Monday, January 31, 2011

Russia crumbles further

As the potential Arab revolt rumbles on further, the events of last week in Russia have been forgotten by the media already. The "24 hour news agenda" by definition is not good at analysis or understanding. Yet the impact of the bomb at Domodedovo is still reverberating across the Russian body politic.

It was a brutal and disgusting crime- and the bloody death toll and horrible injuries that the suicide bomber wreaked upon the innocent can only be condemned by any decent individual. There are no reasons and no excuses for the people responsible.

Alas, that the failures of the Russian power structures have allowed the emergence of this kind of Al-Qaida inspired evil. As Wiki-Leaks revealed, the US assessment of Russia is that it is now entirely in the hands of contending, largely criminal, elites. A convenient simplification would be to say that power is divided up between different Mafia families, who have different interests in different industrial sectors and in different parts of the country. These interests are balanced by negotiations and occasionally by violence. Thus the idea that the Russian government exists as a monolith under the steel will of a single leadership is somewhat inaccurate. The group of five or so individuals around Prime Minister Putin are only the largest and most feared of these contending elites. Strongly Mercantilist, these groups trade favours, and where necessary punishments. Yet there is no clear strategy- only the short term need to gain control over assets and to ship the income derived from these assets out of Russia as fast as is practical. Liquidity is king in the under invested and increasingly decrepit Russian economy.

Meanwhile there are large areas that have been excluded from the process of trading favours. In particular the North Caucasus has become simply a battleground where only the most brutal can maintain even the most tenuous foothold. The deliberate flooding of the area with weapons by "dissident" members of the army (which kills roughly 3000 of its own conscripts every year) has made the turf disputes in the North Caucasian Republics, whether Chechen, Ingush, Ossete or Dhagestani into a festering, if relatively low intensity, war. The latest bomb in Moscow is merely a symptom, and not the most deadly, of the roiling violence of the North Caucasus. Yet increasingly the Russian writ does not hold at all in that part of the Russian Federation. A combination of neglect and brutality has totally undermined the rule of law and the erosion at the centre has become a collapse at the periphery. As racist violence emerges in the Russian heartland against those from the Caucasus, it is hard to see how the two groups can share the same state for much longer.

Russia is fraying at the edges- yet the consequences may yet push the Caucasian Republics into a still more deadly pattern of outrage and revenge. In the meantime, the West, lead by the US considers that the "reset" policy towards the Russian state has been a mild success.

It has not.

Russia may not be the strategic threat that the Soviet Union was, but the appallingly cynical and corrupt Russian state that has been created on the ashes is unstable and occasionally malevolent. Those who are locked out of the Putinista system of contending Mafias no longer believe that they can achieve anything by peaceful means, and the level of violence is therefore likely to grow.

The attack on Domodedovo was a deliberate attack on foreigners, and more and more they will be targeted as a way of getting attention and of reducing Putinista access to outside interest and money.

A witches brew of religion and nationalism has been cooked up under the reign of the Siloviki. It may yet be the rest of the world that suffers the consequences.

Friday, January 28, 2011

The Pharaoh Totters


The History of Egypt over the last century has seen two major revolutions: one in 1919, which dispatched the British as direct overlords, and one in 1952 which dispatched the monarchy.

When I heard that the flag of 1919 was being waved in Egypt again, I began to realise that the prospects for the Mubarak government are not looking good.

They are being very foolish to arrest Mohamed El-Barradei- he may be the only way that the regime can escape with its life. Once the bazaars are pulsating with this much anger, it could be that the regime does not merely pass away, but totally disintegrates, and the breakdown of order in a country as important as Egypt is no small thing.

The regime may think that be switching off the Internet and e-mail that it can prevent a revolution - this is surely folly: few revolutions in the past had such tools, but they were still successful. Egypt's revolution could still be determinedly non hi-tech and it might yet be completely successful, with today's leaders just as fled or just as dead.

The regime in Cairo is clearly more entrenched and more ruthless than that of Tunisia. The next few days will tell if ruthlessness is any more durable. The deaths that are so far reported are only seeming to inflame the mob- it would be far better from a practical as well as a moral view for the government to attempt some process of conciliation. Indeed without such conciliation, even if the government survives in the short run, it will be destroyed in the long run.

The consequences of that would be far reaching indeed.

