The IMF poses the right question


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

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

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

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

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

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


  1. Dr Alf Oldman
    July 20, 2011

    A good blog!

  2. Mike Stallard
    July 20, 2011

    I am all right, thank you – I have a holiday in Spain in September!

    The EU has grown by stealth. Politicians cannot see beyond the next election, so delay and making plans which only kick in in ten years’ time usually works for the EU commissioners. Now they face a looming and potentially fatal crisis, they seem to be offering more of the same.

    The membership of the Commission is a second eleven anyway made up of people who couldn’t get to lead their own countries. They are not the people to take the crisis by the scruff of the neck.


    If the Euro does crash badly, though, and people lose their life savings and houses and pride, then they will pretty soon turn on the guilty rich. I wonder who it will be this time? Perhaps the Muslims?

  3. Mick Anderson
    July 20, 2011

    The Eurocrats don’t take any notice of the rules and regulations that they design for their own management, so why does the UK over-embellish every Euro dictat and whim? (rhetorical)

  4. norman
    July 20, 2011

    A pedantic point but one a lot of people either don’t pick up on or deliberately confuse. The US need not default if the debt ceiling is not raised, the Treasury there takes in more than enough tax revenues to cover debt interest payments, they will just need to prioritise where that income is spent if they cannot borrow more which would mean a partial closure of government.

    The UK could default on our debts tomorrow if we decided to, the situation is no different.

    Although I too think they will reach some sort of murky deal.

  5. Alison Granger
    July 20, 2011

    Your suggestions about pulling back from Europe are excellent ideas unfortunately we all know Dave and Co. will not do it. They are as pro euro super state as Heath and all his other descendants. We will be sold down the river just as we have been at every single opportunity since we joined.

    1. BobE
      July 20, 2011


  6. oldtimer
    July 20, 2011


  7. Boudicca
    July 20, 2011

    How about free from ANY political interference and governance by diktat from the EU. I do not want any part of this emerging ‘superstate.’ I want my country back.

    1. BobE
      July 20, 2011

      Totally Agree

  8. Brian Tomkinson
    July 20, 2011

    I doubt that our government will even attempt to do any of the sensible things you suggest as they don’t want to and Clegg and the LibDems wouldn’t let them if they did.

  9. John C
    July 20, 2011

    Mr Redwood:

    “It should also say it wants powers back as its price for agreeing to the new powers the Euro area needs to make its currency work”.

    To me, that will be the test of this government. We have yet another chance to get what we really want by threatening a veto of any new treaty changes (in fact the promised referendum would do that anyway). Get what this country really wants (a free trade area and not a political union) and the referendum would be won.

    1. lifelogic
      July 20, 2011

      And what Cameron indicated he wanted with his cast iron promise – but I do not think he really did want this and he will cave in as he has done with the “bail outs” and the rest – sorry I mean temporary and pointless sticking plasters.

    2. Denis Cooper
      July 20, 2011

      I’m sure that none of the treaty amendments will qualify for a referendum.

      The government has already said that this radical treaty amendment agreed on March 25 will not be put to a referendum:

  10. Javelin
    July 20, 2011

    Totally agree the eyes are on Murdoch when they should be on Europe.

    I think your analysis falls short because the legal boundries for the ECB will stop them from containing this crisis. Their broad options are as follows …

    1) Greece Exit the EU – very difficult beause the legal tie ins. It would be like seperating the Church from the State in the UK.

    2) Greece Defaults – very painful because the French and German banks hold so much debt and will create a Credit Event. This will also push Ireland, Portugal and Italy over the edge

    3) Greece Soft Default – painful, will still trigger sales of Greek bonds, drag CDS defaults into the courts for years. Raise prices in the bond market and interest rates.

    4) Northern Europeans bail out Greece for free – no default just cash flowing south. This is probably politically unacceptable and will result in the tax paying North rejectnig the tax avoiding south. The political narrative has not even started on this one.

    5) Greece, Italy, Spain grows suddenly and pay taxes. They are cash economies. Italy has the highest tax avoidance in the Eu. Less than half the population have credit/debit cards. The small Italian business have been rubbished by Chinese imports.

    6) ECB wangles money via tax, IMF etc. Basically not enough cash to bail out the South. 10 billion here or there may look good for a few days but wont be enough.

