Archive for November, 2012

Euro Crisis: Germany Blinks

Tuesday, November 27th, 2012

At last there is a sort of agreement to give Greece a kind of helping hand. It will get that besieged country past the next hurdle in the crisis strewn road its membership of the single currency demands, but it is no final answer nor, is it enough. Yet it is potentially the most important step forward in the history of the euro crisis. Germany has softened its approach just a tiny little bit.

Thus far we have watched a triumphal and self righteous Germany demand fiscal rigour from everyone, to match its own. Differences in culture, economic structure and history were of no account. It had to be done the German way. As this blog pointed out time and again, such an approach would have three possible outcomes; the southern debtor countries would crash out leaving a smaller northern euro zone, Germany herself would leave and go back to the D-Mark, or Greeks, Italians, Spaniards and Portuguese would abandon their way of life and accept any suffering to become like Germans. There is now a new possibility. It is that the euro zone survives intact, with a far less stringent economic model than Germany has thus far demanded.

The reason for this blog’s change of heart is not fiscal, or even political; it is psychological. Germans have been enjoying their rise to become the super-power of Europe, a project in which over two wars they invested millions of lives and unspeakable suffering to no avail, but which at last came their way through sixty years of peace and cooperation with neighbours and former enemies. Life was good. Germany was good. It was good to be German.

Recently old words have been heard to revive across the squares and corridors of Europe, in the cafes and in the media; words like intransigent, demanding, domination, even Nazi and jackboot. Suddenly people have started to wonder whether they like Germans after all. Fiscal discipline strikes a positive chord in the German character, but being hated for being German strikes a note of horror in every German heart. To repair the euro zone will require writing off lots of debt and printing a good deal of money. Germany has set itself against each. Bit by bit it will sanction both. Slowly over twenty years or so, the countries in the euro will find a consensus over how they can operate their linked economies and run a common currency. Germany will have a big input, but the outcomes will not be on its terms alone. Even the Germans no longer want that.

Cameron: EU Tightrope

Saturday, November 24th, 2012

David Cameron did rather well at the EU summit. He had a rampant euro-sceptic mob of Tory MPs at his back and a spendthrift European commission at his front, egged on by the majority of EU members, who are net beneficiaries of the financial re-distribution mechanism at the heart of the EU. In the overall scheme of things the issues are political and driven by domestic politics of the member countries, rather than economic and driven by euro politics. That is because the whole budget comprises about 1% of combined EU GDP. In the context of the general financial crisis and the paralysis at the centre of the euro currency, this is very small beer.

With the domestic voters of individual net contributor states, it is large, very large beer because all of them are having to adjust their lives to cope with cuts and austerity. To learn that a group of bureaucrats and poorer EU members think that an increase in spending is not only possible, but reasonable, even desirable, causes consternation, leading to very real anger. Cameron has coped with the pressures well and has emerged from the summit in much better condition than when he used his famous veto in the euro crisis. He has also pleased all wings of the Tory party, not just the Right. Faced with this, Labour is trying to pick holes. Ed Balls says the Prime minister is weak and marginalised. Oh? So if Ed Milliband were PM and turned up at the summit and said he wanted a cut, because that is what Labour voted for in the Commons, he would have been greeted with acclamation and at once the budget would have been slashed? Come on!

Labour has a problem with all of this. It presided over a period when the economy was all but wrecked by a combination of house price inflation, excessive borrowing, government spending, budget deficits and trade gaps. It also organised what it called light touch regulation of the City, in which spivs subsequently ran riot. No other government in modern history has found itself faced with the imminent collapse of the banking system. Although opinion polls suggest a comfortable Labour win if there were a general election tomorrow, there is not going to be one and when there is it may just be that the economy looks to be on the road to recovery.

As Ed Balls should be able to see from the Republican failure in the US, coming up with the same financial policy which created the crisis in the first place, does not convince enough electors to bring victory. Labour has got to come up with an innovative and informed set of financial policies that do not rely on borrowing more, otherwise Ed Milliband, like Kinnock before him, will watch certain victory turn into humiliating defeat.

