Euro Looks Sicker Than Ever as Germany’s Commitment Weakens

It seems that even German commitment to the Euro is faltering.

EU leaders have agreed to restructure the emergency bailout fund, allowing countries including Germany more time to put their money into the fund.

Britain, of course, has to contribute to any bailout of countries in the EU – Portugal is increasingly looking as if it will be next. Without Britain’s departure from the EU, we will not be able to avoid paying into any bailout, no matter how much David Cameron squirms, or how much it may make him “sick in the stomach”.

Meanwhile, the Alice in Wonderland world of British politics continues. Tory back-benchers have protested at the prospect of British taxpayers bailing out other profligate countries when Britain is quite profligate enough all by itself.

Bernard Jenkin, for example, is quoted by the BBC thus:

Can I remind you that we have just had an austerity Budget?

Can you imagine how absolutely furious British voters would be if it turns out that the British taxpayer has to continue contributing to the bail-out of euro countries, even though we are not a member?

What austerity budget did he mean, I wonder? It was a fiscally neutral budget, continuing the Conservative policy of increasing spending in line with inflation, and waiting for economic growth to eliminate the deficit.

He was quite right, though, that British voters would be furious. Many of them will be furious enough to vote UKIP.

EU leaders are denying that Portugal needs help, but nobody believes them.

It seems that Germany is increasingly reluctant to bail out the spendthrift countries of Europe, and since that is the only way to save the Euro, prospects for the Euro are not looking good.

In a couple of years time, Europe could look very different. If just one of those weaker countries is either forced out of the Euro, or decides to leave, the currency is finished.

Obviously, European leaders are never going to admit defeat. So we would probably end up with a small core of a handful of strong economies, including Germany, supposedly still using the Euro, but in effect using the old Deutschmark.

And without the Euro, the dream of European Federal Union is also dead. Interesting times.

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Borrow and Spend Labour or Tax and Spend Tories

Ed Balls in Q&A on education
Image by Downing Street via Flickr

We Used to Believe in Tax and Spend. Now That’s Tory Territory

and We Believe in Borrow and Spend

Budget 2011: Labour blames cuts for lower growth.

Interesting, considering spending is up this year so far by 6% – even higher than the current inflation rate.

And as I said this morning, Mr Osborne is planning not spending cuts, but freezing spending in real terms and waiting for the economy and tax receipts to catch up. A bit like someone who is living way beyond his means, and decides to go on spending the same amount and hope that his salary rises enough to cover it.

So it looks like we have a clear choice – Borrow and Spend Labour, or Tax and Spend Tories.

Or I guess we also have the option of Look at Me I’m the Deputy PM Liberal Democrats.

What a shower. Time we looked elsewhere for our future.

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Osborne’s Doing It All with Taxes

Budget 2010
Image by The Prime Minister's Office via Flickr

George Osborne – Taxing Us to Pay for More Spending

Well, it was a pretty tedious budget. My mother used to ask whether one day a Chancellor would simply stand up one budget day and say, “I intend to leave everything exactly as it is.”

George Osborne did almost exactly that. The highlight of the excitement was a 1p cut in the price of fuel. I suspect that won’t have anyone dancing in the streets, welcome though it is. It should save me around 25p per week. I will celebrate with a Mars Bar. Every other week.

The Chancellor also announced increased taxes on North Sea Oil production, which sounds a bit of an odd way to encourage economic output to rise.

The ghastly truth of our public finances, and the degree of Conservative deception on them, is buried in the budget paper itself, however.

Remember those Tory promises that four fifths of the deficit reduction would be by spending cuts, and only one fifth by tax rises?

The budget paper reveals that from 2009/10 to 2015/16, spending will rise from £669.8 billion to £763 billion, an increase of 14%.

“What about inflation?” do I hear you cry? Let’s assume inflation averages 2% over that 6 year period, equal to the rate the Bank of England is duty-bound to keep it at. In that case, general prices will go up overall by 12.6%, giving a small real terms spending increase of 1.4%.

Over the same period, government receipts will go from £513.3 billion to £735 billion, almost eliminating the deficit. That’s an increase in government income (basically, taxes), by a whopping 43.2%. If you like “real terms”, then that’s an increase of 30.6% in tax receipts.

