Malcolm Blair Robinson

Jeremy Hunt has never been a strong minister at cabinet level. He is affable and charming, but in a corner he is apt to be unconvincing. Whether he will be able to cling on depends in part on what Rupert Murdoch says today. It is quite clear that the old strictures regarding how to remain distant and impartial when making quasi-judicial decisions were, in the case of BSkyB, given a liberal interpretation by Mr Hunt’s department.

There is now a wider problem for the Tories. They are in a crisis of perception, arising out of a string of policy, presentational and personal errors of judgement, which has shredded the government’s initial reputation of being fair, focussed and competent. This is developing into a crisis of leadership, not just of Cameron’s own ability, but that of his party,  to lead the nation.

The Tory led coalition is now well and truly off the rails. It is entirely possible it will not get back on the track. Once you get talk of ‘fight backs’ you know that recovery is almost impossible. This is very bad news for the Tories. Only under Thatcher did their governments achieve a lasting outcome. The Heath and Major governments both fell apart. Even if this one stabilises, it will look ramshackle for the rest of its term and will be politically in a bear market, when its failures receive more media coverage than its successes.

The Tory remedy has traditionally been to change leader. There are quite a few ex-leaders around. Major, Hague, Duncan-Smith, Howard. If they dump Cameron, who is there? Possibly Hague for a second go, maybe Davis, perhaps even the elderly and pro euro Clarke. Could the Coalition survive such an upheaval? Doubtful. Could a general election be avoided? Even more doubtful.

So things have become a pretty big screw up. Not long ago  Britain had one of the most stable and focused governments in the West, enjoying a wide consensus among voters. All of that has gone. For the Tories even more has gone. They have lost that magic aura of being the natural party of government. They now collectively look clueless and individually shallow and detached. The first stage of any fight back must be to look as if they know what they are doing and that they care about the people they are doing it to.

The political crisis, which in the end is far more of a threat to the euro than the financial markets, is slowly assembling a critical mass. There is a chance of a socialist government in France, Greece is soon to vote for a new government, in Ireland voters are refusing to pay the 100 euro levy, the Dutch government has fallen and everywhere opposition to austerity gathers.

In time pressure will build on Germany, but so long as everyone depends upon German cash to stay afloat, Germany will stand firm. It is not yet possible to determine the point at which German public opinion will decide the cost of keeping the euro is not worth their money and the majority, rather than the current sizeable minority, decide life under the deutschmark was better. Yet in this scenario lies the most logical solution to the problem long term.

At present it is unthinkable, but this blog is happy to think it. If Germany pulled out of the euro, all the struggling debt ridden, growth zero countries followed Greece in a partial default and the euro massively devalued to a level appropriate for their real economies, life for all the populations, now ground down by austerity,would begin to improve again.

Because, at the end of it all, the problem with the euro is not the spendthrift laxity of its southern members, but the efficiency of German industry and the financial rigour of its people. The fall of the Dutch government, north European and a vocal supporter of the German position, proves the point.

Food for thought?

The nature of the euro crisis is altering. It will cease to be, for the time being, a financial crisis dominated by markets. It will become a political crisis dominated by voters.

At present the undemocratic reforms to economic management in the eurozone, the QE of sorts by the ECB and the dominance of Germany, have combined to calm financiers and the markets. A lot now depends on how the French and the Greeks vote.

If in Greece parties backing the plunge of the country into an economic ice age are rejected significantly, even if not thrown out altogether, the question will once again arise. Is it possible to ask a national population to suffer such privations to protect a currency? No national government, in even a ramshackle democracy, could survive such a prospect, were it in control of its economy.

Nothing underscores the loss of financial sovereignty to undemocratic EU institutions, dancing to Germany’s tune, than the political predicament in the debtor countries. Sooner or later voters will say no, or either the mobs or the military will take over. Economic repression is as bad in many ways, worse in some, as political repression.

The key is France. Sarkozy kicked, but said yes in the end, to keep up the appearance of the Franco-German project of the euro. If he wins, the centre of the euro will hold, even if countries drop off round the edges. If he loses, it will be a rejection of what has thus far been organised and German dominance will be challenged. The French people will want to go on spending, while the German people want to stop.

It is that confrontation of opposite aspirations and attitudes which, in the end, will decide whether the euro survives. If the Franco-German project finds the consensus for renewal, the euro will survive in modified form, probably with fewer members. If not, France will crash out and the euro will become the mighty deutschmark by another name.

Either way, Germany will end up as  the leading European power.

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The latest contribution by Britain to the IMF has caused Osborne more trouble, if he did not have enough already, but it does make sense to ensure that the coffers of this fund of last resort are kept topped up, not least because it is not impossible that we may need its help again one day.

It is important that the money is not used to prop up the euro. It is important that the money is used to prop up countries in need. This is quite a list and most at the moment are in the Eurozone. Things may be getting worse there. Spain has problems as have Portugal and Italy, not to mention Greece. All have spent too much and all are uncompetitive with Germany.

