Thursday, April 28, 2011

Royal wedding and rude awakening

Even here on the sunny streets of Tallinn in the spring, there is new attention being given to Britain as the Royal Wedding preparations proceed. Such occasions are not quite as unique as the Brits believe- after all there was similar interest in the marriage of the Swedish Crown Princess which took place only a few months ago- but nonetheless there is at least a degree of interest. In fact several of the bars usually patronized by ex-pats will be showing the great occasion and doubtless offering some festive drinks to accompany it. Yet what the Royal Wedding is doing around the world is being presented as a twin story of Royal Joy/Domestic failure and highlighting the current dire situation of the United Kingdom.

The economic crisis- with the UK set to have the third highest deficit in the EU, and with serious fiscal tightening now urgently needed in order to avert a real emergency- attracts attention. Worse is the terrible sense of catastrophic decline. The fact that the UK no longer has an aircraft carrier in her -much diminished- Royal Navy. The serious crisis in British education. The breakdown in public order, fueled by horrific levels of binge drinking. In short, the view of Britain from abroad increasingly resembles that of the Daily Mail.

Of course, even as journalists move on to another story, the fact remains that there are grains of truth and serious problems which the UK now contends with. In fact, I suspect that over the next six months there will be very little cheerful news. The fact is that the UK is not able to recover as fast as was hoped because the manufacturing sector has been so diminished. Although in the US manufacturing, after a long decline, is now recovering, based on a devaluation of the Dollar and a dramatic fall in unit labour costs; in Britain our manufacturing bases is too small to sustain a general recovery. The devaluation of Sterling has not increased competitiveness so much as it has increased inflation. So growth will continue to hampered by the over-reliance on finance and construction. Meanwhile inflation will continue to be a stubborn problem- not quite serious enough to trigger a rise in interest rates, but quite serious enough to undermine the value of the currency and destroy the savings that we need to fund renewed investment.

Without getting a grip on our bloated and inefficient state sector, the future outlook for UK growth is highly uncertain. The UK spends five times more per capita on heath care as Estonia does and it has generally poorer outcomes. It spends substantially more on secondary education, and has lower rates of literacy, lower attainment in numeracy, science and linguistic ability and even in history. The costs of our tax collecting agency gulp down a massive proportion of taxes which are simply administrative expenses- in other words lost to inefficiency. We insist on absurd and expensive compromises- failing to modify our measurement system increases costs since both imperial and metric systems must be catered for. Our public administration is indeed the scandal that the international press is discovering in their articles about the Royal Wedding.

And the root of this growing crisis is a consistent failure of political leadership. Whole generations of our politicians have not been straight with the British people about what the prices of our choices really are. Many if not most politicians don't have enough executive experience to understand the implications of their actions. Yet even worse than this is that the British people themselves- although their anger and contempt for their leaders grows ever louder are not prepared to "throw the bums out". No one even asks why -if Socialism is dead- there is still a Socialist Party contending for power. No one even asks -if privilege is dead- why our Parliament is dominated by ex-public schoolboys. No one asks what the qualifications of our MPs truly are, beyond party hackery. Perhaps this lies in the fact that we do not have an electoral system that offers more than an approximation of how people vote anyway, so most votes are ignored. Yet the Brits seem inert in the face of this, and may well reject the limited change on offer- possibly they understand that it is more of a fix than a solution, but it hardly shows a fighting spirit of reform.

So as the Brits get more bad tempered and fall further behind, then increasingly, they will have to accept that it is their own fault. If they actually want to improve themselves they had better learn that they themselves must take responsibility for what happens on their streets and in their neighbourhoods. If they disapprove of politicians then they have the power to change not only the individuals but those the system that selects them. If they despair of their economy, then they had better work harder themselves. The problems we face are those of a failure to take responsibility for ourselves. That failure could lead to a dramatic crisis all too soon.

An Estonian friend of mine said this week, "All the Brits really need is some massive shock to wake them up, don't they?" She added "In fact, perhaps if Scotland left the UK, that might do it". Leaving aside the fact that there would be no "Brits" if the country broke up, I think with the opinion polls are suggesting that the SNP might be able to get a referendum onto the political agenda we may have a shock.

I have a slight start of recognition, since this Royal Wedding does carry the same fin-de-siecle atmosphere as the celebration of the tercentenary of the Romanov dynasty of the Russian Empire in 1912. Despite the huge celebrations and outpourings of loyalty, even contemporary observers proclaimed that all was not well, and indeed, within six years not only the Tsar and Tsaritsa were gone but so was Russia.

After the Scottish elections, we may be about to find out whether independence for Scotland does the same for the United Kingdom.

Wednesday, April 20, 2011

Fighting the Battle for Freedom

There is fear in the air.

The United States, once the undisputed leader of the Free World now faces a level of debt so severe that it risks losing its AAA credit rating. China- a cruel tyranny- is imprisoning artists, yet there is little protest from the West, because the US owes the Chinese at least $ 1 trillion. The political deadlock in Washington produces futile arguments about where the President was born, rather than how to address the decline. The Arab regimes, controlling the majority of the global oil supply, now face disruption as their population demand the rights that they have been denied- with Western connivance- for so long. Russia bribes leaders of the European democracies, and yet those leaders remain in office, or if they have left office, they retain their influence unchallenged. The economic crisis is being addressed with reforms that make the banking system even more concentrated, and even less safe than before 2008. A new crisis is certain, with results that would be worse than the last.

