Archive for October, 2010
It’s been fun watching David Cameron’s European Council pantomime routine this week. You have to wonder about his political acumen. Broadcasting to the great British public before the event that he was going to tell Johnny Foreigner where they could put their contribution increase was only setting himself up for a fall. You have to hope that it wasn’t complete ignorance of reality that drove him to do it, that he does know something about where the current strands of sovereignty run in the European Union. That being our elected Prime Minister, he did know that nothing he says will have any impact whatsoever on how much we pay the European Union. That if the European commission and parliament decide that our contribution will increase by 5%, 8% or 12%, the hard pressed British Taxpayer will have to shovel over the readies however much Cast Iron Dave huffs and puffs. Given that he knew this, he could have taken the principled route and told us the truth – that we were stuffed by the Lisbon Treaty and that we either have to get out or keep taking it in the shorts. Hey, he could even have just blamed it all on Gordon. However, instead he decided to go the usual kabuki theatre route of British politicians since the start of the EEC. That being:
1) Talk in serious tones of red lines, protecting British interests, in Europe but not run by Europe ecetera.
2) Walk through the journalist throng to the meeting with furrowed brow. David and Goliath, our man in enemy territory outnumbered but unbowed.
3) Come out with a weary yet resolute look. It was a hard fought negotiation but you stood your ground and carved out some very meaningful guarantees for Britain.
4) Hope the media train moves on and no one notices the huge tranche of British sovereignty you’ve just signed away.
Unfortunately for Cameron, so far this hasn’t been working out and his insistence that he has got guarantees that the increase will only be 2.9% does make you wonder if he fully comprehend the political reality. The excellent Richard North dissects the situation for Mr Cameron over at Eureferendum.
The procedure, however, is arcane. In the final analysis, the initiative lies with the EU parliament. Here, its position is straightforward – and powerful. Its response to the EU Commission proposal for a 5.9 percent hike – and the 5.9 percent was a Commission, not a parliament proposal – was to increase the figure from €130.1bn to €130.6bn, bringing it to about six percent. That is its negotiating position. The difference is between the Council’s €126.5bn and the parliament’s £130.6bn.*
Not only is the parliament not going to accept the Council’s 2.9 percent, if by some strange – and extremely unlikely – chance the Council actually stuck to its position, the parliament has a veto. It can pull the budget and force the whole procedure to start over, causing a humungous crisis in the EU, which can be laid at the door of the member states.
That ain’t going to happen. The Council negotiating team is going to compromise on a figure somewhere between 2.9 and 6.0 percent, most likely at the higher end.
Cameron claims the letter he has got is a “guarantee” the rise will not be any bigger than 2.9 percent. “What we’ve done is guarantee, with the support of other member states, that this is 2.9 percent,” he says. “They’ve given their word – 2.9 percent and no further. That’s the word they’ve all given. That’s the word I’ve given.”
It is not a guarantee. The letter has no status whatsoever. His “word” is an empty promise. If Cameron thinks he has actually got a guarantee (or given one) – he is delusional. Moreover, his advisors should be fired. If he is listening to them, they are turning him into a laughing stock.
So stage 3 in the Kabuki theatre guide to the British Politician in European Council Meetings, is not going too well for Cameron. However, not being in the UK, I can’t quite gauge how stage 4 is going. That is the bit where you hope that no one notices the huge wedge of national independence you’ve just handed over to Brussels. However, England Expects for one has noticed.
The grins and smirks of Mrs Merkle whose satisfaction is a quite something to perceive, and as the Economist has pointed out, this Council was not about the budget, it was about the Treaty, and Cameron has OK’d a Treaty change in a way that he thinks will avoid a referendum.
“I AM on the whole quite satisfied with the decision.” With these modest words, Angela Merkel, Germany’s chancellor, rounded off a remarkable victory at the end of a bruising European summit that concluded today.
Less than a fortnight ago, members of the European Union were universally opposed to Germany’s demand to reopen the EU’s treaties to strengthen the means of maintaining fiscal discipline among members of the euro zone. But within days of winning over Nicolas Sarkozy to her cause at the Deauville summit on October 18th, she got everyone to sign up to the idea of a “limited treaty change”. By the slow-moving standards of the EU, this happened in an eye-blink. It is a testament to the authority of Mrs Merkel, as well as the power of Germany’s constitutional court in Karlsruhe.
