31 August, 2011

Fiddling while Rome burns

There have already been more than 1,000 amendments to Italy's budget, and it is not over yet. The Government seems to have given in on something like €4bn so far.

Berlusconi is a politician - as I said in the previous post on the subject, if there were a public clamour for austerity he would provide it. But there isn't.

Italy now desperately needs a respected figure to persuade the Italians that all this is necessary. The next election will be too late. The only figure I can think of is Montezemolo. But Italy needs someone and now.

30 August, 2011

Frau Lagarde

Is Christine Lagarde, the new head of hte IMF, proving a little less French than I had feared?

At the Jackson Hole comference of central bankers she shocked everyone by saying that Europe should attend to the recapitalisation of its banks. This was strongly denied by Brussels, which is another reason we should take it seriously.

Despite two attempts, European banks have still not endured an adequate stress test; in particular their holdings of suspect foreign sovereign debt have not been properly scrutinised.

Lagarde is at least half right. Europe should worry about its banks, but stop bailing out its sovereign members.


It used to be said that the definition of chutzpah was a child killing its parents then asking for the mercy of the court because it was an orphan. But how about this?

The family of Abdelbaset al-Megrahi, the convicted Lockerbie bomber who was released from a Scottish prison, has appealed for Scotland to send doctors to treat him, on the grounds that he didn't trust the Libyan ones.

29 August, 2011

Constitutional Limits

A big case has been made in Europe for countries to pass a constitutional amendment limiting the size of the permitted deficit.

And on the surface it sounds rather good.

Spain has just reached agreement between the two main parties limiting its deficit to 0.4% of GDP by 2020, which sounds too good to be true (you will remember that the Eurozone tried to limit deficits to 3% and neither France nor Germany was able to do it, thus rendering it a nonsense).

But the terms of the proposed Spanish constitutional amendment allow for this limit to be abandoned in times of natural disaster, economic recession or other exceptional circumstances.

So actually it's quite worthless.

In the end, a constitution is just a set of laws which require a larger majority to amend them. But it can be amended.

28 August, 2011

Italy's budget

Emma Marcegaglia, head of the employer's federation Confindustria, is in my view one of the few impressive public figures in Italy. She has just pronounced on the budget, or manovra, rightly pointing out that it consists largely of taxes, whereas what Italy needs is expenditure cuts and growth measures. What she regards as the only useful bit, the employment measures, has been denounced by the left who say they will not accept it.

For myself I never really believed that the Government had any intention of putting this stuff into practice; they just wanted to silence the markets. Unfortunately the markets are in possession of, and can understand the real figures. We are not talking about fooling the Gazetto dello Sport here.

But Ms Marcegaglia takes it seriously and so should we. Italy's problem is that the State is too big and the individual is too small. It's not just that the public debt is too large - in fact it is at almost comic proportions - it is that this state of affairs, seen mainly in undeveloped and dirigiste economies, encourages idleness, corruption and the favouring of special interest groups (it's the squeaking wheel that gets the grease) at the expense of the overall economy and thus of the people. Even without the debt it would be necessary for Italy to reduce the size of the State; with the debt it is only a question as to whether they can do it in time.

Instead, Italian politics is a matter of balancing the various vested interests and the Government, wary of upsetting the wrong people (that is to say important people, not the people themselves) has relied on raising taxes.

Italian growth has for years lagged behind that of the rest of Europe, and raising taxes will inhibit growth, reducing the country to stagnation and inflation while it remains in the euro and cannot devalue.

Many commentators believe that for the necessary reforms it will be necessary to remove Berlusconi, but I think that misses the point. Berlusconi is a butterfly, and if there were a massive popular movement to cut back the state, he would flutter in that direction. But there isn't, and most people realise that the left returning to power would be even worse, even more anti-reform.

All that can save Italy, and perhaps Europe, is a massive stirring of the political pot. For myself I hope that Ms Marcegaglia rises to the top.

27 August, 2011

The new France?

Marine Le Pen's party, the Front National, is close behind Nicolas Sarkozy in the opinion polls. She has done a rather interesting interview jointly with the Spectator and the American Spectator. Here is what she says about Europe.

The EU has become the Soviet Union of Europe, it was created without the consent of the people, and often against the people. It crushes us with rules, regulations and norms, while suffocating our economies with the straitjacket of the euro.’

