Month: July 2011

 

           The dreadful  news that five people have died in an NHS hospital probably owing to tampering with a saline drip has profoundly shocked me. People are at their most vulnerable when they go into hospital. They have to trust the caring staff, and expect them to administer proven treatments with high quality medical supplies.

          I am almost at a loss for words to read that probably a member of the NHS staff deliberately contaminated a drip in a way which led to so many disturbing deaths. I understand that this is a rare event, and that many NHS staff are caring and dedicated professionals.  The police are trying to get to the bottom of this case. So far no-one has been found guilty, and I do not wish to post items making allegations about individuals for obvious legal reasons.

          I was not prepared to use the very lurid language some have chosen to discuss the question of phone hacking. Whilst I like others condemn law breaking where it has occurred, and think it bad that victims of tragedy were also subject to it, the deaths in hospital put it into some kind of perspective. Surely our strongest language  is needed to talk of our shock when people die from unnatural causes in hospital?

          I think the media should also ask itself some questions about the amount of air time devoted to phone hacking compared to the amount of airtime devoted to deaths in hospital. Have they got the balance right? Aren’t most people more concerned that hospitals should be safe?

           I also think the treatment would have been very different if the deaths had occurred in a private hospital, acting under contract for the NHS or for paying patients. I can imagine the item having much more airtime. Wouldn’t interviewers have been queueing up to demand disciplinary action at the hospital, to demand resignations of management, to seek the cancellation of contracts or even the closure of the unit? Wouldn’t there have been endless denuncations of profit making models in health care? Wouldn’t this all have taken place well before the police enquiries were finished, as it is with the News International case?

             Instead, because this tragedy has happened in an NHS unit, there is a strange calm, a collective shrugging of the shoulders, a sense that these dreadful things can happen. Shouldn’t the Health Select Committee be looking into the general question of whether  NHS staff can tamper with medical supplies unobserved? Shouldn’t there be demands for tighter procedures and better controls? Shouldn’t action be taken now to reassure the patients and public?

 

The winners last night at the EU summit were the Greek army. Today they can relax. Their future wages are now going to be paid by more EU loans, at lower rates of interest.

The losers last night were the French and German taxpayers. They have to lend more to Greece, for less return.

The markets say they like the deal. I do not see why. It does not solve very much. It delays sorting out the underlying problems for longer.

As always with political fixes, there is plenty of spin. All have come out telling papers to write that the “Euro has pulled back from the brink”, that ” the crisis has been solved”. Surprisingly many do.

There is a lack of detail. Questions to answer include:

What happens to private sector lenders to Greece who refuse to take a haircut?

Is this a default according to the Rating Agencies? – It looks like one to some of the commentators.

Will CDS insurance trigger? Who pays that?

Is the UK going to accept a cut in the interest rate on its loan to Ireland? We were told the rate was a good one as part of the selling job on it at the time.

When will we hear of the Franco-German plan to integrate the Euroland economies more? Does anyone else get to have  a say on it?

What will the UK demand as the price for its agreement to all this? Can we get some powers and money back?

Why should we believe Greece is a special case?

When will they beef up their intervention funds, so they could withstand a large country needing help?

All this looks like bad news for the better run Euroland states. They will pay more to ailing countries. They will use their own better credit ratings to borrow to lend more to the troubled countries. This could gradually erode their credit status.

Predictably the EU is going for more integration, not less, for doubling the bet on the Euro rather than quitting. They have a lot more to do to create a functioning transfer union. It is going to need much more money to fix, and a further major shift of decision taking from member states governments to the centre. Germany should remember how much it cost and how long it took to fix East Germany, and that was part of the same country. Greece, Portugal and the rest will prove altogether more difficult.

It’s a bit early to open the champagne.

 

It’s ground hog day again. Do you remember last Spring when the EU came up with a package of loans for Greece which would solve the Greek problem? Do you remember the EU package for Ireland, to recapitalise their banks and to prevent contagion spreading? Do you recall the Portuguese package, to ensure problems did not get to Spain or Italy?