Britain, refuses to acknowledge the need for fundamental change in order to avoid a drastic fall in the wealth of the coming generations as they must pay for the mistakes and selfishness of the baby boomers. The press retreats into a fantasy land of a mythical past, and the political discourse is now completely divorced from facts- and so rancourous and bitter- that no normal personality can tolerate the abuse that is handed out as a matter of course by a chorus of ignorant Yahoos.

The level of social trust is diminishing rapidly under an onslaught of technology and working hours, which is creating an atomised and isolated society. Mental illness is at record levels, as is alcoholism and obesity- none are measures of success.

The outlook in early 2011 is bleaker than I can remember since the 1970s. We may not have the immediate threat of a nuclear holocaust, but China and Russia may yet be able to do with money what they failed to do with ideology and military power. The economic crisis has created a crisis of faith in the institutions, indeed the very idea, of democracy.

This blog is predicated on a belief in Liberal Democracy in the broadest sense. I believe in the value of democratic institutions, I support the widest possible definition of personal freedom. Yet I adopted the nom-de-blog of Cicero, because I recognized that these values are under a powerful threat- a threat which is partly external- the rise to power of anti-democratic states like China aand Russia- but which is also partly a threat of our own making. In that sense, Marcus Tullius Cicero, faced with the challenge to the values and institutions of the Roman Republic became a symbol and a voice. It was to Cicero that the conspirators who murdered Julius Caesar turned- they recognized, as did Cicero himself, that the rule of Caesar would result in tyranny. Yet the process of internal political breakdown was so far advanced in the Roman Republic that even the conspiracy of the ides of March could not halt it, and thus the crisis ultimately led to Imperial rule, first under Augustus, but quickly under a succession of increasingly blood thirsty rulers. Though the Roman Empire would survive for another four centuries, the legacy of the six hundred years of the Roman Republic was destroyed in less than a single generation.

My fear has been that I live in similar times. That without a renewal of Western values we may see the increasing incursion of our barbarian enemies: an erosion of freedom, a rejection of Liberal values which, under the "lights of perverted science" could even lead to a total triumph of evil. As technology grows in scope, so I see an ever greater need to set limits, to protect the rights of the individual to difference and to freedom. Yet so far I see only the bad tempered negativity of the average blog comment. The determination to set the power of money above all else is destroying things which have a value way beyond their economic price. Humanity remembers the artist and not the patron, and that is surely a reflection of honest moral values, and it is upon these values that we build our happiness: yet they are not values that receive much respect in the early 21st century.

I focus on British politics in what I write here, partly because I originate from that island, and also because the richness of the artistic and even political culture resonates far beyond Dover. It has not been a story of complete woe either: the British demonstrate an openness and a toleration that I think reflects some of the best of humanity. Yet the country, like Rome before it, has seen its political power dwindle, and its confidence erode.

Yet there is still hope.

Now, in my view, the social, economic and political disaster of the World Wars, especially the first, could be healed. The reforming political trends of Liberalism, no longer pressured by the deformed zealotry of Socialism, may yet deliver the prosperity and freedom that they promised a century ago. Step-by-step we may begin to build the Jerusalem of our national hope. Yet increasingly I fear that Britain is taking a different path. The waste and foolishness of the Blair years has brought with it a terrible price: a breakdown of trust in the political system. Not only has faith in the system has gone, but so has all hope that the system may be changed. The need for a new contract for government has been lost in a blizzard of anger and misdirection. Even when a minor change- a switch to AV- is offered, it may be rejected simply as a cynical ploy by a corrupt political class.

Despite the present collapse of support for the Liberal Democrats, I remain convinced that Liberalism as an ideology is the most valid solution to our political, and therefore ultimately social and economic problems. I believe that we must stay true to the values of Locke, Mill, Popper, Hayek, Isaiah Berlin and Karl Popper. Socialism is a failed ideology and Conservatism a dangerous, primitive and backward-looking one. I live in Estonia- by far the most Liberal state in Europe- and as a liberal state it is a huge success. Free, increasingly prosperous and tolerant, Estonia in a generation has built a successful state on the ruins of Socialist tyranny.

I therefore can not accept the siren voices that suggest that the West is defeated, that Britain is finished as a viable state, that political, and even military Armageddon is coming to the West.

Of course I see the threat- this blog has been an attempt to answer that threat. Yet I do not believe in defeat just yet. I expect that the Liberal Democrats will face a bad time in the polls and in the local elections this year. I expect that our coalition partners and other political opponents will seek to paint the Liberal Democrats as a busted flush and Liberalism as a dead ideology.

They are wrong.

For their sake as much as for ours, the Battle for Freedom: economic, social and political; whether domestically, internationally or even in ourselves, must be fought continuously. It is a battle that we can not afford to lose.

So, I am worried- of course I am- but I remain a convinced liberal and an equally convinced Liberal Democrat. The past year has seen unparalleled success and unparalleled opprobrium. Our political opponents have tested us, but we must keep faith, even if the next few months remain as difficult as the past year since the General Election.