    7) ECB issues Eurobonds – would require a referendum. In the UK certainly. At least 2 out of the UK, Dutch, Fins, Greeks, Germans, Irish would all want to get out the EU – and EU could not ask for a recount on a 2 person veto.

    8) Wait it out. Not possible as the debts will only keep piling up . Elections will come to Greece and Germany and one of them will exit the Eu.

    So – of all these solutions the only one I can see happening is (3) a soft Greek default with some kind of way of limiting the contagion to Portugal and Ireland – via bank taxes. This is the one I am focused on.

    If anybody else has any other options please let me (and the Eu leaders) know …

    1. Denis Cooper
      July 20, 2011

      Greece should never have been allowed to join the euro, and although it would be extremely painful in the short term the best option would be for it to revert to the drachma, and for the Greek government to default on all its debts by declaring that it would make the scheduled payments to its creditors but in drachma, and using the EMU entry conversion rate of 340.750 drachma to the euro.

      As the central bank of Greece could create as many drachma as necessary the government could be sure of keeping that promise, but of course if the drachma fell to say 700 to the euro, as it might, foreign creditors would uniformly lose about half of their money in euro terms.

    2. peter
      July 21, 2011

      I agree, soft default by Greece, but it stays in the euro. This will also show the market that there is no EC guarantee for national debts and stop it lending at ridiculously low rates to countries that aren’t credit worthy. It will also force EU members to think before they borrow.

  11. Gary
    July 20, 2011

    None of the permutations above will work. The problem is one of fractional reserve banks pyramiding loans and using almost infinite amounts to derivatives to “manage” the value of the loans and associated rates across the yield curve. Until that is addressed we are headed to the rocks. ALL of us, inside and outside of the EU.

    The only remaining mystery is why politicians refuse to countenance this ?

  12. Steve S
    July 20, 2011

    Kicking the can further down the road has to be the betting man’s outcome, but the effect of this will not only “fail to resolve the problem”, it will intensify the force of the hurricane winds when the day of reckoning eventually arrives, as it surely must. Now is the the time for an orderly withdrawal of those countries who have already hit the buffers, plus those who are about to – leaving a hard Euro core to continue. That is still a very damaging outcome, but the least worst of all the possible damaging outcomes.

    In the future, we are going to regret not haing started a raise in interest rates 12 months ago though. Inflation is going to kill our pockets in the next couple of years when Euroland goes bang.

  13. Corin Vestey
    July 20, 2011

    You are right. This is a priceless opportunity. Sadly, Mr. Cameron can only react to events. He does not do pre-emption as he does not instinctively know what should be done. Tragic that a man with his communication skills and personal charm should turn out to be an empty suit. He might have been our greatest leader. He still could be if he borrowed a handbag from his wife.

  14. sm
    July 20, 2011

    and others could leave the Euro to form a N-Euro but they just might want the D-mark back amongst other things.

    I read that taxes as a % of GDP at (14%) were below the (18%) average for the USA so i expect the % to revert to mean.

    I am not sure the sticking plaster of eurobonds will work without full union, that is the main goal of the EU elite and as such it must be regarded as the primary solution they will select.

    The UK parliament is continuing to ignore the wishes of its electorate regarding the fundamental relationship -with sovereignty on seemingly permanent loan.

    It seems to pass acts of parliament which bring judicial interference closer into law making, which may unintentionally or more likely intentionally further EU mission creep. The judiciary are already formulating precedent, in passing remarks ,to strike down any illegal parliament acts – whatever that means.

    Maybe they can envisage a situation where the government and the parliamentary system works to prevent the fundamental democratic wishes of the people or worse fundamental rights as expoused by them. Its not like they have to look hard!

    Why propose a bill pass it , then agree to the other place to rip its guts out to make it septic?

    So if the parliamentary system (both houses) acts more like an unaccountable dictatorship, with no opposition from by the 3 main parties, rules structures and inertia, then expect constitutional crisis at a minimum.

    Its in or out …………. but some MP’s do seem to vote both ways.

    Are you able to comment on the points raised regarding EU pensions and the potential for self interest to impair judgement?

    1. uanime5
      July 21, 2011

      “The judiciary are already formulating precedent, in passing remarks ,to strike down any illegal parliament acts – whatever that means.”

      This is a good thing. In most other countries they have constitutions that protect the public from the excesses of the state, which allow judges to strike down laws which violate people’s fundamental rights. Governments are far less dictatorial when they do not have unlimited law making powers.

