Cicero's Songs

In the first decade of the twentieth century the relationship between the British and German Empires fell apart. Britain had tacitly supported the unification of Germany under Prussian leadership, to the point of sacrificing the Kingdom of Hanover in 1866. This friendly relationship reached its apogee with the short reign of Kaiser Friedrich III in 1888. Liberal, open minded and generally pro British, by virtue of his marriage to Queen Victoria's eldest daughter, Vicky, it seemed that Germany under the new Kaiser was poised to become a progressive ally of the British Empire that would spread democratic rule and liberal prosperity across Europe and the World. As we know, throat cancer put an end to Friedrich III after only a few months, and in the year of Three Emperors, Germany went from the military conservative rule of Wilhelm I to liberal Friedrich III to the unstable and expansionist Wilhelm II.  Within a matter of little more of a year the second new Kaiser turned German polit...

In the early days after the Russian invasion of Ukraine in March, the German Chancellor, Angela Merkel made a widely reported comment that Vladimir Putin was "living in another world" .  The point being that the statements that were being made by the Kremlin were so completely untrue that they had literally no basis in reality.  Over the past few months we have started to become used to Russian propaganda: astroturfing, Putintrolls, and all the rest of it, but nevertheless, no matter how vehemently propagated, the Kremlin position remains completely at odds with objective, evidence based truth. The well funded Russian propaganda machine is slick, well presented and almost entirely half truths and whole lies. According to Peter Pomerantsev, in his book "Nothing is true and everything is permitted: the surreal heart of the new Russia" , the kleptocratic cabal that now controls the Kremlin does not believe in truth even as a concept. Instead they believe that anyt...

As the economic crisis of the West grinds on, I find myself noting that the mistakes of policy are more and more political mistakes, and that the failures of leadership are more and more failures of political leadership.  Attempting to create a safer banking system by forcing increases in reserves, through Basel III or restrictions in concentration, is in fact having almost the precisely opposite effect to that intended. The increase in reserves has not made banks safer, but it has forced a dramatic shrinking in bank balance sheets. The result is a crash dive in lending- especially to the critical small and medium enterprises sector. This is now getting to the stage where, in the words of a senior banker operating across the Baltic and Nordic markets who I was speaking to over the weekend: "within five years, no bank will be able to afford to take on SME lending". This continued credit crunch carries not only short term implications, but also long term implications, since the...

The likely change of President in Paris is now coupled with severe tension in the government in the Netherlands. As in 2005, these two founder members are questioning the long standing consensus in the European Union. Usually, when asked about the future of the Euro, the response from officials and from many national governments is that the solution is "more Europe". This is short hand for creating the common institutions, such as a treasury and a system of fiscal transfers, that were not created when the single currency was first established. The problem about creating such powerful new institutions is that they lack democratic political legitimacy. They may be the most obvious and practical solutions to the crisis, but they are not sufficiently supported in most countries to allow them to happen. The political problems in France and the Netherlands only underlines the difficulties in gaining democratic support for the necessary policies to allow the Euro to survive. T...

Well, of course the British press will respond to the gale of nonsense being pushed around by the Sarkozyites. The noise of discredited British "journalists", however, is nothing serious. What this drivel from Paris means though, is that France under Sarkozy has indeed decided that the French national interest is best served by there being not a rival to France for the affections of Berlin. The problem is that the obviously conflicted nature of the British relationship with Europe is more attractive to Berlin than Sarkozy's obsessive lurve-fest for Germany. Germany does not want a Federal Europe. Germany has therefore not delivered what Paris wanted, but instead of hating the thing which you love, the French have decided that "if only Britain was not around, then Germany would love us and deliver a Federal Europe": hence this absurd "declaration of dislike" against the UK. Of course the UK is financially weak, and almost all the French say is tru...

The Euro debate in Britain takes place in a vacuum. The Euro-sceptics are not challenged, even when they start to resort to absurd national stereotypes and mentioning the war ("I think I mentioned it 73 times, but may have got away with it") in the most inappropriate contexts. The fact is that the image of Britain is so rooted in the Second World War, that we have become imprisoned in a national myth which insists on our unique righteousness and moral certainty. No one is allowed to mention the equivocation that created a culture of appeasement, the rise of the Blackshirts, or the real possibility that instead of "fighting alone" in 1940, a Britain under Halifax would have probably come to terms.  The problem is that the generation that actually took part in the war has more or less passed, and it is the post-war generation that mostly were not even alive at the end of the war that has created this pristine national myth. In the face of inexorable national decli...

In the middle of last week, exceptional measures were announced by a coordinated group of six central banks : the Fed, the ECB, the Bank of England, the Bank of Canada, the Bank of Japan and the Swiss National Bank. In effect they agreed to supply virtually unlimited Dollar liquidity to the market. The result has been a sustained market rally over the past few days. However it is only now beginning to sink in what lay behind the central banks' decision and how close the financial system just came to collapse. It is now clear that the funding cycle, even for the best credits in Europe was getting dangerously short. Whereas a major industrial, like Unilever, could expect to fund US Dollar exposure for at least 30 days, by the beginning of last week, this was down to three days. If it was bad for industrials, it was becoming impossible for banks. US Dollar holders were not prepared to provide funds to several major Euro-zone banks at virtually any price. They were simply unable t...

