Ministers out to save the Euro have to ignore the obvious problems

 

    Last n ight on Newsnight the French Finance Minister gave an accomplished interview. She understood poorly worded questions and spoke well in a foreign language. Her message was perfect spin. She told us all current members of the Euro would remain members. She said there will be no more bail outs. She was sure no country within the zone would have difficulties financing itself in the year ahead.  It was a “Crisis, what crisis?” moment, a “Let them eat cake” interview.

      The BBC’s Economics correspondent afterwards told us the Euro political classes are in denial about the troubled  universe of the bond traders, bankers and business people who have to work with the results of the broken banks and the overborrowed states that stay within the Euro zone. He could have added that the politicians have to keep spinning through whatever the odds. If they once suggested there could be another bond crisis, or another bank shake up, or further deterioration in one of the struggling economies, they would hasten just such an event. Loose talk about reneging on bond obligations and seeking repayment of loans by the ECB to Irish banks was sufficient to cause the last phase of the crisis.

         The Euro, just like the Exchange Rate Mechanism before it, forces politicians either to fly in the face of reality or to keep quiet. Markets want to go in the opposite direction to the politicians. In such circumstances careless talk can cause great economic and financial damage. The French Finance Minister had to say what she said. She might have shown greater wisdom by declining to comment at all. A defence few believe is no defence.

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20 Comments

  1. FaustiesBlog
    Posted January 7, 2011 at 8:13 am | Permalink

    She whom Osborne holds in high regard. 😉

    Her stance is typical of Europhiles, most of whom are collectivists and to whom the markets are deemed to be an aberration that must be regulated and controlled.

    Either she and her ilk don’t understand markets or they want to undermine them in the public’s consciousness so as to roll in (further) the anti-market, anti-capitalist state-regulated state ‘capitalism’ – or corporatism.

    That she thinks it is possible and given her pecking order in the EU, tells us much about the EU’s intended direction of travel.

    To dismiss her remarks as those of a barking, spinning loony, is to take your eye off the ball.

    You need to watch that space carefully.

    I notice Osborne’s stance in the FT. Such strong language is probably indicative of the uphill battle he perceives that the UK faces against the lefties/fascists in the EU. To me, it indicates that we are in real danger of seeing London’s supreme position in the financial markets being whittled away by those countries which covet it’s position. Namely, France and Germany.

    BTW, you might be interested in this very well-written article, JR (which is slightly off-topic):

    http://www.cityam.com/news-and-analysis/allister-heath/time-fight-economic-freedom

  2. Javelin
    Posted January 7, 2011 at 8:29 am | Permalink

    It’s very simple tax payers bail out Governments one at a time and the way they bail out Governments is to give money to investors. One at a time we give huge chunks of our future cash flow to investors from China and the Middle East. Wealth is like water – it will find a way of flowing and finding it’s own level. All the Government is going is putting sand bags in door ways only for the water to slip through the air bricks and then the floor boards.

  3. lifelogic
    Posted January 7, 2011 at 8:32 am | Permalink

    Yes I can remember laughing out loud at the radio when someone in Major’s government said “if we come out of the ERM interest rates will have to rise still further” or similar as I drove round London surveying all the houses and flats that had all been repossessed by the lenders due to the absurdly high rates.

    You can only judge politicians by their actions not words. You usually know what they will say before they open their mouths anyway. Though occasionally the sheer stupidity of their statements still takes me by surprise.

    In general they only say two types of things one is so obvious as to be not worth saying and the other is just a direct falsehood. For example:

    “We want a coordinated, efficient, well managed service” or “Nothing I can say or do will bring these people back to life” Did anyone want an uncoordinated, inefficient, badly managed, service”? or “Nothing I can say or do will bring these people back to life”.

    Then the direct falsehoods “We will create large numbers of green jobs in the low carbon economy” or “we are a pro business government” or we give you a “Cast Iron Guarantee” or “a guarantee of no more transfer of powers to the EU” or “business should welcome this new enlightened sex/age discrimination employment law”.

    It is not difficult to spot which is which.

    JR is usually one of the few exceptions to these general rules.

  4. Peter van Leeuwen
    Posted January 7, 2011 at 8:50 am | Permalink

    Well done Mrs Lagarde. At least she didn’t talk about the divisions between Germany and France on “European Economic Government” or on looming fights with the European Parliament, which next week will come with six reports to strengthen the stability pact, trying to reduce the role of (largest) member states. There is even a suggestion to make CAP hand-outs conditional on economy reform in the weaker countries.
    The financial sector reads all this in continental papers, but I think that the voices that the euro will break are fewer than last year.

  5. Stuart Fairney
    Posted January 7, 2011 at 9:28 am | Permalink

    The “careless talk costs lives” stuff is all very well, but a well documented, credible recovery plan that all members would follow would be far better. The EU is engaged in hopeful Micawberish-ness and nothing more.

    I should perhaps say from a personal perspective, so much the better, the demise of the Euro is something I shall celebrate.

  6. George Rowley
    Posted January 7, 2011 at 9:29 am | Permalink

    I like the comment about the comments from the French minster being spin, isnt all politics spin look at the way the Coalition Government are talking about the new enterprise programme, isnt that spin?

    • Richard Calhoun
      Posted January 7, 2011 at 2:10 pm | Permalink

      No, all politics is not spin!

      • lifelogic
        Posted January 7, 2011 at 5:49 pm | Permalink

        Indeed- spin only works for a very short time and that time is reducing further as people get wise to it and the internet exposes the spin almost straight away.