It is time to find a new Shadow Chancellor.

Women Bishops: Crisis For The C of E.

Wednesday, November 21st, 2012

To open minded people of goodwill and human compassion the decision of the Synod to block the appointment of women bishops beggars belief. In fact the majority of every voting component of the church and its members wish to proceed, but a small and selfish minority have been able to exploit checks in the voting system to over-ride the wishes of the majority. It is not surprising that there is near universal dismay.

The proposition that somehow men are closer to God than women and more favoured by him, is, by any enlightened and modern interpretation of Christian values, utterly absurd. Christianity is, of course, a faith, not a scientifically or even an historically proven, fact. Like all faiths it is free to believe in whatsoever or whomsoever it wishes and ascribe to the object of its devotion whatever practices it may demand.

However, it is not as easy as that. Faith is not, and must not be allowed to become, a licence for prejudice. If it does it ceases to be a proclamation for the greater good and becomes a corrupting influence in which evil dwells. For the Church of England there is an additional responsibility. It enjoys great privilege and status in the fabric of national life in the United Kingdom, because it is a pillar of the State within the muddle of the Unwritten Constitution. It is a part of the law making process through the House of Lords. It has a duty to help ensure that the laws of the land are upheld and is obligated to set an example by obeying them.

It is against the law to practice prejudice against women in the workplace, either by the employer or by other employees. As the Church of England is the employer of its clergy, it can lawfully refuse the appointment of women to any office, simply because they are women, only because by prior concession, it is exempt from the law. This was to give it time to bring itself up to modern practice; time which has clearly been misspent. Moreover it sets an appalling example, and encourages the worst prejudices to fester in the glow of tainted acceptability.

Parliament would be within its rights to demand its Church falls into line. If some crackpot activists still stand in the way, then Parliament would be right to cancel its immunity from the equality laws. It could also disestablish the Church of England and remove all its constitutional privileges.

Meanwhile the Church of England is a laughing stock.

Israel And Hamas: It Never Ends

Saturday, November 17th, 2012

Here we go once again. Each side blames the other. You can open a spreadsheet, setting out the flash points in the order in which they occur and find that each side claims the other is responsible for the flare up. This time it was the assassination of the Hamas military leader, but that attack was in response to continuing rocket attacks from Gaza; but these in turn are the Palestinian response to the Israeli blockade of the coastal strip and so on.

Once again children are getting killed and people who have next to nothing are being reduced to survival on even less. The truly appalling aspects of this never ending conflict are that the solutions are obvious to almost everyone in the world, except those caught up in the mayhem.

There is seemingly nothing useful to say that has not already been said a thousand times, maybe thousands of times. Israel is a state with a right to exist and must be recognised by all. Equally Israel has the responsibility to ensure that the Palestinians too have a state of their own and can set about rebuilding their country to join the family of nations.

There will never be peace, nor will Israel recover the respect it has lost, until it puts a stop to the absurd settlement building programme, condemned as illegal by every authority in the civilised world.  Until this unique programme of sequestration of other people’s land stops, there is no prospect whatever of stopping ever more resourceful para-military groupings bombarding it with suicide bombers, rockets and whatever else comes to hand.

The people of Israel will have to ask themselves whether they wish to live and  die in a state of perpetual, never ending conflict, or whether there is a better way forward in seeking accommodation with their neighbours, whose demands by international standards cannot be said to be excessive or unreasonable.

Quantitative Easing: Squaring The Circle

Saturday, November 10th, 2012

When the Bank Of England uses newly made electronic money to buy government debt to the tune of £375 billion, the practical effect of the move is that the debt is paid off. If you buy your own mortgage for its face value, the money you owe on your house is due to you, so that is that.

