Saving the world?


            We hear that the EU is working away at a solution to the Euro crisis. It comprises three main elements – more capital for banks, bigger write-offs on Greek debts, and a huge support fund to bail out any other country or bank that needs subsidy.

             If the package lives up to the billing it might impress the markets for a bit, and buy them some more time. It does not solve the underlying problems. There still needs to  be a solution which enables the uncompetitive countries in the south to become more competitive to earn their living. If they cannot do that by the stealth of devaluation, they need to cut wages and other costs sharply, which is unpleasant and difficult to do.  There has to be  a way for  the countries too heavily in debt to get their deficits and in due course their levels of debt down. Lending them more money puts off the adjustment, it does not make the adjustment for them.

              The proposal to put more capital into  the banks is not unalloyed good news. The EU governments would prefer the private sector to do this, under orders. The easiest way to do get better banking ratios is for the banks to lend less. This will not help the recovery.

             The German end of the argument does not like the idea of  big state injections of capital. The German position has favoured private sector solutions, ranging from raising more capital on the markets through controlled administration for failing banks, with bondholders and shareholders taking the loss. I advocated controlled administration for failing UK banks in 2008.  It would have been a cheaper and more rapid solution than the nationalisation model adopted, and would have spared the taxpayers such anger making losses.

            The UK has moved to this position through the FSA work on “living wills”, advanced plans to wind up a bank in an orderly way if it runs out of cash and capital. The Vickers Report rightly endorses this approach. It now sounds as if the EU is back tracking, moving back  to the old idea that in the last resort the state gives a failing bank any amount of cash and capital it needs, effectively nationalising the losses and risks. Given the weak state of most country finances, and the dislike of banks amongst electors,  this is a kind of madness. Weak countries and weak banks cannot in the end prop each other up: they pull each other down.

            We are openly told the governments are working on a second Greek default proposal where lenders to the Greek state will lose more than the one fifth of their money in the old plan. It is now universally accepted that Greece “cannot” pay back its debts. If they fail to pay back half or more of what they owe, they will then be spared substantial  interest and capital payments which eases the pressure on their state budget. It is a short term palliative. Once again it does not solve the underlying problem, which is the Greek propensity to live beyond her means.

             A Greek default is not necessarily helpful for the other weak countries in the Euro scheme. If one country is allowed to default and does so, might another?  How do the Euro authorities draw a line under a Greek default, and convince markets that other countries will be made to honour their debts? It is hardly a good advert for Euro zone management that a member state is actively encouraged to say to the countries, companies and individuals who lent to it they will not get their money back. Markets are likely to price in default danger in other Euro sovereigns, charging the weaker countries more for a loan as some protection against similar treatment.

              The EU is proposing a mega fund, briefed at anything from Euro 2 trillion to Euro 3 trillion, to provide shock and awe to markets. Euro 3 trillion would probably  impress the markets. It would show there was a lot of fire power, enabling Euroland authorities to help secure  lending  to Italy and Spain  at low interest rates if the market is unwilling to do so, and enabling them to prop any bank in the system that was weak. This has to be done indirectly and clumsily, as the ECB cannot lend direct to Euro sovereigns.

               The issue here which the markets  may test is how much political will is there to spend this money if need arises? How real is the Euro 3 trillion? Where does it come from? How does it get repaid in the end? In  short, it has to be a genuinely available Euro 3 trillion that comes from a plausible source or sources. Is it any more than saying Euroland as a whole will borrow on its combined credit rating to lend to its weaker members at subsidised rates? Is Germany really up for this? Does it mean that the AAA ratings of France and Germany have to be downgraded, as they come to assume more responsibility for the debts of the weaker states?

                   Euro 3 trillion is a lot of money even for Euroland. It either is borrowed, or it has to be raised from taxpayers. Either route poses problems, as well as offering a temporary answer for markets. Higher taxes can have a depressing effect. There seems to be no agreement to a financial transactions tax as part of the package.

                       Of course, there is a third route. They could sanction the European Central Bank to go printing it. The Bank could buy up as many bonds as was needed, using electronically created money like the US and UK. That might work for a bit as well. If you do that to excess it causes too much inflation. I doubt the Germans would openly  sign up for that. We need to watch the small print behind the spin.

                     I was pleased to hear yesterday  that the UK and US were both objecting to a greater use of IMF money to buttress the single currency scheme. I have been trying to persuade the UK government that IMF money should not be used to bail out rich countries that have chosen to inflict a currency scheme on themselves which does  not work. Why should some of the world’s poor have to subsidise the rich in their folly? And why should UK taxpayers be dragged into subsidising Euroland through the IMF, when we did them a good turn by staying out?

                       Today’s news that despite the opposition voiced the UK might go along with another increase in IMF resources to allow more bail outs of the Euro zone is bad news. The UK needs to get its public spending under control. Starting with no new money for EU bail outs should the the easy bit. The public will not be pleased if we end up picking up yet more of the bill for this ill judged and expensive scheme.

                     The UK should say to the IMF it should stop encouraging the idea that other countries should send money to rich countries that decided to inflict so much damage on their own economies, and intend to persist with doing so despite all the evidence. The answer to the Euro scheme is to reduce its membership, not send it more cash.

