Yesterday I joined in the Queen’s Speech debate on the economy. I wanted to draw attention to the gathering storms over the Euro. Time was limited, so let me add a few points.

             Yesterday  it seemed unlikely that Greece can form a government. New elections are likely to produce a government even more strongly against the current EU/IMF loan package and austerity requirements. If a government can be cobbled together at the last minute from the present Parliament, it will have to go to Brussels to request a change of policy.

              There are three possible outcomes following the formation of a new Greek government demanding a change of tack. One is that the EU/IMF say they can give no more. They have twice negotiated this package, and have accepted one large write down of Greek state debt owned by banks and other private sector individuals, companies and funds. They could take the perfectly sensible view that allowing another lapse in conditions of the loan would simply lead to other countries demanding the same treatment. It would undermine the discipline the zone needs, and would send a signal to all that there is no need to meet solemn requirements entered into. Either Greece has to back down and try to do implement the agreement, or they need to move  quickly to arrange an exit from the Euro on this option.

               The second possibility is we have another temporary fix. The EU/IMF would heave a sigh and give Greece some formula to relax the demands a bit. Maybe more debt could be written off. Maybe the timetable for meeting the requirements for reform and budget deficit cuts could be extended.  The ECB might issue yet more money to other worried banking systems to support other states in trouble. Just enough cash would be released for Greece to pay the basic bills and stave off full bankruptcy.  It would remian a matter of time before we had the same crisis again.

              The third possibility is the Euro area moves more swiftly to fiscal union, with the richer areas accepting their responsibility to send much more money by way of transfer payments to the poorer parts like Greece. It is difficult to believe Germany would be willing to do this. Mrs Merkel has just suffered a bad regional election defeat and is unlikely to want to have to tell her electors in the run up to the German General Election next year that they are going to have to pay a lot more tax to subsidise the weak parts of the Euro zone.

              There is a paralysis in decision making at the heart of the zone. Just as this phase of the crisis blows up France is undergoing a major change at the top. The new central partnership of Merkel/Hollande is still  to be developed. Mr Hollande will be pressing his domestic demands, fresh from the French election trail, at exactly the moment both need to concentrate on Greece.  More people are now saying Greece has to leave the Euro, but there is still no clear sign that that has become the prevailing view of the main players. To do it they will need speed, confidentiality and united purpose. They will also need a Greek government to deliver the Greek end of it.

               It seems most likely we are in for another round of brinkmanship and temporary expedients. The worry some commentators are now expressing is that talk of Greek exit could lead to yet more money being shifted out of Greek  bank accounts. The more the political leadership of the problem drifts, the more damage the markets can do. The drain on Greek bank deposits so far has represented a further tightening of cash and credit for the Greek private sector, at a time when that sector needs more money to grow to start to ease the pain.

       The Centre for Economics and Business Research forecasts that this year City bonuses will be down to £2.3 billion.   This contrasts with their peak of £11.5 billion in 2007-8, and with £7.3 billion in the last Labour year.

       The Coalition can show that on their watch the problem of City bonuses has been well and truly tamed. The UK is in this way now a more equal society. As CEBR point out, it also means a big reduction in tax revenue, (more than £4 billion) so we can now afford less public service.

        So I would like to know, are people today much happier because City  bonuses are likely to be down by  80% on peak levels? What benefits should we now expect from this development? How should we replace the lost tax revenue?  Should the government now claim victory and move on, or should we expect them to remove more of these  bonuses?

           I do think the government should offer a lead on linking pay for top executives clearly to performance.  Rewards should go for returning a  bank in receipt of state shareholdings and subsidy  in whole or parts to the private sector, getting taxpayers money back and generating susbstial cash profits to reward  shareholders. Shareholders have been without dividends now for a long time, and should have priority.

          The idea that politicians and parties should seek consensus is popular. Many people say it would be good if parties learned to work together more for the sake of the country. They tell us they think behaviour at Prime Mininster’s Questions (PMQs) is poor, that the Commons should have more serious and well informed debates.

