Semi sovereigns, sovereign debt and the Euro

 

              A sovereign or state government can often borrow more cheaply than companies and individuals. There are two main reasons. The state, backed by police and the military, can demand people pay taxes so it can pay back its debts. A state can also print or create more money, to meet its bills, if more conventional and straightfoward methods fail.

                     Despite these powers sovereign states can and do sometimes renege directly on their debts, rather than doing it by inflation. This can happen if a state owes substantial sums to foreigners and finds its own currency slipping away, making the repayment of foreign debts too expensive. Even allowing for this, markets usually reckon sovereign debt is better quality than other debt, and give it a premium rating in many cases.

                        So called sovereign debt issued by Euro area countries is no longer  truly sovereign debt. These countries no longer have the backstop ability to print the money to meet their obligations in the way the US and Uk are currently doing.  It makes default more likely, as we have recently experienced in the case of Greece.

                       Whilst these states still have most of the normal powers to tax, the Euro area  intervenes more and more in how they tax and the extent to which they tax. There is a greater danger in the Euro area of a state losing the consent of its electors to the taxation, as resentment builds up against the Union imposed economic policies on that particular country.

                                    For these reasons I think markets should invent a new category of debt. Let us call them semi-sovereigns, or half sovereigns. They do not have the full range of sovereign powers. Their ratings should reflect this changed reality. This seems to have happened in the markets with debt from Ireland, Greece. Italy, Portugal and Spain, which sells at large discounts to most western truly sovereign debt.

                                    It is time to recategorise Euro area government debt. It is moving closer to regional and local government debt than to sovereign debt. The task of evaluating it is made more complex by the rapidly changing rules governing public spending , taxation, money printing and bond purchase in the Euro area.

 

 

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78 Comments

  1. Posted September 18, 2012 at 5:43 am | Permalink

    “There is a greater danger in the Euro area of a state losing the consent of its electors to the taxation” what consent is that exactly they have little choice?

    Clearly the markets already reflect the higher lending risks of these non sovereign and non democratic regions. One wonders how long the peoples of these regions will continue to put up with being, so heavily, taxed and without any real democratic representation.

    • Posted September 18, 2012 at 6:27 am | Permalink

      An interesting report ‘Pensions for the people: addressing the investment crisis in Britain’ by David Pitt-Watson for the RSA.

      With the new forced pension regulations coming in many will be forced to open private pensions that often charge exorbitant costs, as high as 40 percent of the value of their pension over the live of the pension sometimes. With the discussion of cost of regulations yesterday I wonder what % of GDP will be wasted by these forced private and restrictive pensions alone. Not to mention the absurd gender neutral insurance rules.

      Many people who have expensive personal borrowings (at perhaps 15%+) will be legally forced to save in these poor returning and restrictive schemes when they would clearly be far better clearing all personal debt first. Or just saving more effectively and flexibly.

      • Posted September 18, 2012 at 8:12 am | Permalink

        Yep ,

        It’s a national disgrace .

        The Conservatives are desperate to claim credit for the NEST disaster .

        Don’t we subsidise the financial services sector enough already ?

        • Posted September 18, 2012 at 11:39 am | Permalink

          Its the Indian financial services sector to be precise, all NESTs admin will be done by TAT in India.

          You could also add that NOW! Pensions also come from Denmark too

          • Posted September 18, 2012 at 9:37 pm | Permalink

            I thought Tata just wrote the software for the administration and that Blackrock and others were the fund managers .

            This money could be used to kick start social house building program to help bring down the cost of accommodation which will need to happen if they are going to have to pay our state pensions .

          • Posted September 19, 2012 at 6:03 am | Permalink

            Simon please, no more social housing!

            Have you been around an estate recently?

          • Posted September 19, 2012 at 9:54 am | Permalink

            Nina Andreeva: ” all NESTs admin will be done by TAT in India.”

            TAT, isn’t that part of Rajendra K. Pachauri very lucrative empire?

    • Posted September 18, 2012 at 7:45 am | Permalink

      lifelogic: “what consent is that exactly they have little choice?”

      Oh come on Lifelogic! That’s the concent where a leader of a party offers a referendum on an aspect of European politics, like for example a treaty change, before an electon, then once the vote is in the bag and the election sown up, reneges on the undertaking.

      These the sort of tricks the EU and it’s quisling local politicians play to obtain ‘consent’.

