Malcolm Blair Robinson

Regular readers will know I am engaged on a book project, so new posts on this blog are less frequent. In the last several days some interesting things passed by without a comment, but I am now going to revisit three speeches and come up to date with today’s vote in the German parliament.

Obama’s Speech to the U.N. This was by far the worst speech of his Presidency, not because of style, but because of content.  It is manifest to everybody that negotiations about Palestinian statehood are going nowhere.  They have been going on and off for years, decades even. Israel wants its own way and so long as it is supported by the U.S. it will try to get it. Until Israel is backed into a corner and fears for its own legitimacy and until American Presidents have the guts to face down the Israel lobby in Washington, there will be no solution.

Taking it to the U.N. elevates the Palestinian cause to a higher and wider platform. World recognition of Palestine as a state, however ramshackle and imperfect, would open a new opportunity for these oppressed people and force Israel to concede that a two state solution was not a negotiating round robin, but a matter of fact. It would not take long to make some progress over contended borders and illegally occupied land, because Palestine would have full access to the diplomatic machine of all the world. That is exactly what Israel does not want.

Barroso’s Speech to the European Parliament There was nothing wrong with this speech, other than the date upon which it was made. All of these things should have been talked about, thought about and voted on before the Euro, not after, and certainly not in the midst of a crisis. Of course the Eurozone needs central government, but by what and elected by whom?  What is its relationship with the non euro part of the EU to be? This is urgent and this government is needed yesterday but where are the meetings and plans to set it up? As for the tax on financial transactions, the Tobin tax, most of it would fall on London, not in the Euro. Thus it will be vetoed by any UK government. The time in Europe for ringing declarations about things which can never happen is  long gone.  What is needed is action on things which can.

The vote in the Bundestag Chancellor Merkel did well and the vote to set up the Euro bail out fund was passed with a huge majority. Very good. What is not very good is to celebrate this as some kind of saving of the day, since already we know that the fund agreed will have to be expanded to a least e2 trillion, maybe much more. As Germany has to cough up the lion’s share, there can be no certainty that the approval of that giant leap will be carried, or that Merkel’s government will survive the attempt.

Ed Milliband’s Speech to the Labour Conference. From the standpoint of a healthy democracy this was a good speech. Labour has to move to the left and re-connect with its mission of standing up for the disadvantaged and the hard working, while calling time on exploitation of everyone by vested interests, monopolies, cartels, software contractors, bankers, utility companies and a whole lot more. This creates the political tension to produce meaningful change to improve lives. Pushing and shoving on the centre ground does not.

What was not so good was running around the next day from one media station to the next, trying to make out he had never said any of it. Courage of convictions is the first requirement of leadership.

Two things of significance emerge from the meetings in Washington. The first is that the the various countries of the euro zone have at last woken up to the fact that they are in dire trouble. The second is that somebody among them has done the maths and a partial 50% default by Greece is being planned at last.

Beyond that we are back again to ringing declarations in public and ringing hands in private. An increase to e2trillion for the euro bail out fund is called for but has to be voted through by many parliaments. This Greek orderly default has to be negotiated with all manner of interested parties and taxpayers have to come forward with cash to prop up insolvent banks. Had all this been put in train nine months ago when it was obvious to all but the blinkered that this was where the numbers led, the crisis might have ended there.

It was not, so the crisis grows. It is not now clear whether a 50% default will save Greece, or if its economy is too weak to cope even with that. It is not clear whether the multi-level negotiations will be timely, nor that Greece will be able to stay in the Euro for sure. Above all it is not clear whether the political balance in Germany will allow it to agree to any of these proposals. In the end Germany is the paymaster. Without its cash the Euro is doomed. With its cash Germany is King. Odd that, when you consider the history of Europe over the last hundred years.

Having woken up to the gravity of its financial crisis, the countries in the euro zone have another issue to tax their hesitant leaders. Either they set up a credible system of central management of their economic policy to back their currency, of which Germany is a constituent part, or Germany will do it for them and they will have to do as they are told. Because at the heart of this financial contagion and political paralysis is one central question, to which everything else is subsidiary. It is simple and stark. It is this. 