Holy Moses! Spending up 1.4% in real terms and taxes up 30.6% in real terms.

Which means all the deficit reduction, ALL OF IT, is coming from increases in tax receipts and NONE OF IT from spending cuts.

THERE ARE NO CUTS. The cuts are only to Labour’s planned increases.

Maybe a couple of graphs might make it all even clearer.

First, a graph of spending and receipts over the parliament. As you can see, tax receipts are rising to catch up with still-growing spending:

And in case you had forgotten that eliminating the deficit does not mean eliminating the debt, here’s a graph of debt rising throughout the period. (It is rising slower as the years go by, as the deficit reduces due to the increases in tax receipts.) The budget papers also contain GDP forecasts, and I’ve included them for good measure as well:

The rising GDP, of course, is the main reason for the rising tax receipts. If GDP rises more slowly than Mr Osborne is assuming, the wheels will come off his wagon faster than you can say, “Labour election victory”.

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Time the Bank of England Was Brought Back Under Democratic Control

The Bank of England in Threadneedle Street, Lo...
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The Bank of England: Unelected, Unaccountable and Plain Wrong

I commented yesterday about the nasty new inflation figures.

The Bank of England has now released the minutes of its latest meeting of the Monetary Policy Committee, at which the Committee again voted to keep interest rates on hold. Again, only three members of the committee voted for a rise.

The Bank says there is a “significant risk” that inflation could exceed 5 percent over the next few months. (By inflation, they mean the Consumer Prices Index – the older Retail Prices Index is already well over 5 percent.)

The Bank itself said:

It was not yet clear that the weakness in output growth seen in the latter part of 2010 would prove temporary, particularly in light of the latest indicators of a further weakening in consumer spending.

And the BBC quotes Ross Walker, of RBS Financial Markets:

We didn’t expect any more dissenters this month. It’s the same dilemma, weighing up competing risks of rising inflation versus still weak activity numbers.

All of this really misses the point. The Bank of England was given its independence to set interest rates, and expressly given the legal responsibility to keep inflation as close as possible to 2 percent. Note: it was expressly not asked to consider prospects for growth, except as far as they might impact on the inflation rate.

The Bank of England is now trying to manage the economy in its entireity, via interest rates, and has clearly abandoned the idea that its target is the inflation rate. Quite apart from being an error of policy, that is a departure from its legal responsibilities.

This matters, because if inflation is allowed to let rip, as it is currently being allowed to do, then we all know from the past what the result will be – a wrecked economy, unemployment, destroyed savings and much misery.

It also matters for our democracy itself. The Bank is completely unaccountable. We cannot exercise democratic control over it. At least in the old days, before Labour (with the support of the Tories) made the Bank independent, it was clear that the government of the day was responsible for interest rates. And we could vote them out at an election.

It is now obvious that the independence of the Bank of England has been a complete disaster, like most of the rest of what Gordon Brown did. The Bank needs to be brought back under political and democratic control, so that its decisions on interest rates are part of an overall economic strategy that is accountable to the electorate.

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Inflation and the Deficit

Eric Pickles
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Eric Pickles – Showing the Way

The latest economic figures make gloomy reading – and a wake-up call for the Coalition.

The Retail Prices Index (RPI), the older and trusted measure of inflation, last month hit the highest level for 20 years, at 5.5 percent.

Meanwhile, the newer Consumer Prices Index (CPI) is now at 4.4 percent. “More than had been forecast by economists”, notes the BBC, as usual.

Clothing, footwear, toys, books and financial services all contributed to the increase, along with transport, which was pushed up by higher fuel prices. The only bright spot was alcohol, which fell by 1.1 percent – so we can all drown our sorrows.

The British Chambers of Commerce, predictably, are keen to encourage the Bank of England to hold down interest rates even in the face of the steadily rising inflation. Their Chief Economist is quoted by the BBC:

The MPC must be careful before it takes action that may threaten the fragile recovery, particularly in the face of a tough austerity plan.

The fact is though, that the tough austerity plan is not yet, at least, in evidence. The same BBC article notes:

The ONS also announced that public sector borrowing last month was £11.8bn, a record for the month of February.

The official figure was nearly double the £6.9bn forecast by economists.