Tuesday, January 25, 2011

"The Establishment" strikes back: SpAds, Dads and Rads

Politicalbetting.com this week pointed out that the succession of Ed Balls to the position of Shadow Chancellor of the Exchequer marks the final triumph of the SpAd- the political special advisor. Now virtually all of the key positions on the front benches of both the Government and the Opposition are filled with professional politicians- who know no other life outside of politics. In fact the political clique is even narrower than you might think, since in order to obtain the unpaid jobs at the foot of the political ladder, there is a minimum degree of wealth required. It is not an accident then, that so many of the political leaders of Britain come from a privately educated background. The political class- in Peter Oborne's memorable phrase- is also a narrow social elite. "The Establishment", in the shape of the public schools, has recovered a level of control over politics that would have been regarded as unthinkable just a couple of decades ago.

Not just in politics.

In journalism, the Rifkinds, the Johnsons, and a whole host of other families have begun to make the press into hereditary dynasties. As I have noted before, the same is true of the legal profession. Even in entertainment, we see a parade of new faces but familiar names as comedians or writers.

Meanwhile the 90% of us who lie outside this magic circle have ever less chance to break in.

All this is coming at a time when the rewards for professional success have never been higher. The wealth gap between those at the top of the ladder- the judges or university professors- versus those lower down on the ladder- the solicitor or the research student- is wider than it has ever been. Yet the opportunities for those from ordinary backgrounds to break in to "The Establishment" are far fewer than in the 1960s. Indeed the radicals of that era have spawned their own group of celebrity success- the litany of Jaggers or Osbornes that appear in the press and on the television is testament to that. Those who have achieved success hand it on to their children.

It can not go on like this.

Social inequality is damaging at every level.

Yet, I do not buy into the Labour politics of envy- not least because it is laced with the hemlock of hypocrisy. Your wealth does not cause my poverty, because wealth is not a fixed cake of money to be divided, it is a flow of money.

The issue is therefore not equality of outcome which can not be achieved unless it is the equality of the grave- it is equality of chance. In the UK today if you are not part of the 7% who are privately educated, but part of the 93% who are not, then your chances are nearly five times less of entering the best universities and of achieving ultimate professional leadership. I do resent the public school politicians who presume to lead, despite having no executive experience and little understanding of the social crisis that the UK is stumbling into. The political class does not have to face the squalid breakdown of the NHS, the barely suppressed violence on the streets and in the (state) schools. Yet at the end, the fact is that the British people have allowed themselves to be gulled by an electoral system that permits a rigged choice every four or five years, by a social order that does not give sufficient educational opportunities to the economically disadvantaged. We have the government we deserve, because no one is speaking up.

In Buckinghamshire, where I stood for Parliament in 2005, the Grammar schools received nearly twice as much money per pupil than the non-Grammar schools, plus the support of wealthier and more involved and articulate parents. Yet it was the non Grammar schools were those who were taking in non English speaking kids and improving their attainment faster than those of the Grammar schools. There are successes to report, but these get drowned in a sea of social prejudice and a pervasive sense of failure of those not party to academic and social privilege.

In my view it is time for the Liberal Democrats to reassert their radical credentials. It is time to emphasise the need to create a more open society. It is time to remind ourselves why a free market creates not only greater wealth but also greater opportunity.

In the face of the closing doors of the Establishment, it is time to remember the radicalism and creativity of the 1960s- they time when Liberalism began to recover from its near death experience. Although as in the 1920s and the 1950s there is again pressure from the Conservatives to work more permanently together, we should- in my view- resist this powerfully. Liberalism is not Conservatism-lite, any more than it is Socialism-lite. It is a powerful ideology that informs an agenda of radical change.

British Society will in time reject the political class and this could be a serious breakdown. Yet at that point it could be the Liberal Democrats- with the free ideology of Locke and Hayek- who could be leading the way towards a more open and egalitarian political and social system.

That is a vision that we should be considering carefully over the next few months. Even as we note the filibuster in the House of Lords to try to prevent even the smallest change to our corrupt and dangerous electoral system. Those entrenched forces should be forced to defeat.

Radical change is needed and is coming- the question is who will lead it? And to what end?

Saturday, January 22, 2011

The political cost of repairing the UK economy

The UK's CPI annual inflation rate rose to 3.7% in December 2010. The RPI- which includes mortgage payments- rose to 4.8%. The Bank of England continues to hold the Bank rate at a record low of 0.5%, while issuing over £200 billion of reserves to pay for asset purchases. The banking system is being bailed out by a negative interest rate of close to 4%.

