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In defence of technocracy

Nov 18

Posted by Jeff in Economy, Europe | 25 Comments

There has been a lot of handwringing around the democratic deficit implicit in a ‘technocratic’ Government running a country with a PM at the helm that has not been elected into place. Setting aside what a technocrat actually is (I think they just like the word because it sounds cold and statist) and also setting aside the democratically sound sequence of events where politicians allowed these people to take over because they, you know, know what they’re doing, I can’t help but think that it is precisely technocrats at the helm that is required to solve the Euro crisis.

Let’s consider what we can expect otherwise with the politicians at the helm:

The David Cameron solution – the big bazooka approach of allowing the European Central Bank to print as many Euros as we need to bail out Italy, Spain, Greece and, heck, why not France too while we’re at it. Yes, yields would go down, yes the stock market would go up, but this is not real money that is being produced here, we’d be fighting debt with debt and I bet that wouldn’t work. It is more than a little bit convenient that this proposed solution effectively firewalls the United Kingdom from the fallout.

The Angela Merkel solution – With German patience with European neighbours wearing wafer thin, the idea of a Berlin bailout is all but dead. The problem child countries in the Eurozone need to feel pain, and need to be seen to be feeling pain, for Chancellor Merkel being seen to have done her job properly. I don’t know what the German word for schadenfreude is, but I bet the Germans are feeling it when they see those yields hit 7%. Insolvency and falling out of the Euro seems to be the general direction here.

The Nicolas Sarkozy solution – A financial transactions tax basically, a Robin Hood tax that takes from London and goes straight through the EU and out the other side to France via the Common Agricultural Policy rebates. Merci beaucoup my British chums, one might say, but there is no chance that Cameron will accept this, let alone his Eurosceptic backbenchers.

The Greek/Italian solution – Get the technocrats banking experts to find the solution that is a mix of the above and politically unpleasant for all.

Banking’s a tough old beast. The issue at hand here is basically the mother of all intercompany reconciliations that needs to be lanced and wound down to zero across a continent (and no doubt beyond). As someone who has had to audit and complete numerous relatively straightforward but nonetheless hideously ghastly intercompany recs in my time, I can be sure that we have a 99.9%/0.01% situation at play here. (that is, despite the millions of column inches, only the 0.01% know what they’re talking about. And you can probably add a few zeroes after that decimal point).

We need troubleshooters who can look beyond the next budget, who can look beyond the elections that are around the corner and can objectively take the difficult decisions while all about them people are losing their heads.

Those people are boring, those people wear brown suits and black shoes, those people can see eight, nine steps ahead, those people gobble Excel spreadsheets for breakfast, those people are honest brokers and cut through the crap.

For want of a better word, those people are technocrats and their time is now.

Alex Salmond and the Euro of Doom

Nov 5

Posted by Guest Blog in Economy, Europe, Holyrood | 34 Comments

A guest from Paul Freeman, who’s known to his Twitter fans as @setindarkness, and who also blogs here. Thanks Paul!

A pound, yesterdayIn a recently published interview in Time Magazine, Alex Salmond was asked the question of whether an independent Scotland would keep the Pound:

The sterling, well, it really depends on the financial circumstances of the time. We would tend to stay within the sterling area until such time as it is to our advantage to join the Euro and then we would only do it with the consent of the people.

However, given the entry criteria for the Euro, jumping from the Pound to the Euro would be impossible.

As was noted in James’ recent article about Scotland and the Euro, Any other existing EU members not in the Euro have to join ERM II. You then have to spend two years in ERM II and meet the convergence criteria before you can join the eurozone.

If an independent Scotland kept Sterling, it wouldn’t be possible to join ERM II, given there is zero change of rUK ever joining, or ever wanting to join ERM II.

The logical conclusion is that if Scotland were unable to remain in the EU through existing treaties, it would have to create the Scottish Pound, join ERM II and then apply to join the eurozone, before they could join the EU.

If Scotland were allowed to remain in the EU, it doesn’t seem possible to do what Alex Salmond suggested and jump from the Pound to the Euro at some future time.

There are other options. There is nothing to stop Scotland not joining the EU. It hasn’t seemed to have done our favourite country, Norway, any harm, and it would add to the ‘remarkable similarities’ between the two countries.

You’d have to be pretty insane, but you could just start using the Euro, as Montenegro does. Whilst the European Commission wasn’t happy about it, they didn’t stop them, and now Montenegro is an official candidate to join the EU.

Finally, Scotland could go the whole way and introduce the Scottish Pound. After all, there are already notes being printed and in circulation. They are already foreign currency in most English shops. It could then decide whether to join the EU/Euro via a radical democratic device called a referendum.

All this highlights the increasing need to resolve the matter of EU membership. In my opinion, the EU wouldn’t want Scotland to leave, and Scotland’s use of Sterling would give the EU leaders a nice Swedish style opt-out, allowing EU membership without the Euro. Leaving everyone except the Unionists happy. But, the SNP shouldn’t leave this dangling before the referendum as uncertainty will not make persuading people to vote Yes easier.