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  1. lifelogic
    Posted October 17, 2011 at 6:45 am | Permalink

    I agree fully – as you say – nothing they propose seems to solve the underlying problems there still needs to be a solution which enables the uncompetitive countries in the south to become more competitive to earn their living. If they cannot do that by the stealth of devaluation, they need to cut wages and other costs sharply, which is unpleasant and difficult to do.

    I agree with the administration of the banks and the living wills for the banks. Nothing should get in the way of lending to sound businesses, if they want ever to see any growth. The French and other banks need to accept the losses they have made on duff Greek and other bonds not dump them on everyone else in the EU.

    Cameron is still not leading, not giving a sensible vision, not cutting government expenditure, not getting the NHS to work, not getting bank lending going, not cutting waste and regulation and not taking actions to encourage growth.

    Is he intending to do anything positive, before he loses the next election I wonder?
    It seems his idea of leadership is to go from silly Gimmick or Photo Op to silly Gimmick/photo op, to new royal town photo opportunity here, to a gay marriage proposal here, a new female minister there or similar.

    At the same time claiming he is making the UK business friendly and making state sector cuts but is actually doing the complete opposite.

    Just saying it will not work and time is short.

    • Martin Cole
      Posted October 17, 2011 at 8:28 am | Permalink

      Quite so lifelogic, and although you do not say so, Cameron is quite able to continue so to do, as he has the unquestioning support of all his backbenchers – to the eternal shame of those of them fully aware of the coming consequences.

      • lifelogic
        Posted October 17, 2011 at 10:05 am | Permalink

        Cameron promised to protect the British countryside in his speech recently and yet Huhne still remains in place. With his absurd 30 pence + per KWH electricity scam and his religious, whining, occasionally revolving, modern wind crucifixes appearing on all the hills.

    • A.Sedgwick
      Posted October 17, 2011 at 9:12 am | Permalink

      “Cameron is still not leading” – the only place Cameron is leading us to is an economic disaster.

      • Disaffected
        Posted October 17, 2011 at 12:17 pm | Permalink

        Cameron’s election campaign was equally woeful. If it was not for the dislike of Gordon Brown, Cameron would have lost the election. Woolly, insincere thinking tough soundbites will convince people what he means. Time has run out, most sensible people do not believe a word he says or his chocolate teapot guarantees. He lacks moral fortitude to take action on what he says or stand up and overrule a pathetically weak junior coalition partner (Lib Dems views on EU, budget, defence, immigration, crime and disorder, HRA being totally out of sink with the public).

        • lifelogic
          Posted October 17, 2011 at 12:57 pm | Permalink

          It is very hard to understand how some one supposedly intelligent and must understand what needs to be done can appoint Lord Patten to head the BBC trust and still have Huhne and Cable in the cabinet and an “equalities” minister and Justine Greening now at transport.

          I see that Labour is making money out of the ambulance chasing legal referral fee (word left out). Hopefully Cameron will at least put and end to this now by capping legal fees at say 5% of the sum under question and £25 per hour and banning referral fees and the no win no fee (system-ed).

          • uanime5
            Posted October 18, 2011 at 12:26 am | Permalink

            Capping legal fees at 5% will make it impossible to mount legal challenges that do not involve large sums of money, such as protecting yourself against nuisance (for example a noisy neighbour).

            Don’t expect barristers and lawyers for the rich to work for £25 per hour.

            You can avoid referral fees if you go directly to a solicitor, rather than a referral agency.

            No win no fee was introduced as an alternative to legal aid. Do you want the lawyer to be paid by the state whether they win or lose?

          • Electro-Kevin
            Posted October 18, 2011 at 9:03 am | Permalink

            Uanimez – There are more lawyers than police officers.

            Why can’t I afford to hire one ?

          • lifelogic
            Posted October 18, 2011 at 10:46 am | Permalink

            People should pay their own legal fees. Most legal work is a rather easier job than teaching a class of children despite the best efforts of the lawyer to complicated it – why are they allowed to charge out many often fairly dopey people are £175PH and expect people to pay for it. If people cannot afford a lawyer they should just make the case them selves or get a friend to and the courts should accept this.

            Limit cost awards to 5% (or perhaps 10% at most of the damages). We do not as a nation overall get rich by suing each other the less litigation the better. Nor do we overall get rich by gambling or buying lottery tickets or by extra sill laws and regulations or by silly over priced energy, quite the reverse in fact.

    • Disaffected
      Posted October 17, 2011 at 12:09 pm | Permalink

      The Cabinet appear to have lost the plot and unable to control those in the club. Huhne stands out. Today cameron and Huhne will speak to the energy companies- what about the 20% added to our energy bills under government obligation to environment for his wind farm experiment? The principle of energy in and energy out forgotten. More energy to build and install than it will create in its short life span. 22 more time expensive to build than an ordinary power station, 33% less efficient, 25 yr life span; energy and Co emissions to build are more than the windmill will save in its lifetime. The Uk Co emission compared to large countries being the same as a drop in the ocean but it might please some unelected EU bureaucrat and the EU countries who build the useless things.
      Mr Bentley of British Gas has already pointed out that fuel poverty could be cut overnight if the government only directed the winter fuel allowance to those who needed it, they could double the allowance to those in need. No, Huhne and Co think it is politically right to give something to everyone to gain votes. They still do not understand that most well off people don’t care if they receive the allowance they are more interested in getting the deficit down- as we are daily reminded by the government, and yet, rarely see any action taken to fulfil this goal.