           There is, however, another side to the popular view. When my constituents say they would like to come to the Commons to see it in action, they nearly always want to come for PMQs. PMQs is so different from most of the rest of the work in the Commons – noisy, partisan, point scoring debating at its best and worst. If I say, why not come to a good debate the following day on reform of welfare or our foreign policy, there is little interest.  Some of the time in the Commons small groups of MPs specialising in an important topic debate and discuss amongst themselves in some detail, often without party rancour.  There are , of course, plenty of seats available in the public gallery for most debates, but PMQs is an all ticket match with intense competition for the tickets.

          Voters also often write in and demand that an MP or party puts over their points more strongly or insistently. People understandably want their MP to represent their view as stridently as possible. Rarely do people write in urging us to compromise a view they hold dear for the sake of consensus. Voters are more likely to criticise an MP for not standing up for his principles or for the promise he made at the election, than to complain the MP has failed to compromise such promises or principles for the wider good. Obviously if a constituent did not like an MP’s promise in the first place then they will be pleased if he compromises.

             For the Commons to work at all, there needs to be considerable agreement between the main parties over what is to be debated and how debate is to be conducted. The Commons has long standing conventions that one MP does not make personal accusations about another without giving that MP warning so he can be present to defend himself, that reasonable courtesy is observed between MPs, and that extreme language is avoided. Debate can still be heated, passionate, lively when times demand it and when parties or individuals disagree strongly.

             So often I have found that when all parties agree government usually makes its biggest mistakes. Seeking more consensus can result in very little happening, or in fudge.  Worse still, it can result in disaster. The Exchange Rate Mechanism was an economic policy which did large damage to the UK economy. It was agreed by all three main party leaderships and most MPs. The anti global warming legislation went through with all three party leaderships supporting it. No party asked whether dearer energy was a good idea for the UK economy and consumers, or asked if it might just transfer the carbon dioxide emissions elsewhere as we lost the factories here. .  The public are right to tell us that sometimes we should try harder to reach agreements, but they are also right to love the cut and thrust of true challenge and choice. There needs to be some passion in politics, and there need to be some real differences, to make elections worthwhile. There also needs to be strong criticisms, alternative views and challenges to the orthodoxy before Parliament commits us to major policies which could do damage to our prospects.

            It’s a strange choice to hear debated. Of course most of us will choose growth, if the alternative is austerity. Mr Hollande’s slogan was the more popular in the French election. In a way the surprise was how narrow the gap turned out to be , not how wide, between him and his rival.

            It’s also a false choice. You cannot have either auserity or growth, if you start from the position of many European countries with high state spending and high state borrowing.  Most serious people in the debate from all parts of the political spectrum agree that highly indebted countries with large deficits need to get the deficits down. Most  agree that borrowing more is not the way out of debt. The argument is over how you get the deficit down.

            Some say that if a country heavily in debt with a large deficit allowed itself just one more “fiscal stimulus” – allowed itself to spend just a little bit more in the public sector – and pay for that with more borrowing, it would trigger growth. It is difficult to see why that might work. After all, the Greeks, Portuguese and Spaniards have been running huge budget deficits for some time, yet their economies are amongst the weakest in the EU. State spending that is financed by borrowing  may provide very little stimulus to activity. If the money is borrowed from the private sector in that country, the private sector then has less to spend, similar to the effect of  a tax rise.

            Many of these heavily indebted countries want to get their deficits down by more tax revenue, rather than by cutting spending. If this happened through the proceeds of growth, that would be benign. Unfortunately in several cases there is no growth, or there are large falls in output and in tax revenue. If the countries then respond by increasing the tax rates or becoming more aggressive on tax collection, they may make the position worse. They might take their countries above the tax saturation point, and end up with less revenue, not more.  The rich, the enterprising are always looking out for legal ways to arrange their affairs to pay less tax, or move to more hospitable jurisdictions. Others in the society may simply move into an enlarged black economy.  

              Countries in a financial mess have to do enough to control spending to keep the confidence of markets and to create some downward pressure on total spending. They also need to do enough to promote a more vigorous private sector led recovery. Higher taxes could kill that. Weak banks are also a big part of the underlying problem. If a country gets into a badly exposed situaiton like Greece, then the banks will find it hard to keep hold of deposits, leading to further contraction. As bank deposits fall, so bank lending has to be reined more as well.