The present government have been in power now for nearly a year. They have talked tough on spending – and spending has grown signficantly. They have claimed to be instinctively in favour of low taxes – and have put taxes up significantly.

And despite the tax rises we have seen, spending has in fact risen so fast that borrowing levels are up rather than down. We are already a fifth of the way into the government’s programme to eliminate Britain’s deficit crisis – and so far, the deficit has gone up. All of which, of course, has not stopped Labour claiming the government have been imposing “savage cuts”.

There has been only one area where real cuts have been in evidence, and that is local government. Eric Pickles, as Local Government Secretary, has been conspicuously successful in restraining that part of public spending.

I suspect the reasons for Mr Pickles’ success are two-fold: first, that he himself is personally committed to cutting back local government spending, and probably more importantly, that there is no love lost between the national civil servants in his department and those local councils. Most government ministers have no doubt been struggling to get support from their departments for the necessary cuts, whereas Mr Pickles has probably had sterling support from his department.

The deficit is destroying our country, and it simply must be brought down. So far the Tories and Liberal Democrats have had little success doing that. They still have time – but the clock is ticking.

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The Office for National Statistics

Office of National Statistics. One of the Offi...
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The Office for National Statistics Offices at Titchfield Park

I have in this blog been very uncomplimentary about the public sector. Not only do I think it is grossly inefficient and badly run, but I even believe it is much less well run in general than it was say 20 years ago. Even departments that used to be bastions of competence, like the Inland Revenue (now merged with Customs and Excise to form HMRC) seem to me to be less competent today.

However, there is a small department in the public sector that seems not only to be as well run as ever, but even to be getting better. And that is the Office for National Statistics.

Most people see statistics as boring. I suspect our national perception that statistics are boring is linked to our national hostility to mathematics in general.

Statistics are often very difficult to interpret. It is not always easy to see what the real truth is behind the numbers. This means that it is often quite easy to misuse the numbers to “prove” anything you want to prove. There are, indeed, “lies, damned lies, and statistics” – or more accurately, lies, damned lies, and misused statistics.

Statistics, though, do represent the “facts” of the matter in hand. They are indispensible to any discussion of politics.

We are blessed in this country in having an outstandingly competent and thorough government statistical service. What is more, its output is made fully available to all and sundry via the ONS website.

Whether you are interested in historical figures for the number of smokers in Britain, immigration numbers or inflation rates, the ONS provides reliable and easily found information. Whether you are the Chancellor of the Exchequer, a university professor, or a humble blogger like me, those figures are available to shed light on the debates we all have.

Some bloggers have attacked the census that is currently being carried out. There is even a Youtube video (which I will not link to) showing somebody putting the census form through a shredder. But the facts that will be obtained from the census, and made available to everyone through the ONS, will be the foundation for the key public policy debates to come over the next decade.

The ONS’s predecessor, the Central Statistical Office, was created in 1941 on the instructions of Winston Churchill, to provide statistics to help with the war effort. Over the years, there have naturally been occasional problems with the quality of the statistics produced, but overall it has been an outstandingly successful organisation.

The ONS has been making great efforts to open its work up to a wider audience recently. One example is a page on the BBC News site today, that explains what inflation is. Many people, not least many BBC journalists, seem confused about this, but that page provides a simple and clear explanation. And it was

compiled with information from Pam Davies at the ONS.

The ONS is a national treasure, in fact, and those who work there should be proud of the work they do.

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The Libyan Muddle and British Democracy

Muammar al-Gaddafi at the 12th AU summit, Febr...
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Are We Trying to Remove this Man?

British, French and American forces have been in action against Libya, including strikes on targets in Tripoli, the capital.

David Cameron has been basking in his status as “the man who called for the no-fly zone”. And yet it is completely unclear whether the current military actions are in fact designed to enforce a no-fly zone, or whether they are designed to oust Colonel Gaddafi.

The British Government has explicitly said that Gaddafi has to go, which does not help with the clarity on this.

All of this has an unpleasant similarity to the approach to Saddam Hussein before the Iraq invasion. The Government has been very clear that there will not be an invasion of Libya. However, they have been very far from clear as to what “success” means for this mission.

Clearly Gaddafi is a pretty unsavoury leader. It is also the case that he has in the past not been a friend of the UK, to say the least. But deliberately seeking regime change would clearly be outside the remit of the United Nations resolution that “authorises” this military action, so the Government is unable to state openly that the aim is to topple Mr Gaddafi.