 I'm not sure I much like her views on other things, but this seems spot on.


Caroline Flint Fat enough?
Recent panic about obesity left me with that dulling of the senses you get when a newspaper is short of things to publish and English pseudo scientists are keen to get a grant. You’re reluctant to disbelieve it but at the same time reluctant to believe it.

Of course they recommend a fat tax on junk food. I suppose however this would be a little unfair if I went jogging every day in order to enjoy a Big Mac – I would be paying the tax without being overweight. But there are problems in imposing a tax directly on fat people, hauling them by crane to be publicly weighed and denounced, problems which even this nannying government would resist.

But it is the veracity of the findings I want to take issue with. Reading them I had a sense of déjà vu and I am grateful to the Velvet Glove Iron Fist blog for helping out with some facts.

According to the BBC 40% of British men – up from less than a quarter – could be obese by 2030.

The last obesity panic was in 2006. The Prime Minister, Tony Blair, in accordance with his unwavering policy of having to be seen to be doing something (as opposed to actually doing it) had appointed a Fat Minister. At least she didn’t look very fat, so may not have known anything about the subject.

Now in 2006 the experts reckoned that by 2010 – only four years away – the obesity rate for men in Britain would rise from 23.1% to 33%.

So how did it turn out? The obesity rate didn’t in fact rise but fell to 22%.

Now are these the same experts with today’s prediction?

26 August, 2011

More mindlessness

The Telegraph reports that the Government is to give its consent to a new European Directive which allows agency workers - temps - the same rights and benefits as others.

While one side of the Government (Gideon 'George' Osborne) assures us that there will be measures in favour of jobs and reducing regulation, the other side (John 'Vince' Cable) comes up with this idiocy. In the midst of an awful recession and rising unemployment the Government proposes to increase the costs of employing people. We can almost forgive the unelected bureaucrats in Brussels who came up with this idea, because they don't have to live in the real world. But the elected government of the UK does have to live in the real world and they have completely lost it.

The truth of the matter is that Mr Cameron's unelected and anti-democratic coalition has to say yes to everything European, however mindless, just to keep the likes of Mr Cable on board. The workers and the unemployed can go hang.


What are trades unions for? I ask the question because there is the most extraordinary battle going on in Italy at the moment.

I have never belonged to a trade union because I have worked either for myself or in industries which permitted me to negotiate my own salary and benefits; also where it was simple to move from one job to another. It suited me not to be lumped together with everyone else, I believed, so that if I was better I could be rewarded accordingly.

This applies to many industries but I should have thought to none so much as professional sport and in particular football. There is a discernible difference between Wayne Rooney and an ordinary member of a lesser team and their income is awarded accordingly.

And yet the Italians have somehow contrived to set up a union for top players - Serie A as it is called here and there is an employers' union to match it. And of course they are now on strike.

It doesn't take me much thought to find the prospect of top footballers going on strike - people earning millions a year, don't forget - quite revolting. They are entertainers, nothing more than that, and they should feel gratitude and responsibility towards the people who pay them, the fans. 

23 August, 2011

US Elections

American elections, like Christmas and the football season, seem to start earlier and earlier. The next one is due 14 or 15 months away, for a President to take office in 2013, but already it seems to be warming up.

The only candidate I would myself vote for, the libertarian Ron Paul, seems to be popular in straw polls and primaries but the story is no one would actually vote for him.

The popular money, unless Sarah Palin stands, would be for a Republican candidate Rick Perry, with running mate Michelle Bachmann, to stand against Obama.

As far back as I can remember the choices in the Presidential Election seem to have been bleak, and of course some have turned out good and some bad. It may well be that Rick Perry would make an outstanding President; it just doesn’t look like it. He described the prospect of a third round of quantitative easing as ‘treason’; this from a man who once promoted the secession of Texas from the Union, which would have been treason indeed. People who shoot their mouth off can be attractive characters, but not too good, for example, at diplomacy with the Chinese, on whom your country depends to buy its debt.

Nevertheless, the prospect of the British-hating Obama is not appealing from this side of the Atlantic.

