We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.
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‘Why Britain Should Join the Euro’ – a pamphlet by Richard Layard, Willem Buiter, Christopher Huhne, Will Hutton, Peter Kenen and Adair Turner, with a foreword by Paul Volcker.
One of the authors, AdairTurner, now Lord Turner, is interviewed in today’s Observer, which is where I saw the link. He has changed his mind a little since 2002, when the pamphlet was written, but not to an unseemly extent. Now Chairman of the Financial Services Authority, he is concerned about the current situation but remains confident that “sensible decisions are going to be made”.
So there you are then. Cheer up!
Here is a good column slating the idea of a Tobin Tax. The key issue that people need to understand is the issue of tax incidence. To put it another way, taxes are a cost (indeed, for some things, such as taxes on tobacco, policymakers stress this point). Costs get passed on. If we tax financial transactions, it will be passed on in the form of lower profits, job cuts, lower savings rates, higher borrowing costs. The tax, of course, will weigh disproportionately on London, given the far smaller turnover of rival European centres such as Paris.
As the saying goes, can we leave yet?
My only surprise is that an article as justifiably angry as this has not been written sooner. Here are Peter Oborne and Frances Weaver, in the latest edition of the Spectator. They have also penned an item called Guilty Men, published by the Centre for Policy Studies.
There are several institutions that are targeted. And I almost wonder if the authors of the article have been channelling our own Paul Marks on the subject of the Financial Times. Paul has written about the Economist also with venom. An example of what annoyed Paul about the Economist, is linked to here.
Here are the paragraphs that stood out for me in the Spectator article:
“Meanwhile the pro-Europeans find themselves in the same situation as appeasers in 1940, or communists after the fall of the Berlin Wall. They are utterly busted. Let’s examine the case of the Financial Times, which claims to be Britain’s premier economic publication. About 25 years ago something went very wrong with the FT. It ceased to be the dry, rigorous journal of economic record that was so respected under its great postwar editor Sir Gordon Newton.”
“Turning its back on its readers, it was captured by a clique of left-wing journalists. An early sign that something was going wrong came when the FT came out against the Falklands invasion. Naturally it supported Britain’s entry to the Exchange Rate Mechanism in 1990. In 1992, under the slow-witted editorship of Richard Lambert (in a later incarnation, as director general of the Confederation of British Industry, Sir Richard was to become one of the most sycophantic apologists for Gordon Brown’s premiership), it endorsed Neil Kinnock as prime minister. It has been wrong on every single major economic judgment over the past quarter century.”
“The central historical error of the modern Financial Times concerns the euro. The FT flung itself headlong into the pro-euro camp, embracing the cause with an almost religious passion. Doubts were dismissed. Here is the paper’s supposedly sceptical and contrarian Lex column on 8 January 2001, on the subject of Greek entry to the eurozone. ‘With Greece now trading in euros,’ reflected Lex, ‘few will mourn the death of the drachma. Membership of the eurozone offers the prospect of long-term economic stability.’ The FT offered a similar warm welcome to Ireland.”
“The paper waged a vendetta against those who warned that the euro would not work. Its chief political columnist Philip Stephens consistently mocked the Eurosceptics. ‘Immaturity is the kind explanation,’ sneered Stephens as Tory leader William Hague came out against the single currency. Even as late as May 2008, when the fatal booms in Ireland and elsewhere were very obviously beginning to falter, the paper retained its faith: ‘European monetary union is a bumble bee that has taken flight,’ asserted the newspaper’s leader column. ‘However improbable the celestial design, it has succeeded in real life.’ For a paper with the FT’s pretensions to authority in financial matters, its coverage of the single currency can be regarded as nothing short of a disaster.”
An interesting side point is that the authors seem to take it as read that individual countries should, as matters of sovereignty, have their own currencies. What the authors don’t state – and I don’t know their views on this – are their opinions on fiat money per se. It is, after all, not much consolation to supporters of free markets to replace one dud monopoly money system with a network of national monopoly fiat moneys instead. What we need is actual competition between and even more crucially, within countries. Remember the old idea of a hard money “parallel currency” that the likes of Nigel Lawson, former UK Chancellor of the Exchequer, toyed with?
Transnational currencies such as the euro may indeed be disasters waiting to happen. But national currencies can often blow up too, or devalue slowly but insidiously. That point needs to be made loud and clear. The end of the euro may be cause for grim satisfaction in some corners but that is not the only kind of economic folly out there.