  15. Robert Eve
    July 20, 2011

    Or we could just leave.

  16. Tedgo
    July 20, 2011

    I think renegotiation would only take a sheet of A4. I believe that all laws, rules and regulations etc from the EU should be approved by our Parliament. (I always thought this was the case but, if so, I suspect that Parliament is forced to accept it however much they dislike it. Perhaps John could clarify the situation).

    With regard to existing and new EU legislation our Parliament should be free to accept it totally, reject it totally or cherry pick and modify to suit our needs.

    For instance if we do not like the existing and future common fisheries policy, then we could reject it and our Parliament could pass legislation for UK waters.

    This would allow for a multi speed Europe.

    Reply: Successive governments have felt they have to use their majorities to put through whatever has been agreed at EU level, whether the Uk voted for it or not. The Opposition often agrees with this stance, making it even easier to get it through.
    If Parliament were ever to vote down an approved EU measure Parliament’s actions could be overturned in the European Court, unless or until the UK government demanded a renegotiaiton or passed legislation seeking to prevent EU jurisdiction applying and forcing the issue to a row over competence and power.

    1. Tedgo
      July 20, 2011

      Thank you John for your concise clarification on Parliaments roll.

      I think that rather than regain control over one or two areas, like borders and labour laws, we should go for a serious treaty change like I have proposed.

      Such a change would be easy to sell to Euro skeptics, as Parliament would have the ultimate say over all legislation in this country. I am sure other EU countries would also welcome such a change for the same reason.

      It would need to be used sensibly, that is not changing legislation for the sake of change. On the other hand, for instance, we would recognise that all EU citizens have a right to work in this country, but we could legislate on their entitlement to build up a state pension or not as we see fit.

      The only people who would not like this approach are the bureaucrats in Brussels who will want things neat and tidy in the united states of Europe.

      On the financial front it is interesting that Greece and others have been breaking the EU rules on borrowing yet they haven’t been taken to task in the European Court.

      1. uanime5
        July 21, 2011

        What EU labour laws do you want removed?

        The prohibition on firing women for being pregnant?

        Health and safety requirements that prevent employees being injured or maimed?

        1. Tedgo
          July 21, 2011

          I have no problem with EU labour laws, I mentioned as it was in JR original article. An no I wouldn’t fire pregnant Women, I don’t know were you get that idea from what I have said.

          I believe their is an ambiguity in EU law whether foreign EU workers can build up state pension here rather than in their own country.

          As far as I am aware Health and Safety at work is not an EU area of competence, from what I have seen practised in Germany factories would not be allowed in the UK.

    2. Alan
      July 21, 2011

      I don’t think Parliament’s actions can be overturned by the European Court. My understanding is that all the Court can do is impose fines on the UK for not following a directive. If Parliament then refused to allow the UK government to pay the fines the Court has no further recourse: there are no bailiffs who can enforce the judgement. Almost all public bodies in the UK take their orders or obtain their authority ultimately from the Crown, which for all practical purposes is the UK government. They don’t obey orders directly from the EU, only ones that come via the UK government.

      I don’t advocate that the UK should exercise any of these rights: I believe in going along with EU directives.

      Reply: The UK state seeks to be law abiding, so under the Treaties the ECJ can instruct the UK government on what to do to comply with EU law. Only an Act of Parliament that clearly sought to unilaterally vary our relationship with the EU could change that, short of a change to the Treaty.

      1. Denis Cooper
        July 21, 2011

        An Act of Parliament to disapply the unacceptable EU measure within the UK, and preferably using Bill Cash’s formula “notwithstanding the European Communities Act 1972”, would do the job.

        Or even an Order based on powers granted to a minister under a more general Act using the same formula, as he proposed in 2006.

        That debate starts at Column 750 here:

    3. uanime5
      July 21, 2011

      What’s the point of having the EU if its laws are non-binding? No country is going to introduce EU law if their neighbours don’t have to.

      Would you also apply this logic to the UK, so that if some Councils didn’t like laws from Parliament they would be free to ignore them?

      1. Tedgo
        July 21, 2011

        I signed up to the Common Market and since then the UK’s sovereignty has been drip feed away. I would pull out but in the mean time we need a better way of allowing 27 nations, with widely different cultures, to partake in the EU experiment at their own speed. I have proposed a method.