The failure of the German Bund auction yesterday is being written off as being of relatively minor significance. It is not- it is critical. If the Federal German government is unable to attract bids for nearly half of the Bunds that they offer, it tells you that the rest of the credit market is also closed. Banks are unable to access even the interbank market, and we are seeing the system come under renewed strain. Already we have seen the collapse of the Lithuanian bank, Bankas Snoras, which has also been dismissed as being of little significance. However, the fact is that there is now a serious liquidity drought across central and eastern Europe, and this is spreading. There are strong rumours of a major liquidity crisis in the Russian banking system- and again the failure and subsequent recapitalization of Bank of Moscow is being dismissed as being of minor significance, simply the result of the political fall of Yuri Luzhkov. In fact it may well be that the fall of Luzhkov was th...

In all financial transactions there are credits and debits. For the last few years there have been a lot of debits in Greece and the other, so-called, PIIG states. The converse has been that there have been a large number of credits in Germany. Germany is not a paragon of fiscal rectitude- indeed it was Germany that first softened- by breaking altogether- the financial criteria by which the members of the Euro-zone are judged, but which they now insist must be applied strictly to other countries. Germany has amassed its credits by benefiting from a fixed exchange rate with the weaker economies of the south of Europe. The German economy has been out competing the rest of the Eurozone, which has been unable to balance their economies by either allowing their own currencies to depreciate, thus making their goods cheaper, or by allowing a German currency to appreciate, thus making German goods more expensive. This German free ride has caused considerable economic damage to those countri...

In the face of the growing crisis in Athens, it would be as well to remember that this is as much a crisis of Germany as it is of Greece. If Greece is to be rescued, the German taxpayer will be forced to find the money. Yet if Greece is not rescued, it is the German banks that are first in line to take the losses, and again it will be the German taxpayer that will have to pick up the bill. Meanwhile, if Greece is left to its fate, then Germany will have to carry the opprobrium for breaking down European solidarity: it will show once and for all that Germany will indeed put its perceived national interest above that of the wider European Union, which pretty much ends the idea of Germany signing up to ever closer union. In other words it would be a major change in German policy towards the EU- and if it were to be changed, there could be some widespread and unexpected changes in other countries policies towards Germany. There are some potential significant foreign policy risks for Berlin...

As it becomes clearer every day that Greece can not repay its debts, many obervers are missing the point about what this means for the rest of the Eurozone. Far from Germany being the virtuous party in the Eurozone, they have committed some serious mistakes and may, in time end up becoming the largest victim of a Eurozone pile-up. The fact is that while German industry has grown in efficiency and regained its position as an export power house, German banking remains weak, overprotected and distorted. Most people will know of the large German banks that operate internationally: Deutsche Bank or Commerzbank, these are after all large and generally successful institutions. However a significant proportion of bank assets are taken up by Federal or Land controlled banks such as KfW or Helaba, and within this sector (and indeed in the larger banks as well), there is significant pan-Euro exposure. Indeed outsiders estimate that the largest holder of Greek government debt is probably Germany....

The Greek crisis continues to develop. After the implosion in their public finances which was revealed after they stopped faking the numbers, the markets have taken fright at the scale of the problems in Athens. So far so unsurprising: Greek public finances have been weak or very weak for decades. However, there is now a strict discipline that Athens must adhere to: membership of the Euro. Instead of printing money and getting out of trouble by devaluing the Drachma, the Greek government must now impose tight fiscal discipline, despite the grim outlook for economic growth. Many Anglo-Saxon commentators do not believe that the Greek government: beset with strong Unions and a poisonous legacy of corruption will be able to do so. Several others do not think that they should even try. The problem is that without cutting the deficit, the country faces a stark choice: either fail to repay their debts- i.e. to default- or to abandon the Euro altogether. The Anti-Euro cheerleaders are hopefu...

As I predicted some time ago, the Free Democrats: the German Liberal Party, has seen a dramatic increase in its vote at the Federal elections. It has been dramatic progress, a nearly a third increase in the FDP vote, to give them 15% and the near certainty of forming a coalition with the Conservative CDU / CSU , under the Chancellorship of Angela Merkel . The previous "Grand coalition" of the CDU / CSU with the Social Democrats can now be replaced with a far more radical free market led government. Profound congratulations to Guy Westerwelle and all of the FDP team. The pan European trend of the slow decay of Socialism is, yet again, mirrored in this result from Berlin. Nevertheless it is not the Conservatives that are mere beneficiaries of the swing of the pendulum. The election result confirms the continuing demand for greater political choice. The combined vote of the FDP , the Greens and the Left party is greater than either the SPD or the CDU / CSU . This latest el...