The pain in Spain falls mainly on the private sector

 

           The Euro crisis is returning. Yesterday the cost of borrowing  ten year money for the Spanish government  hit 5.98%, following a giddy rise in the last few days. The government was forced into announcing another Euro 10 billion of cuts, this time in regional government’s health and education spending.

          Some of you may recall that recently we read of the most austere budget ever in Spain, with Euro 27 billion of cuts. This was the new government’s fevered attempt to get the Spanish public sector deficit down to 5.3%, from the 8.5% it ran at last year. In 2011 the then government overshot its target of a 6% deficit by a mighty 2.5% of GDP (around 27 billion Euros). This year the new government budgets to overshoot the old 4.4% target by just 0.9% of GDP. These are still large numbers.

            The spin, as ever, differs from the reality. The Euro 27 billion most austere budget included Euro 15 billion of “cuts” announced last December.  The austerity is tougher on the private sector than the public. It includes large increases in gas and electricity prices to cut the state subsidies. Income Tax goes  up by tapered amounts, with a rate rise of 7% more on the higher incomes.  Companies are expected to pay Euro 12.3 billion more . They aim to get Euro 2.5 billion from a 10% no questions asked tax for anyone bringing offshore money home.  I cannot see that being too popular.

            Central government personnel costs will rise by  1.3%, in a” tough” stance that includes a pay freeze! Like many governments, the Spanish one announces strict measures implying they are mainly public spending cuts, but in practice they are more to do with squeezing the private sector to pay for the bills. Yesterday’s news was for spending cuts in sensitive areas administered by regions often hostile to the central government. It was more an invitation to a row than  anything else. Meanwhile unemployment benefit payments and interest bills surge.

        The problem with all this austerity, as many now point out, is it can be self defeating. Spain needs a private sector led recovery. Instead the government is squeezing family budgets at all levels of income. This may produce a worse decline in national output than the government allows for in its figures. This in turn may produce less revenue, widening the deficit further. Yesterday’s  move to appease the market gods may not succeed. Many EU countries need to run their public sectors more efficiently and do less through them. It would help if the EU showed them how, by cutting back on its own expenditures and requirements placed on EU member states. Instead, they just demand more, whilst also demanding that the member states borrow less. It is not a winning formula. Expect some more bad news from the markets. Spain denies she will need to put more capital into her banks, but some of them are having a hard time in the markets as well.

 

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94 Comments

  1. norman
    Posted April 11, 2012 at 6:27 am | Permalink

    Poor old Spain, no access to the money printing machine!

    Those dastardly Germans controlling the button better relent soon, don’t they realise we’re in the biggest financial meltdown of all time, unprecedented in history, the world was 20 seconds from going broke before G.Brown saved it by stuffing the banks of freshly created cash (a policy assidiously followed by his successor) blah blah blah

  2. Martin Cole
    Posted April 11, 2012 at 6:40 am | Permalink

    Much of the self-delusion in Spain, as in the USA and Britain, has centred around the fiction of a cushioned fall in property values being achievable by government policy.

    I linked a March property price report for Spain last evening from my blog. Your readers may find it on the following link:

    http://news.kyero.com/2012/04/10/spanish-house-prices-fall-28-6-since-2007/

    • Mike Stallard
      Posted April 11, 2012 at 11:05 am | Permalink

      OK so that is the figures dealt with. Fair enough. But, on the ground, mile upon mile of uninhabited tower blocks and mile upon tarnished mile of straight boring roads with identikit gardenless houses along each side testify to the truth: YUCK!

      And yet Spain is really lovely. The climate is fantastic. There is the choice of Atlantic or Med. It is perhaps the only place in the world where a nice bottle of wine is placed on the table before the water or the hors d. And the waiters are polite and more like the clergy really. And the town centres are great if you like the Baroque.

      SEAT cars are nice too.

      So this is a real scandal. Spain ought not to be bankrupt. Not at all.

      • alan jutson
        Posted April 11, 2012 at 12:28 pm | Permalink

        Mike

        “Spain ought not to be bankrupt at all”.

        Agreed, but personal greed, power, and corrupt officials have not helped.

        last time we were in Marbella (visiting a family member) the local Mayor was arrested along with countless council officials, because of a huge financial scam over illegal planning permissions and road construction.

        Indeed so huge was the corruption, that the figure reported (into the hundreds of millions) was the size of a small Countries economy.

        Unfortunately power can corrupt, no matter what the Country.

      • Electro-Kevin
        Posted April 11, 2012 at 11:10 pm | Permalink

        Sorry to disagree, Mike. The most arrogant waiter I’ve ever encountered was in Marbella. He oozed contempt from every pore.

        The strange thing is that I tipped him and I really don’t know why.

  3. ian wragg
    Posted April 11, 2012 at 7:06 am | Permalink

    When will anyone in power in the PIIGS area admit that the Euro is bankrupting them and causing civil unrest.
    Greece can never become competitive, even after giving bondholders a haircut.
    Then we have the stupid members of your coalition saying eventually we should join the Euro.
    Why are politicians so stupid? Is it a prerequisite for applying??

    • lifelogic
      Posted April 11, 2012 at 8:58 am | Permalink

      You ask:- Why are politicians so stupid? Is it a prerequisite for applying?