      • sjb
        Posted October 17, 2011 at 6:14 pm | Permalink

        Disaffected wrote: “Mr Bentley of British Gas has already pointed out that fuel poverty could be cut overnight if the government only directed the winter fuel allowance [“WFA”] to those who needed it, they could double the allowance to those in need. No, Huhne and Co think it is politically right to give something to everyone to gain votes. ”

        Might another explanation be that determining “who needed it” would incur administrative costs that perhaps exceed any savings. For example, consider the pensioner cohort. Let us say you decide to restrict WFA to households receiving Pension Credit (“PC”), i.e. poor pensioners. However, it may surprise you that a significant number of pensioners that are entitled to PC fail claim the benefit.[1] Assuming you do not want these to miss out then you would have to devise a method to reach them but not the well to do OAPs.


        • Disaffected
          Posted October 18, 2011 at 1:31 pm | Permalink

          Who need it could easily be achieved through NI numbers based on a income threshold. The spin by politicians that it would be too difficult is rubbish. Perhaps Osborne could use some of the 2,000 additional tax collector employees he is about to recruit. I have never come across anyone who the HMRC has not taken enough money from.

    • lifelogic
      Posted October 17, 2011 at 5:40 pm | Permalink

      I see Cameron and Huhne claiming today to be trying to get energy prices down clearly they are doing exactly the reverse as a policy.

      How on earth will they get elected in May 2015 after, perhaps, three cold winters little growth due to their anti-growth policies and perhaps labour promising an EU referendum.

      • Electro-Kevin
        Posted October 17, 2011 at 9:45 pm | Permalink

        Did you see Panorama about fuel duty and the lengths transport businesses are having to go to stay afloat ?

        This isn’t about ‘green taxes’. The pump prices are expensive before green taxes and the producer’s prices are found to be reasonable. The responsibility is with the government.

        We live in a socialist state in all but name. Brought in by both parties through stealth.

  2. norman
    Posted October 17, 2011 at 7:05 am | Permalink

    Isn’t it funny how quickly things have moved in two years. I remember what seems like yesterday reading about a 750bn Euro fund that was proposed as a ‘shock and awe’ measure to much mutual backslapping by the Eurozone leaders.

    Not sure whatever came of this in the end but it does show that the people at the top, despite what they want us to believe, have no idea about what is lurking underneath the surface or where future events are going to take us. Anyone who thinks that countries like Germany and France, like us already more heavily indebted than is healthy, can wave a magic wand and take on trillions more of debt and not damage their own economies is delusional.

    Where do we go after the ‘contagion’ spreads to them? France is already teetering, all this plan will do is push her over the edge with the end result that Germany will be dragged down by the sheer weight of everyone else .

    With the best will in the world a country of 80 million cannot support themselves and another 100+ million. Nor will it’s citizens want to.

  3. alan jutson
    Posted October 17, 2011 at 7:15 am | Permalink

    The proposed EU scheme you describe sounds very mch like the Brown plan of yesteryear, put off real action by borrowing as much as you can, for aslong as you can from the tax take of future generations yet to be born.

    It is akin to giving a drug addict friend, more drugs, purchased by yourself, paid for with borrowed money, whilst at the same time telling them they should stop slowly, so as to avoid them the pin of going cold turkey.

    When oh when are governments going to realise that if you spend more in the year, than you take in taxes from the previous year, you simply get further into debt.

    The solution as we all know, is to live within your known income, not some pie in the sky guess, which also includes a huge amount of nothing more than hope value.

    Sound money, no chance, more like sound bites.

    • alan jutson
      Posted October 17, 2011 at 7:19 am | Permalink

      pin should be, pain of cold turkey.

      The longer you leave real treatment of the cause, the worse and longer the pain of correction.

    • uanime5
      Posted October 18, 2011 at 12:31 am | Permalink

      Research has shown that for some drugs, such as heroin, going cold turkey is far worse than slowly weaning yourself off it.

      Also even if Greece spends less than their tax revenue their debts will continue to increase because of interest they have to pay. So they can get further into debt even if they get their spending under control, unless they can get enough money to pay off the interest on their debts.

      • alan jutson
        Posted October 18, 2011 at 9:14 am | Permalink


        I was not talking about heroin, I was talking about debt, going cold turkey was used as an example of having to face up to life, without a further fix of money.

  4. Mike Stallard
    Posted October 17, 2011 at 7:32 am | Permalink

    I am reminded of the bit in War and Peace about the Battle of Austerlitz. It all looks so very promising, so very easy. There are brilliant men planning the attack on Napoleon in the very finest detail. Everything is perfectly arranged…………..
    “The Guards made their whole march as if on a pleasure trip……”

  5. Antisthenes
    Posted October 17, 2011 at 7:43 am | Permalink

    Christine Lagarde Joan of ark II as far as the French are concerned. Isn’t there a conflict of interest here. From French finance minister to director of the IMF. Why are not the international media and rational people shouting foul or at least questioning the motives involved in her appointment?

    • Single Acts
      Posted October 17, 2011 at 9:37 am | Permalink

      Joan of Arc ~ a pawn who was clearly mentally ill, believed lots of nonsense, hated the English and was ultimately betrayed by her own people.