The process of reform is only just beginning.

Tuesday, April 19, 2011

Labour wobbles?

A few weeks ago, the British Labour Party appeared to be advancing on all fronts. They appeared to be way ahead in Scotland, on the brink of deposing the minority Nationalist government at Holyrood. They were poised to take over 1300 council seats, they were likely to win the referendum on AV- a voting system that they originally proposed, in order to gain support from the Liberal Democrats, who support a fully proportional system.

Now the situation looks somewhat less bright, the expectations of major council gains remains, but AV may well fail, and the SNP have moved ahead in the Scottish polls. The question now seems to be whether the wheels have fallen off the Labour campaign, and if so, why?

Firstly, I must accept that the expectations for the Liberal Democrats remain grim. It seems highly likely that the party will be cleared out of several former local government strongholds, probably including Cornwall. Although there has been a modest recovery in poll support in Scotland, it still also seems probable that the party will lose seats at Holyrood, though the debacle may be mitigated by the concentration of Lib Dem votes in certain areas, while being wiped out in other areas. Nevertheless, those of us who have been in the party for decades will understand that we have been in more difficult positions before, and that we will now need to regroup and work our way back into wider public support.

For Labour, the loss of power at national government level should be mitigated by a recovery in local support. Yet the impact of several poor decisions by the new leader, Edward Miliband, now seems to be showing up in the polls.

I have been sceptical that Labour were as popular as they appeared- after all, the polls also show that it is Labour that gets most of the blame for the current economic crisis. Nevertheless, this first test for the ruling coalition may be decisive in some unexpected ways. It may be that Labour can still make huge gains in council elections- to the discomfiture of the coalition, it may also be that UKIP and other parties capitalise on the the demise of the Liberal Democrats protest vote against the Labour and Tory hegemony. It may yet be that the SNP can gain a majority at Holyrood.

That would certainly be a terrible night for the coalition. However, it may equally be that Labour are hurt just as much- particularly if they lose seats at Holyrood and if the AV referendum results in a crushing defeat for the Yes camp.

Liberal Democrats are unlikely to be celebrating. yet as a party we are resilient in defeat. Would that be true of the Conservatives, if they were panicked by a rise in the UKIP, or Labour facing a second successive defeat in Scotland?

All be be clear in three weeks.

Monday, April 18, 2011

True Finns, UKIP and the shape of British politics

Most political journalists in the UK are looking for a story of the break up of the Liberal Democrat-Conservative coalition. Any spat between the two parties is examined to see if it poses a terminal challenge to the government itself. Of course there are disputes, but the surprising thing is that the disputes between the two parties remain less numerous and less rancorous than the disputes between members of the single-party Labour government. Indeed, because the two parties do not expect to agree on everything, so a certain amount of live-and-let-live is inevitable.

However, there is an emerging threat to this generally courteous and professional relationship. It is not that there are fundamental disagreements over such issues as the NHS- although there are. Neither is it because of David Cameron's determined leadership of the No-to-AV campaign. It is not even because the Conservatives are focusing on a numbers game in immigration, although that is in the view of many Liberal Democrats- not least Vince Cable- completely counter productive to a disciplined and organised immigration policy. No, the emerging problem is outside the coalition.

The remarkable surge in the support for the nationalist, Euro-sceptic, True Finns in the Finnish General election is reminding some political observers that Britain too has a significant Euro-sceptic party, the shape of UKIP. Thus far, UKIP has only been able to achieve success in the European elections. It has yet to gain significant numbers of councillors, and it has no MPs, MSPs or AMs. Yet, the latest opinion polls, ahead of the local elections in May, show a significant growth in support for Other parties- some of this is clearly an uptick in the nationalist parties, the SNP and Plaid Cymru, but it may also reflect a growth in support for UKIP. Such a growth would certainly inflame those on the Tory right who have never supported the coalition.

The question is whether the Conservatives would lurch to the right, in a bid to crush a potential insurgency from UKIP, or whether they would maintain the relationship with the Liberal Democrats. From the point of view of political journalism, the temptation would probably to highlight the "threat" from UKIP, particularly if the switch to AV was supported by the referendum. On the other hand, expectations for the Liberal Democrats are now so low that even survival as a force in local government will be seen as an achievement. Yet, it may indeed be that Labour have overplayed their hand, and their breathtakingly patronizing campaign, which seeks to suggest that Lib Dems are "really" Labour voters anyway, may yet reprieve the junior coalition party. The question then will be more complicated than a straight swing to Labour, but different messages from different parts of the country.

In fact I expect that there will be a very mixed message from the different local and national elections, and one that the coalition as a whole may find reassuring. Labour may not find the going in Scotland entirely to their liking, although I fear that the Lib Dems will be most badly heart north of the border. Elsewhere, any progress for UKIP will be interpreted as a threat to the coalition, although even under AV, UKIP will probably toil to gain a single Westminster seat.

The True Finns may take some of their inspiration from UKIP, but even a few Council gains will not put UKIP in the same league as their Finnish colleagues. The real battle remains between the coalition and Labour- and Labour may not get things all their own way.