      Trickery, as sound a basis for democracy as any, in the modern political playbook.

      • Posted September 18, 2012 at 8:40 am | Permalink

        I do not consider it trickery. It is deceit. Most people’s command of the English language would give them the impression of something being said quite different to what was actually meant. It is deceit based on a higher command of the English language. Sometimes people know when they are being deceived but cannot express it as well as politicians who have crafted their use of language to give a false impression to ordinary people. That is why they are held in such little regard as well as their double standards, self-interest, greed and lack of concern for public opinion. For example, MPs still getting RPI instead of CPI for their pensions having forcefully done the media rounds criticising everyone else to submit them to accept CPI and reducing their pensions by about 20%. Using language to pit private against public sector to help them achieve their aims without public outcry. So when are MPs going to change their pensions to CPI??? When are the consequences of the Kelly report going to implemented and added upon to help reduce the pervasive corruption at Westminster?? How many years have we waited????

      • Posted September 18, 2012 at 9:24 am | Permalink

        Indeed or the – if the voters do not like it as “An EU Constitution” we will just call it a “Treaty” or in other countries just make you vote again and again until they get the answer that suites the politicians, the over paid state sector and all the hangers on.

        • Posted September 18, 2012 at 2:38 pm | Permalink

          Better still, if convicted of a criminal offence for cheating expenses and then be allowed back in the Lords. This is similar to being allowed back in cabinet after wrong doing. Promoted for committing offences. Not heard of anywhere else in society. Where is mantra of Cameron before the election: this is who I am, this is what I believe in (sic). The Star Chamber and all that guff.

          In most public sector bodies a discipline offence of aiding and abetting can be committed by not taking any action or raising the issue. How about Westminster? Right to recall is required because none of the party leaders have the leadership skills to instil honest professional behaviour. I thought this was being introduced? I suppose another matter in a long line of issues kicked into the long grass like deficit, debt and the economy.

    • Posted September 18, 2012 at 8:28 am | Permalink

      We do not have a choice. Cameron agreed to an increase in the EU contribution against public opinion (contrary to his claims of success). He has not given a referendum about the UKs membership, once more, against public opinion. He has given loans and bail out money to the EU against public opinion (and his pledges). No, it is not reasonable to say that the public in the UK has been given allowed or permitted any say about the EU or the UKs continued membership. Quite the reverse Cameron has done everything he can to prevent it. While claiming he is a Eurosceptic. Yeah right. The man is a complete waste of space when it comes to negotiating as we recently noted with his pledge to stay in the EU. At what cost to us, the British taxpayer?

      It was interesting to read the distorted worlds of Lamont and Major over the weekend. Nothing about how they wrecked businesses, homes and jobs by doing all they could to join the ERM. They wanted to claim success for an unintentional outcome of failing to secure membership to the ERM. Again, they wanted to be in the ERM, the markets forced them out. It was not their choice and the British economy grew once out. Despite their articles impression this was not their choice. Reading the articles you could mistakenly believe they were deliberately successful.

      It is reported that we might get an in or in referendum vote. Do we want to be in the European union or the European Federation. Hardly a choice. We want OUT of the EU with a vote that allows this choice.

      • Posted September 18, 2012 at 12:19 pm | Permalink

        I agree full the interview with Major on Andrew Marr was a totally pathetic and unquestioned re-writing of History. Why would anyone want to hear the views of the absurd John Major on anything at all.

        The interview with Mark Thompson was equally pathetic, the four times over paid D.G. of the BBC who is thankfully leaving, having presided over a huge vastly wasteful and hugely over paid bean feast while standard declined considerably.

        The endless dumbing down at the BBC, the pushing of the quack green agenda, enforced “equality” agenda, the EU, the destruction of real democracy and pushing the ever bigger state has been hugely damaging to the country. The new one can surely not be so bad, at least he is half price.

        • Posted September 18, 2012 at 4:56 pm | Permalink

          lifelogic,
          Another excellent post, I agree with all you say.
          John Major is a classic example of the Peter principle.
          He doesnt even seem to have the ability to look back at history and realise that he was wrong and caused great hardship to many, due to his ERM obsession.

        • Posted September 18, 2012 at 5:17 pm | Permalink

          Indeed Mr Major really isn’t worth listening to – it is a weak man that is unable to admit he made mistakes. Giving him an opportunity to grandstand as some kind of senior figure is irritating. His was an opportunistic government that ultimately buckled under the weight of it’s own economic incompetence and arrogance.