        An example, the EU is proposing to take over the Coast Guard functions from all the individual states and have a pan European service. In the UK the Coast Guard is mostly a voluntary service along with the voluntary Life Boat Service. In other countries it may be part of the military. I see no reason for change but if other countries within the EU want to go along that route they can. Obviously we could opt out of that competency at head of state talks etc, but those countries which go along with it would need to tailor their legislation to accommodate the voluntary and military aspects, rather than obeying rigid EU prescribed rules.

        Your statement ‘No country is going to introduce EU law if their neighbours don’t have to’, sort of implies that EU laws are unpleasant or draconian.

        1. Tedgo
          July 21, 2011

          ps Councils do not make laws. Mind you they seem to do as they please away.

  17. Richard1
    July 20, 2011

    Lets get Lady Thatcher’s rebate back also – which Messrs Blair & Brown gave away

    1. uanime5
      July 21, 2011

      They haven’t given it away; this is why the EU is currently negotiating with Mr Cameron to end our rebate.

  18. Damien
    July 20, 2011

    It now appears that France and Germany have accepted that the ECB will not accept debt from any country in default and therefore the backstop must rest with the EU. The EU will have to wrest fiscal control of the 27 members in return for undertaking the risk of the backstop under the revised EFSM to be announced on Thursday.

    It may be that using the EFSM does not require a new treaty given the past experience of the widest interpretation possible to any EU document but if it does then the UK should use its veto judiciously.

    Most people in the UK would favour less political interference while continuing with trade which benefits all members. An example of such beneficial cooperation is the production of Airbus A380’s. The Paris Air Show saw another 600 planes ordered in June bringing the total orders for 2011 to date at a staggering 3,934. American Airlines are set to announce this week a break through order of 250 A380’s with a possibility of another 200. The list value for 400 planes is $39 billion.

    Airbus has UK wing production bases in Filton near Bristol and Broughton, North Wales. Filton employs 4,500 designers and over 2,000 engineers. A total of 140,000 jobs are generated by Airbus wing work in the UK and these new orders will greatly increase that number.

    The UK should negotiate a move away from political union and towards greater economic cooperation if it is to compete with China and India.

  19. Neil Craig
    July 20, 2011

    My guess is that if the USD were to not default but suspend payment of devt untilan agreement on spending cuts had been made, the markets would decide US debt was more, rather than less, secure. since it would show they were serious about not simply kiting cheques.

    As an example of the opposite it may be that the reason the IMF went public in their advice to the EU is that they had long given it in private and seen it ignored.

  20. Ross J Warren
    July 20, 2011

    When it comes to what the Americans should be doing, I think there is an argument for compromise on both sides. There needs to be some tightening of tax breaks that favor the richest, and cuts. Of course the US will not default, but that isn’t on its own enough to reassure the credit rating agencies, who also want to see both measures. This was not a sensible time for politicians to be making a song and dance about the raising of the debt ceiling, as it has focused the worlds attention on the american debt crisis.

    If the medium term outcome of the political brinkmanship is a downgrading of the US credit rating the cost will quickly mount. Compromising will cost both sides something and will be difficult to sell to a nation that has been under-taxed for generations.

    We of course can do nothing, other than cross our fingers and hope that the US isn’t about to inflict a massive self inflicted wound on itself. The knock-on effect of a US credit downgrade would likely include further pressure on ourselves to cut further and faster, triggering at best a recession and at worst taking the world into a prolonged period of depression.

  21. Javelin
    July 20, 2011

    The solution has arrived to the Eu’s dire straight. It is the only solution I have heard that makes any sense. PRINT MONEY.

    If the ECB were to print mony it could be used to create a bail out fund (something like Eu 3 Trillion will be needed). This will then be used to buy back the bonds. Global asset inflation will become rampant. Oil, Gold, Iron Ore.

    If Greece can’t lower its exchange rates – the only solution is that Europe will lower its exchange rates. The consequences will be huge and probably throw the US back into recession as the price of oil and exchange rates rise. But the precious Euro will be saved – and now its weakness will reflect its reality.

  22. Steve Jones
    July 20, 2011

    John, while I do think you and many of your colleagues are slightly obsessed with the question of Europe and while I also think Britain has no choice but to stay in the EU to maintain and advance our economic and geopoliticial influence, the above is a good and fair analysis of the current problem.