So this week the EU meets again to consider a second package of loans for Greece and to see if it is going to say and do anything for the other weaker  Euro states just in case.

On previous occasions the EU has implied that each country or banking system is short of money for a short period, so  loans to tide them over  will resolve the difficulty. It is true they also seek to  impose longer term answers to deficit and banking problems, but the immediate concern is to supply extra cash at interest rates the market will not offer. Each time they say that come another year those self same countries will be able to borrow in  the normal way in the markets at sensible rates.

The borrowing countries reassure themselves that their problem  is a European problem. They expect the other member states to help them out. They do not like German or EU lectures on the need for austerity.

The markets currently think other wise. Yesterday Greece had  to pay 18% per annum for 10 year money, and a show stopping 38% per annum for two year money. In other words the markets think Greece will default on her debts. The markets have no wish to lend to Greece.

Ireland yesterday was offered 10 year money at 14% and 2 year money at an eye catching 21.85% per annum.  Portugal faced rates of 12.7% for 10 year money and 18.6% for 2 year money. Again, markets were saying they are  not keen to lend.   These countries remain barred from borrowing in  the normal way.

The officials charged with drawing up options to mount another Euro rescue, have not been able to come up with much. They are looking, we are told, at three options. The first is a European bail out fund which buys up distressed debt of countries in trouble, and guarantees the repayments on the remaining bonds. The aim is presumably to kick the markets into believing in these troubled countries by forcing up the price of their bonds and standing behind them.

The second is  a version of the French idea. Private sector banks and other bondholders would be encouraged to re-lend the money they have already lent to the distressed sovereigns, for a longer time period at a realistic rate for the borrower. This raises the question would enough  do this without some compulsion? Is the implied requirement to do it tantamount to default?

The third is to impose a tax on banks and to provide more money to distressed countries based on this new source of revenue.

All three schemes have drawbacks. None of them tackles the lack of competitiveness in the underlying economies. Distressed Euroland countries still have to get costs down sharply to compete in foreign markets more successfully, as they cannot devalue to do so. Lending them more money one way or another does not cut spending or raise tax revenues to curb their deficits. They still need to tackle the underlying problem, which is they are spending too much or raising too little in tax.

The first scheme  could prove expensive, as markets are likely to want to see substantial money committed to tackle the problem of unloved Greek debt. The second scheme may require banks to be propped up by more state money in some cases, as there will be effective losses and the likely declaration of a partial or technical default. The third is wildly unpopular with banks, and unfair on the banks who have not committed themselves to too much dodgy debt. It also will require more state money to be put into the weak banks to replace the lost money from the tax. All three “solutions” in practice stumble towards a way of more subsidy being routed to the financially challenged economies. None of them solve the underlying problem of the weak banks and the large deficits. None of them stimulate more economic growth which would help.

So what should they do? They should have a frank discussion about the magnitude of the task ahead. They need to move faster and more boldly than markets expect. They can do so by uniting to control the total European deficit for Euroland and standing behind the collective debt. They can do so by ejecting weak members from the currency.

The IMF has to be able to see funding in place for the ensuing year to carry on lending to a state. The EU has to ensure this remains true for the problem countries. If they persist in seeking a third way, something  which falls short of single country guarantees for all the debts or  reducing the membership of the currency, they need a convincing way of  allowing wayward sovereigns to rat on their debts. Then market forces will   discipline the wayward states. Setting it up would prove dangerous, threatening the spread of bond and interest rate  pressures and banking weakness. Not setting it up allows more countries to become wayward over borrowers. If Greece gets away with it, why not others? On this occasion friendly compromise is not kindness but cruelty.

The extraordinary thing is that most European governments seem to think it is just fine that a rich EU nation should be contemplating not paying all its bills. There are three simple options to put matters right. Greece could spend less. Greece could tax more. The other Euroland economies could give Greece the money to overspend. Not paying interest or capital back to lenders is reneging on contracts,  a kind of theft, and may include short changing people, institutions and countries less well off than Greece.

 

            The list of media executives and journalists the PM has met since taking office should have come as no surprise. Mr Blair and Mr Brown did similarly.