Douglas Carswell is very unhappy about this,
The spin says that the proposals from France and Germany for fiscal governance extend to the Eurozone only and so will not affect the UK.
The truth is that the EU might not be able to impose sanctions at this time, but our budget will be subject to as much scrutiny like every member state, including in theory Greece.
Having established common EU scrutiny over our budget, this deal also means a common EU legal framework applicable to “all EU Member States” – irrespective of us being outside the Euro. The path is now clear for us to be out voted on future EU legislative initiatives involving our internal fiscal affairs.
We’ve not just given ground over how much of our money we give the EU. We’ve given the EU a say over how we spend our own money at home. Some victory, eh.
Now correct me if I am wrong, but didn’t Cast Iron Dave promise a referendum on any more transfers of powers to the EU? Mmmm.
The Devils Kitchen reminds us that not long after the Lib-Cons got into power, they went over to Brussels and handed over control of the City and the Banking and Financial sector to the EU. It was at the time blamed on Labour. Not the Lib-Cons’ fault, and not worth rocking the boat over, and besides, they managed to nail down some Cast Iron guarantees about vetoing the EU vetting of our budgets.
Now what happened to that guarantee?
As you may have noticed, I have been a bit non-existent with the blogging the last two weeks. Unfortunately, my day job of trying to keep 120 employees gainfully employed got in the way. But this just serves nicely to highlight one of my pet peeves. That of the Vince Cable / ken Livingston Big Government type of politician who loves to bash the rich and prattle on about disparities in income.
For It wasn’t the guy with the three swimming pools up the road who has been keeping me up at night the last two weeks. Rather it was the rapacious government and municipal bureaucrat using an ever changing and expanding set of regulations to impose higher costs and threaten arbitrary closure of whole sections of my business. They are the ones who have been giving me more grey hairs and forcing me to spend the last two weeks doing completely non-value added activities, instead of growing the business and employing more people. And that is the thing with these Big Government types. I provide an income for over a 100 families and yet I’m the bad guy who needs to be taxed and regulated up to my eyeballs. Yet what hinders me from putting more money into the pockets of more employees are precisely those ever changing regulations and taxes. Give me more guys with three swimming pools any day. They pay my payroll – the bureaucrats certainly don’t.
Just had to get that off my chest.
Gangster governments abound in Latin America. Demagoging utopia to the poor and uneducated, they achieve power using democracy (or for the guy in the middle of the picture, the gun), only to undermine it to stay in power. Whether it be restrictions on the freedom of press, setting the tax authorities on rivals, stacking the justice system with favourable judges, nationalization or undermining state institutions with a corrupting network of placemen and cronies, anything goes to further their wealth and power. It revolts me to see how western lefties fawn over thugs like Castro of Cuba, Chavez of Venezuela or Evo Morales of Bolivia. It seems that wearing a green combat shirt or ethnic clothing gives these people a free pass to impoverish millions of the people they are supposed to be championing.
Evo Morales is a case in point. He rose to power as a trade union agitator, was instrumental in toppling a centre-right government through fomenting street protests and blockades and has then set about changing the constitution in his favour. Juan Carlos Hidalgo over at Cato has the detail. In the video below you can see him kneeing an opposing football player, and from the way he does it, you can tell he’s got previous.
I see that the Conservatives had a little messaging problem at their conference over the issue of child benefits, when it was leaked to the press that all those earning over £44,000 would no longer be eligible for the benefit. Now this might have chimed well with their “the rich have broader shoulders” meme, but it turned out to be manna from heaven for BBC journalists. Inconveniently, for the Tory spinmeisters, this change came with the inconvenient illogicality that a two income household in which both earn £44,000 would continue to receive child benefit, while a household in which one goes out and earns £45,000 and one stays at home to look after the children, would lose it. Quite patently this is a ridiculous situation and I am sure that it will be corrected before the change becomes law. However it did highlight certain absurdities of the current tax and welfare system in the UK.