As usual, the need to chase the will-o-the-wisp of “International Law” and the “supremacy of the United Nations” means that our Government is unable to be honest or clear about its objectives and policy. And that in turn means that we, as the British people whom David Cameron supposedly serves, cannot hold him accountable or determine for ourselves whether his objectives are sound.

The implication of the public position of the British Government is that the aim is to leave Libya indefinitely partitioned and therefore weakened, to limit Gaddafi’s power to threaten his people. That would be a pretty Machiavellian approach. And it begs the question: if it is right to protect Benghazi from Mr Gaddafi, then why is it not right to try and protect Tripoli from him?

Alternatively, perhaps the aim of trying to achieve a divided and weakened Libya is to limit Gaddafi’s power to threaten the West, rather than to try to limit his power to threaten his own people. That might be a legitimate use of British armed forces, but the extent of his threat to us over many years now has seemed remote.

The potential hidden motives of the Government could be more emphatic. They have hinted that they want “regime change”, i.e. to oust Mr Gaddafi. To say so openly would be to infringe on Libya’s sovereignty. You aren’t allowed to say that unless the Supreme Soviet, sorry, UN Security Council, agrees to that aim.

But if that really is the aim, we should consider what happens after he is toppled. That was not done properly in the case of Iraq. We would need to assess the Opposition and what their leadership of the country would be like.

The media, especially the BBC, have portrayed the revolt as a popular one by civilians, and said that some units of Gaddafi’s armed forces have defected to the rebels. Is that credible? I would argue not. The rebels have so far been able to defend whole cities against the forces of Gaddafi, and descriptions have abounded of “fierce fighting” going on.

You don’t get fierce fighting when civilians go up against an army. You get a massacre.

Therefore, this uprising would be better described as a military revolt that has some support from civilians. The leaders of the revolt may well be less unsavoury than Gaddafi. They may be more friendly towards Western countries, including the UK. Or they may not.

From a British point of view, one justification for supporting the revolt against Gaddafi is that the leaders of the revolt are likely to be more friendly to the West than Gaddafi, or more likely to generate stability in that critical region of the world. Perhaps the British Government has made a clear-headed assessment that that is the case.

An even more Machiavellian interpretation might be that David Cameron’s aim in leading the action was to demonstrate to the rest of the EU the potential power of an Anglo-French military alliance. In that sense, this could be seen as a follow-up to the Anglo-french security agreement that was signed last year.

It is blindingly clear that Mr Cameron sees Britain’s future very firmly at the heart of Europe, and that he wants to maximise Britain’s place in the EU. His Euro-sceptic posturing has been clearly just a sop to the Right of his Party, who have been taken for fools by him for years now.

I have outlined at least four different possible objectives of the British Government. We simply do not know which of them is the real one.

The public have lost trust in politicians in Britain. And here we are, yet again, speculating about what the real aims are when our country is taking military action.

In the Second World War, the aims were clear and public: to defeat Nazi Germany, and to remove Hitler. In the Falklands Conflict, the aims were clear and public: to eject Argentine forces from the Islands and restore British rule. In the First Gulf War (as distinct from the Second) the aims were clear and public: to eject Iraqi forces from Kuwait and restore the Kuwaiti government.

The same has not been true either of the Second Gulf War (the invasion of Iraq) or this current conflict in Libya. I am afraid that the reason for that lack of clarity is the style of our leaders. In the first of those cases, Tony Blair was our leader, and in the second, the Heir to Blair, David Cameron, is the leader. Both of them marketing men to their fingertips.

We should not have to speculate on the real aims of military action taken by our Government. Our own democracy depends on our being able to assess for ourselves whether the Government is generally doing the right, or indeed the sensible, thing.

I am not saying the action against Libya is wrong. I am simply saying that as an ordinary citizen, I have not been given the means to judge. And that means I cannot tell whether to support the actions of my own Government, over which I supposedly have democratic control.

This is the problem with the modern approach to politics as marketing, and this lays bare the fundamental failings of David Cameron as a Prime Minister, just as the Iraq War laid bare the failings of Tony Blair before him.

Spin is not enough. We need honesty and straight talking in our politics.

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