Bailing out the IMF

               This week the government announced its intention to put through a Statutory Instrument approving £9.4 billion pounds of new capital for the IMF. The draft SI is a very short document, pledging 9.416 billion SDRs. The document does not explain to MPs that one SDR is about the same value as one pound sterling. We are awaiting news of how and when this matter will be considered. The government does have to allow a debate and a vote, though it may opt to do that in committee rather than on the floor of the House.

              Doubtless when we get to the debate we will be told that this is contingent capital, that the IMF lends it and expects to get it back. We will be reminded that the UK is obliged to fulfill her international obligations as a full member of the IMF.

             I have two main worries with this proposal. The first is I object very strongly to the IMF becoming the cash machine of last resort for the failing Euro. We could easily lose substantial sums through this activity. The IMF has been lending to Euro countries at a little over 5% when the market says they should be paying twice that. Many in the markets think Greece will have to renege on its debts one way or another.

               The second is, this is not a good time to ask us for more money. The UK  government is rightly fighting the battle of the bulge on its own borrowing habits. Having to borrow more to lend to ailing Euroland economies through the IMF is not helpful to the UK programme of debt and risk reduction in the national accounts.

               Loans made to Ireland at around 5% are now worth substantially less if you marked them to market prices- at least a third off.  Money lent to Greece at 5% ish is now worth well under half the amount lent, if you wanted to sell the loan on. When governments take on markets they often lose. The danger is governments simply take the risk onto the taxpayers shoulders. The risk does not vanish.

               Our approach to demands to contribute under IMF and EU programmes should be different. I am not suggesting that we leave the IMF. I am proposing that we lobby other countries and the management, to get agreement that trying a further bail out for single currency casualties is not a good idea. The IMF was not set up to bail out rich countries that have made a major policy mistake. They should advise any such countries seeking money from them to leave the Euro or take other appropriate action to put right the source of the error. The IMF does not need so much new capital if it avoids future Euro bail outs.

            Within the EU our stance should be strong and determined. As a non Euro member we should make no contribution whatsoever to Euro bail outs. That requires renegotiating the Darling pledge – so be it. It would be a very good issue to dig in over. Euroland needs UK support to allow it to integrate as much as it has to. The price for our agreement should be less power over the Uk, and none of our money for the Eurozone.

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93 Comments

  1. Stuart Fairney
    Posted June 17, 2011 at 7:01 am | Permalink

    Given that the front benches of all three parties support this (usually a good signal) there is nothing much we can do about it. However it is at least 50/50 that Greece will default according to one credit agency with other commentators saying it is more likely than that.

    So my question is simple, if there is a very, very substantial risk that any bailout money maybe lost, and it is indeed lost, at what point should politicians face criminal charges for negligence by engaging in such behaviour?

    Because I would rather like to indicte those who vote for this bailout?

    • APL
      Posted June 17, 2011 at 8:08 am | Permalink

      Stuart Fairney: “Because I would rather like to indicte those who vote for this bailout?”

      Seconded!

    • Gary
      Posted June 17, 2011 at 12:18 pm | Permalink

      Good point. Actually the people should be able to sue politicians for liability if they are shown to have squandered our money. This business of them having 5 years to wreak havoc with our money and then walk away scott free into cushy directorships is disgusting. We should have the right to sue them and let the court decide. It might tension up their decision making. Unfortunately they themselves would have to make this law, that is how screwed up this system is.

  2. Boudicca
    Posted June 17, 2011 at 7:11 am | Permalink

    Osborne was at the recent Bilderberg conference, where he presumably got the next raft of instructions – including the UK stumping up whatever is demanded to keep Banks solvent (not just in the UK) and the EU/Euro show on the road.

    Our Government is not serving the British people. It is doing the work of others.

    • Martyn
      Posted June 17, 2011 at 8:58 am | Permalink

      So was Mandelson, whom Osborne, I understand, is campaigning for his election to Director General of the World Trade Organisation. There is something deeply worrying about their relationship and when I hear Mandelson praising the coalition the alarm bells start ringing….

    • Gary
      Posted June 17, 2011 at 12:20 pm | Permalink

      Precisely. Osborne should be required to present minutes of this Bilderberg meeting to parliament. He is employed by us, he must report back to us. This patronizing arrogance is breathtaking.

  3. Mike Stallard
    Posted June 17, 2011 at 7:15 am | Permalink

    Hey – what is £9 billion or squillion of other people’s money?
    Who cares?

    Actually, just one teeny little million goes a very long way here when you are thinking of starting up a free school, closing down Hinchinbrook Hospital or mending the roads..

  4. lifelogic
    Posted June 17, 2011 at 7:16 am | Permalink

    So, so far we have lost a third of the Irish loan and a half of the loan to Greece. Further we have as a result pushed up UK borrowing costs and the deficit and more businesses are thus rendered uncompetitive in world terms. So the deficit is pushed up yet more and government borrowing costs thus pushed up yet again.

    Well done Cameron, Clegg and Darling. Can they explain why they are doing it and what they hope to achieve through this insanity? A good boy sticky badge from the EU perhaps?

    • lifelogic
      Posted June 17, 2011 at 8:41 am | Permalink

      Last night Kirsty Walk on Newsnight, commenting on reports that the Guardian is going to become more like Newsnight, said “We are totally delighted.”

      But is it really possible for them to get any closer politically than the existing position of pro warming exaggeration, pro EU superstate, pro bigger state, pro over payment of state sector worker, pro command economy, pro the failing NHS and state education system, pro immigration and pro ever more legal regulation of virtually everything?

      Perhaps they intended it in the sense of just having very few readers/viewers.

    • Javelin
      Posted June 17, 2011 at 9:10 am | Permalink

      I have not found a single legal opinion all week that believes in soft-restructuring either in any hedge fund, investment bank or pension fund. This is only going to end in tears. Cameron and Clegg need to be aware that *ALL* the money – every penny they throw at the PIGS has a very high chance of vanishing … along with their careers and their parties.