        A sense of direction for what actually works, principal and substance is what is needed in politics – alas little sign of it so far.

  7. Brigham
    Posted January 7, 2011 at 10:21 am | Permalink

    I note, that our representative in the EU, Cathy Ashton, has the worst attendance record than any of her colleagues. We have very little say in the EU on any subject, anyway, so why don’t we clear out these labour appointed (salary takers-ed)?

  8. Sam Kirklee
    Posted January 7, 2011 at 10:30 am | Permalink

    Hardly a surprise that politicians can’t or won’t face reality. I can’t think of many occasions when they have. Surely if a system is so badly designed and run that any mention of the truth will destroy it then it’s time it was destroyed. Hanging on and praying for salvation won’t save it.

  9. Éoin Clarke
    Posted January 7, 2011 at 10:40 am | Permalink

    John,

    Your two main points are good ones. It is a case of the Emperor and his new clothes. Loose talk from Merkel alterted the markets to Ireland’s nakedness. It is also a case of what I call Ostrich Politics… The myth has it that a) Ostriches stick their head in the sand in that they are not aware of what is going on around them or that b) EU diplomats have their head in the sand…. In the case of both scenarios, neither have their head buried, they are simply playing their games of hear no evil, see no evil until Merkel forgets the rules of the game and utters more loose talk…

  10. Richard Calhoun
    Posted January 7, 2011 at 2:08 pm | Permalink

    The straight bat played by France’s finance minister was certainly all that she could do, it was not convincing, and the interview will only reinforce the view that we are in for some very large Euro / Sovereign debt crises in 2011.

    Although any such crisis will damage our economy, it has to be said we are currently living in cloud cuckoo land, and it may be better for the World economy generally to have its second dip and force the politicians and the bankers to face reality.

    Then we will be able to start re-building our economies in a sustainable manner.

  11. AndyLeeds
    Posted January 7, 2011 at 2:42 pm | Permalink

    My former Steward and Housekeeper in Greece have a small gift shop. When I visited them last September she said to me ‘I haven’t sold a thing for a fortnight’. While I was sat chatting she sold a few bits for 65 Euros. Didn’t sell a damn thing then for 10 days when again I was sat chatting !! They are lucky that they own the property and don’t pay rent, but effectively their business is bust along with half the rest of the island. The political class don’t give a toss. The reality is Greece, Spain, Portugal, Ireland etc should never have joined the Euro and they will suffer a long and painful depression as a result. And all so the politicians can save face.

  12. Ken
    Posted January 7, 2011 at 3:40 pm | Permalink

    What worries me is that our own government is also going silent with regards to our own financial problems.

    I understand that the Liberal Democrat rank and file may not all be able to stomach a tough message but while the coalition takes a defensive line on spending cuts the government looks weak and indecisive and the bond markets may start to wonder.

    Every time the government back-peddles on public spending cuts or puts out a statement that attempts to play down the effect of the cuts, it is inadvertently tarring itself with the Labour Party brush.

    Surely the government should take a tough line and firmly place the blame for our predicament where it belongs.

  13. Robert
    Posted January 7, 2011 at 5:09 pm | Permalink

    What was remarkable was Paul Mason’s comments about the Euro. This from a BBC employee. Definately not singing from the right hymn sheet. He will be rubbishing global warming next.

  14. Ken
    Posted January 7, 2011 at 8:24 pm | Permalink

    But I think there is a shift going on at the BBC as they see the Euro/eu doing the opposite of what it says on the tin.

    Now that their union comrades on the continent are starting to hurt through austerity measures, are they starting (at last) to the question the whole enterprise? I noticed that they didn’t even use the eu-approved-washed-and-sanitized phrase ‘democratic deficit’ but were more direct in challenging the eu’s democratic credentials.

    I reckon that what is discussed in the corridors and tea rooms of the BBC eventually finds its way on air, so, just maybe, we will be allowed some sensible discussion about our relationship with the eu quango. Goodness, we might even see a bit more of Mr Redwood on the telly!

  15. Robert George
    Posted January 7, 2011 at 9:17 pm | Permalink

    There was something quite Neronic about the lady’s performance, or maybe Cnut would be a better historical comparasion. The Europhiles attitude is incomprehensible and they know as well as you do JR that we are only waiting for the next crisis. It seems that no-one nation has the political will to face the inevitable and move to regain sovereignty over their own country’s economy: ie. abandon the Euro experiment.

    However, the crisis of leadership which prevails in Europe does give me confidence that things will only get worse before the inevitable collapse. Frankly if a Euro crisis brings down the EU which it could I ‘m all for it.

  16. alexei
    Posted January 8, 2011 at 12:02 am | Permalink

    According to OpenEUrope, Christine Lagarde went on to say this:-

    ” the aim of the French and German governments is to see more harmonisation of economic policies” but, when asked whether people had ever voted for this convergence she replied, “The European project has been around for over fifty years and it was built on the back of a situation where people were at war…The European project is something we all believe in because we want peace to be maintained.”

    • Simon
      Posted January 11, 2011 at 12:50 pm | Permalink

      What a pity Kirsty Walk couldn’t pursue that line of questioning further .

  17. Mark
    Posted January 8, 2011 at 1:21 am | Permalink

    I would suggest the required strategy is that of a crocodile. Lie still, carefully observing until the moment is ripe, then lash out with dramatic suddenness with teeth flailing into PIIGS bonds etc. The present strategy is that of a leopard deprived of cover to stalk its prey: in those circumstances it is better to forget it and go hungry than waste energy on a charge.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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