Sunday, April 17, 2011

Surreal Brits on the streets of Tallinn

The economy of Estonia is recovering very quickly. Spring has brought with it a gigantic inflow of new visitors. The bars and restaurants in the Old Town are full. Things have returned to the heady days before the crash. Finns, Swedes, Germans, Spaniards all aiming to get to the bar first.

However, one of the more... bizarre... signs of this recovery is the return of the British stag party. Now it is possible to fly directly to Tallinn from Edinburgh, Liverpool and East Midlands, as well as Stansted, Luton and Gatwick, we seem to have the return of the previously unmissed and unlamented Stags.

Except this time, instead of pasty faced and flabby men in Borat-style, mankinis, a measure of wit seems to be emerging. In one bar last night, the stags wore matching t-shirts explaining that the prospective husband "likes gnomes", accordingly they all were wearing matching smurf hats. Later another group of about 14 individuals were all wearing different superhero outfits.

Since the stags are not generally welcome- their rowdiness drives more regular punters away- they tend to get concentrated into the few bars on adjoining streets which do welcome them. The result is concentrated surrealism. It is a bit like watching a carnival - admittedly a staggering and rather tuneless one, but a carnival nonetheless.

Meanwhile the Estonians watch bemused, and make plans to be out of Tallinn next weekend.

Friday, April 15, 2011

When banking incompetence is criminal

It is a matter of public record that banking crises usually reveal criminality as well as incompetence. "when the tide goes out, you can usually see who lost their swimming costume" as the old joke has it. In the course of the credit crunch, it was not just Bernard Madoff- a name straight from Dickens central casting- who was the criminal.

What the crisis revealed was systemic criminality.

These latest allegations against Goldman Sachs are not receiving front page coverage, but they should, because what is alleged is that the "Vampire Squid" is not so much a legitimate business as a conspiracy to defraud its customers. Goldman, remember, is the pre-eminent investment bank in the world: these allegations could hardly be more serious. If Goldman willfully and knowingly cheats its customers, then the whole investment business is nothing more than a multi-trillion racket which not only serves not useful purpose, but is actively malign to society at large. It is not the faintly comic "vampire squid" image, it is instead a deadly social cancer.

Do I believe that the system itself- the system of capital allocation through free markets- is a criminal racket? The answer is that I do not, but as with any aspect of human society, there have to be rules. Rules that can be effectively enforced, and therefore I firmly believe that capitalism can only work within a framework of law. If that framework is eroded, then the possibilities for the rich and powerful to create an exclusive and unfair society can eventually destroy the fairness that underpins both capitalism and democracy itself. Instead of prices being arrived at by free and unfettered competition, we find a situation where prices are manipulated for the advantage of a small group at the expense of the rest of the market.

I have been involved at a senior level in investment banking for over twenty years, and it is becoming quite clear to me that there is insufficient competition in the investment business. Investment markets are supposed to be regulated in order to prevent the accumulation of excessive risk, but in fact regulation of financial markets has largely become a box ticking exercise that eliminates competition from an ever larger group of securities. For example, an investor is now almost always better off buying an index tracker fund than buying a supposedly actively managed investment vehicle that trades in the same markets as the index. Despite the repeated and obvious failure of actively managed vehicles, they continue to gain investors, because in many cases there is very little choice: either a sub-standard exposure to a market is available, or no exposure at all.

This is not a free market.

Across the finance business there are huge numbers of rigged or partial markets, with investment subscription fees being a particular bug bear of mine. The fact is that finance is not delivering to investors the wealth that it delivers to its practitioners.

It is wrong that the employees of investment houses, who do not put up capital, should be receiving a multiple of the return that shareholders or investors, who do provide the capital, receive. It is even more outrageous that those employee returns continue, even when firms make a loss, and especially when those losses are funded by society at large through a taxpayer funded bailout.

If the system is too complicated to be regulated, then it must be restructured until it can be regulated. Vince Cable is quite right: the banking and investment market should be restructured until it actually does provide competition and not manipulation.

If Goldman Sachs, or any other market actor, is found to be a price manipulator, then the solution is clear. They should be prevented from participating in the market.

If Goldman Sachs, or any other market actor is found to a systematically criminal organisation then the solution is clear. They must be bankrupted and eliminated- totally.

When it comes to financial crime, I believe in the corporate death penalty.

Thursday, April 14, 2011

Death and Taxes

"In this world nothing can be said to be certain, except Death and Taxes" was Ben Franklin's version of a proverb that had a much older currency, and they are words to live by.

Reading the terrified wittering of the average British Newspaper, especially the Daily Mail or the Daily Express, one could be forgiven for thinking that the certainty of Death was immediate and very painful. Scare stories of a hundred different kinds are printed one after another in a litany of sickness and fear.

Yes, Death is inevitable, but it is not inevitable NOW. More to the point, while the extinction of life in one individual might be hard luck on that person, Life in general really does "go on". What we can learn from nature, and even from ourselves is that life is very resilient- it adapts to seemingly impossible situations, and often does so with humour and grace.

Thus the negative energy that seems to surround the British press, with fear and anger firmly to the fore, is not only an inaccurate view of life, it is actually counter productive. In the same way that Economists have famously predicted seven of the last three recessions, so most scare stories, even if true as far as they go, are often mitigated by a wide variety of other factors. Sometimes bad things happen, but sometimes they are averted or turn out not to be so bad anyway.