    • lifelogic
      Posted June 17, 2011 at 9:59 am | Permalink

      Reported in the Daily Telegraph today:

      Public-sector workers risk even bigger cuts in their gold-plated pensions if they strike and reject government plans for reform, Cabinet minister Danny Alexander warns.

      I agree fully with the need to address this issue. But might this threat perhaps have more honesty and effect were the government to address the hugely over generous MP’s, Minister’s, The Speaker’s, and the EU pension schemes and their rather special tax arrangements first?

      Reply: MPs pensions are contributory and have recently been revised to require higher contributions. I think MPs pay the highest contribution rate of any public sector employees. There are no favourable tax arrangements for MP pensions over and above the tax advantages all pension plans share.

      • Simon
        Posted June 17, 2011 at 10:21 am | Permalink

        J.R.

        How can you justify having special pensions arrangements open to only Public sector workers including MP’s ?

        Surely they should either be scrapped or opened up to everyone ?

        Reply: Public sector workers have employer schemes as some private sector workers still do.

        • lifelogic
          Posted June 17, 2011 at 12:43 pm | Permalink

          Very few private sector worker can now enter a defined benefit scheme at all and all private sector type schemes that usually save are now are unable to recover dividend tax credits (thanks to Mugger Brown) so are at a disadvantage.

          Public sector schemes do not have quite the same problems with contribution limits and this dividend tax. So there is indeed a very biased two/three tier system with the public being far far better than private provision (and EU/MP/Ministers/the Speaker/Judges schemes being very, very good indeed.)

          Self employed and small business have particular problems as often due to trading conditions they are unable to contribute every year due to lack of funds and are prevented from making it up later by limits.

          The should tax public sector scheme to make the average private pension “pot value” similar to the state sector. At the moment it is about 10 times as good in the state sector I understand.

        • lifelogic
          Posted June 17, 2011 at 3:00 pm | Permalink

          Are you really saying that the pension the Speaker receives on election to the post is taxed as others to the extent that where they exceed £50,000 increase in value within the year they are taxed?

          MP’s expenses certainly are treated very differently to those of mere mortals.

          This not be quite so bad were it not for the appalling quality of the speakers in particular the current and last one.

        • David Price
          Posted June 18, 2011 at 8:09 am | Permalink

          “Reply: Public sector workers have employer schemes as some private sector workers still do.”

          That’s quite true John, but public sector employees don’t risk losing large chunks of their pension if their employer gets into financial difficulties.

          Reply: Indeed- which is why I accept public sector pension changes which mean I along with others have a higher retirement age, higher contributions and a worse deal.

      • zorro
        Posted June 17, 2011 at 5:16 pm | Permalink

        John,
        What % of salary do MPs pay for their pension. The police pay 11%….

        zorro

        Reply: MPs from memory is 11%. Police 10.5%?

        • lifelogic
          Posted June 18, 2011 at 2:23 pm | Permalink

          11.9% if they want the 1/40 of salary pension (which all would unless they are daft). So a £4,693 PA contribution net get them about £50,000 pension value (depending on age). Or from the other side the tax payer gets £50,000 pension liability PA per MP.

      • StevenL
        Posted June 17, 2011 at 8:00 pm | Permalink

        By tax arrangements do you mean property ‘flipping’? Remember no British jury has had the chance to decide whether this practice passes or fails the R v Ghosh [1982] test of ‘dishonesty’.

        I’d put my money on them convicting in a lot of circumstances for fraud by false representation.

    • lifelogic
      Posted June 17, 2011 at 4:42 pm | Permalink

      Philip Davis MP has come under fire for suggesting vulnerable people should be allowed to work for less than the minimum wage so that they can compete for jobs. He is quite right (if a bit naive politically).

      Clearly everyone should be allowed to work for whatever they and the employer mutually agree – anything else is an absurd attack on people freedom.

      The state should have no say in this what so ever that should save yet a few more pointless state sector jobs. And mean some extra jobs too.

  5. John C
    Posted June 17, 2011 at 7:18 am | Permalink

    This is all turning into an ever bigger mess that you predicted all those years ago.

    According to Bloomberg, the market now thinks that it is inevitable that Greece will default – mentioning 30% yields – (especially now that that old sage, Alan Greenspan, has said as much).

    As said on Bloomberg this morning, if Merkel and Sarkozy keep saying that the Greeks will not default, the market will not believe them when they try to say the same about Portugal and even Spain.

    This is turning into a disaster yet our coalition government are remaining silent. If / when this goes belly up their credibility will be in tatters.

    • APL
      Posted June 17, 2011 at 8:14 am | Permalink

      John C: “especially now that that old sage, Alan Greenspan”

      Greenspan is largely responsible for our situation.

      Apart from the destruction of Western economies, he will be remembered for his largely nonsensical and impenetrable prose.

      • John C
        Posted June 17, 2011 at 9:19 pm | Permalink

        Although it did not come across that way, I was being sarcastic.

        He said, after the financial crisis that he did not take into account that the CEOs of financial companies would ever do anything that could be fatal to their company. (As Homer Simpson would say: “Doh!”)

        Very intelligent people often lack basic common sense.

        What he failed to understand is that was true for those those who built their companies from scratch and valued them (the true giants of capitalism – many of whom were great philanthropists like Bill Gates today).

        Most businesses now are run by professional businessmen who have no loyalty to any particular company. And, in the current climate, they get rewarded anyway.

        According to Jon Ronson’s book, a significant percentage of these people are psychopaths (not in the murderous sense).

        The other day, Cecil Parkinson said that he worried that many CEOs today seem to be wanting to destroy capitalism by being so greedy.

        Just like the unions were too powerful in the ’70s, it seems that current CEOs (and bankers) are out of control. A correction is needed.