          To this day, he still believes it was the ‘plotter’s that brought him down..rather than his inner circles poor decision making and failure to listen and take on board different views.

        • Posted September 19, 2012 at 9:09 am | Permalink

          Major should be stripped of his title and pension. There should be consequences for gross misconduct and failure. Major cost the country a fortune, billions of pounds of taxpayers’ money lost, businesses lost, homes repossessed and jobs lost. He should not be in receipt of a pension and former PM allowance. Darling and Byrne got a tax free pay out after leaving the Treasury broke, why?? Why are politicians given such hand outs when they are first to criticise others who they perceive receive monetary rewards unfairly??

          I read soft on crime Clarke stating there will be no change to his lunatic stance on crime and punishment now Chris Grayling is in the chair. I suspect the families of the two police officers killed yesterday will be instilled with confidence that justice will be served on a day that the ECHR rules indefinite sentences are against HUman Rights and three criminals paid £43,000 in compensation. Complete madness. And yet, Clarke and Clegg want the ECHR to remain……..

      • Posted September 18, 2012 at 3:50 pm | Permalink

        Cameron thinks his opinion on, for example, the benefits of our membership to the EU is more important than the majority of people he represents in government who seem not to agree with him. Arrogant little ….. !

        • Posted September 18, 2012 at 8:20 pm | Permalink

          He clearly think there are benefits to our membership of the EU and loss of democracy – but like all pro EU people he never actually says what these are. Other than the absurd “preventing wars” and “a seat at the table”.

          Perhaps these are benefits only for the political class and other hangers on – so it might not suit him to mention them specifically.

          • Posted September 19, 2012 at 7:58 am | Permalink

            lifelogic: ” He clearly think there are benefits to our membership of the EU and loss of democracy ”

            That is because there are very tangible benefits to those members of our political class who are in the club.

            The EU political machine will pay you a very handsome stipend for infiltrating national parliaments and sitting in their unelected chambers, on standby to do it’s bidding. Prime example, (former Labour MPs cited-ed) et al who are paid by the EU to influence in the most blatant undemocratic manner the legislation that goes through the UK parliament. (These people may be paid pensions by the EU for their past service, but that does mean they are paid to push EU views in the Lords or elsewhere-ed)

            And at the end of the day, elections are so tiresome, one is obliged to make undertakings and then the electorate expect you to uphold them after the election. The whole thing is a frightful bother.

            *Amusing is it not, how these firebrands of egalitarian socialism at the first opportunity assume the titles and regalia of the system they so opposed.

            Reply: We have a chicken and egg problem with the EU and senior politicians. It is often the case that senior politicians are only allowed to be EU Commissioners because they are believers in EU centralsiation. Their return to the UK later with pensions is unlikely to change them from pro EU to anti EU on return, but does not mean they are literally being paid for specified political interventions needed by the EU. They may be volunteers to the cause, not pensioner conscripts.

          • Posted September 19, 2012 at 10:05 am | Permalink

            JR: “These people may be paid pensions by the EU for their past service, but that does mean they are paid to push EU views in the Lords or elsewhere-ed”

            I have no problem with former apparatchik getting pensions for their service, although I think their stipend is excessive considering their length of service.

            However, no one in the pay of a foreign organisation should be sitting in either the house of Lords or the Commons!

            JR: “but does not mean they are literally being paid for specified political interventions needed by the EU.”

            You are too generous. They will never vote against an initiative that promotes the interests of the EU. Indeed, I believe they are forbidden to do so.

          • Posted September 20, 2012 at 5:02 am | Permalink

            JR as you say “They may be volunteers to the cause, not pensioner conscripts”. They may well be, but what are their honest reasons for them being such “volunteers to the cause”? Personal career development? Certainly they never put forward any rational arguments for their cause – do they have any over these personal interests I suspect not?

            How could anyone sensible appoint Lord Patten to the BBC trustees, which already has a huge indoctrination agenda on the EU issue.

          • Posted September 20, 2012 at 7:08 pm | Permalink

            lifelogic: “How could anyone sensible appoint Lord Patten to the BBC trustees, which already has a huge indoctrination agenda on the EU issue.”

            He could because he is at one with Pattern and the BBC in its position on the EU, if he wern’t, Pattern wouldn’t have been appointed, who knows maybe John Redwood might have been.

