Monday, May 28, 2012

Crying Wolf

Viewed from the perspective of the Euro's newest member state, the British political and media narrative still seems completely off the point with regard to the single currency.

To reiterate: this is not a currency crisis, it is a debt crisis. The majority of the members of the Euro zone have controlled their deficits and are retrenching their debts. It is where deficits are not being controlled- in Greece and in the Latin bloc that the crisis has its centre.

There are two sources of deficit pressure: one is fiscal incontinence, that is to say that the structure of debt is wrong or as the result of welfare or other general calls on the public purse government expenses are not being controlled versus government income. The second is the need to recapitalize the banking systems following a largely property inspired meltdown. The scale of the recapitalization is so large, because governments have undertaken not merely to compensate depositors, but all those, including bond holders, to whom banks owe money. In my view, that has been a serious mistake. The -originally Irish- plan to give a blanket guarantee to the banks was intended to maintain confidence in the sector, but has also has removed the moral hazard of owning bank debt and increased the burden on the public purse one hundred fold.

The impact of the banking crisis has been multiplied if the home nation of the bank, for whatever reason, has lost control over public spending and therefore debt. This largely applies to Greece and the Latin bloc: In Greece,a mixture of corruption and a weak state tax system has left the country with a huge hole in its economy, and the meltdown in confidence is creating a feedback loop where public debt is now unsustainable: Greece passed a point of no return and therefore required a rescue. As we know, the risks are increasing that Portugal, Spain and even Italy may also require rescuing.

Despite the doom laden pronouncements of British newspaper columnists, the route to a general rescue of the Latin bloc is actually pretty clear: Boost the powers of the ECB to include banking oversight, and backstop the banking system with full intervention by the ECB on the one hand, while on the other creating, in however limited a way, a common Euro treasury that can issue common government bonds. 

So why has this not yet happened?

The answer clearly lies with Germany.

The fact is that the Euro was created without such powers for the ECB and without a treasury because the Germans believed that the benefits of the single currency would be so clear that no government would want to break the rules: following German discipline would bring German prosperity. In fact for the majority of the Eurozone members, that is precisely what it has done. 

Meanwhile, it has not been politically acceptable in Germany to provide an open credit line to countries where business and political ethics have been a major cause of the crisis. . Instead of German discipline creating general European wealth, the fear is now that Latin indiscipline could create inflation and instability in Germany.The question for the Germans is whether the countries requiring rescue have the political will to bring their government spending under control

We are about to find out.

Far from "Germany" -or "Brussels", in the British media speak- ramming through measures against the popular will, there is real concern over the issues of democratic accountability. Probably the single greatest reason for not including greater powers for the ECB and a common treasury at the outset of the Euro project was the concern over whether these institutions could be held to democratic accountability- and if they could not, then that would contravene the German Basic Law which, for obvious historical reasons, rests on a complete commitment to democratic rules. If the Greek election chooses a workable government, committed to spending control, then Germany has already signaled willingness to fund a rescue for Athens. Meanwhile later this week Ireland is poised to vote in a referendum as to whether they can accept the proposed- more limited- measures currently on the table, again that signal of democratic assent is what European leaders are waiting for.

Germany has not yet made up its mind. However, the outline of a solution that permits the rescue of Greece and the Latin bloc is now clear. The question is whether, for political reasons, Germany is free to take that path.

But the alternative is not- as the UK media would have you believe- the total and chaotic break up of the single currency. The fact is that at least 9 countries: Finland, the Netherlands, Austria, Slovakia, Slovenia, Luxembourg, Malta, Germany and of course Estonia are perfectly capable of complying indefinitely with the currency regime as it currently stands, and they may be joined by Latvia and Lithuania within a matter of 18 months or so. Ireland too has demonstrated that it can maintain its membership, despite the crisis they have endured. A single currency can certainly survive- indeed in Estonia the idea of a return to the Estonian Crown is dismissed with a laugh.

The key question is France. If newly elected President Hollande chooses fiscal indiscipline, it could be the parting of the ways for the Franco-German "motor". However, the pressure on him not to do so will be immense. Likewise, despite the breakdown of the Belgian government system over the past 20 years, the pressure on the country to solve its crisis would probably lead to the EU seat of administration ultimately retaining its Euro position. With France and Belgium in, then the lifeline to Italy is also set to remain in place. The Euro in more or less its current composition survives- but that survival depends on common political will.