        I have no idea how this could be achieved.

  6. Alan
    Posted June 17, 2011 at 7:19 am | Permalink

    I fully agree that the government should be clearer that it is risking not its own money on these proposals, but the taxpayers’. I also think that it is no part of the government’s mandate to invest the taxpayers’ money purely in the expectation that the investment will end in profit.

    However the IMF is an essential part of the world financial system and this is not a good time to undermine it. It has to be allowed to provide support that it considers necessary. Of course the UK has a say in this decision making, and our MPs a role in determining what that should be, but I feel it would be better if the MPs dealt with the principles that the IMF should apply in deciding what loans to make, not interfering with particular loans.

    We ought also to bear in mind that we gain from the IMF using sterling as part of its reserve currency, by denominating its currency – the special drawing rights – partly in sterling: that gives sterling some backing which it badly needs. So it is worth our while to provide some level of support.

    The Eurozone is struggling to protect European banks from the consequences of their errors in lending to countries that cannot repay – UK banks as well as French and German ones. The Eurozone does this because it thinks the failure of the banks would be catastrophic for the financial system. I have my doubts about that, but they are better informed than I am and are more likely to be right. That is where I believe the debate should lie, not whether we agree or disagree with the euro: the real question is do you think it necessary to support Greece to avoid making the financial crisis worse?

    In short, I support you in being worried, but I’m not so sure that worry should transform itself into opposing payments into the IMF fund.

    Reply: I am setting out principles – the simple principle is the IMF should not lend any money to prop up an ill founded single currency scheme. It should offer Euroland advice on how to fix their system if asked, but should not commit our money to bail outs of rich countries that have made an obvious economic policy mistake.

    • Alan
      Posted June 17, 2011 at 9:21 am | Permalink

      A response to Mr Redwood’s reply:
      But if a Greek default really is going to bring down the financial system, including ours, I think we should support the IMF in working to avoid it. In spite of the fact that this means supporting “a failed currency scheme”.

      Reply: Why do you think lending more money to a country which has borrowed too much solves the problem? We were told teh first loan package would fix it, but it didn’t

      • John C
        Posted June 17, 2011 at 9:36 pm | Permalink

        “But if a Greek default really is going to bring down the financial system, including ours, I think we should support the IMF”

        So, you are saying that because a group of countries pursued a risky economic policy for political reasons that, when they hit economic reality, and the proverbial stuff hit the fan, the IMF should simply pour more money down the drain?

        Germany and France allowed the likes of Greece into the Euro because they knew they’d be able to flood their markets with their exports as Greece could not compete with German / French productivity. Germany especially has benefited from this policy.

        Germany and France knew, at the time, that Greece fiddled the books. It was in their economic interest to let them in.

        Now that it has gone belly up there are only two options:

        1) Allow Greece to default and possibly lead to the collapse of the Euro (it may survive with a small core).
        2) Accept the inevitable and immediately have a political and fiscal union and become a superstate.

        Option 2 is politically unacceptable in the foreseeable future.

        Basically, the EU has to stop fudging the issue and either go for full political and fiscal union or drop back to a loose trading block.

  7. norman
    Posted June 17, 2011 at 7:26 am | Permalink

    Is there any way we can split the House of Commons so that MP’s no longer have any fiscal responsibility?

    If we are considering it with the banks using the justification that they placed their bondholders / depositers at risk by taking on too much risky debt how can we allow MP’s to decide on where to spend hundreds of billions of pounds borrowed in our names given your collective past record?

    Reply: The Commons is the best brake we have compared to Ministers and the civil service!

    • lifelogic
      Posted June 17, 2011 at 7:38 am | Permalink

      The only brake but alas it is broken.

      • APL
        Posted June 17, 2011 at 8:16 am | Permalink

        JR: “The Commons is the best brake we have compared to Ministers and the civil service!”

        It is really the premeninent role of the commons, to control government spending. It has failed to do that for the last several years. When was the last time a finance bill was rejected in the commons?

      • Caterpillar
        Posted June 17, 2011 at 10:52 am | Permalink

        Somewhat frightening. The Commons wishes to hold philandering footballers to account but fails to hold the Treasury to account. Meanwhile the Treasury fails to hold the MPC to account. I wonder what per centage of MPs Mr Redwood actually thinks are up to the job, and how the system has evolved into such a state? I don’t want MPs to be reflective of us the electorate, I want them all to be in the right hand tail (of intelligence and integrity distribution curves).

    • foundavoice
      Posted June 17, 2011 at 8:51 am | Permalink

      Ironic comment that, as Parliament was created for the purposes of holding the treasury to public account.

      Which begs the question, if it cannot peform this basic and fundamental duty, what is the point of keeping it?

      • APL
        Posted June 18, 2011 at 8:14 am | Permalink

        foundavoice: ” what is the point of keeping it? ”

        Especially as there are alternatives. Something like the Swiss model of regular referendums, I would be happy to vote once a year on the finance bill.

        I have no doubt MPs would huff and puff and condemn the idea. But then vested interests never vote for change.

  8. zorro
    Posted June 17, 2011 at 7:43 am | Permalink

    The Commons is the only brake we have…..Unfortunately, it’s not very effective.

    Zorro

  9. zorro
    Posted June 17, 2011 at 7:50 am | Permalink

    The IMF is Cameron’s get out clause allowing him to prop up the Euro with our money, rather than more directly. In any case, Greece is going down. It is not in their character to accept this humiliation without blood being spilled either physically or metaphorically…

    Zorro

    • John C
      Posted June 17, 2011 at 9:45 pm | Permalink

      “In any case, Greece is going down. It is not in their character”

      In a way you have to admire the people of Greece.

      The financial establishment managed to convert their problem (bank debt) to our problem (sovereign/tax payers debt) yet already have the audacity to go back to their old ways of bonuses and excessive pay. Indeed, they are saying if we consider taxing them too much, they may leave the country.