Yet to pay for this the United Kingdom has created record public sector deficits. According to the ONS, at the end of November 2010 total public debt- not counting the interventions to recapitalise the banking system- was £863.1 billion, or to put that into context, 58% of GDP. The current cost of those additional interventions is not small. It is currently estimated to be about another £850 billion, and although it is highly unlikely that the eventual total cost will be more than 10% of this number, for the present it is a sum that still requires to be financed for the next several years.

Total UK public sector debt is therefore about 120% of GDP.

However, the UK private sector debt numbers are far more scary. PWC estimated that at the end of 2009, total debt was already 540% of GDP, up from just 200% in 1987. More to the point it highlighted the sharp acceleration in total indebtedness since 2000. Slowing, never mind reversing these trends will be exceptionally difficult without major economic dislocation.

The primary driver of the huge surge in private sector debt was the dramatic increase in house prices over the same period. Since 1990, nominal house prices have doubled.

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So the exposure to house prices is now a critical driver of the UK economy. Rescuing the debtors has been the primary political as well as economic goal both of the Labour government of Gordon Brown and now the coalition.

Yet, the price of this rescue is undermining long term investment and destroying the value of the Pound as a store of wealth. despite the long delays, the recovery- however tentative it is at the moment- is now going to require higher interest rates.

Everyone knows this- which is why the cautious are delaying their moves in the housing market. Yet this is risking a further banking crisis- if house prices really stall again, then the government could be caught between the urgent need to cut their own deficit, the surge inflation that their own increase in VAT will help to fuel and the drastic loss of confidence that a major house price fall will engender. Then the UK will be back in the 1970s with Stagflation returning with a vengeance.

Certainly that is the message that Ed Balls- benefiting so well from the unfortunate publicity about Alan Johnson's marriage which proved a convenient moment for him to become shadow Chancellor- will be making time and again. Yet Ball himself, beyond insisting on the politically popular "No to Cuts" is not providing much salvation- his inflationary laxness will be even more dangerous in the long term.

Austerity is a necessary policy- even the most basic analysis of UK indebtedness shows that-but Balls will attack it in any way he can.

The problem is how to steer between the Scylla of stagflation and a house price meltdown and the Charybdis of a debt meltdown and an inflationary explosion.

I see no British politician yet speaking as though they understand the scale of the bind the UK is in. It certainly isn't Ed Balls, whose policies in government did so much to create this crisis in the first place.

Thursday, January 20, 2011

Creepy Katie Price holds a mirror to Britain

I don't lose too much sleep over the sordid and trashy life of Katie Price.

I do think she is an appalling example to youngsters who may wish to ape her expensive "glamorous" lifestyle.

Yet now, I am utterly sick of seeing endless stories from "friends of" and "sources close to" on the subject of the latest car crash in her life- in this case the end of yet another of her marriages, just a few months after the vulgar wedding- recorded, naturally, in the gossip sheets and scandal rags after payment of a large fee for the pictures.

However it is not so much her own staggeringly immature and nasty behaviour that disgusts me, but the willingness of the press to regurgitate her press releases on subjects that should be totally private. Katie Price has one overwhelming talent: she attracts huge attention from a certain section of media.

The vulgar, immoral, trashy, callous media.

As another round of "he said/she said" goes around, I am reminded of my school playground. I suppose that is why this horrible woman remains weirdly popular, despite behaving in a way that should have got her totally shunned years ago. She is understandable. She is primitive. She makes public her more base and basic feelings in a way that we recognise. That she seems to possess no other -finer- feelings, in my view kind of disqualifies her as a matter of public interest. Yet time after time, people seem to want to read about her- and the media will provide.

Perhaps I should pity this nasty and mercenary women and her knuckle headed soon-to-be-ex. The vacuous wheels of celebrity are oiled by precisely these slightly tragic stories, so maybe "Jordan" feels that these domestic storms are part of the deal to keep the public interest. No detail, no matter how creepy or sordid, should be kept from the prurient or the merely curious, or maybe the media lose interest and "Jordan" loses her livelihood.

Maybe it says more about us as a society, than it does about Katie Price, that we pay up and pay attention to her and her merry-go-round bedroom antics. Yet I don't think it says anything good that we do this. The values we say we want to instill in the young are those of kindliness, responsibility, perhaps even more old fashioned ideas like self discipline and hard work. Yet what this woman represents is a steely-eyed greed and monumental selfishness- a money for nothing celebrity of astonishing pointlessness.

I concede that her past as a "glamour model" may have left her a very damaged woman. All the more reason, I submit, to avoid casting her as any kind of role model.