The crisis is coming gradually to a head. The choice is whether to proceed with the Latin/Greek rescue on the basis of a renewed political commitment to reform, or whether to endure the exit of Greece and possibly other states from the single currency. That choice depends on the voters of Greece (and Ireland).

Meanwhile, the UK seems increasingly incapable of addressing their own deficit/debt crisis. The idea that the debt crisis can be solved with increased debt is simply false. The demonstration outside Nick Clegg's house over the weekend was a not very subtle form of intimidation, and will certainly be resisted. However, the fact remains that the British tax system is a very expensive burden on the state. Without a root and branch reform and simplification of the tax code (which is, as I have mentioned before, five times longer than the German code and about fifty times more expensive to administer per person than the Estonian tax code) then British structural reform is still dead in the water, despite the modest signs of hope in the private sector.

David Cameron should resist the temptation to lecture the rest of the EU, when his own crisis is in many ways more severe than the Eurozone- even some of the worst of the members. Although the country has taken short term benefit from devaluing its currency against the Euro, without greater government discipline, the UK will simply end up with higher inflation- and a poorer population. The waste and inefficiency of the UK has lead to the squandering of billions- and the coalition so far has been only very tentative in tackling this- and Labour, the source of so much waste when in office, refuses to even acknowledge the question.

Meanwhile the British media should also resist the temptation to give into to anti- EU prejudice. The panic stories such as "Immigration guards in place for Euro collapse" are more or less absurd. The crisis may well continue for some time yet, but that does not mean the collapse of European civilization as we have known it- even under most of the worst case break up scenarios, the Euro economy recovers within 4 years-, indeed most of the Europhobes want the currency to break up for precisely this reason.

Meanwhile the outline of different solutions for the survival of the Euro are already on the table. 

The more foam flecked doom-sayers have been predicting disaster for years. I think they are going to be wrong this time too. 


Wednesday, May 23, 2012

More from the toilet of the Dailies Mail and Telegraph

More news from the sick world of the British media: Apparently Clegg is a "Communist", and Cable is a "Socialist".

Ha ha ha!

Meanwhile, in other news: 

The Daily Mail is a formerly fascist supporting right wing rag which is obsessed with cancer, house prices and the late Diana, Princess of Wales. It is mostly committed to gossipy stories about Z list celebs. News Value= 0

 The Daily Telegraph editorial staff mostly consists of UKIP nutters, and various other sociophobes committed to an agenda far more right wing and out of date even than the modern Conservative party. It too is mostly committed to publishing stories it has stolen illegally and gossipy stories about C list celebs. News value =0

Being insulted by that lot should certainly reinforce Nick Clegg's and Vince Cable's self esteem, I would have thought. Only an real right wing extremist would think Liberals were Socialist, let alone Communist. 

Even Jack Straw, who was one, does not like to be called a Communist these days. 

Euro future versus a "Brexit"

Living in the latest country to adopt the Euro, it is clear that, to say the least, the British media has a "different" perspective on the single currency.

If you believe the British press, the Euro not only will collapse, but it should collapse. The propaganda spread by such "newspapers" as the Daily Mail and the Express, is unrelentingly hostile, not merely to the Euro, but even to continuing British membership of the European Union itself. Continuing campaigns against the Union, which is consistently portrayed in the most negative light possible, have undoubtedly contributed to a sharp decline in British popular support for the EU. The polls now show a majority backing British withdrawal from the European Union.

However, the departure of the UK is not the same as the end of the European Union, or even the Euro itself.

In Estonia, as in many other Eurozone countries, the idea of restoring national currencies is not merely not on the national agenda, it is simply absurd. It is absurd to think that Estonia and Finland should return to separate currencies. Indeed, there is every chance that in 2014, Latvia will join the single currency, and Lithuania may not be far behind. It is also pretty far fetched to think that Austria, Slovakia and Slovenia would also return to separate currencies, and all seven of these nations fully intend to maintain their currency link with Germany.

And of course they can maintain the common currency because they have the fiscal prudence and budgetary discipline to make it work, even without the rigmarole of common bonds that will be required to keep such states as Spain, Italy and France inside the Eurozone. There is a strong core of disciplined states- also including the Netherlands- which can maintain their membership in the single currency without major structural changes taking place. Also these countries, with the possible exception of the Netherlands, have the political will to maintain the currency union.

Clearly as Greece faces its moment of nemesis, we can not be sure that all of the Eurozone has the will or the means to maintain the currency. However, despite the utter belief in the UK that the single currency will fall within a few days, even a limited collapse, the so-called "Grexit", may not occur for months, and indeed may not occur at all.