      If I had the courage to go into a bank and rob them of £100K I’d be sent down for 30 years. Yet bankers seem to have robbed us of billions and they are still getting high pay and bonuses!

  10. Oldrightie
    Posted June 17, 2011 at 7:58 am | Permalink

    It is utter madness and a specific indictment of globalisation’s “all the eggs in one basket” lunacy of The Bilderberger method.

  11. A.Sedgwick
    Posted June 17, 2011 at 8:34 am | Permalink

    This appalling situation further confirms my view that we have sunk into politburo party government. The three main parties are largely indistinguishable just marginally different when in government i.e. incompetent, ineffective and dictatorial. Until the electorate wakes up to what is going on and how it will affect younger and future generations I fear an apocalyptic future for this country.

    • Javelin
      Posted June 17, 2011 at 1:15 pm | Permalink

      Agreed. We face a political singularity. Like an Einstein Bose condensate at absolute zero with no energy and no movement.

      • APL
        Posted June 18, 2011 at 8:18 am | Permalink

        Javelin: “no energy and no movement.”

        Ha ha! Couldn’t have described the coalition better.

  12. Robert K
    Posted June 17, 2011 at 8:45 am | Permalink

    Nicolas Sarkozy quoted in The Times this morning: “Without the euro there is no Europe and without Europe there is no possible peace and stability.” Christine Lagarde quoted in the Wall Street Journal in December: “We violated all the rules because we wanted to close ranks and really rescue the euro zone… The Treaty of Lisbon was very straight-forward. No bailout.”
    In other words the French president and the (French) favourite to be head of the IMF are fixated with a vision of the euro as the mechanism of central political control of Europe, irrespective of the price. It should be no surprise that markets are so spooked about what is going on in Greece. The European project is going to turn very sour indeed in the coming months.
    Now is absolutely the right time for the Coalition to “dig in its heels” on bailouts but the chances of it doing so are zero.

    • Simon
      Posted June 17, 2011 at 10:33 am | Permalink

      It all goes to show how passionate Dave’s love affair with Europe is .

      He knows it’s a failing relationship and has found out she has stopped taking the pill but is determined to wed the UK to Europe and we will all be paying for it for much longer than 18 years .

    • Javelin
      Posted June 17, 2011 at 1:23 pm | Permalink

      Hmmm and without the Euro there would be no rioting in Athens. He should try seeing things from a higher view point … may I suggest platform shoes.

  13. English Pensioner
    Posted June 17, 2011 at 8:47 am | Permalink

    A very good reason for opposing the idea that the next Head of the IMF should come from a country within the EU, otherwise it is a dead cert that the money will be used to bail out the Euro. I support someone from Australia, after all Australia did manage to avoid the worse of the recent financial crisis, so they must be doing something right.

  14. Brian Tomkinson
    Posted June 17, 2011 at 8:50 am | Permalink

    Politicians are too ready to take unacceptable risks with other people’s money in just the same way as they have accused bankers. If they could be personally held responsible and threatened with jail or seizure of personal assets they might behave more responsibly. As they make the laws this will never happen and as the main political parties seem hooked on the drug of spending other people’s money we seem destined to be impoverished permanently.

  15. alan jutson
    Posted June 17, 2011 at 8:52 am | Permalink

    I fail to see any logic in us underwriting the debt to Greece, in order to protect our banks, who may have money at risk if Greece defaults.

    Just caught part of a TV programme late last night when channel hopping.

    In summing up:

    Nigal Farage of the three politicians being interviewed, said no to more European bailouts as its a complete waste of money.
    We need to scrap the idiotic climate change legislation regulation and taxes because its driving business abroad.
    The Government is not making any cuts, spending is actually increasing, but we do need real cuts, if not our debt will not be reduced by a single penny by the end of this parliament.

    The other two politicians both Labour and Conservative thought the opposite view on all subjects, and tried to ridicule and make fun of Farage.

    UKIP/Farage has no influence in Westminster, the other two politicians have, even if they are just lobby fodder for the whips.

    Who’s views will history prove correct.

    Sorry cannot reference Channel, Programme, or the two other Mp’s who’s names escape me, but they really were not worth listening to anyway.

    No I am not a UKIP supporter, but do have time for Nigal Farage views who seems to be able to cut through the crap.

    • lojolondon
      Posted June 17, 2011 at 10:03 am | Permalink

      Well, if you are concerned then I think you should support UKIP, because the other parties are all committed to the EU gravytrain, and they do not care how much it costs us.

      • A.Sedgwick
        Posted June 17, 2011 at 1:20 pm | Permalink

        It is not just the EU gravy train, many Westminster MPs appear timeservers subjugating their honest feelings rather than lose the whip and their career.

      • alan jutson
        Posted June 17, 2011 at 2:01 pm | Permalink

        Lojo

        John Redwood is my MP, so to vote UKIP would mean to ditch our host.

        Much as I like some of UKIP s polices, I think I will stick to JR, at least he has the ear to government policy, and is not afraid to make his views known, never know, he may even be called upon to try and sort out the mess when it all goes tits up.

        Farage could not defeat John Bercow so so few voted for him, so what hope UKIP to form a government when their best known face fails to get a seat.

        • David Price
          Posted June 18, 2011 at 8:15 am | Permalink

          I have the same predicement, except a vote for our host is also taken as a vote for the current leadership.

    • Jon Burgess
      Posted June 17, 2011 at 9:27 pm | Permalink

      Who do you support then? If it’s the Tories, Labour or Lib Dem then you might want to think about changing!

  16. Magelec
    Posted June 17, 2011 at 9:36 am | Permalink

    The sooner Greece defaults the better. Things are getting worse and to delay the eventual financial chaos the worse it will be. We are going to have to run through fire to get rid of the Euro and EU. I do hope that out of the mess that is coming our leaders will learn something else in addition to all the many other things they tell us they are listning and learning.