This is not an excuse for inaction or apathy.

In fact being socially engaged is one thing that we can do to retain our equilibrium, since it promotes a greater sense of control of our lives and improves our mood and mental health. Brits today are said to be less happy than they were in the 1950s, and this is not due to a lack of wealth- we are all pretty much as wealthy as we have ever been. It is to do with a sense of a lack of control over our own lives. We have become socially isolated, and yet although we know social engagement, in community groups, a political party, or a church, actively promotes well being, ever fewer of us are doing so.

More and more research shows that well being and mental health rests on a positive engagement with the community. Yet the sour negativity of the Press actively disengages people, especially from politics. Each time I visit the UK I see a country less socially cohesive, more resentful of its neighbours, less willing to behave altruistically. Fear of Paedophiles has isolated our children from general society; Health and Safety issues remove a needed- and often enjoyable- element of danger in our lives.

So, as we contemplate the limited time we are allowed as individuals, it would make us happier if we could improve our social environment. Possibly the best way to do that is to avoid reading the British Daily Mail: it is after all, quite literally, driving us mad.

Nothing is certain, and to live our lives with a sense of positive possibility is far more enjoyable than cringing from fears and scare stories that are quite often totally groundless.

Tuesday, April 12, 2011

Metric, Imperial and playing the mythical past against the real future

These days, when I visit Britain it is impossible to miss the fact that the country seems to be retreating into some backward looking myth of its own past.

For example, I still find it astonishing that the country has still not fully adopted the metric system. As I try to wrestle with the conversion of Miles to Kilometres and Fahrenheit to Celsius I recall with a certain sense of frustration that the Imperial system is no longer taught in schools, but we are still stuck with the fact that we drive in approximately 1.6 kilometre increments and drink in 548 millilitre increments. As for temperature, I really can not get my head around Fahrenheit. Apparently only the US and Belize still use it, yet still we hear the British weathermen converting the Celsius measurements in each forecast.

When can we move on and not bother with the cumbersome nonsense of dual measurement?

It is not as if we have to give up the traditional measure of beer- they even sell Pint cans of beer in Estonia- but to continue to maintain Imperial measurement in every day general use is not only stupid, it is expensive.

Yet the resistance to the metric system remains stubborn and the support these guys get from the right wing press borders on the lunatic. Simon Heffer recently devoted an entire article to why the decimal system- introduced to British money in 1971- was a bad thing! This is a level of Conservatism that is practically Neanderthal. It essentially rejects all change whatsoever. Any novelty is rejected, and change automatically labelled "a bad thing". No wonder the UK seems so backward looking these days: it IS backward looking.

The fact is that the current situation of the UK is not sustainable. Retreating to the past and seeking to take refuge in some comforting myth of the 1950s- as the Daily Mail seems to try to do every day- can not address, let alone solve, the problems of today. If an unthinking admiration of all things new is foolish, it is no less foolish to reject the new out of hand.

It is surely time to accept that the middle ground- keeping some old measures, but adopting some of the new- it expensive and pointless. No one under the age of 50 has been taught the Imperial system, it is time that we fully adopted the Metric system. Sure, there is a cost in altering road signs, but that is a one time cost and since there is a plan to alter speed limits across the country anyway, could we not start by simply putting 130 Kmh on the Motorway signs instead of new 80 Mph signs?

Of course the Paleo-conservatives will resist. In fact that is the point: it is time to tell these unblinking NIMBYs that change is a natural process, and that quite often it is for the better. Only a fool would think that the pre-decimal system was superior, 40 years after it was abolished: after all it was hardly a rash decision, since it was first proposed before Parliament in 1824.

After nearly 40 years of actually using the Metric system, it is time we adopted that fully too.

Monday, April 11, 2011

More Euro-twaddle from the Antis

The latest bout of problems for the Euro zone has been greeted by the latest bout of self congratulatory nonsense from the usual suspects: those people who think about the Euro with their guts, not their brains. The rescue of Portugal, and before that of Ireland, and before that of Greece has not come about because these countries use the Euro. The crisis for those countries, as for the UK itself, which does not use the Euro, is rooted in the fact that their governments (and many of their populations) spend more than they earn. They have structural deficits which are rapidly increasing their national debts.

It is true that low interest rates helped encourage both government and indeed personal borrowing, and it is possible that the higher rates that would have been needed to prevent a currency crisis should those countries have maintained independent currencies might have slowed the rise in debt.

That would only have mitigated the problem and would not not have prevented it, however. The issue is a structural one, not merely a financial one.

Now, we are told, the Euro is bound to fall apart because interest rates are rising in the Euro zone and "the Germans will not rescue the feckless PIIGS states". Well, it is certainly true that interest rates in the Eurozone are indeed starting to rise. They are and are likely to remain a fraction of what they would be for Greece or Ireland or Portugal, were they outside the Eurozone though. In other words, the motivation for these countries to stay within the Eurozone remains intense. Meanwhile the primary creditor to those countries is... Germany.

So, despite the certainty from the Antis that the Euro is bound to fall, there are a large number of reasons to suppose that it will not.