1) The first is how difficult it is to cut back existing state programs. Once an entitlement is in place, then it is very difficult for a politician to remove it without being cast as ‘nasty’. To remove child benefits, free milk or fuel subsidies for the retired means that you hate babies, old ladies and fluffy white lambs, and what politician looking for a quiet life wants to be labelled that way?
2) Secondly, why should someone who earns twice the average wage, receive a welfare benefit in the first place? A far better idea would be to include children as part of the calculation of support for those in poverty and then just let everybody else keep more of their own money by reducing taxes. Taking it from them and then giving a portion back as child benefit, is typical Big Government nanny-state interference. As though if they didn’t label it as, ‘for the kids’, then the plebs would spend it all on bingo, booze and burgers.
3) In the same way, it highlights how politicians bribe us with our own money. I know someone – ahem – who receives a winter fuel allowance. Now just as with child benefits, the majority of people who receive the fuel allowance don’t really need it. They are not going to freeze to death if they don’t get their fuel allowance. Indeed Neil O’Brien at Policy Exchange says that 82% of those who receive it are not in ‘fuel poverty’. Yet the fuel allowance perfectly illustrates the hypocrisy of the system. The government imposes higher taxes and costs on the energy companies as well as forcing on them the government’s green agenda by cap and trade and making them buy over-priced electricity from renewable energy sources. All these taxes and costs are then transferred onto the consumer through higher prices, from the heating bill to the price of the pensioner’s carrots because of increased transport costs. The government is in effect indirectly taxing the pensioner. It then blames the energy companies for the higher prices and earns political capital by giving a few quid back as the fuel allowance. A bit like the pick pocket who steals your wallet and then pretends to be a concerned member of the public by buying your bus fare home.
4) Another peculiarity of this story is who sets the arbitrary line at which earning £44,000 means that you need a handout from the state, and £45,000 means that you don’t. This again illustrates why the current system of progressive tax rates, allowances and benefits distorts earnings and the cost of labour because of high marginal rates of taxation. If you earn £43,000, then there is no point in working to get a further pay rise if it results in losing your child benefit and going on to a higher tax rate. It also makes it harder for companies to reward their workers for productive behaviour as the pay rise has to be big enough to compensate for higher taxes and loss of benefits. A far better system would be to create a means tested safety net which always makes it more beneficial to work(as seems to be the direction IDS is going in), then the first £10,000 is tax free and after that 20% no matter what you earn. The more you work, the more taxes you pay, but then you get more in your pocket and what’s more important, YOU get to decide what to do with your money, not Gordon Brown.
Yup that flat tax again!
Update: Or maybe I should stay in Peru?
Looking forward to seeing you all in December. I can’t believe that’s it’s been a year.
Looks like the weather hasn’t changed that much.
Last week the Global Warming Industry shot themselves in the foot in spectacular style. In a move which will be talked about in marketing seminars for a long time, the 1010 climate change NGO released a video clip on the internet to raise awareness of 10th October, when they will push people to reduce their emissions by 10%. With global warming no longer a big issue with voters and skepticism on the rise, they hoped that the deliberately provocative video would get the topic back in the news.
The video certainly did that, but not in the way that 1010 originally intended. Featuring exploding children and copious amounts of blood and gore, the clip seemed to advocate blowing up in Jihadi style, all non-believers. Even as the clip went viral, appearing in blogs and websites all over the world, the people at 1010 didn’t seem to realize the extent of the disaster they had created, brushing off the growing outcry with a limp non-apology. However, over the weekend hundreds of thousands more people saw it, shaking their heads in disbelief and then sending it on to their friends with emails that said “you will not believe this!” By Monday morning the corporate sponsors of this well funded NGO were writing in to cut off their association and 1010 was in full damage control mode. However, it wasn’t just 1010 that was damaged, but the whole Global Warming Industry. For if the reason you exist is to convince people that the world is going to end, then the last thing you need are people saying “these guys are nuts”.