    • Simon
      Posted June 17, 2011 at 10:51 am | Permalink

      We should ask what proportion of the bail out money money will reach it’s intended recipients ; the UK , French and German banks .

      Surely it would be more efficient (and more honest) to give taxpayers money directly to the banks .

      After all , the principal that our money is theirs to do with as they wish and take a cut as remuneration has already been firmly established .

      Whatever happens , our Government must resist the temptation to contribute to any European riot police division “invited” into the country to stamp out the dissent .

      The Greek PM is completely aware of the gravity of the situation and is trying to get a consensus from their main parties on austerity measures .

      How long before our Foreign office issue a red warning advising British Citizens against traveling to Greece ?

      • Stuart Fairney
        Posted June 18, 2011 at 8:16 pm | Permalink

        Not long if they are on the ball. When the Greeks default, the Greek banks all default and Greek cash machines stop paying out, well who will Greeks look to for money? Who would you attack if you were a Greek mugger? For me, it would be a ‘wealthy’ foreigner who would likely not come back for my trial (if any)

        Don’t get caught in Greece when it goes down.

  17. lojolondon
    Posted June 17, 2011 at 10:02 am | Permalink

    John, the IMF is trying to rescue the Euro, and they will fail when Greece fails and defaults. All the money we have lent the IMF will be lost. This is like the emperor’s new clothes – we all know the situation, but everyone pretends it is ok to keep a united front and not break ranks.
    It is time to take the hard line that will be good for every country in the IMF, and refuse to lend the additional billions – after all, it is not David Cameron’s money, it is MINE! And every other taxpayer who works for a living.

  18. electro-kevin
    Posted June 17, 2011 at 10:12 am | Permalink

    Mr Cameron’s capitulations on so many issues seem to indicate an absence of strategy and meaning.

    Has he given up ?

    • norman
      Posted June 17, 2011 at 3:36 pm | Permalink

      The Spectator have ran a series of pieces lately in which they accuse him of going into ‘complacency mode’ when he doesn’t feel threatened, and with the state Labour are in, and the Lib Dems alienating large numbers of their voters, that is more often than not.

      The premise of the articles is that he stirs himself into action (as evidenced in the first few months of the coalition or when the AV referendum looked as though it was going to be close) but that he’s quite happy just to coast along and then try and get things done when he wins a second term without the baggage of the Lib Dems.

      It’s a pity we’re going to be adding almost half a trillion pounds of debt in those five years but I doubt that overly bothers the vast majority of MP’s – those that even know the true extent of the figures.

    • APL
      Posted June 17, 2011 at 6:49 pm | Permalink

      Electro-Kevin: “Has he given up?”

      No. He is still filling the role he was appointed to perform. The European Unions chief quisling in the British government.

      Sterling performance so far, 10/10

    • MickC
      Posted June 17, 2011 at 8:04 pm | Permalink

      No he hasn’t. Cameron’s strategy remains as it always was, to become and remain Prime Minister no matter what the cost (to others, naturally).

      The Conservative Party (if it can still be dignified with that name) will lose the next election, because many who were instinctive supporters quite simply will not vote for it.

      • Jon Burgess
        Posted June 17, 2011 at 9:31 pm | Permalink

        I’d love that to happen (and it is wholeheartedley deserved), but unless something happens to galvanise the right, that will mean we get Labour again which will be no different to this lot.

        Please Mr Redwood, do us all a favour and start a right wing revolution!

  19. Damien
    Posted June 17, 2011 at 11:21 am | Permalink

    The reality is that the IMF freely admit that its original mandate is under review. How can parliament approve giving £9.4 billion without knowing for certain the basis of this contribution?. Once again the UK is in danger of being ‘bounced’ into a major commitment (a la Darling) without rigorous debate in parliament.

    “At the October 2009 Annual Meetings in Istanbul, the IMF’s policy steering committee, the International Monetary and Financial Committee (IMFC), called on the Fund to “review its mandate to cover the full range of macroeconomic and financial sector policies that bear on global stability.”

    Would it not be preferable for the UK to pledge this £9.4 billion on a bilateral basis where there is a clear benefit to the UK. This sum may well be needed to cover the UK exposure to the deteriorating Irish debt situation. Given that Ireland is our largest trading partner we would be acting in our best interest.

  20. EJT
    Posted June 17, 2011 at 11:52 am | Permalink

    As I understand it, traditional IMF bailouts were contigent on realistic plans for the receiving country to put its public finances in order. I have not seen any numbers suggesting that the Greek bailouts are anything other than ” can kicking ” (down the road).

    In which case, are the IMF acting within their remit ?

  21. Mark
    Posted June 17, 2011 at 12:08 pm | Permalink

    Given that our own budget deficit remains obstinately high, with no sign of effective spending cuts or offsetting increases in tax revenues, are we trying to qualify for IMF bailout funds ahead of the Greeks? Is the justification for subscribing that we will scoop the pot as if it were a poker table?

    To me it looks much more like a game of musical chairs. We will end up without a chair to sit on when we need it (as we will).

  22. oldtimer
    Posted June 17, 2011 at 12:18 pm | Permalink

    There is every reason for the IMF bail out to be opposed especially if it is to fund the bail out of the pernicious EU. Apart from the very visible travails of the Euro and the inherent contradictions in its construct, there are other aspects of its activities that are utterly reprehensible.

    Recommends -( I have not checked out this source-ed)

    Bishop Hill is the blog name of AW Montford, author of The Hockey Stick Illusion, one of the best exposes of the so-called science behind the global warming scam. The article he has posted is a shocking account of the way taxpayers money is being handed out by the EU to companies and NGOs so that they may lobby the EU for policies and Directives that the EU itself wants and will benefit the companies themselves – all at the taxpayers expense. The article says “A greedy ecosystem of organisations have been created across the EU, each with the appearance of independence, working in cahoots with radical environmental NGOs and government….It is as if no membrane delimits their functions from the functions of the state, except to conceal its operations.”