      They are quite stupid but not that stupid. They have the problems of group think within their parties, political constraints of their somewhat irrational voters and the EU command. Also an understandable reluctance to admit to their supporters that what (for example) the Libdem party has been preaching for years to its many supporters (on the EU and green policies) is in fact quite clearly the exact opposite of what was and is needed. They have to turn slowly or they look even more stupid – still at least Huhne has gone – shame his replacement talks the same rubbish. Political parties are more of a religious movement with irrational beliefs and emotions to be nursed. Logic, reason, sound economics and science are secondary at best. The have at least reduced some of the insane PV subsidies, all be it partially overturned by the courts!

    • lojolondon
      Posted April 11, 2012 at 11:46 am | Permalink

      Politicians are not stupid, they just don’t want to look for a proper job. Who, other than the EU will pay you £200k plus expenses plus the rest to do nothing and achieve nothing?

    • uanime5
      Posted April 11, 2012 at 2:59 pm | Permalink

      Being pegged to the Euro hasn’t harmed Lithuania, which is experiencing good growth and low unemployment. Nor has being in the Euro harmed Germany.

      The problem with the PIIGS countries isn’t the Euro but the inept and often corrupt policies of their politicians.

      • outsider
        Posted April 11, 2012 at 7:51 pm | Permalink

        Dear uanime: Being pegged to the euro is not quite the same as being a eurozone member. Lithuania still has its own monetary policy to keep its economy on a sustainable track. And if my memory of 20 years ago is correct, you can still decouple if things go badly wrong.

      • libertarian
        Posted April 11, 2012 at 8:17 pm | Permalink

        Lithuania has 8% growth because it has a flat tax of 21% and a small business corporation tax rate of 5% it’s success has nothing what so ever to do with the Litas being pegged to the Euro. It has purely implemented what us libertarians have been asking for and you socialists argue against, i.e. low tax, high growth , mass job creation v high tax, no growth, job destruction as offered by Lib/Lab/Con socialism

        • uanime5
          Posted April 12, 2012 at 5:47 pm | Permalink

          Lithuania has high growth because it can cheaply make good that other European countries want due to it’s lower living standards.

          Were you to implement a low tax policy in the UK it would not result in high growth or more jobs but simply more borrowing because it’s not possible for a mature economy, such as the UK, to grow that quickly. Seriously in which areas is the UK meant to expand, who would we export to?

          • lifelogic
            Posted April 14, 2012 at 8:09 am | Permalink

            It is quite possible for the UK to grow quickly just get rid of all the vast amount of waste and people being paid to do nothing useful.

  4. lifelogic
    Posted April 11, 2012 at 7:06 am | Permalink

    Indeed, as you say “the austerity is tougher on the private sector than the public”. Thus slowly killing the private sector and future tax base and growth of the economy. Just as in the UK.

    Meanwhile our two socialist, tax borrow and waste & borne with a silver spoon, leaders Osboune & Cameron seem determined to press ahead with publishing their tax returns.
    I would be more interest in how much energy his toy windmill generated perhaps £10?

    They have clearly gone mad, the public will just think £100K+ salary looks like a lot and be envious and not understand any of the complexities. The BBC and Labour party will no doubt assist with the “not understanding the complexity” at every opportunity. The politics of envy will rage for months.

    They also seem to be attacking charities and high earners. If one gives all ones income to a charity, one does not pay income tax but then one does not have any income – so where is the problem? I do agree many charities do not do enough public good but then he needs to look at charity law definitions and the charity commission.

    Perhaps start with some of the, “Political Think Tanks Charities” usually with close links to political parties I note.

    The idiotic BBC (Newsnight) seems to think tax relief for interest paid on buy to lets and personal borrowing for companies is somehow a tax loophole – when this is clearly an entirely proper deduction from profits and is then taxable on the lender as profit anyway. Is anyone at the BBC numerate (apart from when they are arranging their personal service companies perhaps?).

    The BBC types it seems now want to tax people with income tax even when they are making a loss (after interest), just because they own property and are therefore capitalists & fair game.

    Meanwhile Cameron and Osborne, after wasting 50% of our earnings on public “investment”, waste and expenditure, now want to control how we spend the other 50%. Mainly on insulation (or over complex, short life and unreliable boilers) it seems, with very long or usually non existent pay back periods or over priced “green” energy.

    We are clearly led by donkeys it seems at so, so many levels.

    • uanime5
      Posted April 11, 2012 at 3:04 pm | Permalink

      “They have clearly gone mad, the public will just think £100K+ salary looks like a lot”

      It’s 4 times the median salary and only a small proportion of the UK will ever earn this much. £100K+ is a huge salary and only the very greedy think otherwise.

      “If one gives all ones income to a charity, one does not pay income tax but then one does not have any income – so where is the problem?”

      The problem arises when the wealthy demand to be paid for giving their income to charity and run the same charity for their own benefit.

      • lifelogic
        Posted April 11, 2012 at 8:26 pm | Permalink

        I agree charity needs to mean charity and needs to be properly controlled. I would limit any tax relief to UK regulated charities but doubtless that would break EU rules?

      • libertarian
        Posted April 11, 2012 at 8:29 pm | Permalink

        There is no other way to discribe it, you are (misguided-ed) without the barest, briefest understanding of anything financial.

        You do know that income is taxed BEFORE you give it to charity don’t you. you do know that don’t you…..oh you don’t

        Its NOT 4 times median salary , by the way more than 40,000 civil servants earn more than £100k and more than 600,000 in the private sector.