Nor should Alex Salmond say Scotland will join the Euro straight from the pound unless he can show how it’s possible.

Papandreou pulls a masterstroke

Nov 1

Posted by James in Economy, Europe | 25 Comments

Until yesterday, George Papandreou cut a weak and desperate figure as Greece’s Prime Minister. It’s arguable how much influence he felt he had over the terms of the “bailout” and associated austerity measures, and back in June he was so unhappy with his situation that he privately offered to step down in favour of a grand coalition.

Listening to the sleek-suited representatives of the IMF and the ECB, it must have felt like Hobson’s choice. Undermine not just the Greek economy but also Europe’s with a default on one hand, or aggravate inequality and hand over control of the Greek economy to the agents of the markets.

Either way, unpopularity looms and the problems grow. But as so often, if you don’t like any of the answers, ask a different question. Or in this case, ask different people the same question: the electorate.

It’s genius, at least potentially. What’s promised is not a messy general election about confidence and personality in amongst these issues, it’s a referendum that will give a clear answer.

There are plenty of reasons for Greeks to say no. Neither option is without pain, of course, and no option could be painless given their predicament. But a No vote rejects the iniquitous voluntary 50% writedown of debt which the hedge funds are rubbing their hands over, as discussed before. It rejects a austerity programme which doesn’t just end some of the ridiculous Greek state inefficiencies but sells off the family silver and slashes the social safety net.

It surely also means Greece gets out of the gilded trap that is the Euro. They did well from it when the books could be cooked and the European Regional Development Fund kept throwing money at their infrastructure, but there can be few who now look into the retrospectoscope and still believe the single currency was in Greece’s long term best interests. The same probably applies to Italy and others – in fact, the economic arguments for diverse economies using a single exchange rate have never seemed convincing – but letting Greece burn won’t let Italy off the hook.

The proper default that would follow would also in part be a liberation rather than the Götterdammerung the market analysts and other siren voices warn about.  It largely worked for Argentina, for instance. A no vote would also be the first substantial stake through the heart of the bailout/injection/recapitalisation myth, as lovingly excoriated by Matt Taibbi *. This initiative might mean the Masters of Risk start to bear their own losses, not palm them off onto taxpayers. It’d be a push-back against the moral hazard the markets have fallen into, a problem both socialists and free-marketeers should be concerned about. (Incidentally, wouldn’t it be great every time a financial analyst appeared on the TV news they had to declare where their interests lay in relation to the story they’re discussing?)

Alternatively, from Papandreou’s point of view, if he gets a yes, at least he has clear support for this ill-advised programme, and both PASOK and the Euro will survive, for now. He was backed deep into a corner and now, either way, with a single bound he’s free. Whatever the result, there will be a substantial price to pay for all the unsustainable borrowing, including a higher rate to pay for future loans no matter how the vote goes, but the Greek people will have democratically chosen their own course. No wonder the chair of the Greek Chamber of Commerce was whining on the radio this morning. This vote means there is a route out, and while he may have felt unable to reject the terms, it’ll be politically impossible for the vultures to ignore the will of the Greek people.

In response to the call of a referendum the markets dived. Of course they did. Banks, hedgies, all those with massive exposure to the CDS markets and relevant derivatives, all of them were expecting another skip-load of taxpayers’ money to be transferred directly to their bottom lines, but now they have been forced to care about the reported 60% popular opposition to the deal. Those companies are worth less this morning because traders realise they may have to cover their own losses. What a radical thought. Bravo sydrofe.

* I will make you read that article if it’s the last thing I do.

England, Wales and Northern Ireland do not have to join the Euro either

Oct 31

Posted by James in Europe, Holyrood, Westminster | 32 Comments

The media is having another kick-around of the old idea that Scotland, if independent, would be required under EU rules to join the Euro. As the Commission’s website confirms, the only EU members with an opt-out are Denmark and the United Kingdom. Even Sweden must join, in theory, when the time is right, and they’re probably not yearning to do so at the moment.

Any other existing EU members not in the Euro have to join ERM II and fulfil convergence criteria, which presumably right now means “is your economy nosediving and are your bonds not selling very well?” Sweden appears to have avoided this risk by deciding not even to join ERM II yet. This neat trick means they are not officially beginning to converge with the Eurozone, so can stay out. In practice it appears that new members could probably pull off the same trick, akin to Gordon Brown’s famous five tests, but despite reading the whole of the Maastricht and Amsterdam Treaties over the weekend, I’m really no clearer about that.

But that may not matter. So we’ll start again.

The argument is this: an independent Scotland would be either be outside the EU, shivering in the cold, or we’d be a new member, obligated to join the Euro just as putative future EU member states like Croatia would have to. But assume the referendum results in independence – why would Scotland have a formally different status to “England, Wales and Northern Ireland”? Let’s do a few implausible thought exercises.