    I became aware of something similar occurring under the last government when looking at grants by DEFRA to trades union organisations and others to promote green propaganda. I have only recently discovered that Friends of the Earth drafted the original Private Members Bill which later emerged as the Climate Change Act. No doubt it is/was all part of the plan. Presumably it continues as I write.

  23. forthurst
    Posted June 17, 2011 at 12:38 pm | Permalink

    But surely if Greece has to revert to the Drachma, their civil servants might no longer be able to afford to buy Mercs and Beemers in their long retirements? Surely that is their Human Right?

    • forthurst
      Posted June 17, 2011 at 12:46 pm | Permalink

      Incidentally, am I the only person to imagine that the concept of highly indebted countries bailing out other highly indebted countries is faintly absurd?

      Why is it traditional for the World Bank be run by a Neocon believing that the USA should continue to borrow from China in order to attack Islamic countries?

  24. Neil Craig
    Posted June 17, 2011 at 12:51 pm | Permalink

    Traditionay the IMF demand devaluayion and cutting of government spendingto ensure the economy is rescuable. In the case of EU countries they can’t do at least the former, which is Greece’s real problem. However the European countries have a “traditional” right to appoint the IMF boss and if that continues they will presumably appoint someone suitable.

    We seem to be lending our money to a bank, whose manager is appointed by its main borrower, who has no assets. I’m not sure putting more in that account is wise.

  25. Peter van Leeuwen
    Posted June 17, 2011 at 1:04 pm | Permalink

    I can agree with you that UK support for Eurozone integration is worth something. A matter of clever negotiating, which might be undermined if the UK support for this integration (which leaves the UK outside) is not wholehearted.

  26. Chris
    Posted June 17, 2011 at 1:44 pm | Permalink

    In complete agreement with your comments. The tragedy is that the UK is not in control of its own affairs now and the key politicians in the UK seem to subscribe to that position.

  27. Tim
    Posted June 17, 2011 at 1:48 pm | Permalink

    There is a simple solution. Give us our In/Out on the EU. Then we could run our own affairs and still trade with them. No more net £14 billion contribution, more employment for our own people, particularly the young, no mass migration from the east or anywhere else, fishing industry back, no CAP, no more bail outs, bliss……………..what are the benefits?????? None

  28. John Wood
    Posted June 17, 2011 at 1:58 pm | Permalink

    So THIS is why the IMF held a gun to Germany’s head.

    The country that holds the most Greek Debt is FRANCE!

    • John C
      Posted June 17, 2011 at 9:57 pm | Permalink

      “The country that holds the most Greek Debt is FRANCE!”

      Just at the point that I was getting seriously depressed about our whole economic future I read your post which has cheered me up, no end!

  29. zorro
    Posted June 17, 2011 at 2:07 pm | Permalink

    I just came back from Santorini the other week and they were doing the old plate smashing routine….I suspect it will be a lot worse in Athens. This could be Cameron’s ERM moment like hapless John Major in 1992. Unfortunately, there won’t be any recovery for a lot longer, and Cameron can’t say that he wasn’t warned….

    Zorro

  30. Bob
    Posted June 17, 2011 at 2:42 pm | Permalink

    We could avoid the need for this non €urozone economy to borrow more money to give to the €urozone. Just increase VAT a little more, adjust the ET on NICs, reduce bin collections to once a month, close a few more libraries, swimming pools and police stations, reduce the wages of armed forces personnel and sell off what’s left of our air force?

    There might even be a bit left over to increase housing benefit payments!

  31. Denis Cooper
    Posted June 17, 2011 at 2:44 pm | Permalink

    This is money laundering, just as I predicted in a comment posted on this blog on April 8th 2009:

    http://www.johnredwoodsdiary.com/2009/04/08/should-we-join-the-euro-2/

    “I think it’s unlikely that the euro will break up, because the top priority for the eurocrats must be to preserve the eurozone intact.

    If just one country, say Greece or Ireland, decided that there was no alternative to abandoning the euro and reverting to its national currency then that would set the precedent, and the project would start to unravel.

    So if it looks like, say, Ireland is in danger of defaulting on its debts, then money will be channelled to Dublin to prevent that happening.

    True, the EU treaties explicitly prohibit any such intra-EU bailout; but where there’s a will there’s a way, and there’s huge political will behind the euro.

    Laundering money through the IMF would be one option – Ireland would be a lot further up the queue for that, than the UK – but there are other possibilities, some of which have already been activated on a small scale.”

    The draft International Monetary Fund (Increase in Subscription) Order 2011 is here:

    http://www.legislation.gov.uk/ukdsi/2011/9780111512302/contents

    The Introductory Text refers to “Section 1(1)(a) of the International Monetary Fund Act 1979”, which provides that “the Treasury may, by order, authorise the payment of sums required for subscriptions to the International Monetary Fund in the event of proposals being made for increases in the United Kingdom’s quota under section 3(a) of Article III of the Fund’s Articles of Agreement.”

    However a later Act, the European Communities (Amendment) Act 1993:

    http://www.legislation.gov.uk/ukpga/1993/32/contents

    added the Maastricht Treaty to the list of treaties in Section 1(2) of the European Communities Act 1972, which is held to be a constitutional statute and not susceptible to implied repeal even by later primary legisation let alone by secondary legislation.

    And as that treaty included prohibitions on intra-EU bailouts it must surely be the case that it has by implication amended the 1979 International Monetary Fund Act, removing the power of the Treasury to use an Order to authorise additional payments to the IMF when they are clearly intended to fund bailouts of other EU countries.

    Apart from any other objections, MPs have a duty to reject this Order on the grounds of its incompatibility with the 1993 primary legislation to approve the Maastricht Treaty, and insist that if the government wishes to proceed on these lines then it must do so through primary legislation, an Act which expressly disapplied the “no bailout” clauses in that treaty.