However, the "Brexit"- that is British exit, not merely from a currency, but from the EU itself, might actually be more likely. Of course, such a course may trigger the break up of the UK, as support for the EU is dramatically higher in Scotland, Wales and Northern Ireland than in England. The "Little Englander" press still does not understand the changing dynamics in our own state, still less in the rest of the EU. The nods and winks given by Labour towards an EU referendum may be good politics, from the point of view of the Daily Telegraph, but not really from the point of view of the national interest.

A Euro is highly likely to survive, whether it is precisely this Euro is a more open question.

So the choices for the UK are much less clear than the British right wing press would have you believe. The way forward is going to involve continued engagement with the EU- and that engagement will be much more difficult from outside the EU than it is as a member state. So, if a referendum is held -say- in 2016 and, under the poisonous influence of the vested interests that control the media, a No vote forces British withdrawal, what happens next?

Britain would have to impose proper austerity, simply to bring the absurd wastefulness of the state under some kind of control. Trying to reorient British trade away from the EU, when we still do more trade with Ireland than with all of the BRICS states combined would require a serious shock in order to make the UK more globally competitive against such economies as Vietnam or China. Naturally, the price for British "independence" has not been discussed in the right wing press. It may well be that the British state, or more likely states, would be actively seeking to rejoin the EU within only a few years of "Brexit". Of course, such policies, if deemed necessary, can be adopted from inside the EU, as Germany adopted its own structural reforms a decade or so ago.

The European Union faces a major change in direction. It needs to develop greater economic coherence at a time when its political coherence is still being challenged. The EU is unpopular because it is getting the blame for insisting that member states adopt policies that should have been adopted by national governments many years ago- and which Germany, of course, did adopt. However, whether popular or not, the way is clear: even a so-called plan B, of more short term stimulus, can only take place in the context of a general and large scale long term debt reduction. The demographics and the years of waste have finally caught up with Europe. Those who retired at 55 or younger simply stole their pensions from the the wealth of the next generation. Therefore, the idea of taxing pensioners is not merely economically necessary- it is a matter of fairness and equity between the generations. 

The time has come for Britain to stop sulking and start leading. We must accept the political realities, even while we can try to improve both political and economic realities. 

Ceasing to listen to the negative propaganda- essentially the lies- of the British right wing press would be a good place to start.  

Tuesday, May 15, 2012


I believe Rebekah Brooks presided over a conspiracy to corrupt British politicians and undermine our democracy. That is not what she is being charged with. She has been charged simply with attempting to pervert the course of justice. She has only been charged essentially with the destruction of evidence. In my view she is probably guilty, but these are the lesser charges in any event.

It seems to me that Brooks was a primary figure in Rupert Murdoch's blackmail and bribery of the British political class. She also, I believe, orchestrated the bribery and corruption of the Police and various other significant parts of the British establishment. She represented an organisation that is a malign and criminal influence.

The Tories - as the party in government- are getting more abuse than Labour. Yet it was- in my view- Labour that was even more corrupted by the Murdoch money and the Murdoch blackmail. The testimony of James Murdoch- attempting to destroy as many current ministers as he could, indicates that even the Murdoch family fear that the game is up for them. However, Tony Blair and Mandelson should also be criticised even more severely, in my view.

I certainly hope that blame is placed fairly and evenly.

Only the Liberal Democrats are untainted by the "seeming" criminal activity of the Murdoch organisation. It still seems that Jeremy Hunt- what a fool- walked into the trap, even after it was clear that Vince Cable was 100% in the right. The smear of the Lib Dems by the Murdoch media was accelerated after it was clear that Cable would not be bought: and the fingerprints of shafting Cable, were- of course- with the Telegraph and the BBC, not Murdoch.

The sinister criminality of News International that has been revealed in recent weeks must surely have consequences: I hope that the charges against "the flame haired temptress" will eventually embrace her bosses: both son and father. It is firmly in the interests- I believe- of British democracy that they should both face trial. 

If guilty, they should never be released.

Thursday, May 10, 2012

The Daily Cretin (Express) insults our intelligence once more

There is no doubt that we are all in the middle of a serious economic crisis. However, in Britain this crisis is overlaid with a stupidity crisis too. The Daily Express is not noted as the intellectual paper in the UK, but their latest European scare story is more or less total fiction. "Senior Eurocrats" are apparently "plotting to destroy Britain"- even though there is not a shred of evidence for the conspiracy the Express is determined to unmask.