    The reason why European leaders are slow in their response and seem to shy away from a radical solution is that all solutions discussed have serious drawbacks. The appetite for a “federal Europe” has all but disappeared (this is not the Europe of Kohl and Mitterand anymore) and there are serious constitutional issues (not least in Germany) with a further push towards a fiscal (and/or political) union.

    What is more, Germany has benefited from the euro and a return to the Deutschmark or the move to a stronger euro (by cutting the PIGS or PIIGS loose) would be poison for Germany’s export-led economy.

    May I also say that forcing countries like Ireland, Portugal and Greece to get their house in order is a much more preferable solution than that employed by the US or Britain, which seems to consist of printing money and accepting rising inflation.

  23. Ian
    July 20, 2011

    Come on John, what you suggest would take a real Conservative PM & FS to bring such a catch home – & alas as we are all now painfully aware we have no such thing.

    The insanity of our EU contributions & their control over every aspect of our country will continue under rusty Dave & that very disappointing Hague chap.

    1. Jon Burgess
      July 20, 2011

      Interesting point that – and you should know the answer to this Mr Redwood – what has happened to William Hague? He was refreshingly anti European as leader of the opposition when it didn’t really matter, but now he’s a minister we hear not a peep from him on this subject. Has he had a change of heart? If so, on what grounds? Or was he just having us on? Or has he been promised a large pension and a villa in Tuscany if he keeps his nose out?

      Reply: I have talked to Mr Hague who does not currently have proposals to get powers back from the EU when I think it would be a good time to have a go.

  24. Ryan
    July 20, 2011

    “Instead we will probably be served up another series of temporary fixes, reflecting the refusal of the main players to own up to the fundamental issues. ”

    Yes, that is spot on. In the end this is the nub of it all. The people responsible for this mess are still in charge. To fix the problems those in charge would need to admit they were wrong, very wrong and largely to blame for what is now happening in Greece, and subsequently in Spain, Ireland and Portugal.

    It should not be forgotten that during much of this period the EU was under the stewardship of failed Italian and Spanish politicians – can we really expect the likes of Baroso to admit that the whole basis of the kind of economics they believe in is fundamentally flawed?

    I cannot see that this can end well for the EU, and even for Europe. If the richer countries do not bail out the poorer contries then European Union is in effect dead in the water. Germany and France only buy the compliance of their weaker neighbours – neglect to hand out the cash and the Greeks et al will bite the hand that feeds them. But if France and Germany bail out the weaker members of the Euro then they will create moral hazard on an epic scale. Greek politicians will promise to make cut backs that never actually happen and in a years time go back for yet more money. When the Germans and French say no then Greek politicians will blame any subsequent economic calamity on “foreigners” whilst the German’s and French will seek to repatriate some of their cash by taking control of Greek assets. If this were to be replicated in other countries in Europe then we would have the unpleasant spectacle of the richer countries flexing their economic muscle over the weaker, while the weaker all the time blame their situation on “the foreigners” and such a situation could easily lead over time as the pretext for war.

    As the situation unfolds and looks to be dragging us further back to the 1920’s I begin to wish that we were not just economically detached from Europe but geographically separate too, because the direction the EU is heading in looks all too familiar.

  25. rose
    July 20, 2011

    138 questions today to the PM today, and not one on this. Their last chance to shine at Westminster before they go on their hols. What must their constituents be thinking of them?

    Reply: All questions had to be on hackgate, as the PM had made a Statement about it and the questions have to be about the subject matter of the Statement. Had I or anyone else tried to raise the Euro/IMF/economy we would have been ruled out of order on this Statement.

    1. rose
      July 20, 2011

      But it was their last chance, and they could have been ingenious in how they introduced their questions.

      As it was, they thought they were being ingenious, and original, especially that slimy sometime “journalist” in the light coloured suit.

      You are just too honourable and intelligent. That is why you are on the back bench.

      1. rose
        July 20, 2011

        PS How long is the Mother of Parliaments going on holiday for? Just as the real crisis is starting.

        Reply: Too long – off until second week of September.

        1. rose
          July 21, 2011

          Had you been less honourable, the question I should have like you to pose was one to the leader of HM’s Loyal Opposition, through the disinterested Speaker:

          “Did Mr Murdoch have any undue influence on the decision to stay out of the Euro, given that this was not the policy of the then governing party?”