Does Germany remain part of Europe or does Europe become part of Germany?

Either way, the Germans are relaxed. Not so most of the others.

There is a difference in this crisis compared to all the many crises, both political and economic, since WWII. This time nobody knows what to do, or if they know, they cannot act. There is a political paralysis in the euro zone. It is made worse because there is political dysfunction in the U.S.

There is now panic because growth has stalled. It has stalled because of the burden of debt. Like a company over borrowed, the entire western economic structure is now in trouble because of this. Within that structure some countries are less borrowed and it is expected they will rescue the over borrowed. Nowhere is there a political fabric to facilitate this in timely fashion, nor is there a democratic majority to sanction it. In the euro zone Greece is, in effect, in default, yet still euro land tries to pretend that it will be able to carry on. When Greece does go, the French banks are in trouble. The contagion will spread through the banks and through the other countries at risk, Ireland, Italy, Portugal and Spain. There are not enough central funds  to deal with all of that. Time is running out for the Europeans to rescue their dream. If they dither much longer it will crumble.

What will then have to happen is this. There will have to be a universal write down of debt in which all, including the cash rich countries of the east, take part of the loss. There will then have to be a fresh start for the euro which will have in its membership only those countries willing to cede their economic sovereignty to central control. The rest will have to be manage on their own with heavily devalued currencies. No longer will growth be the only source of prosperity, since growth will have to be earned, not borrowed. It will be slow and uneven. In the re-vamped euro area policy will be made to Germany’s bidding. The EU will become a confederation; the drive to ever closer union will have been abandoned.

Meanwhile in the U.S., now badly alarmed at the disarray in Europe, the age of spending much more than is raised in taxes will have to stop. Either a political consensus will emerge as to how the balance of tax and spend is to be struck, or the nature of the United States itself will have to change to something nearer the Confederate model. This will mean the end of the dollar as a reserve currency. America, especially the Tea Party, has yet to envision the gravity of its own crisis, or the potential force of the tensions now tearing at its heart.

The U.K., with its limited democratic structure and unwritten constitution, is able to organise stable and decisive government at times of crisis. The difficulty for the British is that even with austerity and cuts, if Europe and the US are in trouble, there will be no escape for them either, but it is not the first time in history that Britain stood alone against the odds. The Coalition would be wise to accelerate the reform of the banks and to do all it can to galvanise  friends in Europe and in America to find a way through their problems. Having a Plan B to stimulate growth when its two key markets are in turmoil may not be any longer useful. A Plan C to survive without external growth, built on home consumption, using earned money from a balanced budget to reduce debt, whilst controlling inflation, may be needed. That will be tough, but failure to get ready could be a lot tougher.

It is not time to prepare for the end of the world, but it would be timely to prepare for the end of the world as we know it. We should also get closer to the Chinese. Hope must not be lost. Where there is a will there is a way. It is the absence of political will which is at the heart of the loss of the economic direction in Europe and America. It must not happen in Britain. Unity of national purpose has for long been the strongest suit in the British hand. The time to play it is, once again, drawing closer.

The Liberal Democratic Party has lost confidence through nervous perception rather then just cause. Yes there was the car crash of the AV vote. Electoral Reform is not only off the radar, having been the focus of so many members for so long, but it was decisively rejected by voters. Then there were tuition fees. For a party which relied so heavily on the protest vote for spectacular victories in times past, it is hard to have been the object of widespread and often unruly protests by new enemies made up of old friends. A massacre at the local elections last May and opinion poll ratings which consistently show on average a likelihood of no more than a dozen MPs are not the bedrock on which to build confidence and morale. Finally we dare to mention the euro. The only party to back it up hill and down dale…..? Oh dear.

Of course none of this (except the euro) would have happened if Nick and Co had stayed out of the coalition. So we can say it is all the price of government. This is the nub. Government of an economy in crisis, demanding cuts, austerity and choices between evils comes at quite a price. But without paying that price first, the biggest reward in politics, endorsement by the voters for delivering good government, cannot be collected later.