One problem for Presidents is government spending. Even Reagan, who used to say that the most terrifying words in the English language are ‘I’m from the government, and I’m here to help you’, raised state spending to uncontrollable amounts. Government debt is now $14 trillion (that’s $14,000,000,000,000). Republicans spend on the military, Democrats spend on welfare, but everybody spends. The only candidate with any kind of policy for reducing it is Ron Paul, who, as I say, is unlikely to be chosen.

America has the choice of debt management or decline. This election is important, or would be if anyone had anything useful to say on the matter.

The euro: trouble at home?

The German Bundesbank, in its latest monthly report, says that the agreement cobbled together on 21st July 'threatens the principle that elected parliaments should control budgets'.

The Bundesbank believes that either the Eurozone should stick to the 'no bailout' rule, which is what the treaties currently in force say, or there should be new treaties permitting them.

The German constitutional court is due to rule on the legality of the bailout fund, the EFSF, in late September. If it rules against the EFSF, recent market attacks on the Eurozone will seem like friendly gestures.

Libya: further in

Mr Cameron, in a press conference designed to make him look Prime Ministerial, has refused to rule out the use of ground troops in Libya.

In a separate development China has said that the West must pay for the reconstruction in Libya, and clean up its own mess.

There is a terrifying inevitability about all this. We must watch while we are dragged gradually further into another pointless conflict, another war without gain.

22 August, 2011


I have been surprised at the turn of events in Libya. Firstly, although Gadaffi was better prepared against insurrection than his counterparts in Tunisia and Egypt, I had not expected it to last 6 months (it started in mid-February). Second, I had expected the Gadaffi clan to go down like Saddam Hussein's, with guns in their hands, but the sons have apparently allowed themselves to be captured.

Once Gadaffi is taken or killed, and it seems likely to be sooner rather than later, we and the French and the rest must pull out. This is not our war and we have stretched the UN Security Council mandate to its limit: it was 'to protect civilians' which should also include Gaddaffi's civilian supporters (Gaddafi himself holds military rank and therefore doesn't count). Instead we have clearly taken sides, without really knowing what 'our' side is like. The French have even been supplying the rebels with armaments, it is said, manifestly against the UN-imposed ban.

Now, this week probably, is the time to return our planes to their original bases and pull out the 'advisers' and go home. Then, as we should do after every military involvement, we should have a debate in Parliament as to whether it was a good idea. In my view it wasn't.

19 August, 2011


Stockmarkets fell through the floor yesterday and are looking weak again today. Much of the blame for this, and the resulting loss of savings, diminishing of pensions and difficulty for companies funding themselves must lie at the feet of Nicolas Sarkozy and Angela Merkel, whose silence on Tuesday was the clearest possible indication that they are trapped in the politics of the euro and unable to offer the slightest clue as to solving the economic issues which threaten to strangle Europe.

Elections are for 2012 and 2013 in these countries and it is to be hoped that electors who have lost money due to this duo's lack of understanding of markets and terminal indifference to anything but politics will remember and cast their vote accordingly.

17 August, 2011

Cameron's coglioni

The markets think it likely that much of the peripheral European countries' debt can never be repaid. So in the middle of a crisis which threatens the very existence of the eurozone, Merkel and Sarkozy stand up.. and have nothing to say. It would have been better if they had not had the summit at all.

The leitmotif of German-French thinking is, as discussed before, moving towards a common economic government for Europe. This however will take time - years - whilst the crisis is on us right now.

The proposal for a tax on financial transactions, or Tobin Tax, at an EU not just eurozone level, is both silly and dangerous. It would particularly damage the City of London, which provides massive tax revenues to the UK.

The question is, does Mr Cameron have the courage to put a stop to this, or does he just do what Merkel and Sarkozy tell him? It should be against government policy for there to be any Europe-wide tax.

Cameron should speak, and he should do it now.

16 August, 2011

On the shoulders of giants

From Max Hastings in today’s FT:

“Cometh the hour, cometh the man“ is a foolish cliché: history is replete with dramas that caused nations to look expectantly at the door, only to see someone no larger than French president Nicolas Sarkozy walk in.

The Eurozone: papering over the cracks

Angela Merkel and Nicolas Sarkozy meet in Paris today. The circumstances of their meeting are such that at least they won’t be short of things to talk about.