  32. Robin
    Posted June 17, 2011 at 2:53 pm | Permalink

    Very well put John.
    After seeing Guy Verhofstadt’s anti British speech I consider your case well proven. ALL payments to Brussels should cease immediately.
    If only we could have Maggie back.

  33. Yarnesfromhorsham
    Posted June 17, 2011 at 3:04 pm | Permalink

    I support your views – frankly its time to get back to financial reality. No more money and take the “haircut” irrespective of the threats of further Government/Bank failures.
    The weak approach of this Govenrment to the Euro, Human Rights stupidity,Overseas Aid and lack of moral fibre on public sector reforms suggests that their five year term will be their last.

  34. REPay
    Posted June 17, 2011 at 3:45 pm | Permalink

    I suppose that this money will just be part of the work out later on. Still it is only tax payer money and not rocking the boat means that Clegg and Co will not be denied plum EU or international quango roles when they are at “Dun Spending”.

  35. Alison Granger
    Posted June 17, 2011 at 4:30 pm | Permalink

    It is outrageous that our politicians feel that they can borrow in our name and then squander the money in stupid loans or aid to countries that could or should look after their own affairs. In the case of EU bailouts it is in defiance of the treaty rules that supposedly prevent exactly this sort of stupidity. Not only should we not borrow to lend to other people, we shouldn’t even be borrowing to allow our own squandering.

  36. zorro
    Posted June 17, 2011 at 5:23 pm | Permalink

    I think that we all know that if there is a choice between Greece going down the tubes, violence and general chaos…..the ECB will have to monetise the debt, no matter what their charter claims or how much the Germans may complain. Maybe the Greeks might give the Germans a free timeshare beach hut on their chosen Greek island as compensation….

    zorro

  37. Hugh
    Posted June 17, 2011 at 5:24 pm | Permalink

    How about a new Tory leadership contest !
    It’s quite clear that Cameron isn’t a Conservative. You wouldn’t win John if you ran, but it will make osbourne think twice.
    Osbourne wouldn’t have a career on the front bench if it wasn’t for Cameron.

    Sarkozy was spot-on when he said ” They start off eurosceptic then they love it “.

  38. Hugh
    Posted June 17, 2011 at 5:49 pm | Permalink

    When the £ was losing 1/3 of its value I can’t recall any EU initiative too stem the haemorrhaging. All we heard was “should have joined the euro”.
    Now why can’t we say “shouldn’t have joined the euro”.

  39. Martin
    Posted June 17, 2011 at 6:17 pm | Permalink

    I find this do nothing isolationist policy that you advocate odd.

    1) Greece is a fellow EU and NATO member.

    2) Greece has influence over Cyprus – a fellow EU and Commonwealth member.

    3) There are lots of British interests in Greece. Both Churchill and Atlee worked hard to keep Stalin out of Greece.

    4) The present government is charging about in Libya, the last lot in Iraq and Afghanistan. I suspect more British citizens have visited Greece than Libya etc.

    • forthurst
      Posted June 17, 2011 at 10:09 pm | Permalink

      Don’t forget the Elgin marbles.

  40. Kenneth
    Posted June 17, 2011 at 7:40 pm | Permalink

    Mr Redwood. I agree with most of your posts and this one in particular.

    However, I strongly urge you to build a platform on which you can speak and be heard. In my view you will not be heard if you are shouting from a small band of ‘right wing’ Conservative MPs.

    Now is the time surely for MPs and some members of the Lords to form a cross-party group to tackle the issue of powers and money being transferred abroad.

    The trick to such a group is to get a Labour member to head it. It should NOT be a right wing group but should stay within a strict remit of dealing with parliamentary sovereignty.

    The BBC will either ridicule or ignore it if is headed by a Conservative eu sceptic. However, if it is led by somebody from the Left, and the terms of reference are narrow, but the support is broad, I am sure you will make headway.

    Surely this is a matter beyond party and a matter whose scope stretches beyond the term of one parliament. It is a matter of national importance and vital importance to Parliament and should involve MPs from across the spectrum.

    A narrow remit would also ensure that current party structures would not be threatened by such a group.

    The really maddening thing is that there are many on the Left who resent the degradation of our democracy that has resulted from eu membership. This issue is crying out for left/right unity in order to tackle it and get the country’s attention.

    • John C
      Posted June 17, 2011 at 10:05 pm | Permalink

      My estimate is that, at most, there are 10% of MPs who have a genuine, primary concern about the EU.

      The rest don’t give a damn or are more interested in their potential career than EU issues.

      Unfortunately, most Labour MPs who are anti-EU are regarded as odd by the likes of the variously described “hideously white” and “left leaning” BBC.

  41. StevenL
    Posted June 17, 2011 at 7:53 pm | Permalink

    I think we should suspend payments to the IMF until we find out via the US courts whether it was being run by a violent sex offender or not.

  42. Jon Burgess
    Posted June 17, 2011 at 9:40 pm | Permalink

    Mr Redwood, you’re right and we all agree with you. But what will happen? There will be a debate, the argument will be won by those who oppose this, but the vote will be in favour. Cast iron Dave will do what he’s told and provide the IMF with the cash.

    What is the point of keep telling us what you’d like the Government to do, when you and I know they will ignore you and do the opposite? What the hell can we and you do about this farcical/demoralising /situation?

    Apart from storm the House of Commons and string up the treasonous so and so’s, what else is there left for the law abiding citizen to do?

  43. Javelin
    Posted June 18, 2011 at 5:08 am | Permalink

    This is a summary of a presentation I did to a group of pension, hedge, wealth and equity fund managers yesterday. It was in the form of a probability tree. Each layer in the tree represented possible events and I followed the branch of most probable events.

