A Summit! The Grand Bargain arrives!

What’s happening next week? You’ll never guess, so I am going to tell you. There’s going to be a euro-summit. Yes.

Obviously if you are a chef or a gourmet eurocrat you probably can’t contain your enthusiasm, but some of the rest of us are finding our palates a little jaded.

The story is being put out that they are near to a deal on saving the euro, and that will certainly please the markets. Indeed we all have an interest in the current turmoil abating. The agreement is being called The Grand Bargain.

However it would be wrong not to sound a small note of caution. The proposed plan will be, as it was always going to, a synthesis between the French and German positions. That is to say that the French want the weaker countries to be bailed out, and the Germans are worried about moral hazard: that they will spend their money and it wil just encourage the naughty children to misbehave again. Angela Merkel wants a legal framework, giving the Brussels budgetary office the right to inspect the budgets before they are put to national parliaments (you will remember that the Irish Prime Minister was found asking permission of the Germans for his December budget before announcing it to his MPs). The European Court of Justice would enforce budgetary discipline.

But there are implications of this: the first is that some countries might not like the idea. New found democracies tend to guard their independence rather carefully. And of course the German parliament and constitutional court might still find the terms over-generous. And it will take some time to amend the treaties, during which it is the nature of euro-negotiation to descend to the level of the pork barrel. Mr. Cameron’s MPs want him to demand repatriation of some powers before agreeing to a deal.

Another problem is that whilst the payments imbalances are serious, they are in some respects only the symptoms, not the disease. The reason Italy and Greece are in trouble is that they have not modernised their economies and are still hopelessly inefficient. It is thought that, since the introduction of the euro, Italy’s competitiveness has fallen with respect to Germany’s by 50%. Suppose that Italy doesn’t reform its labour .laws, or that in order to get the budgetary measures through it gives out some more generous rights to trade unionists (already it is almost impossible to lay off Italian workers). Would the Brussels commissioners have authority over that, being able to forbid country-specific labour laws? Or regulate anything which affected productivity, such as education? How will other nations react to that?

The further we get down this path, the further, it seems, that we still have to go.

Idiots

As you may have heard, the car show presenter Jeremy Clarkson has said the wrong thing on a BBC TV programme.

This of course is nothing new. Clarkson has ranted against gays, cyclists, women drivers, people from Liverpool, all manner of minorities. He does it, not to offend, but to draw attention to himself, something he does rather well. He is famous all over the world.

When the above happened (you will recall we are getting towards Christmas and many celebrities have DVDs coming out; Clarkson has two) the self-righteous Guardian newspaper ideotically demanded an apology, as if in a conspiracy to make him more money. Since then, 21,000 people have complained to the BBC.

It makes me want to slap each and every 21,000 of them

LIGHTEN UP!

PS I am indebted to Heresy Corner for the statement by Dave Prentis, General Secretary of the UNISON union which includes this jaw-dropping drivel: 'The One Show is broadcast at a time when children are watching - they could have been scared and upset by his aggressive statements. An apology is not enough...Whilst he is driving around in fast cars for a living, public sector workers are busy holding our society together... they deserve all our thanks...'

Good grief.

GOOD GRIEF!

What could be wrong?

So, years after the crisis started, Angela Merkel comes out with her solution.

It's that countries in the Eurozone should submit their budgets to .. er .. the Eurozone and they would be told what they could and couldn't have, and that would be the law for these countries and it would be enforced by the European Court of Justice.

What could be wrong with that?

OK, countries which, stupidly, guarded their independence, particularly when they hadn't been independent for long, like Ireland, the Czech Republic, Slovakia, Poland, would see their ability to make independent decisions taken away from them, but, hey, it's only democracy, and who could possibly have any objection to giving up their democracy for a German political zone?

No, I think it should go OK.

The consequences of inaction

Extraordinary goings on in the financial markets. It would appear that several European banks were unlikely to be able to roll over their US$ short-term debt, and no procedure existed in the Eurozone to help. Accordingly a group of central banks, led by the US Federal Reserve, guaranteed the $ / € swap needed to prevent the contagion spreading all over the world.

If this is true, as unfortunately seems likely, it is a damning indictment of the indecision, incompetence and poor planning of the Euro-financial system. It is said that we get the politicians we deserve but I can't believe anyone deserves this lot.

Bailed out by les Anglo-Sassons.