        You fool it has nothing to do with greed, idiot socialists really are so consumed with jealousy that they cannot see that the type of person who earns £100k plus will have paid £35,221.36 in tax and NI and from the money thats left will pay more people to work.

        The tax and NI from a £100k earner will pay the full salary for a year for a senior nurse, junior Doctor or a teacher or policeman.

        So you see my green eyed little friend the MORE £100k earners we have the more nurses, doctors, teachers, policemen etc we can pay for…..it really is very simple

        • uanime5
          Posted April 12, 2012 at 5:43 pm | Permalink

          “You do know that income is taxed BEFORE you give it to charity don’t you. you do know that don’t you…..oh you don’t ”

          I did know this. I also know you can get a reduction in your taxes by giving to charity. Something you decide to ignore because it would destroy your argument.

          “Its NOT 4 times median salary , by the way more than 40,000 civil servants earn more than £100k and more than 600,000 in the private sector.”

          Wow 640,000 people out of a workforce of 30 million (public and private) earn over £100,000. So I guess the average person doesn’t earn £100,000 .

          Also according to the National Statistics’ Annual Survey of Hours and Earnings (ASHE) in 2011 the median gross annual earnings for full-time employees were £26,100. So I was right when I pointed out that £100,000 was nearly 4 times the median salary.

          http://www.ons.gov.uk/ons/rel/ashe/annual-survey-of-hours-and-earnings/2011-provisional-results–soc-2010-/stb—ashe-results-2011–soc-2010-.html#tab-Annual-earnings

          “The tax and NI from a £100k earner will pay the full salary for a year for a senior nurse, junior Doctor or a teacher or policeman.”

          The problem is that when the wealthy avoid paying these taxes the UK cannot pay for enough of these people.

          “So you see my green eyed little friend the MORE £100k earners we have the more nurses, doctors, teachers, policemen etc we can pay for…..it really is very simple”

          Nonsense. It’s possible to pay for more nurses, doctors, teachers, policemen etc by having more people on salaries much lower than £100k. It would be far better for the economy to have 4 jobs paying £25,000 than 1 job paying £100,000.

    • JimF
      Posted April 11, 2012 at 3:29 pm | Permalink

      I have to say it was late, 1 hour later here than UK, but I didn’t “get” the “loophole” of mass borrowing and buying to let.
      It’s a gamble, not a loophole, surely. If it is done on a personal level the loans are cheap but you could go bankrupt and on a Ltd. Co. level loans are expensive and your Co. just go bust and you hand the keys back. But a loophole it isn’t.

    • Bazman
      Posted April 11, 2012 at 5:31 pm | Permalink

      How would you react to find out that supermarkets are receiving subsidies on their electricity bills. Happy? How do you feel about them receiving subsidies in the form of tax credits to their checkout staffs wages. Happy? Cut their pay?

  5. Brian Tomkinson
    Posted April 11, 2012 at 7:28 am | Permalink

    The Spanish government sounds just as mendacious as the one we have here – no real surprise there. What is irritating is that the media portray this “austerity” as savage cuts to the public sector. State spending is seen as good and essential. Somehow the markets have also fallen for this politicians’ conjuring trick. Their difficulty is that they are having to choose largely between bad and terrible. In this country we now have a chancellor making manic decisions about how to collect even more tax because he won’t stop spending more. In the process he risks so-called unintended consequences e.g. a massive reduction in money given to charities. He clearly thinks that he knows how to spend charity givers’ money better than they do.

  6. Andy Man
    Posted April 11, 2012 at 7:38 am | Permalink

    Exactly the same as Britain.The supposed austerity here is tax rises for the proles and imagined spending cuts for the unproductive public sector. All your criticism of Spain, Mr Redwood, can be aimed at your own party.

    • uanime5
      Posted April 11, 2012 at 3:05 pm | Permalink

      The main difference between the UK and Spain is that the housing bubble hasn’t popped here.

      • zorro
        Posted April 11, 2012 at 9:18 pm | Permalink

        That’s only because of the QE and ZIRP…

        zorro

    • Bazman
      Posted April 11, 2012 at 5:34 pm | Permalink

      A vast amount being proles on low wages in the public sector. Square that one off Andy.

  7. alan jutson
    Posted April 11, 2012 at 7:54 am | Permalink

    Have the politicians in all of the Countries who are in huge debt, yet realised a single common factor ?

    All of these Countries Politicians have overspent when compared to their (tax)income.
    All of these Countries politicians have continued to spend by borrowing, when they knew that tax receipts would not cover that spending.
    All of these Countries politicians continued to spend when the tax income and existing borowing would not cover what they were spending.
    All of these Countries politicians refused to accept that they were spending, way, way beyond their means of both income and borrowing to pay for it.
    All of these Countries politicians refused for years to understand that corrective action was needed to resolve the situation, until the markets acted against them.

    The politicians who have been in power for the last decade and more are to blame, No one else, the population did not get these Countries into debt, yes they may have voted for them at election time, but the real truth about their Countries finances were never properly disclosed to them.

    Perhaps as a first course of action we should dump all polititians who held seats in any government position for the past 15 years, and cancell their pension rights at the same time, as they have all presided over the most disasterous years of financial mismanagement in history.

    Then and only then, might we all be in this together.

    John fully aware you have highlighted many times the financial plight we were facing, but you have not been a government minister so you and others like you, and there are not many of those, should not be held to account.
    Indeed it is to your credit that you continued to outline the problems, when it was unfashionable to do so.

