at the next election.
With it, the battle for political reform may yet be won- and far sooner than we ever dared hope.
The scale of Europhobia amongst the Conservatives is pretty dramatic and leaves the young Conservative leader with very little room for manoeuvre. The plain fact is that even with a filibuster by the right-wing President of the Czech Republic, Vaclav Klaus, all of the members of the EU- including the UK- are likely to have ratified the treaty by the end of 2009. After the astonishingly difficult negotiations over nearly a decade, the reforms of the European Union- however imperfect and partial they may be- will have finally been achieved. No one wants to go through the process again. There is simple exhaustion across the continent about the whole process. Once the institutions have adapted to the changes, the appetite for further upheaval will be nil.
David Cameron knows this. He also knows that if he is elected in early Summer next year, he will have to face a gigantic overhaul of the public sector which, however necessary, is going to be very painful and is going to make him very unpopular. In my view he is more pragmatic about the EU than the poll shows the rest of his party as being. I suspect that his original game plan was to essentially accept Lisbon, negotiate some relatively cosmetic changes and put this to a referendum with a government recommendation that the UK votes "Yes" and therefore stays inside the European Union. It seemed to me to be a neat political solution that would get Cameron off the horns of the dilemma.
What the poll shows, though, is that he could end up be caught between the rabid Europhobia of the majority of his party supporters- including a large number of people who may end up being elected to Parliament- and the unwillingness or inability of the other 26 member states to offer him sufficient changes to the treaty that he will need as sops to his domestic critics. It is a crisis that could define the whole ethos of a future Conservative administration and distract attention from the far more critical problems of public sector reform.
The Irish Yes vote must have been planned for, and the leadership would be quite aware of the visceral nature of Tory feelings concerning the European Union. Nevertheless, even if "forewarned is forearmed" the European issue is one that has the potential to upset the Conservative applecart even more severely than Liberal splits on Ireland in the 19th Century.
The Conservative leadership- even if not, apparently, its membership- knows that committing to withdrawal from the European Union at a time when the British economy is so fragile would have a drastic effect on investment and confidence. Sterling, already weak, could drop dramatically, with severe effects on inflation and British standards of living. International investors, already unhappy at the currency volatility that they have had to endure from their British investments, will demand much a higher risk premium- just at the point where the UK needs to tap the global markets to fund the ballooning deficit. The British AAA rating- already under review with a negative outlook would finally be gone. Cameron knows that the economic effects of even hinting at withdrawal would have political effects that would probably destroy the Conservatives as a government party for years or even decades.
On the other hand he will now have to face his activists. I suspect he will continue his careful pose of "Euro-scepticism" while tacitly implying that he shares the Europhobes hostile view of EU membership. Nevertheless, instead of the triumphant pre-election love-fest that he may have wanted, the Tory conference will now be reported as facing a "European crisis" and all questions will come back to this. Conservative dyspepsia on the EU risks being revealed as full blown irritable bowel syndrome.
The further problem is that Cameron has not yet "sealed the deal". Hostility to Gordon Brown's Labour government is entrenched, but poll after poll makes clear that support for the Conservatives is still very tepid. The wave of enthusiasm that swept Tony Blair into office is not being matched by a similar wave for Cameron's Conservatives. Though I doubt not that the Tory Boys and Twinsets will give their leader a rousing ovation at the end of his speech, there is a growing sense of doubt. The Politics Home poll of marginals shows Labour and especially the Liberal Democrats looking more resilient and also a potentially good result for Plaid the SNP and even a gain or two for the Greens in the next Parliament. The fall of Socialism is increasing political diversity rather than necessarily flowing to the Conservatives. Though the crude numbers are hard to interpret, we should remember that the Conservatives still have a mountain to climb when it comes to achieving a decent working Parliamentary majority. The fear of several key people around Cameron is that the Conservatives may not be able to get much above a single figure majority- a situation where an influx of young Europhobic MPs could be a highly explosive mixture.
The task for David Cameron at Manchester this conference is very delicate. He must try to stick to his game plan, but he knows that the media narrative, together with some of the more excitable Europhobes could end up derailing the whole conference unless he is very careful indeed.
I doubt whether he is looking forward to the conference with much enthusiasm.