I feel one of the old myths reappearing in the political debate. Some are out and about saying that the Conservative party has to be more united to stay elected. They clearly remember no political history.

Margaret Thatcher and Tony Blair were both very successful Prime Ministers when it came to winning elections. Both won three in a row with large majorities. Both led divided parties, with very visible splits. Margaret Thatcher faced continuous opposition especially in the early years and at the end, from the so called “wets”, senior politicians including Cabinet members who thought her economic policy was wrong. They regularly briefed the press against her. There were occasional resignations and vocal opposition in the Commons from backbench sympathisers of the rebels.

Tony Blair faced down – and probably encouraged – old Labour opposition, as he wished to show New Labour had changed and was different. His belief in lower taxes, fewer rights for Trade Unionists, and tough on crime was designed to hold some former Conservative voters into his coalition, However, he faced far noisier and more serious opposition from within the heart of government, from his Chancellor living next door.  There were endless stories of the rows and tantrums. Both men had small armies of MPs and adviser supporters, briefing their corners. Foreign Secretary Cook and Overseas Aid Secretary Short both resigned – somewhat belatedly – over Mr Blair’s wars.

None of this is to say that divisions and mega personality rows at the top are a good thing, but it is a reminder that  unity is not the main thing that electors look for. They look for a strong economy, for their own rising living standards, and for other  policy changes that go in a direction they like. They do not regard division and disagreement as an impediment to voting for that party. Some see it as a positive, showing that there is challenge and tension within the government, making the top people think carefully  before committing. Reasoned challenge to policy ideas or statements of the government’s position is a good thing.

Nor is it true that John Major’s government was brought down by Maastricht rebels. It was brought down by the failure of the Exchange Rate Mechanism economic policy, and the high interest rates and tax rates that brought. Labour campaigned persuasively against “Tory tax rises” and “boom and bust”, the symptoms of the ERM failure. I do not recall them campaigning about the joys of the Maastricht Treaty.

There are voices today within the Conservative party urging differing policies and choices on the leadership. That surely is entirely healthy. It is best done without personality disputes and rancour – the Blair/Brown tensions were often over the top and unpleasant in tone. If there were  no arguments going on about what the government could do next., and how to improve the lot of  voters, some would ask is the party dead or merely sleeping? A lively political party has internal debate, and strives to improve through discussion and argument. Please do not go back to the odd idea that everyone in a party thinks the same, and therefore has to say the same thing. If that happened government would struggle more, and the public would then have a good  reason to demand a change.

The Prime Minister and his Deputy chose a tractor factory to pre launch the Queen’s speech agenda on Tuesday. They heralded the opening words of the Gracious Speech, that this new session of Parliament is going to be dedicated to sorting out the economy and promoting faster growth.

It does not worry me that the Speech was light on new bills. The UK is scarcely short of laws. Much of what needs to be done now requires competent administration rather than lots of  new legislation. The health, welfare and school reforms require patient and purposeful execution and follow up.

Nor does the backdrop of their news conference cause me as much concern or amsuement as some journalists who wrote the obvious pieces about tractor production statistics, and the sea of blue and yellow tops sported by the workforce. The government after all has said much about leading an industrial revival, so it needs to paint its picture, and it needs to listen more to people who make things to see what else it can do to promote more home grown manufacturing.

I still think it is going to take more radical action on banks, on energy supply and prices, and on sensible deregulation to make the UK a compelling proposition for the much larger projects and sums the government has in mind for  industrial investment. The Queen’s Speech left open opportunities to promote more competition in areas like energy and banking, and to respond to these obvious needs of the economy.

In his Monday Telegraph article Mr Cameron pledged not only to preside over the creation of many more jobs, but also to see that more of these jobs go to people who are unemployed citizens resident here. He did not just want to create work for “new arrivals from overseas”. This was a crucial promise. To honour it takes success in both the area of economic management, and  in following a suitable and sustainable immigration policy. The PM’s statement reminds us that he and the governemnt do wish to get the total down, and to offer more of the opportunities to people settled here. The PM will be trusting that the Home Office are now taking the necessary measures to bring  about the anticipated  big alteration.