Wednesday, January 12, 2011

Winning the bonus lottery

There has been an awful lot of political cant offered up as argument concerning bankers bonuses. The high rates of pay in the City of London and on Wall Street are so far ahead of the average that politicians are more or less required to be critical, bearing in mind that the average voter earns so many times less than the average banker.

Nevertheless, as a banker myself, I think that the compensation offered to bankers is no longer linked to performance- it is a simple lottery. Once upon a time, bankers were entrepreneurs. Partners in their firms, they were prepared to risk their own capital and to back their judgement with their own money. Later, banks became joint stock companies, and the image of the sober-sided, respectable and responsible bank manager of the mid-20th century marked out banks as stable, prudent and safe. Of course, even for commercial banks this was not strictly true, and bankers risk models- focussed on bell curves and other fictitious ideas rarely achieved the returns that were claimed for them. Meanwhile there were also the "merchant bankers", these functioned as partnerships for a lot longer than their lending bank cousins, and maintained a tradition of taking higher risks and being involved in more innovative investments- and paying themselves more.

Yet in due course, the consolidation of the banking markets meant that even the very largest of these partnerships- now usually called investment banks- were forced to take in third party capital. When one takes in third party money, one is no longer- strictly speaking- an entrepreneur, one acquires a fiduciary responsibility. One is obliged to protect investor interests and to share investor returns. Meanwhile the supposedly staid commercial bankers aspired to investment bank returns and began to put more an more client money into instruments that were inappropriate and which they did not understand.

The collapse of the banks in 2008/9 dramatically proved the failure of two ideas: the first was the erroneous risk models that had been promoted across the the banking sector, but it also destroyed the fiduciary relationship between the banks managements and their investors. Poor risk taking led to the destruction of shareholder value on a scale never seen before. The result was that the owners of the banks saw their investment essentially destroyed, as one after another, governments were forced to bail out the failing banks in order to prevent a collapse of the entire sector, and with it the value of customer deposits.

I use the word failure in its fullest sense- the management and "risk control" of banks proved to be a total and spectacular failure. It was not just isolated errors of judgement, it was a systemic breakdown. One of the major reasons for this failure was the abuse of the fiduciary relationship by bank management. The staff were able to generate massive returns for themselves without taking any personal risk- the complete risk now lay with the shareholders. When the banks failed, the shareholders lost everything, but for many of the staff responsible, the effect was negligible- even most of those who lost their jobs were generally able to find new employment quickly.

Now, after the nationalisation or bail-out of the banks, the bank managements are seeking to return to an unsustainable model- to take the shareholder money, now provided by the state, and turn it into personal wealth regardless of personal risk. As the orders from bankers for Porsche and Rolls Royce luxury cars reach new records, it is now quite clear that the reform of the banking system can not be delayed.

Those paying themselves such large amounts of money are doing so even when shareholders- whose interests they are supposed to put first are losing money. This is not entrepreneurship in any form, and these banking bureaucrats- for that is essentially what they are- do not deserve entrepreneurial returns- still less the cock-eyed returns of huge bonuses before their shareholders receive a penny.

Bob Diamond does not get it- these huge "bonuses" are a function of a dysfunctional market- those who receive them are not entrepreneurs, they are merely lucky, not skilful. Meanwhile, the impact of the bank bail outs is severely impoverishing the average voter. Voters are angry- and they are right to be. The banking system is paying out more money than ever to its workers and less money than ever to its owners.

This is not sustainable, and it should not be sustained. Vince Cable is quite right- the banks should be broken up. Genuinely entrepreneurial operations should be able to reward real risk taking appropriately, but the vast majority of bank business is not entrepreneurial and does not earn the levels of compensation that has become the bloated norm in the sector.

Winning the bankers bonus lottery should become a whole lot more difficult- as soon as possible.

Thursday, January 06, 2011

Britain is losing its social glue

One of the prime reasons that Iain Dale gave up blogging was, he stated,

"I hate the backbiting that goes along with it. I hate the character assassination that is permanently present"

I am afraid that the symptoms that Iain rails against are part of a larger and more serious disease that is poisoning the whole of British politics. The fact is that it is increasingly impossible to conduct any political discussion without violent accusations of bad faith, treachery or greed.

The "politics of envy" has morphed into some kind of twisted "envy of politics". It is shown in a violent hostility towards anyone who expresses an opinion. The latest example is a hate campaign against Billy Bragg, the singer and left wing political activist. I read Billy Bragg's book, The Progressive Patriot and although I did not agree with all of it, it struck me as a sincere attempt to express a personal view of the English radical tradition. It is a thoughtful and rather charming book. Billy Bragg has something important to say, and in his music and in his writing, he expresses a point of view that I can respect, even if I don't agree with it.

