Thursday, October 27, 2011

There's no greater enthusiast for the euro than...David Cameron.

    Now here's a thing.   There is currently no greater enthusiast for european economic integration than the British government.  George Osborne and David Cameron have become cheer-leaders for the euro, gatecrashing summits of the eurozone countries and appealing to EU leaders to press ahead with fiscal union - with creating the very "United States of Europe" that they condemn in their eurosceptic manifestos.  On the latest deal, Osborne welcomed the measures as far as they go, but insisted that the eurozone must move to  “greater fiscal union”.

   Of course, this is out of national self interest not ideology.  Britain realises that if the euro collapses so do we, not least because our banks are so heavily involved in European sovereign debt and because half our exports go to the EU.  The City of London is a europe's leading financial centre.  The economic destiny of these islands is therefore increasingly dependent on the success of the euro and the resolution of the crisis through the creation of a central european treasury.

   But hang on - if we are so up to our necks in europe, and indeed have a potential noose around our necks if the project goes under, should we not be in there fighting to get the crisis resolved in a manner that benefits, er, the UK?  And if there is no economic future for Britain without the euro, does that not mean that - defacto - we now accept it as the economic reality of the world economy.  And if we accept that, should we not be a part of it, if only to ensure that Britain's interests are safeguarded.   It's all very well to jeer from the sidelines - ha ha clever us for not adopting the euro - but the whole history of British involvement in the EU since the 1950s has been like this.  We say no no no until economic interest forces us to say a belated yes yes yes.

   This latest crisis summit over sovereign debt is a case in point. If we are so happy to be out of the eurozone, why are we so desperate to be involved in saving it?  Surely if it is a busted flush , we should be urging teh EU to restore national currencies not set up a multi trillion euro bail out fund.   And why are British Tory politicians arguing the case for fiscal union?  George Osborne has for months now been calling for a fast forward to the "ever greater union" that Tories are supposed to despise.  If integration is so good for Europe, and for the British economy, why are we so hostile to it?

Wednesday, October 26, 2011

Labour has no option but to adopt "devo max".

     Things are stirring in the Scottish Labour undergrowth.  While MP and leadership hopeful, Tom Harris. and the former aide to Tony Blair, John McTernan, continue to insist that Scotland has no future outside the union, and are warning Scots not to get big ideas about going it alone, others are beginning to realise that this is a doomed prospectus.  The former Labour First Minister, Henry McLeish, and Malcolm Chisholm, the only Labour MSP who remained standing in Edinburgh after the May massacre, are urging the party not to fall into the trap being left open for them by Alex Salmond.  Labour cannot afford to back the No campaign in the Scottish independence referendum.  It has no real option but to support "devolution max" or federalism.  Otherwise, Alex Salmond will win even if he loses because the SNP leader has colonised the centre ground.  Alex will be quite happy to accept fiscal autonomy as another giant step towards full independence.  He's a betting man and he likes an each way punt.  

Sunday, October 16, 2011

If David Cameron can support gay marriage - so can Alex Salmond.

      The campaign against the Scottish government's proposals to legislate for gay marriage reached critical mass last week - if you'll excuse the pun - with two senior members of the Scottish Roman Catholic hierarchy backing the former SNP leader, Gordon Wilson's call for a referendum on the issue.  Archbishop Mario Conti of Glasgow and Bishop Joseph Devine of Motherwell have condemned same sex marriage as an abomination. "Those in government need to be respectfully reminded", said Archbishop Conti, that a mandate to govern does not include a mandate to reconstruct society on ideological grounds, nor to undermine the very institution which, from the beginning, has been universally acknowledged as the natural order and bedrock of society, namely marriage and the family".  In other words: Alex, get your pink tanks off our lawn.  

    Archbishop Devine went even further: "We now have a straight fight between faith and atheism, morality and amorality, a culture of life and a culture of death,” he said last week. “The institution of marriage should not be corrupted by the transient fashions of society or by malevolent forces seeking to undermine the place of religious faith in society.”  This is turning into a Holyrood epic, with pointed hats firmly pointed at the SNP government. Alex is ducking for cover. 

   Now as an atheist, or rather a humanist, I have to object here that the gay marriage issue is not about undermining religious faith and undermining he natural order of society, whatever that is, still less an attack on religion.  Actually, if truth be told, the concept of same sex marriage is a triumph for the traditionalists and for people of faith.  It is an admission that there is something more to love than living together and that relationships need 
to be put on a firmer moral foundation. That moral foundation for - most people - still seems to be the essentially the Christian, to the extent that marriage is a Christian institution. 

 The fact that even gay people - the ultimate sexual outsiders- are now are seeking the sanction of marriage is surly the most obvious confirmation of that.  If there really is a straight fight going on, the Christians appear to have won.   That so many senior figures seem not 
to realise this is strange.

   Only twenty years ago, atheists, feminists and marxists condemned the "nuclear family" and marriage as a bourgeois institution that served to oppress women and block social progress.  Marriage was seen as inherently conservative, as a transmission belt for reactionary attitudes of nationalism and patriarchy.  Radical pyschiatrists like R.D. Laing - who has heard of him recently - railed against marriage as the  cause of mental illness and even extreme political movements.  In the sixties and seventies, people tried all sorts of alternatives to marriage - communes, 'open' relationships, serial adultery.   Marriage appears to have emerged from arguably the greatest challenge it has faced in its two thousand year history. 