“It is not beyond Germany’s financial power to rescue the ailing eurozone countries. But the increase in political power for Germany which such a rescue implies is surely way beyond what most of the people of Europe would accept. The Germans do not want it either: in agreeing to create the ECB, they willed the means, but not the end. Now that the end is nigh, they are terrified. What Europe faces, then, is a disaster that was predictable – and predicted – and is now unavoidable. In the process, millions will lose their jobs, an entire generation will miss the opportunities which their parents enjoyed, and blood will probably be shed. The rulers of Europe have never been so wrong since the late 1930s.”
Charles Moore. His remarks about such EUrophiles such as Chris Patten (remember that pompous arse?), FT journalist Lionel Barber, Hugo Young and of course, Jacques Delors (remember him also?) are gloriously scathing.
By the way, here are two books, one by John Laughland, and the other by Bernard Connolly, written some time ago on the architects of the modern EU. I don’t agree with all of their ideas, but they were remarkably prescient in certain respects. Laughland, for example, picks up on Hayek’s point about the dangers of politicised money, which is essentially what fiat money usually is.
In case anyone asks, I certainly don’t endorse Laughland’s nationalistic views on the treatment of people such as Slobodan Milosovic. . That is a subject for another day.
This is interesting:
“As the EU debt drama continues unspooling like a perversely watchable soap opera (the FT’s Neil Hume describes it as ‘eurozone crisis porn’), an intriguing sub-plot has emerged: Britain is suing the European Central Bank. The Treasury is unhappy with an ECB move to limit the kind of euro-denominated products that can pass through UK clearing houses, suspecting it’s a bid to shift financial activity from London to Paris/Berlin. So it’s taking legal action, the first of its kind by an EU member state.)”
Via the Spectator’s “Coffee House” blog.
I enjoyed this paragraph:
“On a wider level, there’s some irony in the fact that the UK and the EU are squabbling over euro-denominated transactions. Who even knows which countries will still be using the euro by the time the year is out? Exactly what kind of euro will be cleared in clearing houses come Christmas?”
Someone explain to me why we are in the EU. I am sure there is a reason, but bugger me if I can remember now. Old age creeping in.
The headline says ‘Europe declares war on rating agencies‘:
Wolfgang Schauble, German finance minister, said there was no justification for the four-notch downgrade or for warnings that Portugal might need a second bail-out. “We must break the oligopoly of the rating agencies,” he said.
Heiner Flassbeck, director of the UN Office for World Trade and Development, said the agencies should be “dissolved” before they can do any more damage, or at least banned from rating countries.
Now ponder that for a moment… what is a ‘rating agency’? It is a company that states an opinion regarding credit worthiness. And those opinions are only significant if people who make investment decisions think the opinions in question actually reflect reality, i.e. the opinion has some credibility.
So what these quoted members of the political class are calling for is banning credible opinions about the consequences of decisions by, er, people like themselves.
Astonishing. And in reality rating agencies have a history of excessive optimism, only downgrading ratings long after the dots were joined by anyone who has been paying attention.
As regulars will know, one of my pet dislikes is “Rod” Liddle, a man who likes to think of himself as a sturdy Leftie but who, in fact, increasingly sounds like the sort of BNP supporter that you might encounter in a bar and who insists on telling you about how so many of our problems are the fault of “the blacks”, etc. Liddle has strayed, arguably, over the line before, but like a man emboldened by his own seeming ability to keep pushing his agenda without severe damage to his bank balance, he has finally gone over the top with all the mad brio of Prince Rupert of the Rhine charging at Cromwell’s infantry in the English Civil War.
In a particularly stupid article for the Spectator (behind a subscriber firewall), on page 17 of the print edition, Mr Liddle reflects on the problems of Greece, and its horrendous debt. He rightly regards Greece’s decision to join the euro as a disaster, as Greece has proven itself incapable of handling the sort of interest rate more suitable to Munich or Lyon. However, in his clumsy way, he reflects on the differences he sees between southern Europe and the more “puritan” North. His title for the article (possibly written by a sub-editor), is: “How did I get it right on the euro? Easy. I was racist”.
“Insofar as I understood the economic permutations of what it would mean to be in or out of the single currency, I was vaguely opposed to joining. But my real reason for objecting to our membership of the euro was, and still is, I’m afraid, straightforwardly racist. I didn’t want to have the same currency (or government, effectively), as people in the south of Europe, who, I thought were, in the main, lazy, hot-tempered and uncivilized.”
(Emphasis, mine).
