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Showing posts from February, 2010

The Pound in your Pocket

Since the devaluation crisis of 1967, the UK has followed a policy where problems that emerge in the economy are cushioned by devaluing the currency. The poor productivity of the British economy has thus been mitigated to a great extent. In fact, since 1992 when the Conservative government was forced to leave the exchange rate mechanism, which closely linked European currencies, Tories have tended to regard keeping the right to devalue as a key part of maintaining British competitiveness. They dress this up in the Union Jack: "Keep the Pound!", with the unspoken message that other currencies are a lesser store of value and somehow inferior. In fact despite the instability in the Euro over the past few weeks, Sterling has performed worse. British inflation is higher, and so are British interest rates. The fact is that British currency policy, as with so many other British industrial and economic policies over the past forty years, has been an exercise in taking the soft opt

A Hung Parliament: what the Liberal Democrats need to do

The possibility of the 2010 General election in Britain leading to a hung Parliament is now being seriously discussed across the news media. In fact it requites a very particular set of circumstances to lead to a hung Parliament, and usually minority votes still lead to a significant advantage for one party over another. Indeed the Labour Party was able to gain a majority government in 2005 with only just over 35% of the vote- barely a third of the votes. The electoral system does not reflect how people actually vote, and it has happened that the party that comes second in the national vote is still able to form a government. Therefore no one can be confident about how the 2010 election actually turns out until the votes are counted and the election results declared. A very small number of votes in key "marginal" constituencies- probably less than 100,000- will ultimately decide who receives the mandate from the Queen to form a government. Nevertheless despite the seemingly

92 Years Ago Estonia was born

Estonia is a young country but a very old nation. Archeology and DNA suggests that the Estonians or their relatives have been on living on the shores of the Baltic Sea for several thousand years. After being conquered in the early thirteenth century by the Teutonic Knights, the Estonians endured German rule under various overlords: Danish, Swedish, Polish, Russian until 1918. The Germans- unlike the Normans who invaded England a hundred and forty years before- never assimilated with the local population, at least not linguistically, indeed until 1816 the Germans owned Estonians as slaves. However, the national awakening that followed the liberation of the serfs- nearly two generations before the rest of the Russian Empire- created a strong sense of cultural identity. On February 24th, Estonia celebrates the point where culture, education and above all language found a political expression in independence. This independence was dearly bought, with wars against both Russia and German fre

The General Election 2010: one you would prefer to lose?

Have Cameron and Osborne blown the 2010 General Election? The fact is that the list of their mistakes grows long indeed. The latest is an almost Sarah Palin moment from David Cameron, where he could not identify what £72 billion of his proposed budget was earmarked for . As I have noted before, the Conservative leadership is long on personal charm but very short of either executive experience or understanding of economics. The result has been a series of policies that are both inappropriate and constructed on little intellectual foundation. These flimsy policies- especially on tax- have broken apart at the first detailed examination. Stupid mistakes- missing decimal points, so that spending numbers are out by ten times order of magnitude- would not be happening if the Conservative Central Office policy units were on top of things: they clearly are not. This, together with the rat-like cunning of Mandelson, has eaten into public confidence in Cameron. On top of this, it has been the Co

The Honeybee flies home

As we lead up to February 24th, Estonia's national day, I find myself thinking of last years song festival, and one of the more beautiful songs in the incredible choral tradition of Estonia is a setting of a poem by Juhan Liiv, as follows: Ta lendab lillest lillesse, ja lendab mesipuu poole; ja tõuseb kõuepilv ülesse - ta lendab mesipuu poole. Ja langevad teele tuhanded; veel koju jõuavad tuhanded ja viivad vaeva ja hoole ja lendavad mesipuu poole! Nii hing, oh hing, sa raskel a'al - kuis õhkad sa isamaa poole; kas kodu sa, kas võõral maal - kuis ihkad sa isamaa poole! I have tried to translate it: She flies from flower to flower and returning flies to the honeycomb and as thunder clouds increase above She returning flies to the honeycomb. Though thousands fall on the road still thousands may return home. and forget their pain and worries and they fly returning to the honeycomb. So soul, oh soul, in hard times as you sigh for your homeland then you are home- even in a foreign

When the banks stopped dancing

A couple of days ago " Voter" linked to a blog he had written commenting on a piece I wrote here about my fears that the public sector in the UK is creating a client state that is undermining British global competitiveness. He -I assume he, and I am sure I will be corrected if not- made the point that breaking up the banks might not be the answer, since " Far from different banks behaving in completely different ways, there was some convergence. If banks converge, they are really just equivalent to one larger bank". When it comes to understanding the failure of risk control that led to the credit crunch, I like to quote Chuck Prince, the then head of Citibank who famously said in June 2007: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing,” Well, as we now know, the creation of various innovative instruments like CDOs did not reduced risk by