Cast around at paralysed European politics and dysfunctional American government and the UK looks by comparison pretty good. Yes there are problems of growth, but all is not lost and the government has a much more focused programme than most. Among ministers, Lib Dem nominees  look as good as, if not better, than the Tories. Clegg is recovering and Vince is a star. The message that the Lib Dems stop Tory excess is slowly getting through. It is true that we have retained first past the post and that many floating Lib Dem voters have floated back  to their home port of either the Tories or Labour. But as these two big parties remain of similar voting strength there may well be opportunity for a lot more government for the Lib Dems in times to come.

It is a message of hope to proclaim a party which can deliver better government. In today’s sharper world, a party proclaiming a preference for perpetual opposition has little relevance and less appeal.

Things are now very nearly out of control. There is a runaway engine and no driver. Just as in the birth of the United States, when the founding fathers used opaque words to reconcile the issue of state sovereignty to secure agreement when there was none, so European politicians have pressed forward to ever closer union with neither the mandate nor the structures to enable it.

Worse they have set up a common currency without a common economic and fiscal policy and without  the levers of management available to ensure it can function. The political vacuum and the financial confusion are now spinning round each other, while the players try to control events by futile declarations which mean nothing and action plans with no action.

Europe, so recently a massive political and cultural success, now looks a mess. It has a Parliament with no power, in the euro area are seventeen sovereign governments,  then there is a non elected Commission, plus three Presidents, but absolutely no means of managing the present crisis or the political will to do so. Moreover its populations are now getting fed up. Any new treaty to create the kind of centralised economic government essential to the survival of the euro, will fail to be ratified in at least some the seventeen countries in which the significant loss of sovereignty would apply.

Meanwhile Greece is going bust and Spain, Portugal, Italy and Ireland are in various stages of financial trauma. The whole thing is now in such a tangle that measures which could have worked six months ago no longer will. What started as a problem of Greek economic management has become a crisis which threatens not only the Euro, but the European Union and the world economy. If anything good emerges at the end and there is no certainty of that, it will look a good deal different to the rudderless confusion now presenting such a dreadful historic spectacle.

Meanwhile Eurosceptics must be feeling vindicated. The trouble is, when a ship goes down, those nearby in the water are sucked under too.

The Vickers Report spells it out. Action is a must. Osborne accepts that it must happen. All the country is behind him, save for the Tory banking lobby, the Daily Telegraph and a few others who either cannot follow the numbers or refuse to do so. The U.K. Banks are potentially at risk from a similar collapse to the one which threatened every household in the crash. They are a bit better capitalised and a bit better regulated than there were but they are structurally still flawed. There is trouble ahead. This time it will be sovereign debt defaults which will act as the trigger. It is now certain that Greece will default. It appears certain that Europe cannot or will not find the political will to organise central control of the Euro and anyway Germany will refuse to pay the bill.

The Euro, as now constituted, cannot continue. Whether there will be a hard and a soft Euro, or whether there will be various soft and variable Euros linked to the Franco German hard euro at the centre, like the multitude of dollars to that of the U.S., remains to be seen. What is clear is that the crisis is not over, it is just beginning. It is both political and economic. It is going to be long. The dream is over.

Britain cannot be just a bystander to mayhem in the street outside its door, more especially as things are far from good in the next street, America. What it can do and is doing, is to get its house in the best possible shape to weather the storm soon to break. It has a plan for deficit reduction, it has new regulators and regulations in force, it has additional tools of economic management and it has decided to strengthen its banks. It is the stark opposite of everything happening in Europe and the United States. Nevertheless this does not stop the bankers, currently led by the most bombastic, incompetent, greedy and muddle  headed leaders in all the industry’s history, from putting out some spin which says, in effect, that sound banks are incompatible with economic growth. Someone equated the revenue stream as equivalent to North Sea Oil.

Here are the figures. The total revenue stream from the banking industry for 2010/11 was £21 billion. The total annual interest bill paid on government debt arising from the bail out of the banks and the consequent economic car crash is £50 billion. That means these city slickers are costing us some £30 billion per year net. Their case does not stand. Given that the figures includes the PAYE receipts of everyone who works in the industry, this is truly shocking. If you strip out the PAYE, we are left with a mere £3.5 billion of corporation tax. If we take the total banking revenue stream over the last five years, it covers only two years debt interest. It is not just that the banks are in permanent net deficit to the U.K taxpayer; it is the fact they were the engine of an economic boom based on unsustainable debt, from which it may take even more than one generation to recover.