He also said he loathes “the bankrupt high taxing something for nothing society”.  It takes deficit reduction,welfare reform and other changes to banish those disliked idols.

            All those who claim to be wise in politics tell you that a leader and his party must seek the centre ground to be successful. In one sense this is obvious,if it means that a party may have to extend its coalition of support well beyond its comfort zone, its original idea or  heartlands in order to construct a winning majority.

              There are, however, at least two major flaws in the proposition that a party should always seek the centre ground. The first has been pointed out by those who think instead a party should seek the common ground. It may be that the centre ground is not as popular as some ground to the right or left that is much more popular. These advisers say the leader should seek out that common ground, and not worry if it is to the right or left in common parlance. What matters is to satisfy majority opinion, or build a wider coalition of support for popular policies.

            The second flaw is that the party and the country  may not be starting out from somewhere near the centre. A winning party may inherit a situation where the centre has been wrenched to the left or the right as conventionally described. To get back to the true or mean centre ground may require a sharp move to right or left, depending on the starting position.

             I do not think left and right mean very much any more. Certainly right wing is a much abused term, forming part of BBC and Guardian demonology. They tend to lump Hitler, anti German neo Nazis in Greece, fundamentalist clerics, and UK  Conservatives they don’t like all under the same term of abuse, as right wing. They seem to think there is something in common between authoritarians and free enterprise Conservatives, between Eurosceptics and religious social Conservatives, between tax cutters and those who think the state should spend more on law and order and defence. It’s all a great meaningless muddle.

            I suggest instead the better terms to capture the debates and disagreements in modern UK democractic politics are these. There is an argument between those of us who want many more things to be decided by UK democracy rather than by EU bureaucracy, and those who want the UK to adopt more and more EU laws and controls. I have never understood why a belief in UK or English democracy is right wing, as it is a view I share with Tony Benn.

               There is a disagreement between those of us who  think economies and societies work better when individuals and families are left more of their income after tax to spend on looking after themselves and their loved ones, than if the state takes more of the money off them and then gives some back as benefits, and those who think the state should take more and give back more.

                 There is a disagreement between authoritiarians and libertarians. Some of us think we should have more of our freedoms back, whilst others think the state  should control more to protect us from ourselves and our neighbours.

                            In each of these cases, finding  the centre ground is not easy. Some of us would argue that the current state of play for the UK and England in the EU is now at an extreme. Successive treaties and years of transferring powers means the UK has lost a lot of its capacity for self government. We would say the centre ground lies way in the Eurosceptic direction. This would also seem to be the same for the common ground, judging by the polls of people’s attitudes to the extent of EU power. Having more democracy in the UK and England is popular.

                          Tax levels are at a high in the UK. Never have so many paid so much to partly pay for such a record high level of current public spending. You could argue that returning to the centre meant relieving the squeeze on individuals and companies that very high public spending has generated in recent years. Maybe we should regard Gordon Brown’s income tax and CGT rates as the centre ground? His top Income Tax rate of 40% was well below the current level, and far fewer people were in the 40% band. His CGT rate of 18% was well below the current 28%.

                          Many civil liberties have been taken away in recent years in the name of counter terrorism and being tough on crime. Is the current level of surveillance, detention and restriction really  the norm or the centre ground?

          The “wise heads” of the EU establishment think the Greek New Democracy (Conservative light) party should join forces with Pasok (Socialist light) party yet again in coalition and carry on with business as usual. These parties were rejected by two thirds of the Greek electors. What part of “No” does the EU establishment not understand?  Once again they do not get this democracy idea. The two parties themselves decided not to undertake this task, but more negotiations lie ahead.

           Yesterday morning I listened to a Greek commentator saying the people had elected a Parliament of clowns and worse. He objected fiercely to the people not knuckling down and voting for candidates who were prepared to tell them that the European dream meant  the continuing reality of austerity in the form of ever higher taxes and further attempted  reductions in state spending. He should understand that the people voted as they did because they think the Euro dream has become a nightmare, and they want change.