There has, hitherto, been a peculiar reluctance to accept that because the State owns the Bank of England, this tranche of about one third of the government’s total debt, is effectively written off. Indeed, the Treasury has doggedly continued to pay the interest to the Bank of England, just as it would to any outside holder of these bonds. It has now been agreed that this accounting process is pointless,  no matter what obscure objections are raised by this forecaster, that think tank or the other economist.

The impact on the government’s finances should be considerable and may even forestall the ferocity of the next round of cuts, since interest on debt is a major item in the government’s list of bills, more or less equalling the entire defence budget. Because of the Byzantine complexity of the mechanisms and accounting processes which are used to organise quantitative easing, even now the benefit of this new arrangement is both obscure and open to variable interpretation as to its effect. Indeed it has already slipped from prominence on the newswires because nobody wants to get their knickers in a twist talking about it.

This blog will be bolder. If you own your own mortgage a) you do not need to pay yourself the interest due and b) you do not have to pay the money back to yourself when repayment falls due.  As a private citizen, you would have needed to raise the money to buy the mortgage from the original lender, unless you had it saved up already or had a lucky windfall. The government has the power to print new money to buy its own debt, but has to be cautious in the process. If the remedial measure becomes a careless habit, the currency becomes ultimately valueless, as Zimbabwe, in modern times, and Germany in the aftermath of WWI, discovered.

Nevertheless it is this blog’s view, expressed in several previous posts, that cautious use of quantitative easing to create new wealth, is the only way to escape the debt crisis, still threatening the survival of the free market capitalist financial structure in the West.

USA: The Fiscal Cliff

Thursday, November 8th, 2012

The Republican party is once again talking about cutting taxes as a means of stimulating the economy. They are beginning to extol the virtues of Ronald Reagan’s trickle down economic theory. This would be good if it had worked. It did not. The growth it produced was fuelled by debt and asset inflation. Deficits grew year by year. In 1979 the deficit for the year was $40 billion in the twilight of the Carter presidency. From the arrival of Reagan, through his two terms and then one term of Bush senior, the annual deficits grew and grew until by 1992 the figure reached a staggering (for then) $290 billion.

That cost Bush senior the top job in the renowned read my lips campaign. Under Clinton, the Democrat, the deficits fell year on year until the budget went into surplus in 1998, where it stayed until the arrival of Bush 2. As soon  the Republicans were back with their crazy economics, back came the annual deficits rising to a juicy £377 billion by 2003 and $459 billion by 2008. Obama was then faced with failed banks, a collapsing economy and the real prospect, much nearer than most Americans were willing to face, of complete economic meltdown.

This was the greatest threat to the cohesion of the American state since the outbreak of the Civil War in 1860. Obama took the only option probably open by then and went for massive fiscal stimulus. Already near $ .5 trillion in deficit, the budget plunged to $ 1.4 trillion in the red, before beginning very slowly to recover. The Republican are right to state the obvious that these figures are unsustainable and the nation’s books have to be brought back into balance.

However, the Republicans are wrong not to own up to the fact that this is a mess of their making, prepared during their Presidencies, founded in one very simple truth; you cannot spend what you do not earn. If you want to spend more on defence than any other nation by the biggest margin in history and fulfil the social responsibilities of a civilised and inclusive society, you have to raise the revenue to pay for it. Tax cuts for the rich will not do this. They have not done so in the past and the reason the current financial chaos exists is because some people, Republicans, thought, wrongly, that they would.

Obama Triumph

Wednesday, November 7th, 2012

This is a very good victory for President Obama. As this blog has said before, the election was Romney’s to lose and he lost it. It was much tighter than the electoral college tally suggests, but even so the current showing of the President ahead of the challenger by over 2.5 million votes is convincing. Unfortunately a polarised country has ended up with almost the exact political picture it set out to revise; one of deadlock. A Democrat in the White House with a majority in the Senate blocked, by a Republican majority in the House. In setting up the lauded checks and balances in the new nation’s constitutional arrangements, the founding fathers chose a structure which does not provide an easy route to coalition, unlike the parliamentary democracies of Europe. This has the alarming potential to render the country ungovernable, over fiscal matters especially, and that potential now looms ahead.