    • Susan
      Posted April 11, 2012 at 12:26 pm | Permalink

      alan jutson,

      So you don’t think the public spent too much money as well then?

      You just blame it all on Politicians because the public were not warned about too much debt in the economy.

      If my memory serves me right, I seem to remember Michael Howard ran his Election Campaign along the lines of controlled immigration and Government is spending too much, wasting too much and taxing too much. I also recall that he felt the banks were not holding enough capital. I voted for Michael Howard for these very reasons.

      Now do you think the public were just not listening or perhaps they were too busy enjoying all that easy credit that was available.

      • alan jutson
        Posted April 11, 2012 at 3:53 pm | Permalink

        Susan

        Perhaps you and I understood what Michael Howard was saying, but not people enough did, because he was not elected was he.

        I actually voted for JR as he is my constituancy MP, he just happened to be in Michael Howards Party at the time.

        As far as I am concerned people can spend what they like, its their money, or their own borrowed money, and if they go bust because they cannot manage their budget or financial affairs, its down to them.

        Fortunately or not, I was bought up by my parents to only purchase what I could afford, I would never likely to make a fortune, but was unlikely to go broke either.

        I ran my business before I retired in the same way, even though I was offered loads of money by the Bank in the good times, I refused, and expanded out of retained profits kept in the business. It meant I grew more slowly, but was always in control.

        If Banks knowingly lend money to poor risk people or poor risk businesses, then that is a risk they take, but their decisions should not be supported or bailed out by the taxpayer.

        • Susan
          Posted April 11, 2012 at 7:49 pm | Permalink

          Alan,

          If I remember correctly the Election with Michael Howard was in 2005. If he had been elected think how much damage to the UK economy would have been averted. However, the public cannot claim that no one told them that the Government was spending too much because Mr. Howard most certainly did.

          I would not have bailed the banks out in the way they were either because there was a much cheaper option for the tax payer that could have been used instead. Where I disagree with you is over private debt, this helps to bring the economy down. We have seen good examples of this in other Countries as well as in the UK. It is also a shared responsibility when anyone takes out a loan both the lender and the borrower. People borrowed money they knew they could not repay and it is their irresponsibility which is causing those that did not take on too much debt, worked and saved to suffer now.

          So Labour Politicians, banks and a large amount of the public are all equally to blame in my opinion.

    • uanime5
      Posted April 11, 2012 at 3:09 pm | Permalink

      What happens if while in opposition some shadow ministers supported similar policies as the Government? Should they also be sacked?

      What happens if the new politicians follow the same policies as the old politicians, for example Cameron borrows more than Brown did?

      • alan jutson
        Posted April 11, 2012 at 9:38 pm | Permalink

        Unanime5

        As far as I am concerned any MP who supports spending more than the Country gains by the way of tax income, is an unfit person for public office, no matter what Party they are in.

        Simple and clear.

  8. Robert K
    Posted April 11, 2012 at 7:55 am | Permalink

    Thank you for this lucid account of events in Spain.
    As you rightly point out it is always the private sector that takes the biggest hit from “austerity” measures. The explanation seems simple to me. If a person or company in the private sector wants to spend money they have to earn it or persuade someone to lend it to them. If they want to save money they have to make difficult choices about what to cut back on. This leads to a natural prudence, because imprudence leads ultimately to bankruptcy. If the state wants to spend more they simply make an announcement that tax rates are going up or print some more money. That is so much easier than making the difficult decisions on cutting back on spending. It takes a very tough-minded minister, backed up by a determined Prime Minister to face up to the civil servants and the public sector trades unions. I wonder if we have such ministers today.

    • Brian Tomkinson
      Posted April 11, 2012 at 8:04 am | Permalink

      Robert,
      I think we know the answer to your final question – no we don’t!

    • lifelogic
      Posted April 11, 2012 at 9:04 am | Permalink

      You wonder if we have such ministers today. Clearly not, they prefer to piss about publishing tax returns, changing royal succession laws, playing with green bling and deciding how people can spend their money, attacking charities and the rich and other childish distractions that clearly have negative consequences for all.

  9. Lord Blagger
    Posted April 11, 2012 at 8:02 am | Permalink

    They myth that growth solves it.

    Growth doesn’t solve anything, because your deficit is to large to be reduced even by growth in taxes. It’s going all Greek.

    Anyone catch R4 this morning with its piece on taxation?

    The would you like to be raped or sodomised by HMRC?

    The one where HMRC get given the right to make up tax law as they see fit.

  10. stred
    Posted April 11, 2012 at 8:06 am | Permalink

    It would be interesting to know at what level the Spanish have to pay the increased rates of tax and what their allowances are. I hope they have not made the same mistake as here and put many more on modest incomes into the higher rate so that millions more tax forms have to be submitted, wasting days or weeks every year.

  11. D K MCgregor
    Posted April 11, 2012 at 8:16 am | Permalink
    • Jose
      Posted April 11, 2012 at 2:36 pm | Permalink

      I think the previous time they threatened a strike, the government threatened to arrest them. The government would be better off adopting Reagan’s approach, let them strike and then sack them all and start again!

      But I wonder just how many government run operations have similar levels or remuneration?

      • Bazman
        Posted April 11, 2012 at 5:43 pm | Permalink

        They would quite possibly take the attitude of you can do what you like, but you will be doing it without me. Scary huh!