Since they last met the spotlight of investor concern has settled on France, the ECB has felt the need to buy some €22bn of Spanish and Italian debt in order to keep the markets quiet, several countries have banned short selling of financial institutions’ shares and this morning we learn that German growth is almost stagnant.

One thing on the agenda might be what to do if there is renewed selling of French credit default swaps, pushing up the rate France has to pay on its borrowings. France will say that the ECB should intervene as it has with Italy and Spain but what happens if the ECB isn’t keen, reserving its firepower for those in dire need? Would France claim it has lost its AAA rating because Europe let it down? Is intervention a political decision or an economic one? I am afraid they are already getting into this mess – confusing politics and economics – and it will be hard to get out.

The story being pushed about is that Merkel refuses the issuance of eurobonds. It seems that the mainstream of German politics believes it is an idea for the future: for a time when there is Eurozone-wide economic governance and countries will not be able to spend and borrow in the knowledge that Germany will bail them out.

I have been corresponding with my friend Claude Nougat (see her post of 8th August) who takes the opposite view to me and is worth reading.

The Italians and the French are keen on eurobonds but there again I think the cause of monetary stability would be served if my overdraft were guaranteed by a consortium of Richard Branson, Bill Gates and Silvio Berlusconi. What I think is clear is that to introduce such an instrument now, before some sort of fiscal union is created, would be bad for Europe and bad for Germany. Otmar Issing, the first Chief Economist at the ECB and one of the founders of monetary union, a convinced Federalist, says that such a scheme would amount to taxation without representation, in that without having a vote on it, citizens of richer countries would find themselves paying for the mistakes of smaller countries. And many Germans say they don’t think they should bail out Greece when the Greeks retire earlier than they do.

What can we deduce from all this? Firstly that it now appears to be a choice between eurobonds and break up of the euro. Second, that eurobonds seem to be the way things are heading. But eurobonds cannot realistically be introduced without a common fiscal governance. Lastly, to avoid Issing’s charge of taxation without representation there will have to be some democratic input (something our euro-masters are none too keen on). If this were the case, several countries would not be able to go forward, so there would be a new politically integrated eurozone of hard-core economies.

Which is what they should have done in the first place.

My guess, though, is that they will try to paper over the cracks and dither a bit more.

13 August, 2011

Silvio sees sense shock

Actually I rather think Silvio has had sense thrust upon him. After the recent budget when all the cuts were backloaded until after the election he has recanted and introduced a new budget in the amount of €45bn with serious cuts to planned expenditure for 2012. The basics of the budget have almost certainly been written by Angela Merkel.

The important thing now is whether the reformed Silvio is more credible than the old one. The Italian for budget is the word for manoeuvre, and there seems plenty of room for manoeuvre at present. Nobody even knows for certain whether this budget is on top of the last one or instead of it. And the detail is far from definite. If the markets don't believe in this new attitude Italy will be in trouble. An interim non-political team of technocrats appointed by the President would be almost inevitable.

For myself I would require a lot more detail before trusting this. It was done in a hurry to please the markets and it is far from clear that the political will exists on either side of the spectrum to carry it out.

The mood in Italy is hard to read at the moment. It seems the people are reluctant to suffer cuts, but at the same time increasingly resentful of the political class. Highly popular on the Internet is the Senate lunch menu, leaked by the Italy of Values party. It shows how the senators are dining at around a fifth of the cost of a meal in central Rome (see it here). Voters are beginning to demand transparency and that, at least, is a start.

09 August, 2011

Britain burns

It is a good rule of thumb that whenever you hear the word ‘community’ someone is trying to pull the wool over your eyes. We’ve heard it a lot recently regarding the recent riots. In Tottenham, north London, one part of the population is looting and burning the houses and businesses of another part. One thing it is definitely not is a community.

The disturbances are spreading to other parts of London, other cities. The causes are not racial, as David Lammy, Tottenham’s black MP confirms. So what is behind it?

How long have you got? The kids are uneducated, and that is our fault; they come from dysfunctional families – what sort of parents allow children as young as seven to be out all night, without knowing where they are?; they hear repeatedly of venal politicians, greedy bankers, bribed police; and there are no jobs. They do not feel a part of society; they have no sense of community.