            Then we might have seen some free market introduced to Broadcasting in the UK.

    • Posted September 18, 2012 at 9:35 am | Permalink

      Don’t you think our so called democratic representation is a bit on the low side?
      Our representatives with a few notable exceptions simply ignore the electorate and renege on promises.

      Overall, politicians are politicians and I’m amazed we put up with our ‘broken’ system.

      • Posted September 18, 2012 at 9:30 pm | Permalink

        Well what do you expect in a country where two thirds of the Commons are in safe seats and the upper chamber is unelected. Though only England puts up with this because Wales, Scotland, and Northern Ireland have devolved bodies with fairer voting systems.

        • Posted September 19, 2012 at 10:21 am | Permalink

          Don’t be disingenuous. Safe seats are safe because their electorates have an overwhelming preference for one Party. That doesn’t make them undemocratic.

          The House of Lords is unelected because you failed to convince a majority in the House of Commons that there would not be intolerable conflict if both houses were elected. The American system is not a shining example to us all; it resembles a camel, an animal designed by a committtee.

          As for devolution, let’s deal with the real issue. If English taxpayers stopped subsidising their public expenditure, would they use their tax raising powers or fold their tent?

    • Posted September 18, 2012 at 3:02 pm | Permalink

      Philip Hammond on Newsnight last night sounded absurd, just dancing on a pin. Trying to claim that Prince Harry was just like any other pilot while also saying he was a VIP (he was moved under guard to a secure location during a Taliban attack on Camp Bastion no doubt putting others at risk). Then again absurdly saying we would leave by a certain date but it would depend on conditions on the ground but still by that date (or something similar). What on earth are we doing there how many more have to die pointlessly?

      War need real direction and needs to be entered for real goals and you need to win not let by clowns and kept there and perhaps die there to save political face.

      Surely Prince Harry is more or a liability than an asset to the forces if he needs such special attention. Why bother with the expensive training of such royalty VIPs? They are always likely to be more of a problem then an asset in such situations. Is it just so they can wear the smart uniforms for press photos?

  2. Posted September 18, 2012 at 5:56 am | Permalink

    Is not the market already re-categorising euro area government debt, and are not the efforts of the EU oligopoly directed to rejecting this solution? Your idea if followed would inevitably lead to another layer of gold-plated regulation, administered by another unaccountable bureaucratic office in the EU and giving the EU even more right to interfere with people’s freedoms. The road to Hell……

  3. Posted September 18, 2012 at 6:47 am | Permalink

    Sovereign debt in the eu becomes more like state debt in the USA, or municipal debt. Nothing unusual.

    • Posted September 18, 2012 at 8:55 am | Permalink

      Exactly Gary. The eurozone sovereign debt market is like the US municipal bond market or the old UK local authority market. UK local authorities had the right to levy property rates (to a far greater extent than the current council tax) but could not print money. Default is rare but more common than for independent nations and interest yields therefore more variable, as Mr Redwood suggested.

  4. Posted September 18, 2012 at 6:51 am | Permalink

    Thank you for pointing this out so very clearly.

    The EU machine is spreading like a cancer into UK politics. The independence of Scotland and Wales, the slow take over of the banking system by foreign powers, the immigration policy which allows Eu “citizens (many from outside the EU too) to claim all the welfare payments to which they have contributed absolutely nothing at all, the erosion of our traditionally very fair legal system and the regionalisation of our country(ies) are all EU policy and are getting more and more entrenched.

    This is not change. It is the decay of a very sick and sickening patient.

    • Posted September 18, 2012 at 12:39 pm | Permalink

      Without a single shot the UK is subsumed into the forth recht.
      This union will complement the NAU which has combined America, Canada and Mexico into another block.
      After a time the two blocks, EU and NAU will combine to give a single government.
      Similar blocks are being formed in the East.
      The final aim is a One World Government.

      • Posted September 18, 2012 at 6:40 pm | Permalink

        How has this happened to Britain when we have a market that has less regulation and employment laws than any other EU countries especially Germany and only a bit more than America?

        • Posted September 20, 2012 at 11:42 am | Permalink

          Because we have worked very hard at keeping it that way.