  12. stred
    Posted April 11, 2012 at 8:20 am | Permalink

    Off subject, Dummy will be announcing that the energy companies have agreed to write to all customers telling them what their best deal is every year. This is supposed to cut £100 off bills. However, there is nothing about restricting the tarrif to a simple standard one so that customers can compare like with like.

    The companies already sell their latest deals and customers can’t be bothered to accept because by the time they have changed, so have the tarrifs. And is anything being done to allow smaller companies have access to energy sources when the big 6 control these? In the US, anti trust laws strictly separate the producers and sellers in order to prevent anti-competitive scams.

    • lifelogic
      Posted April 11, 2012 at 9:10 am | Permalink

      Indeed a standard quote need to be made compulsory for all companies so that direct comparison is easy and prices fixed for a period say 12 months so they do increase a day later.

      • BobE
        Posted April 11, 2012 at 1:36 pm | Permalink

        Why a letter, wouldn’t a Web site be a better way to compare? Run by the regulator and showing the best 12 monthly deals.

        • lifelogic
          Posted April 11, 2012 at 2:28 pm | Permalink

          They need to quote on a standard agreed basis with a fixed rate for say 1 year so easy comparisons can be made. The same apply to insurance, money deposits. Otherwise confusion, false complexity and con marketing will continue to be the order of the day.

          • David Price
            Posted April 11, 2012 at 6:14 pm | Permalink

            This new deal is such a load of howash.

            HMG needs get rid of the onoxious “Government obligations and taxes” that add 10% to gas bills and 20% to electricity bills first

            Are messrs Cameron and Osbourne staying out of this so they can blame the LibDems for expensive energy and failed nuclear build-out at election time or are they really and truly so out of touch? Either way we are paying for this utter stupidity.

        • Bazman
          Posted April 11, 2012 at 5:46 pm | Permalink

          You just lay musical chairs. This is the system they have decided and this is the system I use. They will play by some rules even if they are of their own making.

    • Bazman
      Posted April 11, 2012 at 5:44 pm | Permalink

      They have been forced to by the government. Not ‘agreed’ as you say.

  13. merlin
    Posted April 11, 2012 at 8:46 am | Permalink

    The essence of your thorough analysis of the Spanish deficit debacle is that although the PIGS are having to introduce extreme austerity measures particularly in the private sector, which would provide the growth required for recovery, the EUSSR continues to engorge itself by demanding ever larger contributions from member states. The entity of the EU is growing ever more richer and powerful while member states struggle to survive. The philosophy is very clear, the EU is becoming a central power dictating laws, directives and finance to the satellite states who obey it, the tragedy is that this has all happened before in Russia, China and Nazi Germany, apart from China it has eventually failed, it’s how long it takes to fail that concerns me, of course, the sooner the better.

    • lifelogic
      Posted April 11, 2012 at 9:12 am | Permalink

      Indeed.

    • norman
      Posted April 11, 2012 at 10:15 am | Permalink

      It failed in China, Mao has as much (more some estimates say) blood on his hands as Stalin or Hitler. The difference is the Chinese knew it was a flop and so introduced market reform and now tax and spend around 22% of GDP (compared to the norm here in Europe of over twice that).

      I frequent a few Chinese sites and it’s not as bad as the media here makes out. Still no picnic if you don’t toe the line but you have to think as economic freedoms increase personal will have to as well – they are inextricably linked and I think the Chinese leadership are clever enough to realise it.

      We’re seeing the converse of that here with both economic and personal freedoms tightening at an alarming rate.

      We only jail our dissidents who make politically unacceptable statements for 56 days at a time and still in open court, although the Conservative party are hoping to change that in the next Parliament.

      • Denis Cooper
        Posted April 11, 2012 at 12:54 pm | Permalink

        He wasn’t a “dissident”, he was just an uncouth and stupid drunk.

        I don’t agree with his conviction, let alone his sentence, but that’s no reason to try to put him on a pedestal as some kind of “dissident”.

        • norman
          Posted April 12, 2012 at 6:33 am | Permalink

          I was making a tongue in cheek point. Our media are quick to clamour about ‘human rights abuses’ in China then when some idiot here makes politically (morally and ethically too, I agree) remarks and is jailed for it it’s seen as a jolly good thing.

          I dislike hypocrisy wherever it raises its head.

      • uanime5
        Posted April 11, 2012 at 3:17 pm | Permalink

        Fun facts about Japan: its economy grew 10% in the 1960’s, 5% in the 1970’s, 4% in the 1980’s, and has stagnated ever since.

        Fun facts about China: the same thing is likely to happen.

        reply: When and why? In Japan it only happened when they had caught up with western living standards.

        • norman
          Posted April 12, 2012 at 6:39 am | Permalink

          What on earth are you talking about uanime5? The point I was making was that when you give people more economic freedom personal freedom always follows and vice versa. Milton Friedman wrote a good primer on it if you’re interested (I imagine you’re not as you intuitively ‘know’ what I’m saying is rubbish).

          The truth is you realise when you give people freedom economic growth inevitably happens too so you bring up a strawman to set fire to.

          • uanime5
            Posted April 12, 2012 at 5:11 pm | Permalink

            My point was that China is rapidly growing because it’s an undeveloped countries and that as soon as it reaches western standards of living it will stop growing. Were the UK to adopt the same tax rate as China it won’t result in the UK growing as fast as China.