Autumn Quiz

Q All these people lost their jobs this year. Apart from that what have they got in common? Zine ben-Ali, Hosni Mubarak, Muammar Gadaffi, Ali Abdulla Saleh, Silvio Berlusconi, Giorgios Papandreou.

A Nothing. The first four lost their jobs in attempts to impose democracy, the other two lost theirs in attempts to get rid of democracy.

Autumn to winter

Chancellor of the Exchequer Gideon 'George' Osborne presented his Autumn Statement today, which was more interesting in the background than the content. Growth forecasts have been downgraded from 1.7% this year and 2.5% next year to 0.9% this year and 0.7% next year. The previous forecasts, whilst credible at the time, seemed to err towards optimism and now we are getting the raw, unpleasant facts.

The problem is that the nation's economic strategy relied heavily on growth to reduce the deficit: as has often been mentioned in this blog, there are no cuts as such.

The upshot is to delay Osborne's plans by two years. Barring other disasters - and there may be many - the economy will look to be in good shape by 2017, but there has to be an election by 2015, which will now be fought on the Conservative side in the context of continuing economic pain. Britain is likely to avoid recession - which is defined as two successive quarters of negative growth - but not by much. Against that, it is likely that the Eurozone is already in recession.

On the one hand, Osborne is unlucky: neither he nor anyone else could have predicted the appalling economic mismanagement conducted by Merkel and Sarkozy which, coupled with a heavy dose of incompetence from America and Japan's economic model still failing, has brought much of western capitalism to its knees. Osborne's plans might have worked, now they are subject to ridicule.

On the other hand the Chancellor (isn't it about time we called him the Finance Minister? The whole thing desperately needs a more modern image) - on the other hand he is lucky in his enemies. The British people have accepted the need for belt tightening and do not believe those, such as the felicitously named Mr Balls, who say we could have it easier. If it isn't hurting it isn't working.

I am reminded of H.L.Mencken's dictum: 'Democracy is the theory that the common people know what they want, and deserve to get it, good and hard.'

Osborne's other measures were a raft of Government initiatives, such as more spending on railways, ideologically unsound and leaving the Government open to suggestions that it should have done more of this and earlier. Fortunately, Osborne has very little room for manoeuvre and these are not large enough to cause any lasting damage. Far better would have been to opt out of swathes of legislation coming from Brussels, an earlier rise in the pension age - 2026 is too far away to make much difference - and a reduction in corporation tax. Better than that would have been to identify whole areas of life in Britain in which the government shouldn't be involved at all. At least they are keeping a cap on public sector wages, which is something for the tribunes of the people to think about when they take tomorrow off.

Politically, the thing for Osborne to do now is keep his head below the parapet. I suggest spending more time at Euro-meetings, if his waistline can tolerate it, returning every so often to say we aren't doing quite as badly as them.

December is coming

Wolfgang Munchau, the FT columnist, who has moved from pro-euro fanaticism to pronounced scepticism as reality has slowly dawned, now reckons the Eurozone has until 9th December to save itself, with a mixture of measures which essentially mean Germany guaranteeing everyone else.

9th December is the day of the big euro-summit, and on this day Croatia is set to join. Yes, whilst it must seem incredible that anyone wants to join this mess just as it is breaking up (the rules say new applicants must promise to adopt the euro), our unelected rulers are still pursuing their policy of enlarging and deepening. For the Croats, the Prime Minister, Jadranka Kosor, has said that the country is guaranteed to receive €3.5bn in subsidies in the first two years alone. We had to bribe them to come in.

Croatia's unemployment is at 14%, its external debt is more than 100% of GDP, the ruling party is likely to lose the election a few days before the accession deal is signed, and the government is riddled with corruption. The similarities with Greece are alarming for any normal person.

But none of this bothers the Euro-loonies. Quite unaware that there could be anything wrong with the euro-template, they proceed as if everything were normal.

Latest news from the Madhouse

They are all talking in the Eurozone - that's what they do best, other than eating - and the signs are not good. France and the other nations want the European Central Bank to assume responsibility for the crisis - that means, effectively, Germany guaranteeing the debts of the weakest nations - and Germany is, unsurprisingly, not enthusiastic.