  5. Posted September 18, 2012 at 7:02 am | Permalink

    This is surely right. As you point out, there is a de facto recognition of this in the differing interest rates that now apply to bond issues by EZ members. Nor will lenders forget the haircut applied to their earlier lending to Greece. Nevertheless, I expect the political establishments in the affected countries to be very resistant to your idea.

    • Posted September 18, 2012 at 2:28 pm | Permalink

      Well they were changed by coups in Greece, Italy and Ireland. Putting EU yes men into position is hardly a vote of confidence from the people of those nations.

  6. Posted September 18, 2012 at 7:17 am | Permalink

    Seems to me this is a good point well made.

  7. Posted September 18, 2012 at 7:25 am | Permalink

    My personal asset balance testifies to my financial illiteracy, yet I consider that if any country resorts to QE or other such means to reduce its borrowing liabilities, it’s a sign of failure by that country’s treasury and is also an underhand way of robbing both creditors and the citizenry. Should not therefore this also be a factor in assessing sovereign strength?

  8. Posted September 18, 2012 at 7:26 am | Permalink

    In a practical sense, the markets are categorising and evaluating Euro zone debt. They have recognised Member State debt and rate each Member State separately, on merit. What is causing the fluctuation are the inconsistent signals coming out of the ECB and Germany. In reality, it’s perfectly simple. If Eurobonds are issued or Germany makes fiscal transfers, there will be an acceptance that ‘we are all in this together’ and the spread of yields on Member State bonds will narrow.

    I draw everyone’s attention to recent policy statements by the Spanish Finance minister. He is refusing to implement any more austerity (a) because he thinks things are bad enough in Spain already and (b) he has separatist riots on his hands in the Catalan area. This is why Spain is still refusing to make a formal application for EU bail out funds.

  9. Posted September 18, 2012 at 7:34 am | Permalink

    JR: “For these reasons I think markets should invent a new category of debt. Let us call them semi-sovereigns, ”

    You are nerly there Mr Redwood.

    Why don’t we just re-circulate the sovereign and half sovereign coins, make sterling convertable to the coins by value against the weight of the coin. You know like it used to be before Nixon abolished the gold standard. Our sterling currency would float against the gold standard.

    • Posted September 18, 2012 at 7:58 am | Permalink

      US$35 per troy oz. as I remember, about 50 times less than the current gold price. The true inflation rate over the past 40 years.

      • Posted September 18, 2012 at 10:41 am | Permalink

        You could globally balance all the US Dollars at about $6,000 to the troy oz gold. Way to go yet bullion boys 🙂

        • Posted September 19, 2012 at 6:09 am | Permalink

          Movements in asset prices maybe erratic and subject to sudden and significant motion.

        • Posted September 19, 2012 at 8:05 am | Permalink

          Acorn: “Way to go yet bullion boys”

          If the value of the US$ is an indicator in part of the strength of its economy, then $6000 US to the troy ounce may not be too far off.

          Single Acts: “Movements in asset prices maybe erratic”

          Where as the movement in Sterling or the US$ has been stable? I don’t think so. A 98% devaluation since the turn of the previous century.

          • Posted September 19, 2012 at 1:42 pm | Permalink

            No, I was suggesting (somewhat opaquely) that such a valuation $6,000 oz is not impossible (not financial advice yadda yadda)

  10. Posted September 18, 2012 at 8:00 am | Permalink

    It would be the same as the US Municipal Bond Market. States; Counties; Cities School and Water Districts, all issue Bonds to fund projects. Trouble is you don’t know how big a risk they are; financial, particularly debt reporting is nowhere near corporate requirements.

    Most US states have to finish their financial year with balanced budgets and end up slashing spending and hiking state tax rates and borrowing from Washington. I can’t see the Germans letting the Euro-Zombies do that. Remember the Greeks fiddled their way into the Euro with the help of a casino bank. Imagine owning a mutual fund /ETF, full of Sub-prime Euro-Zombie debt. The stuff of nightmares!

  11. Posted September 18, 2012 at 8:00 am | Permalink

    “These countries no longer have the backstop ability to print the money to meet their obligations in the way the US and Uk are currently doing.”

    Nor does the ECB has the ability to do it for them, without breaking EU treaty articles that were deliberately inserted in an attempt to stop it ever happening.

    An attempt which increasingly looks like a vain attempt, as clearly as far the eurocrats are concerned their efforts to Save the Euro must not be impeded by anything as trivial as the law.