  6. Robert K
    Posted October 17, 2011 at 8:15 am | Permalink

    Phase 1: lax money supply (2001 and onwards)
    Phase 2: implosion of private sector banking system and nationalisation of losses and insolvent banks (2007 onwards) – money supply increased to pay
    Phase 3: implosion of sovereign debt in southern Europe (2009 onwards) – money supply increased to pay
    Phase 4: federalisation of losses of insolvent states (2011) – money supply increased to pay
    Phase 5: rampant and uncontrolled inflation (soon).
    Phase 6: remember what happened after the Weimar Republic.

    • Single Acts
      Posted October 17, 2011 at 9:39 am | Permalink

      Phase 5: rampant and uncontrolled inflation (soon). ~ Yes indeed, Guido reports producer price index at 17.2%
      Phase 6: remember what happened after the Weimar Republic. ~ Yes indeed, please god some loons don’t get political funding

      • Mark
        Posted October 17, 2011 at 12:43 pm | Permalink

        Guido got the figure wrong: it’s 17.5%

        I note that the BoE didn’t even bother to consider PPI in their inflation forecasts. Then again, we must remember that banks are supposed to repay large chunks of their BoE borrowing under the SLS and CGS next year: I’d guess that’s what the QE is aimed at in reality – allowing banks to repay with freshly printed electrons issued for the purpose, as it’s getting difficult for them to borrow abroad in wholesale markets again.

      • Daisy
        Posted October 17, 2011 at 2:27 pm | Permalink

        I have found myself wondering if this is how wars start; obstinacy in the face of reality, treaty obligations committing countries to acting against their own citizens’ best interests, and a minor problem on the periphery lighting the fuse for a huge explosion. We like to tell ourselves it could never happen again in Europe, but for the first time in my life I am no longer sure.

  7. Richard1
    Posted October 17, 2011 at 8:24 am | Permalink

    An excellent summary. The really dangerous thing which looks on the cards is a Euro-wide Brown style bank bailout using taxpayers’ money. The key lesson from the financial crisis is that implicit (& now explicit) govt subsidy for banks is the root of the problem. The banks will always prefer to meet capital requirements by shrinking their balance sheets, as the decision makers are large shareholders. The UK should point out what’s happened with the ill-judged Brown bail-out: taxpayers have lost a lot of money & are angry; the banks have not restructured their activities as they need to do; there is a credit crunch as the oligoploy of large banks prefers shrinking their balance sheets to capital raising.

  8. JohnOfEnfield
    Posted October 17, 2011 at 8:32 am | Permalink

    The main reason that banks need more capital is because their long term use of sovereign debt as a last resort no longer applies. Until the purveyors of said debt become credit worthy again the banks will continue to be in trouble.

    Once again we are proving that socialism doesn’t work.

  9. NickW
    Posted October 17, 2011 at 8:54 am | Permalink

    Barroso’s plan to hold Bankers criminally responsible for their mistakes needs to be extended as rapidly as possible to politicians.

    If the consensus opinion regarding a plan designed to inspire confidence, is that it won’t work because of failure to address underlying problems; then quite clearly it won’t work.

    The European politicians seem determined to bankrupt the whole continent.

    Who is going to stop them?

    • Electro-Kevin
      Posted October 17, 2011 at 2:57 pm | Permalink

      Why do politicians seem determined to bankrupt the whole contintent ?

      Because it’s a political project. The economics of it takes second place.

  10. Brian Tomkinson
    Posted October 17, 2011 at 9:03 am | Permalink

    JR: “The answer to the Euro scheme is to reduce its membership, not send it more cash.”
    You are correct but the political “elite” and whoever is invisibly pulling their strings won’t allow this. They are determined to plough on with their wrong-headed “project” regardless of the consequences for the people in the nation states. The majority is being sacrificed at the EU altar. Our own government is weak and gutless and will acquiesce in whatever their masters in Brussels order them.

  11. oldtimer
    Posted October 17, 2011 at 9:04 am | Permalink

    Once again you set out a compelling anaysis of the Euro debt crisis and the sure to fail, so-called remedies.

    I assume that the bill will end up being paid by a combination of bank shareholders and EU taxpayers, with the latter facing the biggest bill. It is difficult to imagine international bond holders putting trillions into Europe, especially the big beasts like China after experiencing their US Treasuries rip-off. I imagine that some of the hedge funds will make hay with this opportunity.

    Perhaps those who post here, with actual trading knowledge of todays markets, could offer some insight into this.

  12. English Pensioner
    Posted October 17, 2011 at 9:06 am | Permalink

    The Mail reports today that the “Bailout of eurozone countries will cost us billions more, Osborne admits”.
    Why are we contributing money to the IMF for them to dole out to Greece. If we have money to spare, it should be spent on reducing the deficit somewhat faster.
    The way we are going, we will soon be going to the IMF for a loan, when they will no doubt charge us for the use of our own money.

    • alan jutson
      Posted October 17, 2011 at 9:32 am | Permalink

      E P


      I simply do not understand why the banks do not require assets to be put on the line for such loans, as is the case with businesses or personal borrowing. It tends to focus the mind when your house is at risk.

      Until a few Greek islands are on the books, perhaps we will never see any change in political behavour, then they may perhaps understand how serious a position they have got themselves in.

      • AJC
        Posted October 17, 2011 at 3:53 pm | Permalink

        It is suggested that China would be prepared to “invest” in failing EU countries iff the put their borrowing in order!