The only modification worth considering to the Vickers plan is to speed it up.

This is a long overdue visit. Labour made a complete horlicks of relations with Russia, especially Brown and Milliband David. Britain must learn  once and for all, that it too has skeletons in its cupboard and aspects of our society are malfunctioning or unfair. Lecturing everybody on their faults is an immature and fruitless way to conduct diplomacy. Our interest in Russia is that of our common interests, which we can develop to mutual advantage. Russia has all the gas and oil Europe needs. It has vast potential as a market for consumer goods. Its infrastructure is overdue for renewal. All of this adds up to a multitude of opportunities to help dig us out of the financial hole we find ourselves in.

It is indeed the case that Russia prefers a more authoritarian style of democracy than we do and it culturally craves a strong leader. It is true that the collapse of communism was replaced, in the vacuum which followed it that we did little to help fill, a kind of corporate and state corruption which is a hallmark of their brand of capitalism. It is also true that the Russian mafia is an uncomfortably powerful force. But that is Russia.

It is also true that we have much in common and we have common interests. Neither of our countries is wholly European, but we are both a part of Europe and important book ends to the west and east.  If united we can help guarantee the underlying tensions of the European continent, responsible for so much bloodshed over the centuries, remain harnessed for the common good. Russia should be in the EU and a member of NATO. Both would be significantly stronger to protect the values of European civilisation in a world where the U.S. is a declining  influence, if Russia were welcome rather than tolerated. Cameron should tell his hosts that we want them on board as friends and allies. As we learn to work together, many of the other issues will either resolve or lose importance.

It is time for British foreign policy to grow up. Under William Hague it is showing increasing signs that it is doing so.

So much is being written and said about this tragic moment in modern history, it is difficult to offer any perspective which has not already been explored elsewhere. Nevertheless there are some thoughts worth putting down.

The first thing that strikes about the footage everywhere being replayed, is just how terrible an event or set of events this was. Unlike the Pentagon which suffered a single strike, creating havoc, New York suffered two strikes. Moreover the twin towers, like a damaged ship stayed upright to begin with, suggesting a containable crisis, then collapsed in full view of every TV station in the world. Watching at the time I feared the dead must surely run into tens of thousands. The fact that the toll was not as bad as feared is the greatest tribute of all to the rescue services of New York, their courage, their cool heads and the success of their evacuation procedures. Indeed the calm and leadership of the dust covered Mayor must be among the best ever offered to a community in crisis.

Unfortunately the same cannot be said of the U.S Government. There was no adequate plan to defend the country against an outrage of this kind, yet plane hijacks had been common across the world for years. The anti- terror measures at airports and elsewhere were lax. The military were wholly unprepared and unrehearsed. The President, when he finally got to Washington after flying around the country for most of the day, offered not calm and defiance, but vengeance and threats. The result was that a terrorist outrage, far more spectacular then even its perpetrators had expected, which lined all the world up behind America in sympathy and solidarity, became the greatest strategic defeat in its history thus far.

Ten years on, two futile wars and a third on terror without meaning, has left it with a $1.5 trillion bill to be paid, a broken economy, massively reduced world influence and if not the end of its superpower status, the end of the era when notice had to be taken of it views. It is just emerging from a period when it was, for a time, the most unpopular nation on the planet. Its economy is shattered, along with its political consensus, to the point where on key issues of economic management and social welfare the federal government has become dysfunctional.

Indeed history may show that the magnitude of the event is even now not fully understood. Up till 9/11 the rise of United States as a power since 1865, had proved inexorable. After 9/11 its decline as a power has been marked and will continue. The good news is that with the decline of that power, will come the rise of the qualities of the American people, for too long in the shadow a federal structure and its global power projection, the very nature of which is contrary to all that is worthy in the American Dream.

But on this tenth anniversary such analysis must make way for the flow of human sympathy to all those bereaved families and individuals whose lives were shattered on that day nobody, anywhere, will ever forget.