Yet Billy Bragg is an exceptional figure- too often we hear extreme arguments put forward shrilly and with little or no intellectual justification. The newspapers are now so full of mistakes of fact that it is hard to credit that they are still regarded as reliable judges of anything. The media has helped to create a culture of angry and bitter cynicism that is corroding the most fundamental parts of British freedom.

Of course the media are not entirely responsible for this: the deeply amoral spin doctors, lead by the odious Peter Mandelson reduced the cult of the half truth and the whole lie into a new low standard for British politics. The anger of the British people over the Iraq war generated a sense of burning anger at a political class that was deliberately ignoring the will of the people. Meanwhile the electoral system reduces political choice to simply endorsing the least bad option.

Now, even politicians of courage and good will- in fact especially politicians of courage and good will- are being personally and physically attacked. The personal abuse that Nick Clegg has received is a case in point. The casual and lazy dismissal by the media of Clegg's agreement to enter the coalition as the selling of principles for power is a travesty of the truth. In fact Nick Clegg and the Liberal Democrats have followed through almost precisely on what they said they would do when they asked the British people to support them in 2010. The Liberal Democrats are paying a bitter political price for failing to give in to the culture of angry stupidity that is the common currency of the current British political debate. The irony is that the Liberal Democrats are paying this political price for failing to continue their opposition to a policy of higher tuition fees- while Labour and the Conservatives have paid no such price even though they have supported the policy all along. The messy compromises of coalition have been very damaging to the Liberal Democrats, even though we have always supported the need for such coalitions.

Meanwhile, by another brutal irony, the Conservatives, who have vehemently opposed a more pluralist political system- including coalitions and electoral reform- are finding that the coalition is delivering a far better government than the Conservatives alone could have given the British people, which is why so many of them want to continue the arrangement for more than one Parliament. Meanwhile, Labour- inevitably angry that they lost power- have been opportunistic and cynical. The ludicrous idea that the leader of Her Majesty's loyal opposition would have joined a riot was simply dangerous nonsense- yet as of now, Ed Miliband has not paid much of a political price for such an appalling howler.

So in the current corrosive and poisonous political atmosphere, the cynics are getting away with huge mistakes, while the honest are being pilloried for simply doing what they said they were going to do.

The British people can not afford to remain so undiscriminating. Viewing politics through the viscera instead of the brain is eroding social trust in the political system. The hatred and vituperation that is now falling on political heads across the political spectrum must be stopped. The failure to respect political argument and to engage in debate only through a megaphone of invective is undermining our democracy.

The Economist this week also makes a similar point.

We must start to change the tone of the debate- and that is the responsibility of the Opposition at least as much as the Government; it is the responsibility of the media at least as much as the politicians; it is the responsibility of the citizens at least as much as the political class.

Without more respect for other people's arguments, even when you disagree with them, then eventually the political environment will indeed be filled with villains and crooks- and the British will have got the government that they deserve.

I am not yet prepared to concede that this point has been reached. I disagree with Conservatives, Labourites, Greens and Nationalists, but I am prepared to believe that their motivations are sincere, even if some or even many of their conclusions are erroneous. If we can not re-establish debate based of mutual respect then the breakdown of British democracy and freedom is all but assured.

We must resist the ignorant, the angry and the cynical- there is too much at stake now for us to forget the saying attributed to Voltaire: "I disapprove of what you say, but I will defend to the death your right to say it". Those who are putting dog shit in the Cleggs' letter box, or writing hate mail to Billy Bragg, or who post lies and hatred on the web are the enemies of democracy- and must be resisted firmly- or all indeed is lost.

Monday, January 03, 2011

New Year... New Money

The turning of the year, and indeed the decade, was more than usually symbolic here in Tallinn. 2011 marks Tallinn's turn, together with the Finnish city of Turku, as the European Capital of Culture. Given the relatively small size of the city- just 450,000- even in normal times Tallinn is a very culturally rich place to be: several international film festivals, a large amount of theatre, a wide variety of music, street performance, open air concerts and so on. This, coupled with a number of high quality museums ensures that there is always something to see and do. Tallinn may be relatively small, but it is a capital city- and it feels like it too. The events of 2011 so far seem quite low key, but I am certainly looking forward to the opening of the refurbished maritime museum in the former seaplane port- with the vast concrete hanger providing new indoor exhibition space.