The Republicans, smarting at their blown opportunity to walk easily into the White House, will be tempted to flex all their muscles in Congress. They must be very careful. While thinking about how they should act, time could be taken to read their favourite book about the Civil War period; a subject which has more written about it than any other in history. They will see that Lincoln believed in one country, controlled by a Federal government, which acted for the common good in the belief that government can help the progress and prosperity of the nation. Obama believes the same and proclaimed it throughout the campaign. Lincoln was determined to end the scourge of slavery, recognising that the United States was the last advanced country in the world to retain the notion of labour in bondage, with human beings as saleable property, on the same terms as farm animals.

Obama was determined to introduce universal health-care. Again the United States is the last country left, among advanced nations and beyond, not to have this basic necessity of compassionate civilisation. In both cases a major segment of the population believed these humane policies to be an assault upon the American dream, founded on individual freedom from the yoke of heavy government. In 1860 the argument sundered the nation well before its centenary, and led to unprecedented bloodshed, unequalled even to this day. All the States of the South rose in rebellion and formed themselves into the Confederacy. In the bloodbath to follow they were conquered and the Union was restored by force. Slavery ended, but the schism in the notion of the nature and purpose of the United States was swept out of sight, but not out of mind.

In the following century and a half the two political parties swapped places. The Democrats became the party of compassion and reform and the Republicans assumed the role of guardians of fundamental notions of small government, low taxes and bootstrap self reliance. At first it worked. The Republicans were in power in the post WWII period more than the Democrats, but as the GOP drifted further and further to the right, another shadow of history began to fall across its path.

In 1860 the Confederates believed they had right upon their side and that God, in whom they trusted with simplistic fervour and literal interpretation, was with them. They also believed the North were in the main not from the old families who had founded the country, but had their numbers swelled by new immigrants from every corner of Europe and this combination somehow made northerners ninnies and unable to fight. To add to this delusional analysis came the supposition that Britain and France would recognise the Confederacy and come into the fight on its side.

They were wrong on every count. Especially they failed to see that the Northern ninnies had the majority in the population, almost all the industrial assets, and were moving forward at a pace. They also had an economy which though cruel by modern standards, accepted that it was the duty of government to give every citizen a square deal. The South by contrast, was noble, principled and proud, but living entirely in a fading past.

Yesterday Romney won every Southern state except Virginia and maybe at the time of writing this, Florida, together with all of the West. But Obama won all the financial East Coast, all the industrial North and North East and the whole West Coast, including the technological engine of silicone valley and the north western stronghold of Boeing and Microsoft. The reason for this stunning clean sweep of America’s economic assets by the Democrats is that they know, just as northerners knew in 1860, that the demographics have changed. Romney had a majority of white males, but Obama led among women, the young, Hispanics and African Americans, the last two by huge margins. This is where the majority now lies and by 2016 it will be even bigger, while the gun slinging white males of the National Rifle Association will, as a minority, get ever smaller.

In determining how they come to recognise the realities of the fiscal cliff and what it means and how to reach a compromise, the Republican party may find time to ponder another issue. Their own survival as a party of power. In five of the last six Presidential elections the Democrats have polled more votes. Like the rising debt mountain which everyone ignored until it began to blot out the sun, this trend is not, for Republicans, good news. If they drift ever farther to the right, times for them will get harder still. In the end, whilst occasionally flirting with extremes, democracies prefer to be governed from the centre, because that is where consensus lies. That is why democracy works.

The Economy: Some Thoughts On The £.

Monday, November 5th, 2012

If we take the politics out of it, the British economy is fighting back hard against a staggering catalogue of problems brought about by flawed government going back decades. It is once again growing, as well as cutting, but like America, the growth is fragile. There is, like America, uncertainty as to whether the government is on the right track; should it do more, or get out of the way? In the US the voters now have an opportunity to give their view on this burning issue, but in the UK it will be 2015 before the people have their chance.