Now there are the first signs of the market not much liking Germany either. Yesterday (Wed 23rd) Germany tried to raise €6bn of 10 year debt and there were few takers. Just €3.6bn were sold. This is pretty well unheard of, and puts France's bailout strategy into perspective: ECB bonds or guaranteed paper issued by the EFSF bailout fund, cannot be more creditworthy than German debt - Germany is the best economy in Europe. But the markets are turning up their noses at German Bunds: growth is falling in Germany. This doesn't bode well. Stephanie Flanders of the BBC, an organisation which will stretch credibility to support the euro, says

"In my conversations with analysts, traders and officials I'm finding more and more of them are talking about the end game for the euro"

It must, surely, be getting to the stage where solvent countries realise it would cost less to bail out their own banks who have lent to the insolvent countries, than it would to  bail out the creditors themselves. Equally, the indebted nations must be starting to realise that they are going to be shafted by Germany and France, and it might just as well be at a time of their own choosing.

Cairo

The disturbances in Cairo - they do not yet seem to have spread to the rest of the country - are at the same time confusing, disturbing and cause for hope.

We read that the protesters - again occupying Tahrir Square as in the successful protests at the beginning of the year which ousted Mubarak - want quicker change, but at the same time want to cancel the elections held for Monday, which had supposed to be held in September. It seems that they have no trust in the election procedures, but, more importantly, are concerned about the role of the military after the parliament has been elected. They want an unconditional confirmation from the generals that military rule will end as soon as the deputies are in office.

Where this is disturbing is that it is difficult for a heterogeneous group to portray, en masse, such a complicated thought process. The generals might publicly conclude that the people are not ready to rule themselves: indeed that appears to be the stance adopted at the moment. The USA, Britain and other countries, including the ineffective Arab League, must push for elections to be held in due course with independent verification of their independence.

Where there is cause for hope is that the Army now knows that the people are on their case, and that they will risk bloodshed for democracy.

Syria

You could easily imagine Messrs. Cameron and Sarkozy licking their lips when violence flared up in Syria. Fortunately they will not be allowed to take military action through the UN because Russia and China are furious at the way they exceeded their UN mandate in Libya, which was for the protection of the people not for the pursuit of Gadaffi.

Whilst the Libyan escapade was given UN approval in part due to the inclusion of the Arab League, with Syria the League has been left on its own. And what a mess it has made. It secured Bashar al-Assad's agreement to stop slaughtering his own people, only for Assad to ignore this the following day. It has tried several times to get some meaningful peace plan together but to no avail: Assad is fighting for his life - and not just his political life - and isn't going to give an inch.

All we can hope for is that sanctions by the West starve the people into desperate measures against their ruler.

A sad business.

At least someone's saying it

Nigel Farage at the European Parliament

Libya and the foreign busybodies

Following the arrest of Col. Gaddafi's favourite son, Saif-al-Islam, a rather curious thing happened. Someone from the International Criminal Court in The Hague flew down to Libya to ask if he could be tried there.

Now, there is a case, where a new nation hasn't got its institutions together, for criminals to be tried elsewhere, although not much of a case, in my view. But the whole purpose of our intervention in Libya was to make it a cohesive nation, to stop one part attacking its own side, and to build the blocks of a proper state with laws, justice and so on. you would have thought that Libya was in a good position to hold a trial.

Instead we have a curious system of an international body bidding for the ability to put someone on trial. Why? Why are we paying for Libya to be a proper nation based on the rules of law, and at the same time paying for another body to tell them they aren't capable of holding a trial which that body deems important? Have the ICC been trying to involve themselves in Burma, Zimbabwe, China? No.

Saif-al-Islam should receive a proper trial according to the laws of the country where he was born, lived and committed his alleged crimes,

The sooner this bogus international body is closed down the better.

Spain: not at the crossroads, nothing to see

Spain goes to the polls today, a little reluctant and without, it would appear, much in the way of hope. A curious feature of the elections is that, rather like the last ones, they don't seem to be offering the voter any choice about Spain itself.

Until 2004 the Prime Minister had been José Maria Aznar, who was coming to the end of a second 4 year term. You may recall the fiasco over the Madrid train bombing, which happened just a couple of days before the 2004 election. Aznar claimed it was the work of Basque terrorists (the Basque ETA group had tried to assassinate him at least once) whereas the atrocity was in fact committed by an Islamist terror group, as a protest against Spain's involvement in the Iraq war.

On the back of this Aznar's party lost the 2004 elections, bringing José Luis Zapatero to power. Following their re-election in 2008 Zapatero was burned out and this election  will be between two men not previously in the front line: neither of whom seems to be much loved by the electorate. The disappointed Spanish believe that there is little difference between the two on the most important topic, austerity measures, and that they probably both have to toe the Merkel-line anyway.

Nothing much to see here.