The police response was late – people had time to try on shoes in shops they had broken into – and it is only now that they seem to be belatedly getting a grip as the Prime Minister and the Mayor return from their holidays, in the Mayor’s case, at least, two days late. But locking up the guilty – necessary though it is – is not the solution here. The problem started some time ago in the comprehensive schooling system, modern teaching methods, an indiscriminate welfare system. The family system, the very bedrock of society, has broken down. The sense of family pride in doing the right thing and the sense of shame which made people polish their front doorsteps have disappeared.  Instead, part of the population watches and sneaks on the other part, the councils film people going to their bins in case they break some minor regulation.

This will take years to fix and in the meantime there will be further outbreaks of violence. But we should at least start the process.

08 August, 2011

Government by petition

All the rage in the UK at the moment are E-petitions. The way it works is that if you can get 100,000 people to sign your petition it will be ‘eligible’ to be debated in parliament.

I rather think that the optics of this – Mr Cameron saying smugly that parliament should not be divorced from the views of the British people – are more important than the substance. It’s not much of a concession if Parliament doesn’t in fact have to vote on it at all.

Anyway, the two front runners are, as you can imagine, for restoring capital punishment and for a referendum on continued membership of the EU.

The first, led by blogger Guido, can be signed here, and the second, organised by The Daily Express can be signed here.

Reintroducing capital punishment would involve withdrawing fro the European Convention on Human Rights. There are several good reasons for tearing up the ECHR but in my view capital punishment is not one of them. I am however in favour of leaving the EU, and am confident that a referendum on the subject would produce a resounding majority for doing so. Which is why we won’t have one.

Neither of these motions has the faintest chance of success and nor have any of the others. The political class is revolted by the idea of the country being run by popular outcry. But I think Cameron may have made a mistake in raising the hopes of the British people only to dash them.

06 August, 2011


Standard & Poor’s has downgraded America’s credit rating from AAA, for the first time ever.

No one can say this was completely unexpected but, like 9/11, it is a shock when it happens.

There will be worldwide implications, short- and long-term.

Interesting times.

05 August, 2011

How to.....

The next in an occasional series for any young man or woman starting out on a career in life. This time it's 'How to handle a financial crisis in 5 easy steps'

1. Dither
2. Come up with an agreement to keep the markets quiet.
3. When that doesn't work, come up with another agreement to keep the markets quiet.
3. Say nothing when it emerges that the second deal is not in fact agreed, and may be unconstitutional in several places
4. Blame speculators for being biased against you
5. Go to the beach until September

A question of maturity

Many years ago the head of the largest bank in the world, Walt Wriston, Chairman of Citibank, said ‘People go bust, countries don’t’. Shortly after he said this we had the debt restructurings in S.America and one wondered whether the great man hadn’t been talking complete tosh.

Now Big Walt is dead and his bank pretty well went belly up in the crisis, and the sovereign debt problem is closer to home: Italy, a G8 nation, is thought by many to be about to descend into the abyss.

So how does this work? How was Wriston wrong? Italy borrowed at presumably acceptable rates so unless the economy is going steadily backwards (it’s not, it’s just not going forward very fast) why should it not be able to pay?

This table shows the average maturity of a few countries’ debts in years:

Britain  13.8
Italy       7.1
Spain     6.2
Japan    5.8
USA      5.1

So the US has to refinance one fifth of its debt each year. Normally we would have said that is OK for the US because it is the richest country in the world with the most developed bond markets. These are not normal times, but that is a story for another post. Let’s compare Britain and Italy, two countries about the same size economically with the same population.

Britain has to refinance its debt every 13.8 years, that is to say about 7% of it each year, or in $ equivalent around $105bn. When the bond markets are in a bit of a spin (an understatement, I know) they mark up the rate a country will have to pay on its debt and that applies to the new debt, not the old. So the new rates Italy has to pay now, some 3% higher than at the start of the year, will be paid on the amount it refinances each year.

An extra 3% on borrowing costs would subject the UK taxpayer to $3bn in the first year, the same amount extra in the second, etc.

Italy not only has more debt, but has to refinance nearly double that percentage, around 14% or $350bn each year. So the extra 3% borrowing costs Italy has suffered will cost an extra $10bn each year, money which has to be borrowed.

In addition, any deficit adds to the overall debt and that would be new debt.