The Foreign Secretary, William Hague, has announced a considerable beefing up of the coverage and capacity of the Foreign Office, in spite of the cuts in its budget, which represent very welcome news. He has also remarked on the evident dysfunctionality and peculiar rivalries at its heart, revealed when he took over. This blog has in the past repeatedly complained of its failures under the other Milliband and it shows just how bad a leader of the Labour Party he would have been. It also shows just how little influence on foreign policy the department in charge of it had, at a time when our national judgement and diplomatic skills fell to an historic low.

Mr Hague’s revamp will be welcomed around the world. It will also beg the question; what about the MOD? Sir William Gage’s report reveals truly ghastly failures in command, supervision and justice administration which not only allowed monstrous cruelties, but then covered them up. The videos of abuse show little difference to the methods of the Waffen SS. It is not good enough to say that this was isolated to one or two bad eggs, like phone hacking. This sort of thing has to be embedded in the culture, like, as we discover, phone hacking, in order for it to happen at all.

There are so many issues raised, including the misguided morality of the war on terror, which mostly has made the world more dangerous rather than safer. It is impossible to overstate just how bad this is. This blog has long argued for the Ministry of Defence to be shut down and replaced by separate Army, Navy and Air ministries similar to the organisation which won us two world wars. From the day it was set up in its present form in 1971, it has been an expensive, profligate muddle. Its financial management is appalling and it constantly tries to cover up its failures and lie its way out of exposure. It is a shame on our nation and a blot on our democracy. Torturing innocent civilians to death and videoing the practice smacks of the worst nightmares of times past.

One of the challenges of being Chancellor of the Exchequer is the torrent of advice from many economic experts who think they have better ideas and City lobbyists who have interests to protect. None of these people present a rounded picture. Osborne and his team have to do that for themselves.

At present they are under pressure on two political fronts. The first is the argument of the 50% tax rate. Lobbyists allege it is causing the clever to flee the country. The figures are something like this. If you earn £ 1 million per year, you have to pay an approximate extra £85,000 tax. That is on top of the £340000 you would have paid on the excess over £ 150,000 under the old regime. In a national emergency the patriotic should not up sticks and go, but these are not insignificant figures and the greedy, the extravagant and the dual nationals might. Clever tax specialists will deploy measures to reduce the burden. It will be interesting to see from the current study whether this new tax does, in fact, produce more revenue. It is known that if the rate is too high, the revenue falls. It is also known that if the rate is too low, as in the U.S., the public finances become chaotic. This was a Labour tax and is politically popular in the country as a whole and with the Tories’ coalition partners in particular.

The second is the plan to reform the financial structure of the banks and the need to protect ordinary depositors from loss of their money and taxpayers from providing bailouts when banks do silly things which bust them. This will curtail banker’s activities and individual earnings of their traders and they will be at risk of calamity if they make a wrong call. This is how it should be and what is needed. Osborne and his team must not bow to pressure to delay implementation. This is an issue which could cause the coalition to fail. An election fought on this issue  by the Tories on the side of the bankers would be lost.

Meanwhile there were misplaced celebrations yesterday when the German Supreme Court ruled that it was within their constitution to bail out Greece etc. The court also ruled that any such future bail outs must be subject to a parliamentary vote. This is critical because if this had happened over Greece, the bail out would not have happened and Greece would now be bust. So would a number of banks.

The biggest problem for Osborne is that the two economies upon which the prosperity of Britain and its recovery depend, America and the Euro-zone are in a political turmoil over how to manage their money. Nothing meaningful is happening in either to get to grips with the problems. It is not too late to turn more and more to the East, although we should have done so a lot sooner.

It is not too late either to start working towards a single tax rate for income, with those earning less than £20,000 removed from income tax altogether. This should have happened long ago. There is little mathematical logic ( though a lot of political mileage) in several rates. Even with one rate the rich pay more tax.  What is important is not the rate but the revenue stream and with a single rate it is much easier to gain equilibrium between rate and volume. It is also a matter of fact that those earning up to the average wage cannot afford to pay 20% income tax and 20% again on what they buy. Reducing their tax on income increases their spending power. These are the people who flock to the High Streets.