  26. Mr Leslie Smith
    July 20, 2011

    The Politicians simply do not understand international finance and yield curves. Bonds from the differing EU Countries now come at a wide range of risk on the international markets with the PIGS Bonds rising to dangerous levels, which are quite unsustainable. The interest needed alone by the PIGS to fund their debts, their bonds and keep paying their Civil Servants, Police etc is out of all proportion to what they can now afford to repay per year. The PIGS have also taken “insurance cover”for these new high interest sovereign loans ( or the Lenders have) which means a completely unstable international bond market. A Crash is inevitable. I was in the thick of it in the 1987 Market Crash and that was no picnic. This is going to be just as bad, if not worse, than 1987 and its coming fast. I have just converted my total private pension to “Cash” to wait out this Storm of Storms.

    1. Alan
      July 21, 2011

      But which currency have you converted your pension into? Pounds, euros, dollars, yen, Swiss francs? I can think of problems with any one of them. I’d have thought you were safer in equities. Or maybe you believe in gold?

  27. Bernard Otway
    July 20, 2011

    Dear Mike Stallard ,I call them COMMISSARS not commissioners.
    To Steve Jones for the Umpteenth time on any comment site I ask,IF Eire is our biggest trading partner as stated last year at bailout time,with only 4.3 million people buying £29
    billion from us WHAT SOULD we be selling to Australia/Canada/New Zealand’s 64 million
    as but ONE example,after all they are Kith and Kin,IMHO at least 10 times that.And then what about the rest of the world.Also does anyone not know that our own people are leaving in droves to go especially to AUS/NZ last year 2010 about 250,000 all employed and employable here as well as there,PLUS they all took capital earned here to there and now will pay tax there which they won’t here,HOW will we replace the tax they pay and will the immigrants who replace them pay anywhere near as much tax as they did,even more PLUS HOW will we Replace their Entrepreneurism and drive added to their Intimate knowledge of this country and how it works.This people drain is going to continue for a long long time,in my opinion with Dire consequences.

  28. Tom Donnelly
    July 20, 2011

    Debt-default would be the right capitalist route to take, rather than continue to reward failure.

    Were the UK to default, our cost of borrowing would increase. Taxes would have to rise. Tax revenues would fall as a result (Laffer curve).

    Ergo, the non-productive sector would take the necessary haircut it needs.

    A perfect market.

    1. Alan
      July 21, 2011

      We have done this. Devaluation is a default, although not counting as such with the ratings agencies (because we never promised to repay in anything but nominal pounds).

    2. uanime5
      July 21, 2011

      Actually the Laffer curve shows that if taxes are too low or too high that the maximum tax revenues will not be collected. If taxes are currently too low then raising them will result in the UK gaining additional tax revenues. Thus there is no reason to cut the public sector back.

  29. Javelin
    July 20, 2011

    Another way to view the crisis is to see that the Euro area is as weak as its weakest member. If Greece defaults the Euro collapses. On this basis the value of the Euro needs to reflect its weakest member. The Euro needs to devalue, so its weakest nation can recover. First by dropping interest rates to near zero then by printing cash (it can’t issue Eurobonds to do QE). It seems bizarre but that seems to be the natural state of things.

    Reply: Not necessarily. A greek default does not mean the end of the Euro. US states soemtimes get into difficulties with their debts, but it does not mean the end of the dollar.

  30. Denis Cooper
    July 20, 2011

    It’s over two years since I created a new folder called “Next Treaty”, anticipating that the Irish would be bullied into voting for the Lisbon Treaty in the autumn of 2009 but that couldn’t possibly give the euro-federalists everything they wanted.

    In fact the Liberal Democrat MEP Andrew Duff had written as much:

    “So the Treaty of Lisbon is not the last word… Europe can decide whether it wants to be more united or more divided: it neither can nor will stay as it is. The challenge is to manage this federalisation process with similar skill and boldness to that evinced in their time by Messrs Madison, Hamilton and Jefferson.”

    And it’s nearly four months since Cameron conceded a short but radical treaty amendment, without getting anything in return:


    of 25 March 2011

    amending Article 136 of the Treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro


    JR will recall that, as he was one of 31 MPs who voted against the motion to pre-authorise Cameron to agree to that treaty amendment – deferred Division No 236 on 23 March, Budget Day, Column 1063 here:

    The government has already said that despite its “referendum lock” law this crucially important treaty amendment will not be put to a referendum but instead will be approved by an Act of Parliament, and I expect that when the Bill comes before the House there will be some minor rebellions but most of the coalition MPs will just vote it through.