No one knows at which point Italy runs out of cash but many economists think the balance is tipped at around 7% -only 1% higher than now.

It’s close.

04 August, 2011

Christine Lagarde

The new head of the IMF, against whom this blog warned at the time of her appointment, is under investigation by the French courts for misconduct while French finance minister. It is alleged that she intervened in a dispute between Bernard Tapie and the bank Crédit Lyonnais when it was none of her business.

M. Tapie trousered €285m as a result of an arbitration decision which her opponents say she should not have ordered. M. Tapie was a supporter of President Sarkozy.

This is very serious and Mme. Lagarde ought to resign.

She won't, though.

Happy birthday, Mr.President

Barack Obama is 50 today. He was born in the Presidency of John F Kennedy, for whose 45th birthday the song was famously sung by Marilyn Monroe. So if you think 50 is young....

Fortunately for Obama, the Republican Party has yet to come up with a credible contender. It might, though.

03 August, 2011

Mubarak comes to Court

At the trial:

‘I would know by what power I am called hither, by what lawful authority’

‘Then for the law of this land, I am no less confident, that no learned lawyer will affirm that an impeachment can lie against the King, they all going in his name: and one of their maxims is, that the King can do no wrong.’

At the execution

‘but I must tell you that [the people’s] liberty and freedom consists in having government... It is not their having a share in government; that is nothing appertaining unto them. A subject and a sovereign are clean different things.’

It was over 350 years ago that these words were spoken by Charles I of England. It was one of the most important moments in history, showing that the people could choose their rulers, and that a crime committed against the people could be punished.

Hosni Mubarak, if he were a better educated man, might reflect on this today, as he is brought to trial in Cairo. These were crimes against his own people which he committed, believing, perhaps not like Charles I that he had a divine right to do as he pleased, but at least that he was inviolate.

It is a moment to be celebrated by democrats everywhere, but much more so in Egypt. These people have been ruled by Britain and its puppets, then Nasser, Sadat and Mubarak. No one alive in Egypt has known what it is like to choose your own rulers. No wonder they are massing outside Mubarak’s courtroom: they are fascinated by their own power.

Bliss it was that day to be alive, but to be young was very Heaven’ wrote Wordsworth of France in 1789. How true of today’s Egypt, and what a thing to tell your grandchildren, that you were there, in Tahrir Square!

02 August, 2011


A new report by the Department for Education says a third of children in the UK leave primary school (ie at 11 years old) without reaching the required standard in reading, writing and arithmetic.

I have probably said this before, but it is almost as if we were determined to make sure the working classes weren't educated, so they didn't get ideas about self-advancement. As it is, with education improving at dramatic rates in India and China, and the young people there prepared to work for far lower wages than ours, many will be reduced to welfare dependency for life.

Tony Blair came to power saying his three most important tasks were education, education and education. What we didn't realise then was that he thought just saying it was enough.

Now, something needs to be done.


Politicians all over Europe, or at least in France and the South, take the month of August off, and the private sector can't seem to grasp it. In the real world, above a certain level, you are contactable 24 hours a day, seven days a week. It is quite common for your boss to tell you, just as you are packing your bucket and spade, that your holiday is off, and in these days of smartphones to be told to get on the next plane home. It's a different world in the State sector, and particularly among the priveleged political class.

So the political elite of Europe has disappeared for a month, while the guys who buy and sell their countries' debt are still at work. As Italy goes away, the amount it pays for its benchmark 10 year bond has reached 6.26% and there is still a lot of borrowing to be done this year.

Spain's borrowings have reached 6.46% and the Prime Minister, José Luis Rodriguez Zapatero (it sounds like a name from a comic opera which would be quite appropriate) has delayed his holiday. Unfortunately the markets felt that for an olive belt socialist to delay his holiday things must be even worse than they thought and they have marked the debt down.

Note to the Italian Treasury: you may find it unsporting, but this is not a game. They are allowed to make you bust during August, and will expect you to be at your desks.

01 August, 2011


Today is the first day of the month of Ramadan. It is based on a purely lunar calendar, unlike most religious calendars based on the moon which add a thirteenth month every few years to keep up with the solar calendar.

As a result Ramadan is variable throughout the year on a cycle of about 33 years, so someone living past 33 will have fasted on every day of the year