UPDATE: An excellent interview on Bloomberg of Lombard’s Dumas. I put the link in the comments below but it summarizes this post well so I thought I would bump it up to the top. Worth watching. (H/T The Boiling Frog Blog)
A Citigroup organized conference call with the Irish Finance minister and around 300 investors, descended into chaos last week as investor’s poked fun at the minister by making monkey noises and crying “Dive! Dive!” Immature as the behaviour was, it illustrated the dire predicament Ireland now finds itself in.
The Government’s effective nationalization of Anglo Irish Bank has pushed the budget deficit for this year to 32% of GDP (the danger level for deficit/GDP is considered by many economists to be 14%) sending the yield from Ireland’s government debt beyond that of Iceland and into default territory. The nationalization of Anglo Irish may have cost up to €35 billion or nearly €10,000 for every person in Ireland with its junk bond purchase scheme adding another €22,000 per person.
Last Thursday, the Irish finance minister Brian Lenihan made clear that while junior debt holders would make a “significant contribution” to the cost of the bank bailouts, depositors and senior debt holders would be protected. However, some hedge funds holding this junior debt are not happy about taking a ‘haircut’ on their holdings while senior debt holders are to be paid in full. They are taking the Irish government to court threatening that they will force Anglo Irish to be declared insolvent. Having guaranteed 100% of all bank deposits this would likely tip Ireland over the edge into bankruptcy and the embrace of the European bailout fund. This would end all semblance of financial independence for Ireland, as well as for its low corporation tax rate – one of the few sensible economic policies of the Irish Government in recent years.
Now there is much to criticize about the actions of the Irish banking industry. Those chief executives should all have lost their jobs and Anglo Irish allowed to fail with a much lower deposit guarantee. The hedge funds’ high stakes game threatening to declare Anglo Irish insolvent could be considered to be immoral, given the consequences to the Irish taxpayer. However, the lion’s share of the blame for this whole sorry state of affairs lies squarely with the political class. The hedge funds have a fiduciary duty to protect their investors’ money and are acting accordingly. Irish politicians had a duty to protect the interests of their citizens and instead acted against them. For the reason why Ireland is now staring into the financial abyss is mainly due to its government’s decision to take it into the Euro.
The Euro was created as a political construct. Its purpose was to force the need for the creation of all the institutions of a European State. It would necessitate a central bank, a unitary interest rate and monetary policy, financial supervision and further down the line, a unified economic and taxation policy. However, as an economic idea it really didn’t make much sense. A one-size fits all interest rate and monetary policy can only create financial bubbles in high growth economies, and depress growth in the low growth economies. The European Central Bank set the interest rate at a sensible level for the German economy, but the rate was way too low for Ireland whose economy was inflated by essentially ‘free’ money from Frankfurt. In 2006, the GDP in Ireland was cracking on at a pace of 6%, pushing inflation to 4.5%, while the main interest rate from the European Central Bank was 2.25% (H/T Tax Payers Alliance). Ireland effectively therefore had negative interest rates, which meant that any project made sense. Without a proper pricing of money, all you needed to do was borrow some money, buy or construct something and then watch your wealth, grow no matter how bad or worthless the project was.
So how does Ireland find its way out of this disaster? My suggestion to the Irish people would be to grab some pitchforks and expel the entire political class to one of the deserted isles of the west coast. However, over at the Adam Smith Institute they have some more boring ideas. Essentially, get out of the Euro, let the banks fail, don’t guarantee all the deposits, make some real budget cuts, and sell off as many assets as they can.
Ireland should take three painful steps to end its purgatory and put itself on the road to recovery. Firstly, it should end its 100% bank deposit guarantee and stop protecting banks and savers from their own mistakes. This would remove a large part of the budgetary burden. Secondly, it should default on some or all of its debt and fix its budget deficit through cuts in current expenditure. A fire sale of capital building projects and the privatization of other state assets (the state-owned gas and electricity companies, for instance) would bring in some much-needed revenue and help with the private sector recovery by opening up the number of industries subject to competition. Finally, the government should withdraw from the euro zone immediately. This would allow for a currency revaluation that would end the trade stasis that the euro has locked Ireland into, with artificially high prices depressing Irish exports.
I still think my idea was better.