    And that will happen with the next treaty amendment or batch of amendments, and then the next, and at no point will the government ever demand any concessions in exchange for its co-operation, and at no point will enough coalition MPs rebel to stop the government giving other countries whatever they want and getting nothing in return.

    Reply: Doubtless Labour will vote for it, so the number of Conservative rebels is irrelevant.

  31. Electro-Kevin
    July 20, 2011

    China colonising Africa. China outstripping US productivity. China surpassing US education. Good on them.

    But the US has 12 supercarrier battle fleets. Are we really to expect that, when they can no longer borrow money from China to pay for the fuel to run them, they’re going to hand over the keys ?

    The question should be “Who’s going to stop America from defaulting ?”

    At some point China is going to militarise big time. Are the Americans not worried about becoming subservient because they’re broke and bested militarily ? And if they are worried do they intend to stand idley by in the meantime ?

  32. BobE
    July 20, 2011

    Wonderful, is this the end of the mad EU. Can we get our country back, please.

  33. BobE
    July 20, 2011

    EU RIP not

  34. forthurst
    July 20, 2011

    The arguments between Democrats and Republicans in the USA is entirely spurious. The USA has major structural problems caused by the unwholesome troika of the private secret Fed, the US Treasury and the Wall Street spivs and further encumbered by the paid for obligations of Congress to spend money it doesn’t have, not for the benefit of the American people. There is mounting structural unemployment, decaying infrastructure, depressed wages for decades, with only financial spivs who add no value and entrepreneurs who have off-shored their labour costs experiencing increased income (well apart from the enormous federal government and its agencies).

    Ellen Hodson Brown JD has written an essay, “The Global Debt Crisis: How We Got in It and How to Get Out” which refers to the inherently unstable Eurozone, but highlights how local banks designed for supporting local communities can generate superior outcomes as against large remote institutions:

    “In the United States there is currently only one state-owned bank, the Bank of North Dakota. The model, however, has proven to be highly successful. North Dakota is the only U.S. state to have escaped the credit crisis unscathed. In 2009, while other states floundered, North Dakota had its largest budget surplus ever. In 2008, the Bank of North Dakota (BND) had a return on equity of 25%. North Dakota has the lowest unemployment rate in the country and the lowest default rate on loans. It also has the most local banks per capita.

    North Dakota has had its own bank since 1919, when farmers were losing their farms to the Wall Street bankers. They organized, won an election, and passed legislation. The state is required by law to deposit all its revenues in the BND. Like with the sustainable model of the bank of colonial Pennsylvania, interest and profits are returned to the government and to the local economy.”

    The US does not need financial spivs and neither does anyone else. Structural problems need to be solved by structural solutions. Europe has created a major structural problem for itself which can only be solved by re-structuring, preferably by breaking up the Eurozone; loaning, forgiving, promising to do better will not work.

  35. RichYork
    July 21, 2011

    The thought of a wider EU incorporating both Greece and Germany has its funny side.
    I have family who own businesses in Greece and they pay an official annual tax to stop the revenue from looking at their books. If they fail to pay this the Greek revenue will fine them a much larger amount for their impudence so in effect they are pushed away from transparency. Many Greek businesses take advantage of their bizarre controls, for example private medical practitioners usually declare just enough to keep them off benefits, about 10,000 euros and take the rest under the table. This is normal practice, they won’t operate or medicate without a backhander.
    I think watching the Germans sort this out could be entertaining. The Greeks made their own mess but changing a culture is just about the hardest of all jobs.

  36. uanime5
    July 21, 2011

    The problem with tax cuts in the US to boost the economy is that they cause a lot of short term problems for the Government because they will reduce the amount they collect in tax revenue. This means that the Government has to either cut back the public sector, borrow more money, or reduce their debts/deficit at a slower rate.

    Tax cuts are also risky because if the growth is not sufficient to make up for the loss in tax revenues the Government will be financially worse off. Good for the economy should not be confused with good for the country.

    |Reply The right tax cuts boost revenue, as Reagan and Bush and Thatcher showed.

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