  13. Alan Redford
    Posted October 17, 2011 at 9:19 am | Permalink

    It beats me how Greeks cannot live within their means. A bottle of Retsina per day, a loaf of bread and a plate of moussaka doesn’t add up to a lot. No work means no car and no fuel to buy, the sun means no heating required and they’re asleep most of the time so no lights and therefore electricity required. It’s a life I would readily adopt myself.

    • backofanenvelope
      Posted October 17, 2011 at 11:56 am | Permalink

      So could I! Unfortunately, the Greeks are being required by the Germans to work harder and retire later. And pay more tax. They are not too keen on this. Personally, I wouldn’t be either.

  14. Martin
    Posted October 17, 2011 at 9:40 am | Permalink

    The other answer to the problems of Greece and others is to collect more taxes.

    Many churches get lots of generous tax exemptions. Perhaps its time the rich multinational churches were held to account. I wonder how much gold bullion is owned by churches and kept in Swiss Bank vaults?

    Tax dodging is also notorious in some countries. Employing more tax inspectors and throwing the tax dodgers in jail would be a start.

    • Stuart Fairney
      Posted October 17, 2011 at 7:43 pm | Permalink

      Going after the churches when you are short of money, hmmm……

      If only there was some historical precedent.

      In other news, who was Katherine of Arragon married to?

      • uanime5
        Posted October 18, 2011 at 12:36 am | Permalink

        Interestingly what Henry the Eight did wasn’t that uncommon in Europe, mainly monarchs who wanted to keep the Church and rich bishops in check.

  15. sm
    Posted October 17, 2011 at 9:41 am | Permalink

    Someone is being paid fiat or taxpayer backed money for something worth a lot less in the market!

  16. waramess
    Posted October 17, 2011 at 10:10 am | Permalink

    What a nonsense these poiticians cause.

    First the Banks in trouble and their problems are sovereignised then the sovereigns in trouble and their problems are moved to the banks by requiring them to buy more government bonds under the pretence of liquidity planning, then some of the government bonds prove to be of poor quality and the failure of the banks is seen to threaten the economic systems so they seek again sovereignise the banks problems.

    Maybe an oversimplificartion but this circle of madness must end sometime soon with the orderly or not so orderly liquidation of bank assets.

    Over many decades banks have failed to liquidate bad assets because it will impair their capital base and instead they have left them as part of their asset base at the original value.

    Of course the liquidation will be earth moving but far better than leaving the taxpayers with this load of junk.

    The UK know exactly which bank they must first let go but crafty politicians think they can see cheaper fixes like suppporting a Euro bail out and letting others accept part of the pain.

    They will have to bite the bullet in the end and better to do so now when others linger on to a certain and painful death

  17. Martyn
    Posted October 17, 2011 at 10:12 am | Permalink

    “…..despite the opposition voiced the UK might go along with another increase in IMF resources to allow more bail outs of the Euro zone is bad news”. It is not just bad news – it will be utter madness for us to throw or promise to throw yet more borrowed money (i.e. adding to the national debt) to help save the Euro. If our government does so, we shall no doubt be told no more than that “it is in our national interest to do so” without any specific political reasons being given. After all, publicly revealing the real political reasons might cause public outrage, or worse, and in any case the public is probably too stupid to understand the real reasons.
    Interesting to see in the DT today EU comment criticising the position being adopted by the ‘Anglo-Saxons’ in regard to the EU crisis. Other than yet again revealing the intense EU dislike and mistrust of us and other English-speaking nations, I do wonder what that might mean for the future.
    So far as the public is concerned I suspect that the repetitive mention of millions, billions and trillions of £ and Euros has left most baffled as to what it all actually means, so other than realising that almost all common folk are living in straightened financial circumstances that news is ignored and most have to soldier on in life with little or no thought as to what it might mean to themselves and future generations. Which of course is very good news indeed for the europhile camp.

  18. waramess
    Posted October 17, 2011 at 10:25 am | Permalink

    ……There is no cheap fix and the UK in particular should avoid the temptation of another bailout of mammoth proportions. They must let bad banks fail or they will impoverish future generations beyond all belief.

    They must stop thinking of this as a EU problem and start addressing it as a UK problem for so long as they pump taxpayer money into what are now internetional banks that is what it is

  19. David Williams
    Posted October 17, 2011 at 10:31 am | Permalink

    For decades the south of Europe has been getting subsidies from the north, so nothing has changed. It’s easy; a fiat currency is only numbers on a piece of paper or computer screen. Germany is on course to obtain a pseudo-empire without firing a single shot. France is on the winning side.

  20. Derek Duncan
    Posted October 17, 2011 at 10:31 am | Permalink

    If we are contributing more to the IMF to help Euroland, presumably the Government think it will be to our advantage to do so; have they said what this advantage will be?

    You say “And why should UK taxpayers be dragged into subsidising Euroland through the IMF, when we did them a good turn by staying out?” I’m not clear what the good turn was – wouldn’t Euroland have preferred to have us in with them?

    • norman
      Posted October 17, 2011 at 2:07 pm | Permalink

      Look at how much money we are / have been printing and borrowing. Look at our inflation rate compared to the rest of Europe.

      Our government has the option to somewhat manage our decline via inflation which wouldn’t be the case if we were in the Eurozone.

      We’re Greece on steroids. Well, maybe not quite, but we’re certainly in worse shape than Italy and Spain by any measure.