Here’s another gem:
“But it cannot be mere coincidence that the countries in trouble are those in the south, and that the further south you go the worse these problems become, until you reached the dislodged chunks of marble and the flaming fast-food shops of central Athens, where one protester said to the camera crews: “We don’t owe any money, it’s the others who stole it!”
What is so cretinous about Liddle is his use of the word “racist” instead of what would be more accurate – “culture”. It is, arguably, the culture of some countries – by no means all – that helps explain such things. But the idea that there is some sort of general rule that says the further south you travel, the worse the population behaves, is bunk. My wife’s small country, Malta, which is even further to the south than Greece, has a conservatively-run banking system, strong public finances and a relatively strong respect for property rights and the rule of law. It is also a member of the euro-zone. Maybe all those years of Malta being under the British Empire might have helped, as our “leftie” Mr Liddle might argue, but Malta exhibited many fine qualities long before the Brits, in the form of Lord Nelson, showed up. It is bizarre to claim that the further towards the Equator you get, the sillier, more corrupt and naughty people become. As Liddle must surely recall, in chilly Scotland, once famous or infamous for its puritanical version of Christianity, for example, a large chunk of the populace now lives on benefits, and many of the traditional characteristics once associated with the land of Adam Smith, James Watt and David Hume seem to be notable for their absence. This is a cultural, economic and political development which cannot be explained by reference to some glib reference to geography, much less the race, of the people in question. Even more unfortunately for Liddle’s notion is the example of Iceland, and its catastrophe of failed banks. Those blue-eyed folk with their blonde hair seriously screwed up.
Good ideas can be discredited by bigots purporting to advance them, if we allow these people to speak without rebutting their biases and showing them for the fools and knaves that they are. And Rod Liddle, however amusing he can sometimes be, or correct about something like the euro in one sense, is a bigot, and the kind of friend Eurosceptics can do without (I sometimes wonder whether he is working for the other side). Well, now he is on the record – he’s a racist, and seems to be proud of it.
Another zinger of a piece by Detlev Schlichter. If you are not reading his stuff regularly, you need to deal with that oversight. He’s indispensable:
One frequently gets the impression from reading the mainstream media that Greece has a monetary policy problem and not a fiscal problem. This is incorrect. Yet many commentators seem to argue along the following lines: This crisis is due to the straitjacket of the single currency with its one-size-fits-all monetary policy, or at least aggravated by the constraints of this system. Greece would have more “policy options” in dealing with its troubles if it had control of its own national currency.
Then there is, connected to this, an underlying – and not very flattering – notion that the Greeks are somewhat unfit to live and work in a ‘hard money system’, which presumably the euro is. The Greeks, this seems to be the allegation, like borrowing and spending too much. I am paraphrasing here but this is certainly the underlying tone of the narrative. The Germans and Dutch and French can live without the constant aid of conveniently cheap national money – but the Greeks can’t.
And he signs off with this:
I have no doubt that the most important economic event of the coming decade will be the demise of the global paper money system. We live in the twilight of the fiat money era. A return to apolitical, international, commodity-based media of exchange is inevitable. Why not start with Greece? The transition would be painful but there are no painless options available anyway.
I am convinced this would be a sensible strategy but I also think it is unlikely. The state and the banks benefitted from the paper money franchise, and they are now addicted to cheap credit and unwillingly to check into rehab. The establishment will continue to fight a return to sound money.
With some honourable exceptions, I find it hard to think of many even supposedly “private” banks in the world as proper, capitalist institutions in any sense. Their reliance on the crack cocaine of cheap credit has become too entrenched.
London mayor and newspaper pundit Boris Johnson has a good article in his usual Daily Telegraph redoubt and it is getting a lot of attention, as it should:
“The Greek debt crisis is deepening, in other words; and there are only two options. We could continue down the road we are on, in which the euro shambles becomes an invisible and surreptitious engine for the creation of an economic government of Europe. Indeed, there is a sense in which the slow-motion disaster of the PIGS – Portugal, Ireland, Greece, Spain – has been terrific for the federalist cause. Bit by bit we seem to be creating a fiscal as well as a monetary union, in which huge sums – including about £20 billion of UK bail-out cash – are being transferred from the richer to the poorer parts of the EU. The idea is that Germany, France and others should “socialise” the debts of the periphery – take them on, in other words – so as to keep the eurozone together and to stop the domino effect, with all the attendant damage it is feared that would do to the European banking system.”
“These profligate and improvident countries would be obliged, in return, to submit to a kind of economic supervision that is now proposed for Greece. Taxes, spending, benefits – all the panoply of economic independence – would then be subject to agreement with Berlin and Brussels. I sometimes think Kohl, Mitterrand, Delors and co instinctively knew that this would happen.”