Yet it is not just the promise of a culturally rich year that makes 2011 a special year for Estonia.

The final adoption of the Euro is equally important- if more controversial. The Estonian Crown when adopted in 1992 was a symbol of the freedom of newly recovered independence- and went on to become a symbol of Estonian financial rectitude and responsibility. When the Crown was adopted, many people went out to buy new wallets in order to keep the new money clean- there was cheering and a huge sense of emotion as the currency came into being.

The adoption of the Euro has been a far more wistful occasion. In a sense the adoption of the single European currency marks out Estonia as a major success amongst the countries of transition- and the terms of the 2004 treaty of accession did not give Estonia the the option as to whether or not to join- once the terms of the treaty were satisfied, joining was mandatory. Indeed government policy ever since has been to fully comply with the conditions that would allow the country to enter the Euro zone. This has involved substantial sacrifices- Estonia has maintained a level of fiscal discipline that would shock the Germans, never mind the British or the Greeks. Now the goal has been achieved- and indeed many inside the Euro take it as something of a vote of confidence that Estonia was prepared to join, when conditions inside the Euro zone were so inauspicious.

Of course the English language media has been spectacularly ignorant about what Estonia was actually doing. The Daily Mail (and even the New York Times) blithely informed their readers that Estonia was joining the European Union- an event that happened six years ago! The Mail, less surprisingly, could not understand why anyone would join a currency that was unlikely to survive. As always, they failed to point out that the Pound has managed to fall thirty percent over the past two and a half years against this supposedly worthless currency- and despite considerable turbulence in the markets in the past six months has even continued to fall.

Of course I do think that the Euro needs reform- and I would even welcome the exit of some of the weaker members from the Euro- but the way that British right wingers portray the single currency is almost wholly wrong. The markets are not that interested in sovereignty, they are mostly interested in efficiency, and as I have noted here repeatedly, the problems of the Euro are all about unsustainable debt- and the levels we are seeing in Greece or Ireland are unsustainable no matter how much you devalue your currency. Irresponsible or incompetent or corrupt policies will lead to breakdown, no matter what. Indeed the presence of the Euro has arguably given a cushion of stability- the crisis would have happened a lot sooner if the Drachma or the Punt had remained as free floating currencies.

Neither is the idea that interest rates were too lax for the periphery in the good times, and are now tightening too soon in the bad, a particularly credible one. Good financial policy does not wholly rest on the price of money- and the structural problems of the PIIGS states show not the imbalances of the last decade or so, but the financial mismanagement of an entire generation. The failures of the UK, in pensions management, capital allocation, and investment are no better than those of Spain, Portugal, or Ireland, despite the fact that the UK has enjoyed the dubious benefit of a floating currency. The Blair-Brown years were the years when Britain ate up its seed corn, and now the country must pay the price for years of bloated and incompetent government, excessive and inefficient welfare rolls and staggering failures of leadership.

Over the same period, the Estonian government ran surpluses and created reserves. The nominal government debt is just 9.2%, yet the reserves are now around 11%. Although private debt did grow strongly, it was from such a low base that even now, it is less than half the percentage debt levels of neighbouring Finland- which compared to the UK, is hardly prodigal. Estonia is able to join the Euro as a strong member- a country that affirms German levels -or better- of fiscal responsibility.

So as Estonia enters the new year, it adopts a new currency. In fact, given the horrors of Estonian history over the past century, it is the ninth time that Estonia has been forced to change its money: 1910: Tsarist Roubles, 1916: Occupation Marks, 1918: Estonian Marks, 1928: Estonian Kroon, 1940: Soviet Rouble, 1941: Occupation Marks, 1944: Soviet Roubles, 1992: Estonian Kroon. The difference is that this time the symbolism is one of peaceful prosperity and not of occupation.

As I go out to spend Euro for the first time in Estonia, I reflect that the country is making decisions to promote its own prosperity and maintain its identity, and that is more or less the opposite of what the ignoramus Daily Mail journalist- who did not even know Estonia was in the EU- thinks that the Euro actually does.

The Euro needs reform- that is a given. However the accession of Estonia underlines that these reforms can indeed be undertaken. Though the global debt crisis is entering a new phase, and the Euro will not be unscathed, it is by no means clear to me that the UK is in any better state: the crisis is a structural crisis, not a currency crisis. We need to make fundamental, radical changes- and the currency is in far less critical state than the underlying, real economy.