               It is true that many Greeks think they can  have both the Euro and less austerity. I presume they think the EU authorities should send them more money on easier terms to pay the bills. That is unlikely to occur on a big enough scale to save the day. The best answer the EU authorities could give to the Greeks is this. They should make it crystal clear that they have understood the Greek people hate the current EU imposed policy. They should be told they can change the policy as they wish, if they leave the Euro. The EU should facilitate early exit of Greece from the Euro, by undertaking the necessary secret planning to bring this about.

               Greece has to form a new government. It would be best if that new goverment was a government of politicians who oppose current EU austerity policy. They after all collectively won the election, which was a decisive rejection of EU austerity. They then need to be talked to firmly by the EU authorities with a simple choice. Either accept EU austerity and go back and tell your voters you were wrong, there is no alternative, or work quickly and confidentially with us to achieve the exit from the Euro the country needs as soon as possible.

            Once Greece is out of the Euro then it can follow its own policies to put recession behind it and to show some growth. It can at least make more rapid progress in righting its balance of payments deficit.  It will not, of course, mean the end to the need to cut the state deficit, as Greece’s borrowing will depend for some years on the IMF, as it does already. If they print enough but not too many drachmas  and stabilise their banks after the devaluation, they might have some growth, which would help. They will still depend on a fairly lethal mixture of reneging on debts and presuming on international organisaitons to lend them more money to pay the bills for excess state spending.

            Mrs Merkel’s vision of a German disciplined EU with strict control of budget deficits is merely producing a no growth Europe with very high taxes. Rich and enterprising people are leaving the most stressed countries, or sending their money abroad. The tax base is falling. The private sector is being squeezed too much. People are voting against it, and against incumbent governments. The cash economy is thriving as people run shy of the tax collectors.  Just like the Exchange Rate Mechanism before it, European monetary ideology is taking too great a toll of people’s jobs and living standards. I recommend my scheme for early exit of Greece, available as the third download “The future of the Euro” on this site. The Euro area has now reached the point where even if they fix the banks in the main countries and print some more Euros, the money is not going to circulate in Greece to stimulate the economy there.

             Germany and France should want Greece out of the currency. Far from worrying about contagion spreading if Greece leaves they should worry about contagion spreading if Greece stays. For Greece to remain in the other states have got to provide a lot more money for Greece. That in turn will weaken the other states’ finances even more.

           Over the next few weeks democracy in Euroland is on trial. Most pundits and commentators agree that French electors voted in Mr Hollande to end austerity. Most agree that the massive swing against Pasok and New Democracy in Greece was a swing against austerity policies in the Euro and EU. The problem is, the voters may end up with little changed austerity policies come what may.

            Part of  the reason is the voters’ own mistake. Many French and Greek voters who want an end to austerity think they can have that without withdrawing from the Euro. I fear that is very difficult if not impossible. Voters in Euroland seem reluctant to accept that the whole architecture of the single currency is founded on austerity all the time the huge imbalances between Germany and the rest persist. If the rich areas refuse to send much money to the poor areas – as they do – the poor areas have to deflate, cut wages and costs severely, until they can compete. This cruel economic logic is not popular, but voters are reluctant to conclude that the currency is at fault.

             Part of the reason is the way the Euro area is governned. It  has been governed in recent years by a Franco-German alliance. The European Central Bank was part of this agreement, with a German home and constitution, and a French Head. Now it has an Italian Head it has started to have more of a mind and a printing press of its own. That has kept the unstable system afloat, but it has not remedied the defects of the whole system.

                The Franco-German alliance put in place a Stability and Growth Pact. The Stability part came from Germany. It was a set of rules to make countries cut back if they have too large a deficit, or if their debt is excessive. The Growth part came from France, and amounted to some modest scale EU spending programmes. In recent years the Pact has delivered neither stability, nor growth to the poorer regions of the Eurozone.