    Gay marriage is now supported by the Quakers, the Episcopalian Church and unitarians.  The Church of Scotland has opened the door for gay marriage by accepting in principle the presence of openly gay and lesbian ministers.  It would surely be inconceivable for the Kirk to allow homosexuals to speak God's word from the pulpit and yet not allow them to marry each other.  Why is it that the Roman Catholic hierarchy seem to want to make this a political issue rather than a moral one?  

   I am treading into deep waters here and I don't have my arm bands on, so I'll leave it there.   The Church hierarchy is seeking to hijack the Scottish government's current consultation on the subject. And it has done pretty well so far, especially now that the former leader of the Scottish National Party, Gordon Wilson has come out in favour of a referendum on gay marriage.  He hopes it will be rejected.   I'm really not so sure: the only opinion poll I have seen on the issue suggests that 60% of Scots favour legalising gay marriage.   But judging from column inches, the Bishops are ahead on points. 

Sunday, October 09, 2011

Sir Mervyn King, Montague Norman and fractional reserve destruction.

 Politicians and economic commentators are still scratching their heads over the Bank of England governor, Sir Mervyn King's remark last week that the financial crisis is worse than the 1930s.  "Cheer up, Mervyn, it's not that bad" said Hamish Macrae in the Independent.  "Talking us into recession"  - said the Express.  Not since Montague Norman took to his bed during the gold standard crisis in 1931 has a central banker been so publicly distressed about the state of the economy.

  Perhaps that's the key.  Sir Mervyn worries he might be the Montague Norman of the 21st Century, forced to preside over the collapse of the international financial system.  Norman took to his bed when the British banks nearly went under in unison during the Great Depression as Britain's gold reserves dried up. He had been governor during the roaring 20s and was a bit of an international financial celebrity, like Alan Greenspan until the crash of 2008.

  Sir Mervyn presided over what he called the "NICE age" of the noughties.  "Non-Inflationary Continuous Expansion".  This turned out to be a massive Ponzi scheme built on a massive property bubble. Right until it went pop, King insisted that there was no unsustainable inflation in property prices - even when banks like Northern Rock were handing out 125% mortgages. 

   He thought he had saved the day by cutting interest rates to the lowest in 300 years and by printing money.  But clearly, he hasn't, and now the chickens are roosting all over Threadneedle St..  And all over Europe.  The coillapse of the French-Belgian bank Dexia suggests that another wave of banking collapses is in the offing.   King has warned banks not to expect another bail out, which can only mean one thing:  that governments will have to step in and do the restructuring of the debt - seizing bank assets and managing a mega default.

  Banks make money because of a trick called fractional reserve banking - lending money they don't actually have.  At any one time a bank may only have £1 of capital for every £100 lent out.  If only 1% of the bank's loans go bad, that means they are insolvent.  Businesses, bond-holders and ordinary depositors will queue up to find that the money they thought they had safely in their accounts is no longer there.  Fractional mass destruction then wipes out huge swathes of the economy.  This is unlikely to make people well disposed to the central banker who didn't see it coming. 

Saturday, October 08, 2011

Eurogeddon. It isn't just Greece's fault. Really, it isn't.

   We all know what the problem is:  Europe has a single currency but no central treasury - no overall financial supremo who can collect revenues and disburse them across the 17 eurozone countries on the basis of need and fiscal responsibility.  As they head inexorably toward default, the Greek people are quite rightly furious at being blamed for the financial crisis.  Ok - their public sector was bloated and pensions were extravagant - but they aren't alone in that.  And yes, the Greeks  aren't particularly fond of paying taxes.   But this was hardly a secret - and the European banks who lent £400bn to the former Greek government were fully aware that Greece was a fiscal basket case.  So why did they give them the money?   What about due diligence?  Why didn't someone notice that the government was cooking the books? The lender has a responsibility too. 

      But it's not just the irresponsible behaviour of  French, German and British banks. When the single currency was introduced, without any safeguards, it played havoc with the less advanced economies like Greece.  How could they compete with the Germans, who suddenly found that they were able to sell their cars and engineering plant at an artificially low price.  Yes, an artificially low  'rate of exchange'.  Just as the Greek euro was 'overvalued' , so the German euro was 'undervalued' - it got a massive trading advantage.  This should have been recognised by the authorities and appropriate action taken. That's what happens in Britain with the Barnett Formula for Scottish spending, which transfers some wealth north to compensate for the fact that all economic activity tends to be attracted to the south east of England.  

  Ok, let's not bring up Barnett with all its baggage.  The point is that there is a mutual interest between Germany and Greece in getting some equitable solution to the absence of fiscal union. .  Punitive austerity clearly is disastrous - for Germany as well as Greece.  German economic growth has come to an abrupt halt as Europe prepares for "D" day - default day..  To get all the countries of the euro going again there is going to have to be a central political and economic authority.  And it has to happen now.  And there really is no alternative.