While the representative from UKIP interviewed on the BBC Today program last week was incredulous that Estonia has joined the single currency this year, the fact is that more countries have joined the Euro, and several others will also follow.

Of course we know that the management of government debt will need to be changed, and that this could involve "restructuring" (read: longer payment schedules or write downs). However that is increasingly in the market price of the various government bond markets- which is why rescues were deemed necessary in the short term.

Meanwhile the UK has seen the value of Sterling continue to FALL against the Euro. It was €1.166 = £1.00 on January 2nd; it is now €1.130, which is yet another three percent fall in the last three months.

When I was a graduate trainee at JP Morgan I was always told "Its in the price".

Yes it is, and that does not look good for Stirling (or for the Dollar, incidentally, which has weakened even faster.)

It does however underline that whatever the problems of the Eurozone are, the currency itself is in no immediate danger of collapse- whatever UKIP thinks. The research highlighting a notional 1 in 7 seven chance of a dissolution of the Euro, which was seized on by the Antis as proof of their case, only shows how innumerate they really are: that suggests an 86% chance of survival over the term of the forecast- that it is overwhelming likely that the Euro will not lose even a single member.

Hardly the certainty of doom that was being suggested.

Thursday, April 07, 2011

Journalism in Britain: Spanish practices and hypocrisy

As I was coming through Heathrow yesterday, it was hard to avoid the blizzard of ink yet again being focussed on Nick Clegg.

This time, apparently, he was being put in the stocks because he has spoken out against the idea that so many middle class kids get ahead because their parents can sponsor them through an unpaid internship in one of the professions. What's so shocking? Well, apparently- get this- Nick Clegg too benefited from taking an unpaid internship. Cue a football crowd level of abuse for Clegg's so-called hypocrisy.

Of course you would never find nepotism, favouritism and indeed unpaid internships in the media. Well, apart from the large number of people in television with rather familiar names, from Dimbleby to Cellan Jones; apart from so many journalists being called Lawson or Coren; apart from so many people in the media having been to the same schools.

The fact is that the most arcane Spanish practices are found in media and journalism- a group of people so narrow and so unreflective of wider Britain that both Michael Beurk and Peter Sissons have attacked the BBC for simply uncritically taking their line from the day's "Guardian" editorial.

So is Nick Clegg a hypocrite?

No, of course not, because whatever he may have benefited in the past, he recognizes that internships and the rest of it only serves to exclude most of society to the benefit of a rich, largely publicly school educated, sectional, interest.

The hypocrites are the journalists who think that's OK.

After all a large number of them benefited from this themselves- and they have failed to declare an interest. They are turning their abuse on Clegg in order to distract attention from themselves and thus maintain the crooked system, not to question it.

Wednesday, April 06, 2011

Too big to fail means too big

The CEO of Barclays, Bob Diamond, taking the presentational spin given to him by Peter Mandelson, has famously declared that the time for Bankers to show remorse is now over. Banks- taking advantage of the free ride given to them by emergency ultra low interest rates and large injections into the system through quantitative easing- may not yet have returned to profit, but they have certainly felt confident enough to return to the days of large bonuses for their staff. Economic growth is slowly returning, even in the UK, which remains hobbled by a huge deficit and rapidly rising inflation. It seems that the pressure on the global financial system is easing, even if it is only happening in fits and starts.

Indeed, the British banks are letting it be known that they are now popular: they are being actively wooed by other governments. HSBC has denied that it is seeking to move to Hong Kong or even Paris, while Barclays has move quickly to scotch rumours that it may move its headquarters to New York. Of course the publication of such "rumours" has allowed the banks to put a certain amount of pressure on the British authorities, who have been publicly toying with the idea of firmer regulation of the financial sector, including that Banks pay in a lot more money to cover bail-out insurance. The message from the Banks is clear: hold off on this or we will move, taking our tax contribution to the UK exchequer with us.

Bank regulation no longer carries the urgency it did two years ago, but in my view unless serious action is taken now, the next financial crisis will not be far away, and could be even worse than the panic of 2008. The banks, by seeking to maintain their short term profits (and larger bonus pools), are actively avoiding necessary changes that would increase competition and improve bank safety.

In 1932, the US passed the draconian "Glass-Steagall" act, which prevented banks which took deposits from owning businesses that could use this deposit base in order to finance risk capital investment. It was a strong reaction to the causes of the 1929 Wall St crash, which as in 2008 saw a total implosion of the an overheated credit market and the bankruptcy of several major players. In 2008, the reaction of the US Authorities was the exact opposite. They forced investment businesses, like Goldman Sachs, Merill Lynch or Morgan Stanley to transform themselves into Bank holding companies, or be taken over by them.

In the UK, which never had the Glass Steagall separation in the first place, the Financial Authorities were forced to inject capital into the system directly by nationalizing Northern Rock, RBS and Lloyds Banking Group and indirectly through emergency interest rate cuts and large scale quantitative easing. The forced mergers that this process involved has created a banking system that is even more concentrated than it was before the crisis.

This is extremely dangerous: the UK banks are continuing to combine deposit taking and risk capital businesses, and are now even larger. Yet history tells us that the chance of another banking crisis is a probability of one: it is certain. The costs of rescuing the banking system during this crisis has increased the UK national debt by 100%, that is horrific enough: yet in Ireland it has been even worse, the state has been bankrupted and now faces the unenviable choice of defaulting on its liabilities or enduring crushing debt payments for a generation to come.