            Also increased economic freedom usually results in less personal freedom because what is profitable is usually contrary to what is profitable. This is why companies reduce the rights of their employees in order to increase their profits. Perhaps you should educate yourself in how people actually obtained their personal freedoms (usually by overthrowing the people in charge of their country).

        • uanime5
          Posted April 12, 2012 at 5:24 pm | Permalink

          Well given that Japan is smaller than China and was able to rapidly industrialise after the Convention of Kanagawa in 1854 it’d difficult to estimate how long it will take China to reach a Western standard of living. Given the low GDP per capita, large rural population, and small number of people who have access to electricity I’d say it will take several decades.

          The point I was trying to make is that for a developing economy China’s growth is normal and that the UK is unlikely to grow at this rate even if they adopt the same policies as China. Also that China’s growth will slow down as it becomes more developed.

    • uanime5
      Posted April 11, 2012 at 3:15 pm | Permalink

      Actually the amount the EU is asking for has been falling as a percentage of GDP for several years.

      “The entity of the EU is growing ever more richer and powerful while member states struggle to survive.”

      Which country does this entity represent and how much richer has it gotten over the past 15 years? If you don’t know that’s probably because your common is nonsense.

  14. Yudansha
    Posted April 11, 2012 at 8:50 am | Permalink

    “Instead, the EU just demand more, whilst also demanding that the member states borrow less. It is not a winning formula.”

    Well it is a winning formula – for the EU.

    Of our own crisis:

    The market has been unable to take its toll on the property bubble

    – record low interest rates
    – forebearance from lenders over mortgage defaulters
    – many using (and allowed to use) interest only loans to get by
    – Govt (taxpayer) innitiatives to enrich builders of new rabbit hutches at the expense of hocked-up-to-the-hilt youngsters
    – Govt paying over the odds to distort the BTL market through welfare

    Mostly Government interventions here. Not supply and demand at work at all.

    Heaven forfend any further economic shocks from Europe.

  15. Atlas
    Posted April 11, 2012 at 9:26 am | Permalink

    A good analysis John. I suppose the problem with the EU is pride. It cannot admit making mistakes – let alone correcting them.

    I wonder how well Germany would be doing if the Euro was not as devalued as it currently is?

    • uanime5
      Posted April 11, 2012 at 3:27 pm | Permalink

      Not as well because it would make their exports more expensive.

  16. Leslie Singleton
    Posted April 11, 2012 at 11:26 am | Permalink

    Something has got to happen before anything has much hope of changing vis a vis the EU. Why cannot you and a cohort of like minded MP’s put two fingers up to Cameron and especially Clegg and join UKIP? With luck this would break the mould as I think the expression is.

    Reply: Because it would not do what you want it to do. I seem to remember a Conservative MP did that before and lost his seat without changing government policy. The 81 who voted for a referendum need to keep their votes in the Commons, not throw them away.

    • Captain Crunch
      Posted April 11, 2012 at 12:22 pm | Permalink

      And also because you like the Conservative Party and feel it best represents your views?

      That as well?

    • Christopher Ekstrom
      Posted April 11, 2012 at 1:11 pm | Permalink

      Then perhaps those 81 ought to remove Cameron while you still have a Tory party!

    • Leslie Singleton
      Posted April 11, 2012 at 4:41 pm | Permalink

      But I referred to a cohort not a single MP. If 81 Conservative MP’s were to remove en masse and stay and fight the next election as UKIP it might be very different. Even the threat would have a big effect. Say not the struggle naught availeth. Might even be joined by a good few Labour MP’s.

      Reply They are not going to.

  17. lojolondon
    Posted April 11, 2012 at 11:55 am | Permalink

    On a totally unrelated subject, Halifax yesterday sent me a letter to say that my mortgage payments are going up by half a percent.

    They say ‘the mortgage conditions which apply to your mortgage allow us to change the SVR where we have a valid reason’.
    They admit that the BOE rate is unchanged, but say it is due to ‘the increased cost of borrowing money’, which itself is ‘due to market conditions’.

    Thought I would see a massive outcry, but nothing, is this thievery not affecting people?

    • StevenL
      Posted April 11, 2012 at 12:44 pm | Permalink

      Ever heard of the ‘yield curve’ or ‘counterparty risk’? Bank rate is merely the overnight rate paid by the BofE to the banks for deposits in their reserve accounts.

      Bond prices have been falling from recent highs, hence interest rates ARE rising.

    • BobE
      Posted April 11, 2012 at 1:40 pm | Permalink

      Its because they need to claw back the PPI repayements that they have been forced to make. The banks will find a way to do the same soon.

    • Bazman
      Posted April 11, 2012 at 5:49 pm | Permalink

      Boo Hoo Lojo. How we cry when a change affects you. I’m alright Jack. Me. Paid mine of last year. Large expensive TV’s all round. Ram it.

  18. Denis Cooper
    Posted April 11, 2012 at 1:08 pm | Permalink

    I don’t see how the private sector could escape “austerity” one way or another.

    If public spending is cut that will feed through to hurt private sector contractors and suppliers to the public sector and their workers, as well directly affecting recipients of state pensions and welfare payments; on the other hand if taxes are raised then public sector workers will be affected along with the private sector.

    One can argue about the detailed impact of spending cuts or tax increases on particular sections of the population, but the broad picture is that all share in the suffering one way or another, with just a few exceptions who are in positions of sufficient power to be able to ensure that they’re insulated from the general suffering.