                  Mr Hollande would  be right to demand a rethink. I suspect he will settle for a few extra public spending programmes from the EU as a “Growth package” and a pledge by Mrs Merkel to respect his position and to work with him in their joint interest for the stability of the currency. He will soon be brought into Euro line, by plenty of advice telling him that France being too argumentative, negative or spendthrift will destabilise the banking system and upset the currency system.

                 In Greece it looks likely it will take time to form a Coalition government out of the fragmented results. The new Coalition may contain some angry MPs who do wish to speak out against the austerity policy forced on them by the loans. They will be told by the bureaucrats that they have to accept the terms of the loans if they wish to carry on paying the large public sector bills. They will probably under protest go along with it, fearing to rupture a precarious and unsatisfactory agreement.

                  European voters in two Euro countries will discover that they have very little power left to change economic policy all the time their country is in the Euro. Taxes will stay high and public spending  will prove difficult to cut in a downturn. The governemnts will pretend to squeeze the deficit down in order to qualify for EU support in the case of Greece, and EU approval in the case of France. Meanwhile, economies will suffer. Expect the informal economies to flourish, as more people decide to take the illegal course of opting out of the world of accurate tax returns and audited performance. Expect more to leave countries that are floundering under the Euro austerity scheme. The governments themselves will carry on failing to hit Euro targets whilst talking tough and pretending to deliver.

           There will be all manner of calls in the next few days for a change of direction by Conservative Ministers, in the wake of the big swings to Labour in the local elections. The main feature of the elections was a swing to the left as conventionally described. Labour took many votes off the Lib Dems, and some votes off the Conservatives. It extended its hold on many northern towns and cities, and showed an ability to win some seats in the south as well.

            Less remarked was the big surge in support for the Greens. It did not translate into many extra Council seats, but it did propel the Greens into the challenger role in more places. In my local Wokingham contests the Greens rose from 1% (2010 General election)  to 7.9% of the total vote, whilst not contesting all the seats available. In its best ward performance the party shot into second place with 31.4% of the vote.  The Greens came third ahead of the Lib Dems in the London Mayoralty, though only managing  4.5% of the total first preference vote.

            If you believe politicians have to follow the votes that implies the Coalition should move in a Green and Labour party direction to reconnect with voters who have detached. That I think would be a mistake.

             I think most people want to feel that their own living standards are rising. They want to know there is hope and opportunity for their children and grandchildren. They want some relief from the daily pressure on family budgets from higher taxes and higher prices. The Green party’s insistence on much dearer energy to try to make people use less of it is not a policy I can recommend. I want us to reduce what Labour calls fuel poverty. I want us to have cheaper energy so industry can stay and grow in the UK, as energy costs are crucial to manufacturing.  I would like to see the Coalition government introduce more competition and a better climate for gas as a cheaper fuel, so we can get fuel bills down.

          Labour did well apart from the Mayoralty in London. They are the first to admit they have much more to do to persuade people to trust them to run the economy again. It would be an unwise move to want to go back to Mr Brown’s massive levels of extra state borrowing, or to think we can ignore the deficit and let it increase. It might be a good idea to go back to the tax rates on enterprise and effort favoured by Mr Brown as Chancellor, though today’s Labour party does not seem to support these any more.

           Some say the government should move in the opposite direction to the voters – it should become more “right wing”. As I have often commented before, “right wing” is a term of BBC abuse for a wide range of views, many of them conflicting.  You are said to be right wing for believing people need more freedom from the state, or for wanting a tougher more authoritarian state. You can be right wing for wanting less regulation of economies, and right wing for wanting more regulation of media, pornography and the like. You can be right wing for backing the views of the Churches  on a range of moral topics.  Strangely you can be right wing for wanting more democracy in the UK and less power exercised by  the EU, though this kind of right wing view is popular with Labour party Bennites as well. You can be right wing for wanting the reintroduction of tougher sentences , and right wing for wanting more of our civil liberties returned as David Davis has argued.

          I would not recommend a lurch to the “right” as an smart ideological move. I think the governemnt should concentrate on the tasks in hand. It needs to get the deficit down. It will find that easier to do if it can speed up growth.  It should be pragmatic about how it does that. This site has set out many of the means to do so in recent weeks and months.