    • Posted September 18, 2012 at 12:59 pm | Permalink

      Having the ability to print ones own currency is viewed by politicians (including our host) as a valuable asset when in truth it is the sign of failed economics and a failed government.

      The so called “get out of jail free” card of leaving the Euro is a damming reflection of political ineptitude.

      Far better the politicians serve their jail sentence and come out of jail far thinner than when they entered

      • Posted September 19, 2012 at 6:12 am | Permalink

        When did you last see a thin politician?

        Reply: This morning

        • Posted September 19, 2012 at 1:42 pm | Permalink

          Touche!

    • Posted September 19, 2012 at 6:11 am | Permalink

      “without breaking EU treaty articles”

      Alea iacta est

  12. Posted September 18, 2012 at 8:21 am | Permalink

    The state, backed by police and the military, can demand people pay taxes so it can pay back its debts. A state can also print or create more money, to meet its bills, if more conventional and straightfoward methods fail.

    ==============

    1. If the debt is linked to inflation, like all the debts that you have hidden off the books, it doesn’t work. As fast as you print, the debt goes up proportionately.

    Political myth number one, we can print to get us out of the false accounting mess debunked.

    2. Extortion. So you admit to running an extortion racket? Or is the plan to move to a more mafia style state to keep your salary being paid?

    3. Notice too that there is no role for the electorate. We get no say. John Redwood will send the police and the army round, and steal your money with violence.

    That’s the problem. It’s a fraud. It’s extortion. It’s not democracy.

  13. Posted September 18, 2012 at 8:23 am | Permalink

    Despite these powers sovereign states can and do sometimes renege directly on their debts,
    ==========

    You’ve just done it. You’ve reneged on pensions.

    For a median worker on 26K a year you have reneged on over 80K of pension payouts.

    You voted for this in the house.

  14. Posted September 18, 2012 at 8:28 am | Permalink

    here is a greater danger in the Euro area of a state losing the consent of its electors to the taxation,

    =============

    Where is the consent in the UK? We never get asked a direct question and get to vote on taxes.

    Where is the option not to consent? Please tell me to whom I write to remove my consent to paying Green taxes (subsidies to the likes of named green enthusiast)?

    Ah yes, you will use violence to get the money to pay Tim Yeo so he can make lots of profits.

    In the case of Greece, its worse. The EU has imposed a politician on the Greeks. They haven’t had a say in who taxes them.

    Now in practice, the Greeks have just stopped paying taxes. They have worked out that their taxes aren’t going on services because they are going on paying debts.

    That’s the control mechanism when governments run fraudulent books and hide their debts off balance sheet. The electorate realises and then stops paying taxes. The debts carry on rising exponentially, but taxes in real terms don’t. It’s tipped. Governments try raising taxes, cutting services, but they can’t meet the rise in debts.

    Then taxes fall because, like the Greeks, they just don’t consent on mass. You can’t use violence against everyone, although I suspect lots of states will try. (if states overdo the violence without democratic consent they might end up with civil war-ed)

  15. Posted September 18, 2012 at 9:22 am | Permalink

    “backed by police and the military”

    Interesting – are you advocating that the Royal Navy be sent after tax dodgers in well known Commonwealth tax cheat islands? It could even make the Royal Navy self financing!

    • Posted September 18, 2012 at 3:07 pm | Permalink

      What Navy? Its being dismantled in Portsmouth Harbour. Take the boat tour, the guide will give you a rundown of all the rotting ships. We are reliant on the French for an aircraft carrier. Plus, BAE are about to taken over by the French and German Govt backed EADS. If you keep voting LibLabCon, England will be part of a European Federation. We have continuity Govt. Just look at the charade over Gove’s new European style “O” levels. Labour pretend to be aghast, but they were planning to introduce it themselves. Lib LabCon are just fronting the establishment. The differences are superficial, but enough to con the voters “Today we are at war with Oceania. Tomorrow….”

  16. Posted September 18, 2012 at 9:48 am | Permalink

    Off topic, but perhaps you will review Stephanie Flanders’s series on economists when its done? (Forget Marx I cant think why he has been included as an ‘economist’). I thought the Keynes programme was well done, though inevitably, being the BBC, left-wingers like Messrs Stiglitz & Hutton got most airtime. No-one got to point out such facts as Keynes believed in balanced budget / surplus during times of growth (unlike Mr Brown) nor the fact that the recoveries seen in the UK in the 1930s and again in the 1980s were the result of policies diametrically opposed to ‘Keynesianism’ – and were opposed at the time by Keynes and his successors.