Perhaps it’s because it would be Scotland’s decision to “leave”. Is it down to who takes the decisive step? Imagine the Clarksonite argument that the Scots are a drain on the exchequer triumphed at Westminster, and Dave decided to cut us off, metaphorically. Would we be forced into the Euro in those circumstances? Or if EW&NI were the ones who were seen to have initiated the breakup, not us, would therefore they be required to join the Euro instead? Both are absurd prospects.

Perhaps it’s a question of scale? Just because the bulk of the UK’s population would remain in EW&NI, does that make them the only successor state? There is some precedence for scale, notably when the USSR broke up and the Russian Federation got to keep the embassies, but the consequences of that decision for the other former Soviet republics weren’t as radical as a requirement to join a currency union. But still, that can’t be right. Imagine an EU member state, let’s call it Belgium, divided relatively amicably into two equal parts. Would only one of Flanders and Wallonia be left the successor state to Belgium, according to which was marginally bigger in population terms? No way, which is what makes this legal advice ridiculous.

Another option is that both halves could decide not to take on the rights and responsibilities. When Czechoslovakia went through its Velvet Divorce, neither country sought recognition as the sole successor state, and both were treated as new UN entrants, yet both remained parties to all treaties signed by their predecessor state. But that’s not going to happen, especially in this case.

Fortunately, we don’t need to play these games. In practice, the question of successor states is determined by the 1978 Vienna Convention. Colonies achieving independence are not bound by the treaties of their former colonial masters, whereas in “cases of separation of parts of a state”, all new states remain so bound (or in this case, free). Only the wilder fringes of cybernat-dom regard independence as the last act of decolonising the British Empire, so a newly independent Scotland would be covered by existing treaties, just as EW&NI would be. Thankfully.

And so the First Minister’s desire for independence and his desire for us to join the Euro can at least be dealt with separately by those of us who agree only with the first objective.

Occupy the European bailout

Oct 26

Posted by James in Economy, Europe, Governance | 8 Comments

IndignadosToday sees yet another round of hand-wringing across the Eurozone, driven by another round of hand-rubbing by the markets. When will it end?

We’re told that all it takes is a decisive move, that sufficient taxpayers’ money can be thrown at bank balance sheets to stop all this instability. It’s clearly nonsense. As Matt Taibbi pointed out yesterday in gorgeous detail, these bailouts are an endless series of ways to break the rules in favour of the rich elite, and it’s no wonder the peasants are revolting. Europe’s bureaucratic bailout merry-go-round is basically the same scam, just in more languages.

If the moral hazard is withdrawn and the value of your investment is never allowed to go down, and the traders and hedgies get offered a bet to nothing backed up by public money, they’ll just stop asking for more and threatening whoever’s next in line? Really? If the banks get offered a voluntary “haircut” only on their government debts, but the hedge funds can buy those debts and extract the full value, they won’t get together and make that deal? Really?

We know that austerity isn’t the solution to government debt. Greece’s economy fell 7.3% over the year – it’s not a technical recession, it’s a collapse. The previous link to the BBC shows what the vulture funds and multinationals are making from it too: woohoo! Cheap property in Kolonaki! Can I buy the lottery? Even the New York Times knows better than our current UK administration: “Mr. Cameron’s austerity program is the Tea Party’s dream come true“, and “unlike Greece, which has been forced into induced recession by misguided European Union creditors, Britain has inflicted this harmful quack cure on itself.”

Can political union save the economic union? Those of us who never believed a single currency could work across an economically diverse continent doubt that too. It’s just an even grander elite project to replace a failed elite project. The larger a state, the harder it is to change things. This is one of the reasons I favour independence: we need a radically reformed system of governance, and that seems almost impossible even at a UK level. Assuming political union could be delivered, the democratic deficit would feel even stronger to European citizens across the continent. The wrangle and tension that would come from making all taxation and spending decisions centrally, never mind all the social policy differences, make this pure fantasy.

Personally I agree with Frances Coppola on Liberal Conspiracy yesterday – the Euro is finished. Why any responsible First Minister would tell us so confidently that joining it is part of Scotland’s manifest destiny I have no idea. But before that there’s a choice of bailouts in front of the Eurozone leaders. The first option is to bail out the banks again, become the lender of last resort, and to prop up and vindicate all the traders who thought there’s money to be made here without risk. The second option is to go beyond the current guarantees and underwrite every deposit made by every individual and business in those banks, and tell the banks they’re on their own. A big society bailout, if you like, a bailout for the people who’ve suffered through these economic hard times, not yet another one for the people who made the mess in the first place. It’s not enough, but it would be a start.

If they go the right way, they will have redeemed themselves as Götterdämmerung for the dream of a United States of Europe approaches. If not, it’ll be time for the indignados and occupiers to take it to the next level, to turf a whole generation of corrupt politicians who put banks before people out and start again.