  21. javelin
    Posted October 17, 2011 at 10:33 am | Permalink

    I think youve missed the key 2 elements here …

    1) The new president of the ECB – Mario Draghi – he will be president up until 2019. He will be the key driver behind any changes and understanding him is key. Draghi was director at Goldmans in 2002 (after the controversal Greek swap was dealt). (words left out-ed) There are serious questions over his tenure for this reason. But here we go again another ex- Goldmans director. Remember Paulson doing his stuff at the FED after the collapse in the credit markets. YOU CAN BE SURE the solution will be a banking solution to the crisis and not primarily a fiscal one. Debt is good, debt is control.

    2) Rumours in the market are that he WILL find the money – and he will find it from China. The market is saying that he will use some financial engineering to “swap” EU sovereigntity (and I mean EU not national control) for the bail out funds and at the same time allow the EU to achieve their goal of further integration. The rumour I hear is that a massive EU bond issue will be put out to the markets (i.e. China) it will have lots of controls over budgets in the EU in it. In return the ECB will be a proxy for Chinese (sorry bond holder controls) to push further integration. The theory is that China wants further integration from the EU so that the EU can destablise the US as a global power.

    Goldmans has been moving East for the past few years – for example it is not the largest owner of the London Metal Exchange and has quadrupled ownership in the past few years – the Hong Kong Bourses have expressed a very recent desire to take over the LME – remember China is the metals consumer of the world. Goldmans has been moving its trading books east and in its accounts reports increasingly from Hong Kong.

    • Electro-Kevin
      Posted October 17, 2011 at 9:53 pm | Permalink

      I’m always impressed with your insights, Javelin. There are some others here who are excellent too.

      Thank you.

  22. forthurst
    Posted October 17, 2011 at 11:10 am | Permalink

    Welcome to the EUSSR, worthy successor to the USSR, where capital is chronically misallocated and risk is chronically mispriced because, ultimately, we have moved to a post-Capitalist economy where allocation of resources is decided not by the rational decisions of those who are prepared to take risks but by a political elite and their string pullers.

    When money can be magicked out of nowhere it must lose its representational significance, so of course we will need something else for resource allocation, ration books and of course special shops for our hard working politicians, even if the rest of us have to do without because the fruits of our labours have been squandered on windmills, and Greeks and other pet schemes that take the fancy of our wholly benign commissars, afar.

  23. Bob
    Posted October 17, 2011 at 11:42 am | Permalink

    Shouldn’t it be the responsibility of the ECB to sort out the Greek debt crisis?
    The IMF should only be called upon if the whole Eurozone hit’s the skids, no?

  24. Neil Craig
    Posted October 17, 2011 at 12:28 pm | Permalink

    It isn’t really a bailout of Greece. Greece will be cworse off after a “bailout”Q – what they really need is to drop out of the Euro and let the new drachma sink to its own level. The people being bailed out are the banks that loaned to them. Note that the apparent reason Japan has spent the last 20 years with virtually zero growth is that they made propping up bankrupt banks the aim of policy instead of growth. Bankruptcy is a vital part of free enterprise (the wind of creative destruction) and should be allowed to proceed.

  25. javelin
    Posted October 17, 2011 at 1:01 pm | Permalink
    • alan jutson
      Posted October 17, 2011 at 7:41 pm | Permalink


      I have mentioned a digital display like this before.

      We should have one of these with our growing debt over the entrance and exit to Parliament, and another in Trafalgar square

      It may just concentrate a few minds as to how much of a mess we are in.

  26. Javelin
    Posted October 17, 2011 at 2:25 pm | Permalink

    House prices are being held up by low interest rates, whilst inflation destroys people who save. Banks simply do not have huge amounts of savings to invest or lend because people are not saving but spending.

    Interest rates need to rise to a level of about 3% to encourage savings and bring inflation down to below 3 %. The fact that house prices will fall is largely irrelevant because inflation will fall at the same time, plus increased savings and investment will reduces taxes and increase wealth in the economy. Less debt will be run up and people will be saving and not encourage to consume products from China to beat inflation.

  27. Dan Holdsworth
    Posted October 17, 2011 at 2:42 pm | Permalink

    The basic problem here as I see it is that the banks have discovered that if when they are in danger of losing money they scream, moan and generally put on an operatic demonstration of suffering, at the same time as making dramatic prophecies of doom, thenthe politicians will move heaven and earth to prevent whatever dire prophecy is being touted about at this time.

    What is needed is an alternative approach, whereby any bank which finds its self in dire straits is quietly and carefully led away for a swift bullet to the head. All depositors would have their savings guaranteed up to a pre-agreed limit, but all shareholders would lose everything in the controlled shut-down. Once completed, a new bank would be built up, using the deposits from the rescued depositors.

    The advantage of this method is that it causes direct and immediate agony to the shareholders and to the bank’s executives, and sends the message that no bank is “too big to fail”. As an aside, it would be sensible to define how large an organisation should be to be “too big to be permitted to fail”, and impose a supertax on any entity approaching within 5% of this limit; no bank would henceforth be too big to fail.

    The key point is this: if an organisation of any sort gets things seriously wrong, it must be permitted to die, and if necessary given a little assistance along these lines. Shooting the hindmost is a long-accepted means of motivating the remainder not to fail, and would be roundly applauded by the general public.