    1) Greece “defaults”
    2) the Eu and IMF soften it
    3) 2 credit agencies declare a standard default
    And moodys sticks at junk
    ISDA-Eu doesn’t declare a credit event
    4) Fund managers litigate for insurance misselling*

    * this is interesting because soverign CDSwaps will have been sold to cover losses on bonds being downgraded. Ask yourself how many CDS traders and politicians told their clients they could claim the money back if a fund had to sell junk bonds? All these sales conversations are recorded.

    5) a huge law suit for trillions will kick off
    6a) sovereign CDSs will become worthless
    7a) bond prices fall everywhere because the
    risk of sovereign default is now shared by
    every country
    8a) cost of Government borrowing rises
    6b) Under the life assurance act only funds
    with an “insurable interest” and can produce
    recorded evidence WILL be able to claim
    7b) a large proportion 50% of CDSs will get delivrered
    8b) court case will take years and 2 banks will go
    bust and be bailed out.

    Basically the EU will muddle through, a court case will drag the end game out rather than continued bail outs. Damage will take place across the board

    a) Government borrowing costvwill rise with no CDSs
    b) some funds will not be compensated who naked short sold CDSs
    without “insurable interest”
    c) tax payers will loose 50% of their bailout
    d) bond holder will have a 50% voluntary hair cut

    We will all wake up in 2 years and blame the Euro Central Bank for letting the PIGS borrow too much. There will be political ramifications for the Euro because soft defaults will now be priced into all Euro bonds.

    • Javelin
      Posted June 18, 2011 at 5:26 am | Permalink

      Just wanted to add after the presentation in a bar we were discussing the implication for higher bond prices. I suggested several things.

      First countries with high debts – Uk, Italy, Japan would be forced to scale back their Government services.

      Second because sovereign bonds were never going to be allowed to fail the are effectively risk free assets. Because they pay higher interest than over night Government rates used to set the base rate thy represent a better investment due to opportunity cost. IMPORTANTLY Government base rates MUST rise to their own bond rates because they are both risk free assets.

      So expect a sudden and sharp increase in interest rates.

      • Javelin
        Posted June 18, 2011 at 5:58 am | Permalink

        Plus once the legal status of CDSs is clarified under the Life (and Event) Assurance Act – in terms if what is insurable* then Government borrowing costs will a bit for non-EU bonds because people can use CDSs again. *For example Sovereign bonds are but what about Corporate bonds.

        However Eu base interest rates will remain at or close to bond rates as long as their sovereign bonds remain risk free. Plus non-Eu base rates will remain a bit higher because of opportunity costs.

      • Stuart Fairney
        Posted June 18, 2011 at 8:23 pm | Permalink

        “Government base rates MUST rise to their own bond rates”

        Why is that not currently the case then?

  44. Conrad Jones (Cheam)
    Posted June 19, 2011 at 9:57 pm | Permalink

    “Within the EU our stance should be strong and determined. As a non Euro member we should make no contribution whatsoever to Euro bail outs. That requires renegotiating the Darling pledge – so be it. It would be a very good issue to dig in over”

    I totally agree. It is evident that the common sense you speak is the primary reason why you are not in the Government. You have a lot of other MPs who also speak their mind and say a lot of common sense – but alas, common sense is not what the Prime Minister is looking for when he selects his Ministers. Instead of John Redwood (chancellor of the exchequer) – we get the B Team – Alistair Darling and now George Osborne.

    This is why I agree…

    Free Market currencies work in this way – when a Country does not produce enough or of sufficient quality to export, there is a drop off in the demand for their currency. This devalues their currency making their goods and services cheaper in a World economy.

    At some point, their goods and services bcome attractive to World markets when their currency devalues sufficently and exports pick up again. This is the balance provided by a true free market economy.

    The IMF Bail Outs are NOT promoting a free market economy. They are extending the illusion that Nations can compete with Countries such as Germany – which they cannot as Germany runs a massive deficirt in support of it’s industry. They also cannot compete with Germany because they are not Germans and their interests run elsewhere, They have a different culture and should have a different currency.

    For the UK to carry on financing this EURO Bail Out when we do not even use the EURO is unfair to our public service workers. The Austerity measures are exploiting – not just the Public Sector workers of the UK; but the whole of the UK population through stagnant wages and poor returns on savings to fund a system that does not work and will not work.

    The ERM experiment did not work for Britain in the early 1990s under John Major just like this IMF / EURO Bail Out, isn’t going to work.

    Do politicians actually read History or carry on making the same mistakes that History has taught us not to make? I partly blame the UK Public for not understanding this and the Government for exploiting it. If the UK Public understood economics they surely would force their political representatives to change their policies. This is why we only have a few excellent MPs in the House of Commons.

  45. William
    Posted June 20, 2011 at 8:21 am | Permalink

    John,

    Your marks are wrong on Irish and Greek IMF loans. The IMF loans are super senior, ranking above previosly issued bonds. The latter are trading at about a third off for Ireland and at c50p in the pound for Greece. Part of the reason why they are trading at such discounts is because there is a huge amount of IMF debt ranking senior to them. The mark on the super senior IMF loan should be much nearer to par. Even if Greece’s debt is cut by c50% the IMF loans should still be money good.

  46. Mark Austin
    Posted June 21, 2011 at 9:53 am | Permalink

    Anyone with a functioning brain knows that sooner or later Greece will default. A recent study showed that just to stand still – i.e. just service its debt, but not run it down – the Greek economy needs to grow by between 7% and 10%. Last year it fell by 4%.

    The question is when.

    What is happening is the EU and IMF money is being shovelled into the banks as they reduce their exposure. In a few years all the Greek debt will, in effect, be owned by the taxpayer. At this point Greece will default. It will perhaps be disguised as a “programme of debt forgivness”, which will keep Greece in the euro (keeping the EU happy) and will not impact on the banks (keeping the IMF happy).

    In the process, the Greek economy and society will be ruined.

  • 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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