Monti makes a start

Mario Monti has got record levels of approval  from both houses of parliament for his cabinet of academics, and discussion is now turning to what he will do and how long the administration will last.

As to the first, he has said he will be making demands on those who have given least. It would be an extremely popular (as well as populist) gesture if he reduced salaries for MPs, but they are such a venal lot that even in the present climate I don't think it would get through. I haven't been able to find anyone who has heard of the new cabinet members. It may be worth recording that they almost all come from the university system, and that whilst Britain has three universities in the world top ten, Italy doesn't have one in the top 300. But it would be unfair to prejudge given the fact that I'd never heard of any of them, either.

As to how long the 'technical' government will last, Monti has said it should last until the due date for elections, that is to say 15 months, whilst Berlusconi has reminded everyone it is not a democratic government and that it will last as long as the elected politicians want it to. In fact it is quite convenient for a populist politician that the difficult decisions are implemented by an outsider. If it goes wrong he will say 'I told you so' and if it goes right he will return to power and claim the credit.

Monti is off to see Merkel and Sarkozy and the rest of the Euro-gang next week, and he will be welcomed with open arms. He is, after all, one of them.

Ireland and the death of European democracy

Speaking of things appearing to happen before they in fact do (see below: this blog has the earlier posts shown later - oh, never mind) but speaking of that, the Irish Taoiseach Enda Kenny went to see Angela Merkel the other day and, would you believe it, next month's Irish budget is published in Germany more than a fortnight before it is due to be discussed in the Irish Parliament. Reuters reports the details having been given to the German Parliament's budget committee, and that they include a rise in VAT.

So now the European establishment is running Greece, Italy, Ireland and to those we can add Belgium which still doesn't have an elected government. Don't think so? Let's see if we can answer two questions: first, would the rescue plans have continued if, say, the Italian President had nominated a caretaker government headed by someone who didn't have the 'correct' view of the euro?

Second, before being offered a bailout, were these countries told it would spell the end of their democracy, so that they could at least hold a referendum?

This is a bad time for Europe: not since the 1940s have we seen formerly independent countries run by foreign delegates.

Those pesky particles

It seems they've done it again - checking their previous experiment it appears that scientists in Italy have again made a neutrino - or lots of them, who's counting? - go faster than light. A neutrino - of course you knew this - is like an electron but without the electric charge, a sort of 'ron'.

I'm sure this is all frightfully important but it seems to me to have its comic side. A scientist on BBC Radio this morning said they were going to test it by sending neutrinos from Chicago up towards the Canadian border. 'Some of them', presumably referring to the less discerning neutrinos, 'just keep on going.'

This raises all kinds of questions about time travel. Sorry if you've heard that one before. 'Which one?' you ask. Come along, we're now supposed to be able to see things before they happen.

'We don't serve neutrinos here'

A neutrino walks into a bar.

All for one....

Le Figaro reports that France is against the idea of a directly-elected President of the European Commission, because Germany, having more people, would have a better chance of their candidate winning.

It is like the Monster Raving Loony Party complaining that UK elections were unfair because the other parties had more supporters.

Further evidence that these guys really, really, don't like democracy.

Still, good to see them all pulling selflessly together towards the European utopia.

The EU and your taxes

Most people don't have a problem with EU rules on not subsidising favoured industries, in fact it is one of the few worthwhile bits of the Single Market. If, to draw a nationality at random, the French want to subsidise their pharmaceuticals companies, they are not allowed to because it gives an unfair advantage over other European pharma companies.

Now have a look at what is happening in Gibraltar. The new finance measures involve eliminating profits taxes on offshore companies: that is to say that profits taxes are only charged on companies actually working in Gibraltar with employees there (the offshore companies have to pay other charges and these are presumably enough).

The European Commission have decreed that this is in effect a subsidy.

So not charging taxes amounts to a subsidy. How much tax would you have to pay before it wasn't a subsidy? You will remember that the French have tried to ban Ireland from having a low corporation tax rate in order to attract businesses and jobs. In a sense that was understandable (although wrong) because Ireland was being bailed out by, in part, the French.

But Gibraltar is not in receipt of such handouts. Why shouldn't it be able to set its own tax rates? 

The answer is that Spain, which is next to Gibraltar, has received the assurance, in return for something else, that the EU will oppose this (Spain doesn't want companies finding it cheaper to set up on the southern tip of the peninsula). That is the grubby way the EU works: secret backroom deals favouring the bully boys.