That will be the fate of the UK in the future, unless we act to break up the banking system now. So, if I were Vince Cable, I would say to HSBC and Barclays that they were welcome to leave, since that removes the ultimate responsibility for their failure from the UK. I would, however, insist that in order to keep operating in the UK, that they would bear a higher rate of deposit insurance- since there is now a risk that France or China or the US might not provide support in a crisis and simply to allow the UK business to default. Arguably the businesses should incur a surtax as well. I would then break up the nationalized banks into new, smaller institutions that would be encouraged to compete. Nor would these smaller institutions be permitted to merge except in certain circumstances permitted by the regulator.

The Banks have become the ultimate corrupt combination- and the only way to restore stability is to reinforce anti trust legislation and ensure much greater competition. It is slightly unnerving to see British Conservatives supporting the current Banking system, which has become more or less the enemy of the free market.

Too big to fail means too big, and it is time to act decisively- not just because the Bankers have shown insufficient remorse, although that is frankly true- but because a supposed private business that relies on public support in bad times, but keeps its profits private in the good times is socially corrosive and economically catastrophic. Banks, like any other business which is based on risk capital, will always carry a risk of failure. When a failure happens it should not be permitted to create a systemic crisis in the wider economy. It is time to let the bracing discipline of free market competition into this hitherto closed and rigged market.

Tuesday, April 05, 2011

Why I don't support AV, but will be voting for it anyway

In a blaze of apathy, one of the rarest of British constitutional processes- a referendum- is getting under way. Most voters probably consider the referendum as to whether to adopt the Alternative Vote system- AV- either abstruse and arcane or simply just plain dull. Yet in fact, this referendum is one that will be significant for a generation to come.

The current British electoral system- first past the post (FPTP)- gives a Parliament that is only approximately what the voters choose. Several times in the past, the party with the largest number of MPs, and which therefore becomes the government, has received a lot fewer votes than the supposedly second party. Sometimes MPs can be a elected when three quarters of those who voted chose someone else. In other words, FPTP does not accurately reflect how people actually vote- and it therefore fails a major test of democracy.

The Liberal Democrats- and many others in all parties- believe that the electoral system should give a result that is proportional to how people vote: if 40% of people vote for a party, then it should have 40% of the seats in the House of Commons, not 70%, which is often what happens now.

The way we would prefer to do this is for voters to list in order of preference their candidates, and instead of dividing up regions: Edinburgh West, South, North, East, South West etc, we would have five MPs chosen for the whole of Edinburgh. So in this example, each party would put up five candidates in Edinburgh, and voters chose between them. If voters chose five MPs of a single party, then five would be elected only from that party, and if they chose to vote for an independent candidate and they gained the roughly one fifth of the votes need to qualify, then an independent could be an MP. Sometimes, voters might split their ticket, voting in favour of candidates from different parties, because they like one individual's personal characteristics even if they don't much like their party. The point about this is that it leaves the choice up to the voters themselves, and it guarantees that all parties, and independents, can expect to compete fairly. This system, known in crampingly dull jargon of electoral politics as "the single transferable vote in multi-member constituencies", usually, and mercifully shortened to STV, is fair, open and widely used- including in the UK, for Scottish local elections. It is easy to vote: you just list in order of preference, but the counting of the votes is relatively complicated, involving the elimination of the candidates with the lowest number of first preferences and the transfer of their votes proportionately to the other candidates until the final tally, where (in the Edinburgh example, five), MPs are elected having achieved a number of votes and transfers that exceeds the quota (in the Edinburgh example, roughly one fifth of the total votes and preferences cast).

The problem for STV is that neither the Labour Party, nor the Conservatives, like the idea that voters can chose between candidates of the same party. The party barons fear that they can not impose "party discipline" on MPs who have a popular local mandate which has been tested against other candidates of the same party. These popular MPs are indeed far more likely to rebel against the party line.

Yet FPTP is manifestly unfair and all parties at various times have been the victim of it. The result has been that Labour, and a few in the Conservatives have been scratching around for a -rather messy- compromise. This has resulted in the emergence of the Alternative Vote- (AV). Here the method of voting is the same as STV: the voters list in order of preference, but only one MP gets elected for each constituency- in other words we still break up cities and counties into smaller units, with all of the boundary commission disputes and the rest of it. The only real advantage of AV is that in order to win, they must essentially reach a quota of 50%+1, so more MPs would be chosen by the majority of their voters, rather than, as now, where it is happened that MPs have been elected on as little as 25% support.

AV is barely an improvement on FPTP, in that it will not deliver a result that is proportional to how people actually voted, and it allows the party barons to impose more discipline on rebel MPs.

However, FPTP is so unfair that it has to be changed, and getting voters to list in order of preference for one MP is but a short step to listing for several MPs- that is the STV system. So the referendum is critical, because if it fails, it means that voters are essentially too apathetic to care about what happens to their vote. All of the complaints that people have made: from the expenses scandal to poor legislation, to the disconnect between the rulers and the ruled are in part the result of an electoral system that fails to hold the politicians to account. Without the even fairly small change that AV represents, then British politics will be unreformed, and may in the end by unreformable.