Oh, they knew. They wanted this to happen – maybe not in the wrenching, embarrassing way that has manifested itself in the case of Greece, Ireland the rest, but they surely wanted economics to be melded to the service of politics.
“They probably calculated that if only they could achieve monetary union, the euro would create such strains that the de facto creation of a United States of Europe would be impossible to resist. The trouble is that there is just no democratic mandate for anything of the kind.”
Democracy, schemocracy, as Mel Brooks might have put it.
In response to a recent response of the economic collapse of Portugal, commenter EndivioR had the following to say:
I lived in Spain during Gonzalez and Aznar. Foolishly, as I saw motorways roll out across the plains, buildings shoot up, high-speed trains whistle past, and cool graphics appear on TV news intros, I thought that some seriously good country management was going on. Now I realise that “economic miracle” means what it says. A miracle is something that defies the laws of nature. Spain is a mirage floating over the quicksand of unredeemable loans. I hope there are still people around there who know how to steer a donkey.
Oddly enough, Spain and Portugal remind me of something I have seen before. In the 1990s, we had a telco bubble. In mobile telephony, most places had two or three digital 2G mobile networks built. The spectrum was usually obtained cheaply by these companies, and the resultant networks were valuable, and useful, and there was a good return on the capital put up to build them. One or two companies made enormous amounts of money by figuring out something was happening early in the piece, building suddenly immensely valuable companies, and selling out, often to incumbent telcos who had read things less well than they had. Telecoms equipment manufacturers made huge amounts of money as their business was suddenly much bigger than it had been before. Other people got excited by this, and governments got excited by this, and there was an enormous piling in by new entrants to this industry. The equipment manufacturers (many government backed) wanted to follow up their first round of sales with subsequent rounds, and there was massive pressure to keep building. Many of the people and organisations who entered this business late were, shall we say, more dubious than some of the earlier ones. In many cases, they were the well connected rather than the prescient.
One thing that came from this, towards the end of the bubble, was a lot of what is known as “vendor finance”. Someone probably well connected wants to make money by building a telco, and probably selling that company on to someone else once it was built and had a customer base. A telecoms equipment manufacturer would lend the new telco money which the telco would then use to pay the manufacturer to build the network. This was all great as long as the network could be build, credit remained cheap, the network could gain customers and profits could be gained from these customers. In short, it was great as long as the bubble continued. Lots of people were making money as long as the bubble continued, and didn’t really care how it continued.
Of course, few of these things remained true. Credit became expensive, and what customers newer telcos could gain were very low value customers. For a time, mobile phone companies were valued simply on the number of customers, with little attention paid as to whether they were good customers. However, this eventually stopped, as it had to. Credit became expensive. Vendor financed networks defaulted on their debts and went bust. The companies that did the vendor financing went bust too. Bye bye Lucent. Bye bye Onetel. Amazingly, the banking system as a whole did not go bust for more than five years after this.
Which makes me think of Spain and Portugal. These countries joined the EC (as it was then) in the early 1980s after many decades of authoritarian government: poor, and woefully lacking in infrastructure. They lacked the capital markets, the expertise and the international connections to build modern infrastructure themselves, but there was the potential to catch up rapidly if they were exposed to international markets and international practice.
The avenue through which they did this was the EC and later EU, of course. The benefits of rejoining the international economy were immense, and EU aid and expertise did help them and pay for infrastructure. The scale of this in the 1980s and early 1990s was surprisingly modest, actually, and the infrastructure that was built was fairly hardly argue with. Motorways from Madrid to Malaga, or Lisbon to Porto, eminently sensible, and the economic value created by the motorways obviously exceeded costs. Given that they were and are tolled, a fair bit of this value was even captured by the people who built and financed them. Looking back now, it seems fairly obvious that market mechanisms could have build the 1980s and 1990s developments. The sad thing is that market mechanisms did not build them, and Spain and Portugal instead got used to the EU way of doing this. Money flowed from France and (particularly) Germany and French and German banks via the EU institutions, and this money flowed back to France and Germany to the companies who did a lot of the work in building them. Vendor financing, shall we say. No particular harm was done, as long as the infrastructure being built was actually economically sensible.