            I am not a bit worried that the PM had a meeting with Guardian, and two meetings with the Trinity Mirror Group. I am sure both sides behaved impeccably.

              Can we now leave the investigators of possible media and police misdeeds  to get on with their jobs, and get back to sorting out the mess in the public finances and the disaster that is the Euro?

              Politicians will carry on talking to journalists. Some politicians will carry on thinking some newspapers  have more influence over public opinion than they do, and think they can have influence over those papers. Running  the country well is the better way to secure more favourable comment.

 

           The IMF has asked the EU to get its act together in tackling the debt issue. It was the right instruction to issue, but doing so in public just served to remind investors of the mess, helping send markets down more. Last night Wall Street rallied a bit  on hopes that US politicians might be closer to a compromise on the US debt ceiling, so the US does not  go into default on its debt.

             I do not expect the US to default. The politicians have always raised the debt ceiling in the past, and will doubtless do so again. There is some tough argument between Republicans, determined to control the future deficit by more spending reductions, and Democrats who favour tax rises. I have more sympathy with the Republicans on this issue. Tax rises from here will slow the economy and make bringing the deficit down more difficult by slowing the increase in tax revenue. More spending cuts would help, by taking some of the pressure off the private sector which is needed to power the growth, and reassuring the private sector that there is some limit to how much will be taken from them by the state.

           Few commentators are optimistic about the Thursday meeting of Finance Ministers in the EU as they struggle to reassure and prop up their ailing currency system. There are only two long term solutions. The first is to evict a few countries from the Euro for failing to control their debts, deficits and banking systems. The second is to move rapidly to a transfer union  as they call it. This means moving towards a country called Europe, with more generous payments from the rich to the poor areas, and with stronger central controls over the budgets of each public  region. Then all can borrow on the common credit card, with European bonds funding the  excess public spending. Such a Europe would be given a fairer wind for a bit in the markets, as the markets would hope for more German discipline and less wayward Greek and Portuguese spending.

         Instead we will probably be served up another series of temporary fixes, reflecting the refusal of the main players to own up to the fundamental issues. The lack of agreement between the European Central Bank, Germany and France  makes adopting an answer which works very difficult.

           The compromise might include a bit more central control over budgets and deficits for the future, some more temporary help for Greece, a larger fund to pay for other countries in trouble, and perhaps a more forgiving policy on buying up damaged sovereign debt by the European Bank. That might kick the can down the road for a few more weeks, as the markets like to say. It does not resolve the underlying problem.

            The Uk should use this period of chaotic reconstruction of the EU centralising project to move towards a looser relationship with the emerging federal union. The Uk should not merely say it is not joining in the currency, the new banking, debt and economic governance arrangements. It should also say it wants powers back as its price for agreeing to the new powers the Euro area needs to make its currency work. Why not get control over our borders, our labour laws and our fish for a start? We have a veto over the Treaty changes they want, so they would be wise to accommodate us. We should stress that by being out and staying out of the Euro we are being excellent Europeans. If sterling had been subsumed in it with our banks attached, the Euro would be dead by now.

  The markets answer to the new EU bank stress tests yesterday was brutal. The cost of borrowing money for Spain and Italy soared. More rumours circulated about the difficulties of some banks borrowing the money they need to c arry on. There was a general mood that the EU authorities were still not taking the substantial measures needed to shore up their zone.

      One of my constituents had just returned from Greece. Judging by the published figures, the economy is falling. Out put is down, real incomes are badly squeezed. Judging by the press comment, the public spending cuts are biting, with more lost jobs and money wage cuts.

        I asked my source what it had been like. He said it was like going to a party. The restaurants were full where he visited. He saw plenty of economic activity. Everywhere he went he was told they liked tourists who pay with cash, not credit cards. The view seemed to be  that they did not trust their government to spend their money wisely, so why go out of their way to put the income through the books or pay the taxes? If you could add the unofficial economy into the figures it might not look so bad.

        This attitude  is creating large tensions in the Euro zone. Germany and the other paymaster nations are asking why should they have to make good the tax revenues of Greece, and pay for the extra public spending. The more the potential paymasters lecture the Greeks on how to run their affairs, the more resentment it creates.