In defence of MPs salaries

Andrew Gilligan in the Telegraph points out some interesting information about public sector expenditure . As always, the most juicy bits are the salaries. In transport for London (TfL), for example there are 231 people are paid more than £100,000. The UK Treasury has 21. Meanwhile it may be worth remembering that an MP has a salary of £64,766. The Chief Executive of Shrewsbury Council earned £335,000 last year. The Head of TfL earned £494,884 It may be worth recalling that the Prime Minister earned £197,689. Although I think "Sir" Nicholas Winterton has been one of the more egregious expenses cheats, and a pompous ass to boot, the media shit storm about his annoyance at losing his free first class rail travel seems a bit overdone. After all first class rail travel is a privilege that is extended to all officers in the army above the rank of Major. MPs have become every one's whipping post, but at least 80% of them try to do a good job in not particularly great working co

What's in a name?

I don't quite know why my infantile funny bone so enjoyed the debate over a place name in Yorkshire . Perhaps it is because I have been watching videos of Open All Hours , and could imagine the reverend tones with which the debate over Tickle Cock Bridge must have been conducted. It took me back to my childhood, when we might find names like Christmas Pie amusing and names like Wyre Piddle laugh-out-loud hilarious. Indeed we would take a detour to go through it. There are, after all a plethora of amusing names across Britain, from Middle Wallop, to Lower Slaughter to the Paps of Jura (though why there are three of those, and only one Pap of Glencoe has always puzzled me). From Muckle Flugga to Mousehole, the UK is filled with the bizarre, the odd and the downright filthy. Indeed the whole world - from Arsoli in Italy to Wankie in Zimbabwe- is your oyster when it comes to place name filth. Of course street names too have their fair share of the curious, and Tickle Cock Bridge is

Time to end the Client State

Whatever happened to the word "enterprise"? Once upon a time, the political discourse in the UK was all about it. Now it is scorned: deregulation is considered to be one of the major causes of the economic crisis that we now face. Yet how can free enterprise be considered to be triumphant when the number of people working in the private sector is at its lowest level in over a generation? It is as though the Thatcherite revolution had never happened. Britain is now dominated by not just state power, but state ownership. I hold a few non executive directorships in businesses that I believe in. As a result I am on a register- a mailing list for people seeking to take on other non executive roles. I would say that more than half of the non executive roles that are advertised are in state or quasi-state bodies: NHS Trusts and the like. Nor are these the sinecures that you might imagine- the remuneration that one can expect from a state body is higher than the equivalent in

Conservatives' unforced errors

It is now only weeks from the General Election. It is a general Election that the Conservative Party is expecting and indeed is expected to win. Why then is the Tory Party in such an incredible mess? There is no sense of coherence anywhere- policies are made up with great rapidity, and abandoned within a few days of announcement. It is not just that the Tories are "keeping their powder dry" for government- they genuinely don't know what they are going to do. They insist that they will be fiscally disciplined, then return from Davos feverishly back pedalling on what should be a central part of their economic policy. They announce tax policies that crumble in a single weekend. The latest "policy announcement" is that employees in the public sector will be allowed to form co-operatives. A fine idea in principle, but there is absolutely no sense that the Conservatives understand the first thing about the details. It is impossible to even critique the policy, b

Sunshine on the Snow

Ground hog day has come and gone and seems to predict another six weeks of winter- at least for Pennsylvania. Here in Estonia we don't really need rodents to tell us that the winter is going to stay for a while longer. Yet the quality of the winter is changing. The extraordinary darkness of December is gradually giving way to lighter days. At this time of the year, the length of the days grows very rapidly- a good five minutes extra daylight each day, so that even over a week or so, the feeling grows stronger that the near total daylight of high summer is on its way. Yet, the winter itself continues with full force. It has been exceptionally cold and exceptionally snowy. As I write, the snow on my balcony is about a metre deep, and the piles of cleared snow in the car park top three metres. The skies are lowering grey with the promise of yet more of the white stuff. Yesterday was a clear, crisp day with the bright sunshine reflected on the white carpet in motes of diamond fire. T

The Morality of Fashion

The apparent suicide of fashion designer Alexander MacQueen is a private tragedy. The combination of over work, grief for the recent death of friends and on the eve of the funeral of his mother, the designer seems to- sadly- have decided that he could not go on. The reaction to this private tragedy amongst the fashionistas was so excessive, so narcissistic, so overblown, that I found myself struggling to hold back a profound anger. Even the Today programme on BBC Radio 4- which I can listen to here in Estonia via the Internet- devoted nearly ten minutes of the prime 7.45 slot to interviews with participants at the New York fashion week- picking up reaction from interview and tweet with a remarkable lack of discrimination. I suppose one should expect a business devoted to how one looks to be more than a little narcissistic, but the baroque emotions on display made me suspect that the shell of excess concealed an unfeeling vacuum. A remarkably appropriate metaphor for the whole fashion

When the Sants goes marching out.