However, the French and Germans and French and German banks, and the Spanish and the French and German engineering companies got used to this. The inevitable greasing of wheels and protection and paying off of the well connected created a while class of people whose interests were in this continuing, long after anything was economically sensible. So in the late 1990s and 2000s, Spain and Portugal got huge networks of motorways in absurd and pointless places. (One evening several years ago, I drove in the evening along the old road from Regua to Vila Real in Portugal. It was a scary, winding, narrow single carriageway. The next day I discovered that there was a new road, which was a beautiful dual carriageway, four lane motorway, apparently being used only by me). These later ones tend not to be tolled, as if you were to toll them it would become immediately obvious how few cars were using them and how economically pointless they are. Then, things got nuttier. Spain got an enormous network of high speed trains. These are particularly good from the EU aid point of view, as there are two different European technologies – one French and the other German – and the contracts can alternate between the two. Pointless, but great in terms of being financed by German banks and then bought from the Germans. Then Spain got the world’s largest system of wind farms. The further we went along, the more pointless the things being built actually became. We started more or less with sense, but because the incentives were all wrong, this evolved into madness.
So here we are. The EU vendor finance bubble has ended. The French and (particularly) the Germans created this mess, because their banks and their industrial companies were benefiting in the short term. Blaming the Spanish is beyond the point. The Spanish let the Germans lend them money and then build them stuff with the lent money, and they were foolish to do this, but it appeared they were having a rapid miracle of modernity, and given the history, I can see why they wanted to believe this. The German banks are screwed, after doing the bidding of the German government. If the German government has to bail them out, well they created the mess.
Except, the political class made the mess. As that political class keep wining and dining one another as they discuss how to make things worse fix things, it is actually the German taxpayer doing the bailing out. The mess is certainly not the fault of the ordinary bloke making Volkswagens in the factory in Wolfsburg, but he has to pay for it. Hopefully the anger of such people is with the German political class and the European political class, rather than with “The Spanish” or “The Southern Europeans” amorphously, because it is the political class who are responsible.
In the case of the vendor financed telco bubble that I discussed earlier, the companies that did the lending and the borrowing generally both went bankrupt, their assets gobbled up by new and more sensible companies. In the case of governments that have done the same thing, cleaning up is messier. The German and Spanish political classes are not just going to go away, however much we wish they would.
Perhaps there is anger with the German political class. Support for the traditional Christian Democrats and Social Democrats appears to be in serious decline, which has led to support for the Green party approaching 30%. Which is not going to help. It is hard to see any scenarios in which we are not totally fucked.
That is one suspected reason for why the Icelandic government was so eager to roll over for the Dutch and the British – they were willing to bankrupt the nation to get their snouts trotter-deep into the EU troughs. If this means I can’t join the EU I regard the referendum result as a double win.
– Commenter Bjarni
“So far, George Osborne has taken the comfortable line that the eurozone meltdown is nothing much to do with Britain. As a result, he has chosen not to question the shoddy compromises, the straight lies and the probable illegality that have characterised Europe’s response to its greatest financial and political crisis since the 1930s. But the disaster will hit us, too. Britain is a shareholder in the ECB, and Britain is a core part of the bail-out mechanism. It is time that we started to poke our nose in, to demand honesty and transparency, and to stop sending good money after bad. Above all, George Osborne has an urgent duty as Chancellor to construct a firewall that protects Britain as much as is possible from the catastrophe that now looms over Europe.”
– Peter Oborne.
For many months and years, commentators – many of them at the Daily Telegraph – have predicted the eventual collapse of the single European currency. So far, it has failed to happen, if only due to the fanaticism of the European political class. But maybe, just maybe, the endgame is upon us. This is going to be nasty; some big banks could have to write off a huge amount in the way of bad loans.
And to think that a few years ago, it was claimed that the euro could rival, or even overtake, the dollar as a reserve currency. I am still a dollar bear, but who would want to bet on the euro?
I remember reading this book, The Rotten Heart of Europe, when it came out, and its author has that dubious pleasure of being able to say, “I told you so”.
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Who Are We? The Samizdata people are a bunch of sinister and heavily armed globalist illuminati who seek to infect the entire world with the values of personal liberty and several property. Amongst our many crimes is a sense of humour and the intermittent use of British spelling.
We are also a varied group made up of social individualists, classical liberals, whigs, libertarians, extropians, futurists, ‘Porcupines’, Karl Popper fetishists, recovering neo-conservatives, crazed Ayn Rand worshipers, over-caffeinated Virginia Postrel devotees, witty Frédéric Bastiat wannabes, cypherpunks, minarchists, kritarchists and wild-eyed anarcho-capitalists from Britain, North America, Australia and Europe.
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