So in the final analysis, at this referendum it is necessary for the British people to show their political leaders that the current system has failed and must be reformed. Although the change to AV is actually pretty small, it would be a statement of intent: that the British people want to see an improvement in their democracy.

Unless they do that, the outlook for our political system is bleak indeed. So, even though I think AV changes little in practice, I have registered from overseas and will be voting "Yes" because without that small step no further change is likely for many years- and given the scale of the crisis in the UK, I don't think we can wait that long.

It is the last chance, but it is a chance, and we should grab that chance with both hands.

Friday, April 01, 2011

True Finns set to shake Europe

A day trip across the Gulf of Finland leads me to Helsinki for the first time in many years. Well, not strictly speaking true, because I am a constant transit passenger at Helsinki-Vantaa airport, but it is about ten years since I last visited the centre of the Finnish capital.

Helsinki in the cold sunshine of early spring is quite a contrast to Tallinn, As the ferry nosed out of the Bay of Tallinn, it was breaking trough the blocks and slush of sea ice and moving slowly through an early fog. yet by mid crossing, the fog (and the ice) had gone and the view of Helsinki's smoking chimney stacks showed the Finnish economy, at least, is growing its production. Once ashore, the straight boulevards of the 19th century Tsarist city leave an impression that is far more Russian than the delicate Gothic filigree of Tallinn's old city. Here and there the massive granite rustication of the 19th century Finnish nationalist architects makes some buildings look more like the home of the mythical Kalev or even of Trolls, rather than of human beings and that, perhaps, was the intention.

After a series of meetings we find ourselves at a loose end for a couple of hours and my colleague and I decide to take a stroll along the Mannerheimintie- the main street of the city. An eclectic mixture of buildings, from the baroque excrescences of the Swedish theatre -currently under restoration- to the simple lines of the Finlandia Hall by Aalto: the Finnish architect who stayed at home, as opposed to Saarinen, who left. Just by this last is a giant statue of Mannerheim himself, seated, as befits a former Tsarist Major General, on his horse.

We cross the road and there is the giant box of the Finnish Parliament: the Eduskunta. Its massive blockishness reminds me a little of Ceausescu's insane Casa Poporului in Bucharest: a massive building, designed to intimidate by shear scale. Yet, today it is clear that people are not intimidated: an election rally is taking place below the ziggurat-like steps up to the doors of the Finnish house of the people.

I say that the gathering was an election rally, but it far more of an atmosphere of protest: the placards denounce the financial crisis and the government's commitment to support the ECB and the European Union. As if to underline the Euro-sceptic nature of the protest, I realise, with a shock of recognition, that amongst the many blue crosses of Finland on the placards is a Union Jack- though appropriately, it appears to be upside down. The crowd is middle aged- even elderly, but there is no mistaking that they are clearly very angry about something.

These are the "True Finns", the Finnish anti European party. They look a little like the blazered gathering of UKIP, and although Finnish Wikipedia declines to put them on the political spectrum, since "as a populist party they do not have a coherent left-right ideology", they may be poised to shake up Finnish politics at the election in a couple of weeks. The True Finns only gained about 4% of the vote last time, but they have been polling as much as 20%, which would put them close to the ruling centre party, and above the Social Democrats, and what they are so angry about is the bail out that Finland may have to subscribe to in order to rescue, in no particular order, Greece, Portugal and Ireland.

The consensus of Finnish politics, arrived at through the difficult years of enforced neutrality after their defeat by the Soviet Union in 1944, is that political agreement is arrived at by compromise over quite long periods. Even now, Finland still dithers over NATO entry, despite the majority being in favour, because the political establishment remains divided. As a result, the rise of the True Finns may take time to have an effect on the direction of the Finnish political consensus. Furthermore, should the True Finns enter a coalition, as seems possible, then the radical edge of their policies would clearly be blunted by the political expediencies of government. Nevertheless, the rapid rise of this populist phenomenon has a clear impact, not only on the Finnish body politic, but that of the EU at large.

The rise of the True Finns shows that even in Finland, usually a model pupil of things European, the impact of the financial crisis is alienating the voters from the European Union. The perception that the bail out is imposing costs upon the responsible in order to benefit the feckless, while unfair, is becoming firmly established. This is mingled with a sense that "foreigners" are taking advantage of the wealth of the Nordic countries, without making much of a contribution - a perception that is more grounded in racial prejudice than in hard evidence.

Right wing populism- and Labour populism in the UK, I might add- finds it easy to build itself up upon a sense of grievance, and the fallout of the economic crisis is creating grievances across the EU. The problem is that in order to tackle the crisis, many of the policies that will work seem counter-intuitive to the average voter. It is hard to explain that borrowing money to pass on to a stabilisation fund has very little impact on the finances of the borrower when the headline numbers-of billions of Euro- are so large. It is even harder to explain why an ECB stabilisation fund should take priority over front line public services, such as education or health, especially when these services are now being severely cut back.

When even the fair minded and serious Finns are prepared to back a populist party of protest, then it is clear that the European voters are in a mean mood. As I wander through the trolls houses of central Helsinki, I am at a loss as to how the politics of anger can be countered.