It is total crap. It is a paranoid pack of lies either by fools who know no better or by crooks who are deliberately lying. Either way it is a total disgrace that this garbage can be published in any newspaper that professes to have any concern for the truth.

And that is the problem, the crisis in Britain is as much a crisis of the MEDIA as of the politicians that are taking the blame. When such utter tripe can be presented as a serious contribution to the national debate, and no one condemns the bastards who publish it, then the standard of political debate in the UK reaches a new low.  Even supposed "quality" newspapers as the Telegraph and the Times are subject to proprietorial influence - or corruption- and routinely publish errors of fact as well as of judgement. 

These are the so-called opinion-formers!

The kindest thing is to believe that it is the blind leading the blind. The reality is it is a scandalous disgrace.  The "journalists" who put their name to this crap deserve nothing but utter contempt.

The good news is that "the media" is losing its power to set the national agenda. 
The bad news is that it is not happening fast enough. 

PS, I see the American Newsweek has noted the story as an example of typical tabloid hysteria. When even the American media views the British media with contempt, it is not a good day.

Tuesday, May 08, 2012

Euro: everybody out!

The rather tactless comments by newly elected Francois Hollande about the UK are not an auspicious beginning to the new relationship between London and Paris at a time when the pressure on the Euro is reaching another crisis.

The likely inability of Greece to form a new government without a further election, and the substantial chance that even a new election will not result in a stable government anyway, probably puts paid to Greek membership of the single currency.

Now the Euro faces the moment of truth. The German response to Hollande's political posturing: "No changes, no renegotiation" is going to create real problems. Either they are serious, in which case the lack of flexibility bodes very badly for the Paris-Berlin axis, or they are not, in which case the pressure on the northern tier members, such as Estonia- which has already had to double its national debt in order to subscribe capital to the rescue funds- Finland and the Netherlands, will increase sharply.

Either way, we are now finally seeing the crisis impacting on the value of the single currency in the global markets. Up until now, the Euro has risen against Sterling and the US Dollar. That is a very serious problem. A falling currency helps the exporters, such as Germany, and indeed Spain and Greece, since their goods (or tourism) becomes a lot cheaper. Yet it also increases pressure on the importers, since energy prices and goods in Euros bought from other members of the Eurozone will tend to rise in price: inflation will therefore increase sharply at the periphery.

Several commentators have been pleading for Germany to allow a higher rate of internal inflation, in order to alleviate the break up pressure on the Euro. If, however the periphery faces inflation higher than Germany  - despite the deep austerity policies in Spain, Italy and the rest, then the single currency is toast. It will not be simply a case of a Greek exit, but of a more or less substantial breakdown.

Some sub-zones, Estonia-Finland, Austria-Slovakia-Slovenia will probably hang together, perhaps even continuing a joint currency union with Germany, but with pressure mounting on the Netherlands, and of course France, it is increasingly hard to see that the larger economies: Germany, Italy, France and Spain can stay in the same currency bloc without the radical changes that, so far, the Germans refuse to contemplate. 

Interesting times    

Wednesday, May 02, 2012

Why the left is morally bankrupt

May day is a day of ancient pagan revelry that traditionally marks the beginning of summer. In the Celtic world it is Beltane, in the Nordic countries it is Spring day. For the last century or so, it has also been the international workers day.

This Mayday in London, the usual demonstrations were held in Trafalgar Square. To my disgust, I noticed that one of the largest flags draped around Nelson's Column was the flag of the defunct Soviet Union- the Hammer and Sickle.

This was the flag of a system that killed and enslaved more people than Hitler- and under its Chinese, Cuban and North Korean versions continues to do so.

This is the flag whose false values oppressed trade union rights- crushing the Polish Solidarity trade union, and any other workers organisation that dared to challenge the vindictive power of the one party state.

The fact that so called workers representatives can rally under such a vile symbol of murderous repression is a bit more than willful ignorance: it is nothing short of a moral disgrace.

There is no moral difference between the Soviet Socialism of the Hammer and Sickle and the National Socialism of the Swastika. The fact that so-called democratic Socialists don't seem to   care too much about the depravity of Stalin, while all the time, rightly, condemning the crimes of Hitler, reminds me why Socialism as a creed should be fought tooth and nail and at every turn.

In Estonia, Walpurgis night- the day before May Day- is the night when the forces of evil are exalted, rather like Halloween. Looking at the ragtag followers of the left grouped around this vile symbol, it seems that the same tradition applies in London too.