    Finally, I personally believe that the Eurozone needs our help, and that the best thing we can do is to give them technical assistance of the first order. Let us therefore send Gordon Brown to Brussels as our contribution to their plight; a country can conceivably do very well ignoring Gordon “Goldie” Brown’s words of wisdom…

  28. Andrew Smith
    Posted October 17, 2011 at 2:59 pm | Permalink

    Meanwhile we are to pay £billions more to bail out a currency we chose not to join.

  29. Denis Cooper
    Posted October 17, 2011 at 3:32 pm | Permalink

    As I argued last time back in the summer, if MPs are to show themselves worth their salt they should not allow an increase in the IMF subscription for this purpose through secondary legislation, an Order made under the International Monetary Fund Act 1979, but should insist that it would require authorisation through primary legislation, a full Act of Parliament with proper debates and votes at every stage in both Houses.

    Why? Because when that Act was passed in 1979 we were in the EEC, but the euro did not exist; and the later Act to approve the Maastricht Treaty including provisions for the creation of the euro, the European Communities (Amendment) Act 1993, must rank superior to the 1979 Act both because it is the later and because under their own terms the EU treaties are superior to the IMF treaty.

    Since 1993 there has been a legal incompatibility between the EU treaties as amended by the Maastricht Treaty, which comprehensively prohibit intra-EU bailouts and make no exception for bailouts mediated through the IMF, and the pre-existing IMF Articles of Agreement.

    It’s a cardinal rule of the EU that in the event of any conflict its treaties must take precedence over any other treaty to which a member state is a party, including a treaty concluded prior to EU accession, unless the other treaty is expressly excepted in the EU treaties – one such example being the NATO treaty, specifically excepted in Article 42.2 TEU.

    The ECJ has ruled against member states on their failure to eliminate incompatibilities between their other treaties and the EU treaties, referring to what is now Article 354 TFEU, eg here in 2009:

    Under the EU’s own rule, it must follow that member states cannot use the IMF to circumvent the EU treaty prohibition on intra-EU bailouts, and they cannot cite their legal obligations under the IMF treaty to justify doing so; therefore MPs should insist that any additional IMF subscription must be authorised by an Act, “notwithstanding the European Communities (Amendment) Act 1993”.

    Last time the decision was effectively taken by the Second Delegated Legislation Committee, with MPs voting 10 – 6 in favour of the Draft International Monetary Fund (Increase in Subscription) Order 2011:

    and I cannot believe that this is the correct, or even lawful, way to proceed when the extra subscription to the IMF is clearly intended to help fund eurozone bailouts.

  30. Acorn
    Posted October 17, 2011 at 3:33 pm | Permalink

    BTW. If you want to compare domestic energy prices across the EU, have a look at .

    Then consider what would happen if the big six energy companies had one universal; “simple and transparent” charging formula like y=Ax+B. A= price per kWh; x= kWh used; B= daily service charge.

    If A and B were the same for five companies but the sixth had A or B a fraction less, would every household switch suppliers? What happens to the other five companies if they do? Would it be amoral to have not one but two universal tariffs; A1= cheap dirty electric stuffed full of CO2; NoX and SoX; A2= expensive clean and super green?

    When a product has a single universal specification, you have to develop multiple specific ways of selling it. The more confusing to the consumer, the better the profits.

    • alan jutson
      Posted October 17, 2011 at 7:44 pm | Permalink


      Have just written to my supplier to ask exactly the same question, as my micro business contract has come up for renewal.

      How much extra is the cost of renewable energy compared to the normal stuff from coal, gas and nuclear.

      I await an answer.

  31. Andrew
    Posted October 17, 2011 at 3:43 pm | Permalink

    One thing that is little discussed when considering EU strategy is how much Central Europeans dislike the British. It is consistently assumed that when renegotiating ‘it’s just business’. I think it is more than that.

    They hate us and would be highly vengeful if we ever managed to extricate ourself from a functioning EU. After all, we have given lots of money to them and like all dealers who turn off the tap, we are hardly going to be seen by the junkie as their friend afterwards.

    I too trot out the fact that we have a 40% trade imbalance between us and Europe when pointing out the damage being done to our economy by the EU. However, despite that trade imbalance, central European countries could probably survive for a couple of years without UK trade, whereas the other way round would be catastrophic for us. By the time the WTO managed to re-establish access to EU markets for us, our exporters would be in ruins.

    We really are a subjugated nation and that is why I think the Foreign Office behave like they do, because they know we are over a barrel. I think their strategy is to keep us in the game until Germany decide they have had enough. That should just about be when Italy falls. Maybe the FCO are right after all to do so. It is no good us coming out on our own as the remaining vast market will turn on us and it only needs to do so for a year or two to finish us. We need the EU to collapse in a fireball and then move in with bilateral trade agreements and clean hands.

  32. javelin
    Posted October 17, 2011 at 4:47 pm | Permalink

    Interesting to know what people think of the surge in the Republican leadership race by Cain for his 9-9-9 tax plan (google news it) ??

    • forthurst
      Posted October 17, 2011 at 9:46 pm | Permalink

      I wouldn’t be surprised if he’d been introduced to poison the Republican well; he’s got cancer and his fiscal proposition is very strange. Allow him to make enough noise to drown out Ron Paul, the serious candidate who could set the USA on a proper path, to facilitate a second term for the First Autocue and VP Hillary.