    • Posted September 18, 2012 at 3:08 pm | Permalink

      Will Hutton certainly does not believe in a balanced budget, which is why his enterprises have all gone bust.

      • Posted September 18, 2012 at 8:57 pm | Permalink

        Will Hutton seems to be on another planet most of the time. I can never find much logic in anything he says. I suppose that is why he is a BBC favourite like Major and all the green loons.

        • Posted September 20, 2012 at 6:36 pm | Permalink

          Will Hutton is extraordinarily off the mark. I heard a speech by him in 1988 in which he extoled the virtues of the Japanese economy vs the UK & US – just in time for the collapse of the Japanese market & Japan’s 20-year stagnation. Then in the early 90s he (like the 364 Keynesian economists who were so wrong in 1981) published a book predicting doom and gloom in time for the beginning of the long-running period of growth. He is no fool but for someone who has been so wrong over such a long period it is bizarre he gets the airtime he does.

  17. Posted September 18, 2012 at 10:15 am | Permalink

    I’m not sure what the point of these comments is – the markets already assign different risk ratings to individual Euro member debt – the situation is akin to the USA where individual cities issue their own munibonds and can (and do) go bankrupt. What are the advantages of formally inventing a new category of debt to describe the already existing situation ?

    Reply To alert people to the realities. In what sense is a Greek bond sovereign?

    • Posted September 18, 2012 at 8:30 pm | Permalink

      What makes you think people will put down their celeb gossip mags to read about fiancial regulation quangos changing the names of PIGS bonds?

    • Posted September 20, 2012 at 11:46 am | Permalink

      Mr Redwood has a point. A Greek bond is sovereign only if they Greece borrows on its own account at the going market rate. That’s 25%; not surprisingly, it isn’t happening.

  18. Posted September 18, 2012 at 12:14 pm | Permalink

    The distinction between semi and full sovereign debt won’t really matter – debt is debt. Printing moiney won’t help us out of our high dept /low growth trap our foolish masters got us into.

    The Uk economy has more in common with Greece and Portugal then Germany .Even during the pre boom years, the economy was kept afloat by private borrowing on mortgages – stocked up by Brown’s unhinged ‘light touch’ banking reforms. When mortgage lending collapsed post 2008, government borrowing rocketed to defer the pain to a later date.

    We have and continue to live well beyond our means and until this personal and national ‘entitlement cultur’e is ended , things wont improve. Public spending needs to be cut by 50 – 100 billion instead of tinkering around the edges.

    It would be good to hear Mr Redwood re-make the case for the substantial spending cuts that are needed. We need a national ‘economy drive’ to drive back costs and he is the man with the experience and integrity to make the call.
    The British people deserve to know the truth about the terrible state of the British economy. Pretending that ‘we have turned the corner’ or ‘something will turn up’ will just not do.

  19. Posted September 18, 2012 at 1:22 pm | Permalink

    Semi Sovereigns? Quasi-autonomous German dependencies. The German worker’s standard of living fails to increase despite his world-beating engineering skills. Why? The more money he earns, the more that is stripped from him to pay for benefit seekers. Benefit seeking has become the major growth industry of the EU, for countries, ‘communities’, banksters, planet savers, jobsworths, ‘minorities’ who must be represented ‘fairly’ in the workplace irrespective of fitness to perform, ‘human rights’ lawyers (except for those required for show trials in the USA), etc.

  20. Posted September 18, 2012 at 1:29 pm | Permalink

    All debts have a risk factor no matter how they are labelled ; the lender has to assess what interest to charge in a limited competitive market . Reneging on a debt is a certain way to ensure the borrower will never be able to borrow again . The ECB can print what it likes but it doesn’t have a “Sovereign” label and it cannot devalue ; the Eurozone lacks commercial coherence and the ECB cannot provide it . The IMF should not try to stand in support of the Eurozone via the ECB it cannot legitimise the political mess and it cannot loan to it . Spain , Greece and the other defaulting countries have no choice but to withdraw from the Euro , re-create their own currency and , then , take their chances in the market . A Federal Europe or a Federal Banking Union would not be able to provide the guarantee credibility a lender would require . Inventing labels is no solution .