The right to kill (yourself)

The British Medical Association wants to ban you smoking in your own car.

Since the passing of the Suicide Act in the1960s it has been legal for me to get a knife and slit my throat, or to jump off a cliff. The two ways I cannot kill myself are going through the windscreen of my car (because the busybodies make me wear a seat belt) and, increasingly, smoking. They say that the second hand smoke is dangerous, but of course if I am smoking in my car I am treating myself to first hand smoke and so won't be worried about that.

In fact the 'debate' on smoking in public places reached the low point of British science. They said second hand smoke was dangerous, without specifying how much of it was dangerous, how much the risk was reduced if the room was well ventilated, or, if a large room, how much the risk changed by proximity or otherwise to the smoker. They didn't give any of this data, essential to forming a view on the subject, either because they didn't know or because it was unsuitable for their position in the argument.

They just don't want you to smoke. Some of them say it is because the National Health Service has to treat you, but if that were the problem we would have banned homosexuality because gays are more likely to get AIDS. No, it is just bigotry: they want you to conform to what they do.

Supertask for Supermario

Mario Monti, as the whole world knows, is now Prime Minister, but rather than, as one commentator said, being 'put in as the head of the government', he has not yet formed his administration. Today, Monday and tomorrow, Tuesday, will be taken up with getting the views and agreements of both sides. Theoretically, there could still be an election, but nobody wants that (except the people, of course). We don't yet know to what extent there will be politicians (who would be opposed by the other side and therefore have to be balanced out) or just technocrats. Fortunately for Monti two of the senior players, Alfano and Bersani, favour just technocrats. In this context it is believed that Monti would choose university professors. This is not quite as good as it may sound - there is a world of difference between teaching it and doing it and the professors are themselves sometimes political operatives.

Mario Monti

What will Monti do? Imagine Italy were a person, in trouble with his debts. If he isn't to go into bankruptcy, or default, he has to do a number of things.

First, he has to stop borrowing more and more.This means cutting out some expenditure, and it is this which the Europe-inspired austerity plan sought to address. It is worth noting that before Berlusconi fell from grace, Ollie Rehn, the budget commissioner, said that the proposals were not enough. But suppose they were just enough - maybe to balance the budget by 2014 instead of 2013 and that were acceptable - there is then the problem of putting the plan into operation. I have said before that there is no real appetite for austerity in Italy and the people, for all that Europe hopes to bypass them, could cut up rough. Level of difficulty: 6/10.

Next our over-borrowed man needs a little bit of cash to tide him over - particularly for paying the interest on his debts. In Italy's case this liquidity loan (I am not talking about refinancing all its debts) would be around €750 billion, it is estimated. Who's got that kind of money? It's a lot, even for the Chinese. The European Central Bank, that's who (it can print it). But Germany, you may remember, is against the ECB chipping in, saying it is against its Constitution. It would create a core inflation all over Europe. So getting something to tide Italy over may be as difficult as refinancing everything. Level of difficulty 8/10.

Last we need to make sure our man doesn't get into this state again. Since the start of the euro Italy's labour competitiveness has deteriorated by 50% vis-a-vis Germany. On the face of it this means either the Italians need to work for half pay, or they work twice as hard as Germans. Neither of these is remotely possible. But changes can be made. The State is too big in Italy and that means not just that it needs to be financed, it means it interferes in all kinds of areas where it shouldn't. Opening even a shop is a nightmare, you have to register with all kinds of bodies and jump through all kinds of hoops. If you employ more than 15 workers it is impossible to lay some off when business is slow. Trade Unions are entrenched in society and in the law and are far too powerful. And speaking of the law, if you have even a modest trade dispute it is likely to take at least five years to resolve it through the  courts - most people don't bother trying. Even if Monti managed to get agreement to all this, the effect would be of rendering unemployed more than a million State workers, which would push the country into recession which means a bigger overdraft (see above). It would take years to re-employ them in the productive sector (think Britain in the 1980s). Level of difficulty 9/10.

Monti - even if he were Supermario - can't do all this. All he can do, reasonably, is put into place Silvio's commitments to Brussels. Then Silvio, or his PdL party, will say 'that is what we were going to do'. Elections will almost certainly have to be held in 2013 if not earlier, and the PdL is fairly confident it can win them.

The solution to Italy's problems looks increasingly like default, leaving the euro and allowing a massive devaluation, and at the same time putting into place the efficiency measures. It's going to be a bad couple of years.