  19. Phil Richmond
    Posted April 11, 2012 at 1:15 pm | Permalink

    John – what really baffles me is that why politicians of all stripes are so devoted to the EU like it some cult that has a hold over them. They seem willing to hand out such extreme punishment to their own people rather than do what is obvious & right and stand up to the monsters in Brussels.
    Your own leader David Cameron being another example?

    Quick question John – why havent you signed the Peoples Pledge?

    reply: I do want a referendum and have voted for one in the Commons. I voted against staying in the EU in the last referendum. What more do you want?

    • uanime5
      Posted April 11, 2012 at 3:28 pm | Permalink

      Perhaps it’s because the ‘monsters in Brussels’ is made up of these politicians.

    • Patrick Loaring
      Posted April 11, 2012 at 3:58 pm | Permalink

      I have noticed a general reluctance by MP’s to sign up to things like the Peoples Pledge. Why is it that Cameron was all for a referendum whilst in opposition but as soon as he becomes PM he does nothing. Is it because the majority of people in England would vote to get out? (I don’t include Scotland, Wales and N Ireland because they are living on English taxpayers subsidies and want it to continue within the EU). Or is it because the Lib Dems would leave the coalition? If Clegg and his gang left would Labour want to bring down the Government? I cannot understand why it is that the party/ies who achieve power immediately embrace the EU and all its anti democratic, and corrupt meddling in sovereign state affairs. Do they get a briefing from EU officials from day one of being in power that changes all their previous reasons for recovering powers and/or getting out?

      Reply: I do not usually sign things like the People’s Pledge because I can say what the People’s Pledge wants in parliament and vote accordingly.

      • outsider
        Posted April 11, 2012 at 8:19 pm | Permalink

        Mr Redwood is right to keep his options open, unlike all those LibDem MPs who signed the “no fees” pledge. There are circumstances where an isolated referendum might be counterproductive, such as when we have a Government that has neither a programme for EU reform/renegotiation nor the will to pursue one. Even after a referendum that voted to leave, it would be hard to get a majority in the Commons, let alone the Lords, without a failed prior negotiation attempt. Some politicians deserve to be trusted on this.

    • Leslie Singleton
      Posted April 11, 2012 at 4:45 pm | Permalink

      We want you to lead the 81. See mine above and my reply to your reply.

    • Bob
      Posted April 11, 2012 at 7:12 pm | Permalink

      What is stopping you from signing the Peoples Pledge?
      Do you not approve of it?

      Reply: I have pledged to my electors to vote for a referendum, did vote for one, and will vote for one again. What more do I need to do to make the point? What does the People’s Pledge say that I have not said?

      • Bob
        Posted April 12, 2012 at 1:31 pm | Permalink

        Reply to reply:
        What does the People’s Pledge say that I have not said?

        It’s a cross party effort to get a referendum. The more big names signed up to it the more effective it becomes, and it won’t cost you a penny.

        What’s the downside?

        Reply: Fine – I have given my word I want a referendum and have voted for one, so I am happy with such a pledge. They should register me accordingly.

  20. rd
    Posted April 11, 2012 at 2:42 pm | Permalink

    LTRO was never going to solve the problem because it didn’t address the problem. After the 75% ‘haircut’ imposed on private investors in Greece is it any surprise they are steering clear of Spain and Italy? The best thing that has been done since the 1 trillion euro LTRO ‘QE’ is the Wolfson competition for ‘best ways to leave the euro’.

  21. uanime5
    Posted April 11, 2012 at 2:54 pm | Permalink

    Spain is failing because of austerity and a collapse of the housing market, while politicians hope that the private sector will somehow fix all their problems. I suspect the same will happen to the UK when the housing market finally collapses.

  22. Derek Emery
    Posted April 11, 2012 at 3:04 pm | Permalink

    The assumption is that austerity will reduce PIIGS salaries and pensions and that a 20-30% reduction is all that’s needed to restore growth.

    However wages are “sticky” and do not easily reduce during recession see http://cowles.econ.yale.edu/news/bewley/tfb_00-02_wages.htm

    Even if wages could be reduced would this restore growth? The rest the world has become increasingly more competitive over the eurozone decade. Whilst the PIIGS were gorging themselves on cheap German level loans for the last decade the rest of the world were investing in a better future using their surplus to fund private sector growth, boosting GDP growth.

    The PIIGS will have far more competition now for their products from the rest of the world whose costs and wages are still a small percentage of those in the EU.

  23. JimF
    Posted April 11, 2012 at 3:44 pm | Permalink

    Strikes me Spain is a lot of what the UK would have been in the Euro.
    Lower heating bills I guess but dodgy politicians, loads of students unqualified and unmotivated for a working life, debt to their eyeballs, spanner-type manufacturing, tried to get banks to grow a service based economy.
    I think we have a greater propensity for individuality and creativity, which is why we never went into the Euro. They have a better climate to grow oranges, offer decent holidays in the sun, and they have a history of knuckling down to work under oppressors like Franco.
    On balance, they’ll probably come out of this in servitude to Germany. They’ll do the foundry work for BMW in the Basque Country, and lay towels on the sun loungers in Benidorm. Sorry, but that’s the history, that’s the way it is.
    While we have some individuality and reactiveness to potential economic oppressors, as shown on this site, I’d rather be resident in Britain.

    • Bazman
      Posted April 11, 2012 at 5:50 pm | Permalink

      At least they are skint in the sun is what you are saying?