There is another dimension in the UK which rarely comes up these days. It is the historic over-valuation of the pound sterling to the dollar. It is this blog’s view that for many years, maybe even since the end of World War II, the true value of the pound is close to parity with the dollar. Such an idea was unthinkable to Great Britain as it watched its Empire, on which it was said the sun never set, fade into the sunset of history, to remain for a time as a nostalgic glow at the end of a glorious epoch. Nowadays, even the glow has gone and most people care not a jot for the lost Empire; in fact many think it did more harm than good.

Great Britain officially won the war, yet it lost all it was fighting to preserve, except its freedom. One thing it was determined to defend was the value of the mighty pound vis a vis the dollar. This has been an underlying objective of all governments, through a gradual devaluation process which has brought the pound from $5 to the £ to the current level of $1.60. This drift downwards has always been slower than reality called for. The consequence was uncompetitive  British manufacturing, both for export and even for home consumption. The consequence of that was a dysfunctional economy reliant on debt, with the gap between rich and poor growing and growing, and underclass dependent on benefits, continuous unemployment and the second biggest pile of debt in the world.

The countries which valued their currencies according to the realities of post war economics, including Germany, France, Italy, Japan and the US, enjoyed lower interest rates and higher growth and their populations enjoyed a higher standard of living. The UK ended up importing almost every product consumed and exporting only in the luxury or military areas, where price is less of a driver. The problem is that the UK and US economies are much closer entwined than Britain is ever willing to admit, and an imbalance in the currency has a toxic effect on growth, in the smaller and more expensive of the two.

BP and Russia: Good News

Sunday, November 4th, 2012

This piece of very good news was not widely dwelt on by commentators, but it does represent a refreshing realism, so absent from the Foreign Office whenever it thinks about eastern Europe.

As this blog has repeatedly asserted, Russia is an integral part of what we might call Greater Europe and forms its eastern frontier as Britain is the gateway west. Britain is the door to America, in which it has a huge connection; Russia is the pathway to Asia. Britain and Russia are natural allies and have stood together in the Napoleonic wars, WWI and WWII. The alliance is on a different footing to that the UK has with the US.

Russia and Britain have mutual interests based upon order, peace and security in Europe, since neither can prosper if Europe in unstable. Britain is rich in financial skills and prospecting technology, while Russia brims with natural resources including gas and oil. The fact that one of Britain’s largest corporations, BP, now has a working partnership with, and a 20% stake in, Russia’s state owned energy giant is very good news for both countries. Of course it is true that aspects of the workings of Russia’s political system appear odd, even sinister, to democracy evangelists and campaigners of every sort and kind. It is also true that to the pragmatic Russians, Britain’s own democracy is limited and duplicitous. This important new deal for oil exploration will be very good for both countries and will help to better open the eyes of each to the virtues of the other.

The UK’s relationship with the US in quite different. This is based upon a common heritage, family ties and business connections which bind the two countries so closely, that they are one in more ways than they care to admit.

GCSE: The Row Over Grades

Saturday, November 3rd, 2012

There is no doubt that the standard in English which the current modular system of GCSE exams produces, falls short of what many young people need to get a good, or indeed any, job, unless they achieve the top grades. This is why Michael Gove is changing the system. Quite separately there is the question of whether all the marking this summer was fair to all the students. Manifestly it was not and something constructive is required to put things right in England.

Ofqual has conducted an enquiry and reached the surprising conclusion that the fault lies with over marking by teachers of coursework. It is clearly a ridiculous system where teachers mark their own pupils, but the integrity of the exam is supposed to be protected by monitoring of these markings by the exam boards. The job of Ofqual is to monitor the exam boards. When things go pear shaped, the buck stops with Ofqual.

This is why this blog finds the ice cold explanations of the chief executive of this ineffectual quango wholly unconvincing.