         Meanwhile, the 400,000 strong Greek army of regulars and reserves needs paying and equipping. We are witnessing a struggle over who pays, and how. Expect some new fix based around more borrowing, this time in the name of Euroland as a whole. It will leave neither side happy. German taxpayers will be wary of the obligations they are taking on and will still ant more control over Greek spending and tax collection. The Greeks and other over borrowing states will come to resent the degree of surveillance of their affairs. We will soon need to ask the question again – what is the point of elections in some of these countries, where more and more will be settled in Brussels?

 

               I am interested in Mr Miliband’s radical idea that we might need tighter rules on media ownership and market shares. It will be interesting to see how he defines unacceptable levels of control, as it appears  that the BBC has the largest share of the TV and radio market, and also has a very powerful position in web provision and related publishing. Rules that he thinks of in connection with News International could not be hyrbid or company specific, and would have to be fair about any concentration of media power. Thoughts on what constitutes too much media power and if it should be regulated better would be welcome.

              I will not be commenting on  the hacking and bribery issues for two reasons. One, because the interesting questions relate to individuals who deserve a fair trial if allegations are followed by evidence. Their   conduct is the subject of a police investigation which should not be prejudiced. Two, because we are getting saturation coverage of it in much of the  media, in a way which is drowning out many stories and issues which will have more impact on everyone else’s life. Please do not send in comments naming individuals that could be the subject of court cases.

           The truth is both main political parties were keen to meet and socialise with News International senior personnel and journalists  before this drama broke. Both main parties hired people from the News International stable as press advisers. Both parties wanted the endorsement of News International papers at election times. Doubtless both main parties will want friendly coverage from papers in the future, once all these current allegations have been refuted or have resulted in trials and punishments.

 

          I think it is a pity public spending rose by 5.3% last year. I  favoured starting the five year deficit reduction plan with a year of smaller increases in  spending in cash terms and set out suitable ways of achieving this . I tried to persuade the government to do this.  The government could have explained it needed to make more of the adjustment  at the beginning. I also thought more could be done in year one to use natural wastage and actions on costs.

        If the government had started like that, the whole strategy would have entailed spending less over the 5 years , and borrowing  less as well. That in turn would have saved more in interest charges by Year 5, leaving more for services. I might have put an extra 1% increase  in Year 4 and an extra 2% in Year 5,  whilst taking out 1% from Year 2 cash spending growth growth, as well as lower increases in 2010-11. That would have meant a further saving. It would also have given a bit more flexibility on spending nearer the election.

         I would also have set more competitive tax rates on income, capital gains and profits, from the first year. This would enable the government to collect more revenue, perhaps around £20 billion extra over the plan period.

          Instead I think we have to assume there could be adverse slippage from the government’s Plan A. There could be less revenue, if growth does not reach and maintain the faster rates forecasts. There could be more spending, both as a result of slower growth and therefore more welfare cost, and as a result of the need to be flexible over some of the spending decisions nearer the election. We may well see more of the forecasters start to pencil in slippage to their estimates, if the world economy remains troubled and UK growth subdued.

             To ensure the borrowing total remains achievable, without alarming markets, the government would be well advised to do more to cut costs and control spending this year, when the overall budgets remain fairly accommodating. £485 billion of extra borrowing for the five years has not alarmed markets, but too much slippage from this large number might. If this year current public spending rose 2% instead of 3.8% that would give the whole strategy a boost, and assist in getting borrowing under some control.

             Today ITEM announce a lower f0recast for growth.  Lower growth means less revenue and more public spending.  The media keep talking about the cuts. The risk of this strategy is that the government is hoping to spend and borrow too much over the whole five years, if growth disappoints. No-one seems to talk about this. The UK does not lack total public spending, but it does need more private sector led growth. We can argue about the value you get from the spending and the  priorities for it, but this strategy was always going to run risks with how much the state can borrow. A plan based on large tax revenue rises from growth is very sensitive to achieving the growth rate. ITEM are querying that today.