  24. Barbara Stevens
    Posted April 11, 2012 at 4:09 pm | Permalink

    I see the brave 81 have been mentioned, it should be more, and they are more valuable inside parliament than out; but they should be more active. I’d like to see more Conservative MPs come out and make discussion and change more proactive. Cameron knows his policies are not welcome or liked, especially on the EU, and immigration. What as emerged this week with the Border Agency will not satisfiy many. Its all about waffle and saying plenty and doing nothing. Yes inside parliament they can be more available to act, but will they act? That is the question on people’s minds. What is happening in Spain is terrible, how long will these countries go on being ruled via Germany? Now its just been annouced Greece is to hold a general election, that should be very interesting. The sooner these countries resume to rule themselves the better so the world can get back on a good financial keel, and the sooner we have a Tory party with enough MPs willing to do as the electorate wish the happier many will be; if not then they will fall by the wayside come voting time.

    reply: We do regularly make the case in Parliament and outside, and vote as necessary to show the government we are serious about wanting a change of approach to the EU. Why else do you think Mr Cameron vetoed an EU Treaty the establishment wanted him to go along with?

    • lojolondon
      Posted April 11, 2012 at 5:40 pm | Permalink

      Remember Barbara, there is also an element of the old ‘cuts resistance’ – so the Border agency spirit is saying ‘cut our budget and we go slow to teach you a lesson’. Also there was the clear media release about 2 weeks ago threatening the Olympic ‘overload’ – ie. go slow. It is part of the communist workers plan, and needs someone to deal with it. Brave Dave will not.

    • Bob
      Posted April 11, 2012 at 7:19 pm | Permalink

      Reply to reply:
      “Why else do you think Mr Cameron vetoed an EU Treaty the establishment wanted him to go along with?”

      Is it because he was afraid that the new treaty would trigger the referendum that he so fears?

  25. lojolondon
    Posted April 11, 2012 at 5:05 pm | Permalink

    John, I thought you would enjoy these two really good articles from the excellent Adam Smith blog – the first applies to us immediately, the second applies to everyone permanently.

    http://www.adamsmith.org/blog/politics-government/the-unintended-consequences-of-lobbying-laws

    http://www.adamsmith.org/blog/money-banking/the-case-for-gold

  26. English Pensioner
    Posted April 11, 2012 at 8:53 pm | Permalink

    “The pain in Spain falls mainly on the private sector”
    Surely this is the same everywhere, this country included.
    Short of mass slaughter (which I don’t advocate) nothing ever cuts the size of the public sector. If a government department is abolished it simply metamorphoses into a new form and reappears elsewhere. Spain or England, its all the same!

  27. Jon
    Posted April 11, 2012 at 9:15 pm | Permalink

    That rings a bell here, avoid the problem of high public sector spending by raising tax on the private sector.

    I work too hard but am grateful for the job. If Spain goes belly up it will affect jobs here. Why? because the EU and the public sector won’t give in nor the political leaders.

  28. Lindsay McDougall
    Posted April 11, 2012 at 9:42 pm | Permalink

    Spain’s public debt situation is interesting. Under the EU definition it is 70% of GDP, which seems manageable if prompt action is taken – along the lines of UK measures. However, it is in practice 87% of GDP, and here’s why:

    The 87% includes €35 billion owed to waste collection companies, pharmacutical groups and other suppliers by municipalities and regional government. Spain’s so called centre right government has agreed to pick up the tab. How come that these lower tiers of government cannot pay their bills? Because they illegally indulged in property speculation and the bubble burst, that’s why.

    What should have happened was that the Spanish central government should have refused to pick up the tab, some municipalities and regional governments would have defaulted, and a number of government executives at that level would have faced criminal charges.

    But no. Yet again a European government has irresponsibly dumped obligations on its taxpayers rather than do the right thing.

  29. ISAYMYGOODMAN
    Posted April 11, 2012 at 10:25 pm | Permalink

    So simple question..Do we stay or do we go? In Europe that is?

  30. rd
    Posted April 12, 2012 at 5:48 am | Permalink

    As for the ‘brave 81’; if Mr Cameron wants a Conservative majority after 2015 he has one clear choice; an referendum on the EU and get back our contributions to cut taxes and boost growth at home.

  31. David Langley
    Posted April 12, 2012 at 8:18 am | Permalink

    Love the contributions John I wish my local Tory MP had such a blog.
    Who are the 81 John? Where do I go to see the way they have voted on EU subjects. Do their constituents appreciate their representatives treasonable actions? I feel we are on to something here.
    Spain has to earn its way out of trouble not borrow, seems like a gambler on a permanent losing streak betting even more to try and win! We all know where that will end.

    Reply: The 81 were recorded at the time of the referendum vote last year – it should appear by google magic.

  32. David Langley
    Posted April 12, 2012 at 8:20 am | Permalink

    Seems like a line went wrong on the above, I meant where do we go to see the pro EU MPs voting record?

  33. waramess
    Posted April 12, 2012 at 10:52 am | Permalink

    There is clearly no escape from the antics of government nor from their insatiable demand for resources whilst they happily and slowly kill the proverbial goose.

    The answer must therefore be to emigrate and to suffer the pain in the sunshine

  34. judge nutmeg
    Posted April 12, 2012 at 9:03 pm | Permalink

    Pay your taxes sunshine

  • 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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