  21. Posted September 18, 2012 at 2:10 pm | Permalink

    QE ( electronic money printing ) or just printing money, or just creating money out of thin air seems to be the trend in the USA, UK and probably the EU. This money printing creates liquidity in the system. My opinion, Central Banks have nothing else left, interest rates in the west are virtually zero.In the short term maybe it will satisfy the markets, but medium to long term past evidence is not so encouraging i.e hyperinflation. QE is not the solution to the great depression in the west, real economic growth is the answer and this cannot be artificially manufactured by governments, my guess is that QE will not have any effect on growth.

  22. Posted September 18, 2012 at 3:38 pm | Permalink

    Isn’t the real folly of the EU that of trying to have one bank interest rate across the Empire irrespective of the borrower’s credit-worthness?

    • Posted September 18, 2012 at 8:59 pm | Permalink

      Yes

  23. Posted September 18, 2012 at 3:43 pm | Permalink

    I don’t like the implication made with “backed by police and the military” in Mr. Redwoods artical.
    One thing is clear to me, that we must not leave the younger citizens thinking this is the way things always have been. They know nothing else, way shouldn’t they think it was always so.
    Democracy? I don’t think so! We are enslaved by ‘mortgaes’, pensions, pay-check, etc; with no security. We once had, or thought we had security.
    When Mr Osborne (Chancellor) travellered to Switzland for a four day meeting, and arriving back in U.K delivered his speech in parliament on his finacial plan, I did not see any National Newspaper mention the fact that Mr. Osborne’s meeting was with the Bilderberg Group. Fact is many do not trust our western governments anymore. irra

    • Posted September 18, 2012 at 9:42 pm | Permalink

      Now you put it like that , supranational World Government is already here .

      Makes you wonder why we go through all that pretence of elections .

    • Posted September 19, 2012 at 8:27 am | Permalink

      Tax collection has always been backed by the police and if necessary the military in support of the civil power, because that is how laws are enforced.

      Nowadays it would be extraordinary if the government actually had to resort to armed force to extract its dues – in the 18th century there were occasional fire fights between smugglers and revenue men – but the potential has always been there and still is.

  24. Posted September 18, 2012 at 4:36 pm | Permalink

    I remember the shock the first time the company I worked for had a large bad debt.
    Acting quite legally, a customer of ours went bust one week, wrote off all its debts and started up again the next week with the same management just with a slightly different name.
    Their PR was “a hundred jobs saved after investors take over failed local company” which was the local newspaper headline.
    At that time it was unheard of for companies to play the phoenix company trick, but now it is very common.
    Soveriegn debt is heading the same way. Once it was unthinkable that European nations would ever default on their debts.
    Perhaps Iceland has shown just how to do it.

  25. Posted September 18, 2012 at 7:07 pm | Permalink

    These are not gilt edged in the same way so I’d expect some increase in the rate offered. The 3 yr bonds might attract some pension funds but equally if the rate isn’t there may detract the speculative investor funds. The underlying problem is still there.

    Gilts get packaged up in all kinds of managed funds which become manager of manager funds. Toxic bonds come to mind thinking of the toxic debt packages we had last.

  26. Posted September 18, 2012 at 7:15 pm | Permalink

    By the way short term bond purchases right across Europe of these ECB backed bonds won’t help annuity rate actuaries.

  27. Posted September 18, 2012 at 7:45 pm | Permalink

    Who is responsible for this debt?I believe it is private institutions like banks not governments. Therefore this debt is neither sovereign or half sovereign it is in fact fully exposed to being bad debt.

    • Posted September 19, 2012 at 8:33 am | Permalink

      David Langley. Perhaps the real world woukd be too much of a shock for you

  28. Posted September 20, 2012 at 11:58 am | Permalink

    On a point of practical ethics, when Barclays and others manipulated LIBOR the whole public sector cried ‘stinking fish’. Yet when the ECB manipulates Spanish and Italian bond rates downwards by saying that they will do ‘whatever it takes to save the Euro’ (in spite of the fact that they don’t have the authority to do so), not a word of protest is raised about this shoddy behaviour.

    Isn’t it about time that our FSA held an enquiry into the ECB’s behaviour?

  29. Posted December 29, 2013 at 6:13 am | Permalink

    You probably have lately seen your credit score and hypothesized on how you could develope it. Discerning what is used in the assessment of your credit score is the early step. While the exact formula used in the arithmetic of the score is treatment, there are some known elements.

  • 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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