There has been a subtle but significant change, since the euro crisis was last dominating the news a while back. For all practical purposes the Euro now has a government; it is the German Bundestag. It has rules of fiscal management. These are German rules but all have ratified them. The whole structure is undemocratic unless you are a German voter. If you are you can effect a change of policy. If you are not, who you vote for in your national elections will make very little practical difference to anything to do with economics in your country, which is almost everything.

There is now emerging a new order in Europe. Germany, at its third attempt has emerged as Europe’s master, but this time not by force of arms but by thrift and hard work. It has not sought its new hegemony. It has been given it; more than that, those within its thrall begged for it. It is now entirely unrealistic to suppose that this drift of events will alter direction. It is realistic to accept that there will be change.

It is difficult to see how Spain, Greece and Portugal can ever achieve growth without devaluation. This will only work if they de-value against Germany, since if the euro de-values, as it is, for all its members, Germany will always be more competitive. Thus those three must face either years of stagnation and falling living standards or leave the euro. If they do, IMF funds can help them re-establish their currencies.

Italy, France and Ireland can make it, but at great cost. Whether they follow Germany and stay in or follow the others and go will be determined by their voters and their willingness to accept the blood-letting of the sacrifice of national sacred cows. The outcome of the French presidential election will be critical in pointing the mood.

From Britain’s point of view things are not too rosy. Yes we are spared the difficulties of the defective European currency, but we have another inbuilt problem. We send half our exports there. The European Central Bank, with Germany’s blessing, initially withheld, is likely to continue with its version of quantitative easing by giving banks in the euro-zone cheap money to buy high risk bonds, which has and will continue to de-value the euro. The more it falls the more expensive our goods become in Europe. If we de-value to match, because we import almost all our raw materials and a good many components, our base costs will rocket upwards.

It is not as if Britain is in a sound financial position. Our overall debt mountain, including government, business and private is the biggest of the lot. We really do need to step up our efforts to sell to the BRICK countries. We need to follow the Germans. They sell more to BRICK than to Europe.

Is the criticism of the Budget, the biggest onslaught of its kind in living memory, fair?

The answer, like most in politics, is both yes and no. Yes, if you judge the budget as a political instrument; no if you look at the budget as a fiscal tool to manage the economy. In the big picture of the country’s economic challenge, set within the aftermath of the global crash and the continuing uncertainty about the euro, a neutral budget which reduces corporation tax, increases the earnings threshold for millions, reduces the troublesome 50% rate, deals with VAT anomalies and puts charitable giving on a much more equitable footing, all makes sense.

Whether pasties cost a little more or less is neither here nor there. It is reasonable for grannies to make the modest contribution of foregoing immediate rises in the threshold at which they pay tax, and, to be frank, too many organisations are classified as charities and receiving billionaire’s dosh, which are not really charities at all. Are independent schools deserving charities of the same stripe as Cancer Research or Save the Children?

Nevertheless the government has almost sunk beneath the waves of derision and outrage. At every attempt to explain, it sinks yet deeper still. An average of the latest opinion polls give Labour a majority of 96. In the run up to the local elections this could hardly get worse. Add all the other muddles, including the shambles over the cleric and you have a picture cementing itself in voters minds of a government which has lost the plot and has become accident prone. The effect is like Major’s sleaze.

There are several explanations. The Tory side of the Cabinet is, for Tories, inexperienced and many would say detached from the grind of life where pennies have to be counted. The Lib Dems have not been in government for generations. Nobody has worked out that with the information revolution and in the Twitter age, the Treasury habit of slipping in, unnoticed,  little adjustments here and there to pay for eye catching goodies is no longer viable.

Every detail can be checked, researched, calculated and broadcast to millions of phones, tablets and whatever, long before the chancellor has even finished speaking. The new dimension requires explanation, openness, clarity, simplicity and a clear sense of direction in order to gain public acceptance and media support.

All of this failed and failed big time. This failure was guaranteed by one central error of judgement; cutting the 50p rate. Whatever the perfectly valid arguments for its removal and whatever the real economic benefits which may indeed flow, the idea was, in the current climate, a  political non starter. It was, as the blog has pointed out before, not introduced to raise cash. It was introduced as a political necessity to ensure that a visible sanction was imposed on the rich, large swathes of whom were widely blamed for the crisis, in order to persuade everybody else to accept devastating reductions in their standard of living. Its introduction was an absolute must. Its removal, while the economy is still in trouble, was an absolute must not.

The budget became one where money was taken from hard working families, grannies, pasty eaters, charities, et all to give to the rich and, even worse, to give to the rich in the City of London. The result has been a collapse of the consensus supporting the Coalition’s economic strategy and a complete evaporation of the government’s authority. From now on everything it does will be picked apart to find the hidden dodge. Those not found will be invented.

The government might recover. How, is not clear, nor is it certain that it will. The crisis is acute. Governments which become unpopular, do recover. Governments which are seen as incompetent, do not.

There has been a furore concerning the imminent deportation of the radical cleric to Jordan and his last minute appeal. The Home Office and the hapless Mrs. May insist they got the date right.

They did not. A time limit expires at the end of the final day, not at the beginning of it. Any fool knows that.

I am sorry to disappoint regular readers with such sporadic new postings, but my book project has reached a very demanding stage!