12 years ago Hector Sants was my boss. Strictly speaking, my direct boss was his deputy, but across the football field size of the UBS equity trading floor at 100 Liverpool St. everyone knew that this tall, solid figure was the Boss. He was not -in the manner of many City Bosses- a flamboyant, loud or bullying figure. He was measured, he was intensely intelligent, he was very, very competent. In short he still stands out today as someone who understood the business of the City with forensic clarity. His slow voice, with just a trace of the West of England in it, was not the loudest in any discussions-but once he had listened, and made his judgement, his decision was usually right and was always respected. He understood complexity and was impatient with the glib statement or facile judgement. He would quickly identify mistakes and even more quickly move to correct them. The shot gun marriage of UBS to SBC in 1998 was the result of terrible misjudgements in Zurich and not in London. In t

U-turn in Ukraine?

Viktor Yanukovich - the likely victor in the Ukrainian Presidential election- is not a Jeffersonian Democrat. He carries with him the air of the youthful hoodlum he once was- he served time in gaol as a young man. However Yulia Timoshenko - the defeated candidate is hardly a model democrat herself. It would be quite easy to throw up ones hands and say that Ukraine was a lost cause and that it has not escaped its terrible past. Easy but wrong. For one thing, the Presidential election has been given a clean bill of health by election observers. A clean election anywhere in the former Soviet Union is sufficiently rare to be celebrated. Neither is Ukraine likely to fall under the control of Russia, despite fears that it may do so. The fact is that the division of Ukraine has proven to be its saviour. No one party, region, or faction -still less a single individual- is able to control the country. All things must be negotiated, all things are political. On the one hand it creates a sl

Just when you thought it was safe to back into the markets

The second boot is already falling. The first part of the economic crisis which began in early 2008 was the meltdown of the US mortgage market. This led to a breakdown in the asset backed securities market, which could no longer rely on the collateral of US mortgages. This in turn saw the breakdown of the balance sheets of the major trading banks, the forced takeover of Bear Sterns, followed by the bankruptcy of Lehman Brothers and the collapse of AIG. This forced governments to initiate rescue programmes for those banks most exposed to the secondary debt markets. The last year has seen governments taking on colossal amounts of debt to try to recapitalise the banking system and avoid a 1930s style depression. Unfortunately, this has not solved the problem, it has only moved it about. Although the global economy is now no longer at risk of a synchronized collapse in GDP, those economies that are not competitive are now facing a very testing time. If Greece was not in the Eurozone, it

The Euro shows why the Pound is hurt

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

Tory Wobbles

it has been a pretty ho-hum week for David Cameron. Despite a good performance on Prime Minister's question time, he has had to consider a swathe of polls all showing Labour support up, and the Conservatives down. Many Conservative commentators are coming out of the woodwork to give advice to Mr. Cameron- and the chorus has increased in intensity with every percentage point the Tory lead falls. Amongst the various voices trying to steady the ship, there is a growing voice of simple perplexity: "how", they think, "can the Tory lead be in danger, when Labour has so manifestly failed?" Benedict Brogan's piece in the Telegraph this morning is a classic of the breed. And of course he is right: Labour has failed, and the voters are indeed heartily sick of Gordon Brown. But that is not the same as saying a Conservative victory is inevitable, or even desirable. Fraser Nelson in the Times , I think, comes quite close to explaining why. He points out that winning o

Speaking from beyond the grave..

Well, as deathbed conversions go, the sincerity of Labour's move to promote electoral reform is a pretty cynical exercise. Even David Cameron was able to mock at today's Prime Minister's Question Time. I think as Liberal Democrats we can hold ourselves back from the not-particularly-appetising morsel of AV- which is not necessarily fairer than First-Past-the-Post, and is anyway considerably more closed, since it relies on Party lists. A Single Transferable Vote (STV) in multi-member constituencies is what the Lib Dems want: since it retains constituency links, is not reliant on lists, allows non party figures to be elected and allows the voters to chose between candidates of the same party, rather than having party hacks foisted on them willy-nilly. It is the fairest and most open electoral system and will actually produce a Parliament that reflects how people vote. After being strung along by Blair and now Brown, I don't think any of us are in the mood to offer Labo

UK Housing: waiting for the fall

The new year seems to give rise to new economic forecasts, as people try to guess what the next few months will hold. Now we are into February, the game seems to be correcting previous forecasts, and so it has been going with UK house prices. This hardy perennial of boring dinner parties seems to be a particular focus right now, and yet it is clear that all is not well. The latest forecasts seem to show that the British economy will recover and that house prices will recover even more quickly. Except that House prices have not actually fallen too much in the first place. The latest (revised) forecast from CEBR is that house prices will rise a further 6% over the course of 2010 . If so, then that is a potentially very dangerous number. An average salary in the UK is, depending on how you measure it, just under £30,000 a year before taxes. The average property price is roughly £130,000. This represents an earnings: house price ratio of roughly 4.3x. This in itself is quite a high ratio