    • wab
      Posted October 17, 2011 at 11:31 pm | Permalink

      His 9-9-9 tax so-called plan is a joke. In particular it would massively shift the tax burden from the rich to the poor and also make the budget deficit far worse unless he takes a hatchet to all government spending, including the military, and that will just not happen (no matter how the crazies on the right pretend it might). He will disown 9-9-9 once the public realises this (well, if the media ever bothers to point it out).

      Cain has no clue about most things and is the current flavour of the minute only because the Tea Party Republican Party are desperate for an anti-Romney candidate, any anti-Romney candidate. Not surprisingly all the Tea Party favoured candidates so far have been a joke, which is perhaps why they only last high in the polls for a short period of time.

      Romney will win the nomination in the end because he is the only one who can walk and talk at the same time (amongst the candidates who have any chance). The Wall Street money obviously has come to this conclusion now.

  33. Anne Palmer
    Posted October 17, 2011 at 5:32 pm | Permalink

    We pay our taxes for our own Government to govern this Country according to its Common Law Constitution. The people of this Country have never once had the chance to say “yes or no” in the acceptance of an EU Treaty. Not once.

    Tell me WHY would any British Politician put the EU before the Country he owes his allegiance to?

    • uanime5
      Posted October 18, 2011 at 12:48 am | Permalink

      There was an EEC referendum in the 1975, with 67.2% voting to remain in the EEC. The people choose to be part of the EEC (which later became the EU). If was not forced on them.

      • A different Simon
        Posted October 18, 2011 at 2:01 pm | Permalink

        The EEC was not forced on us but we did not have any say in being a member of the EU which is completely different to what we were originally sold .

        The EU part was forced on the people wastn’t it ?

        Do you think the people should be given the opportunity of a referendum to decide whether they want to :-
        – revert to what they were sold in 1975 ie just continue with favourable trading arrangement a la Norway
        – continue along the path we are going ; full economic , social and political union into a U.S.E. ?

        If you don’t think people should be given the choice , could you say why please ?

  34. Denis Cooper
    Posted October 17, 2011 at 5:40 pm | Permalink

    I see that Bill Cash and others including JR have a Private Members’ Bill coming up for its Second Reading on Friday – the European Union Act 2011 (Amendment) Bill:

    “A Bill to apply the terms of the European Union Act 2011 such as to require approval by Act of Parliament and by referendum of provisions for creating a fiscal union or economic governance within the Eurozone.”

    I can’t see this Bill getting very far even against the masses of Tory and LibDem MPs who’ll obey their party whips and vote against it, whether or not Labour also decides to officially oppose it; but unfortunately I think it also misses the point because it says:

    “A treaty, European Council decision or other legal instrument of the European Union which provides for the creation of a fiscal union or economic governance within the Eurozone shall require approval by Act of Parliament and fulfilment of the referendum condition as set out in section 2(2) or 3(2) or 6(4), as the case may be, of the European Union Act 2011.”

    Once the radical EU treaty amendment already agreed on March 25th through European Council Decision 2011/199/EU:

    had come into force the relevant treaty may not even be a European Union treaty, but rather an intra-eurozone treaty like this one, the Treaty establishing the European Stability Mechanism signed just by the eurozone states on July 11th:

    Then the UK wouldn’t be a party to the treaty, there be no need for the UK to ratify it and so there would be no need for the UK Parliament to approve it with or without a referendum.

    It would all depend how far the EU member states in the eurozone could agree to go, just among themselves, by bending and stretching the interpretation of the new paragraph inserted into the EU treaties through European Council Decision 2011/199/EU agreed on March 25th, and how far the EU member states still outside the eurozone would allow the eurozone states to go before raising serious objections and threatening reprisals.

    There is nothing in that new paragraph which says anything like:

    “All measures proposed under this paragraph must be consistent with all other provisions in the treaties and laws of the Union”

    let alone anything like:

    “All measures proposed under this paragraph must be unanimously approved by the European Council prior to implementation”.

    Reply: We regard the Treaty amendment you keep highlighting as worthy of a vote.

    • Denis Cooper
      Posted October 18, 2011 at 9:46 am | Permalink

      Is it too late to table an amendment so that European Council Decision 2011/199/EU would also require a referendum?

      Or would that risk having the Speaker later pass over a similar amendment to the Bill to approve it?

      Reply: We lost those issues when the Bill went through. We are now having a vote on a referendum a wekk Thursday anyway.

  35. BobE
    Posted October 17, 2011 at 6:19 pm | Permalink

    My financial planning administrator who is in charge of my investment, along with thousands of others has informed me that they have taken a nutral position on the entire fund. This should mean almost no loss if Greece does its expected default. I presume that other funds are doing similar things. The problem with this is that no new investments are made. This will freeze the market until the outcome is clear. He thinks we are heading for a massive recession that might bring down the government. I suggest you move money to safe havens.

  36. Phil H
    Posted October 17, 2011 at 6:38 pm | Permalink

    This is a huge crisis. Its time that Neville steps down (or is removed) and Winston takes over!

    • Stuart Fairney
      Posted October 17, 2011 at 8:28 pm | Permalink

      Who is Winston?

    • Mike Stallard
      Posted October 17, 2011 at 8:30 pm | Permalink

      Baroness Ashton to the fore!

  37. Rebecca Hanson
    Posted October 17, 2011 at 9:41 pm | Permalink

    John, do you understand how widely your concerns are shared across Europe and how much interest there is in discussing, exploring and developing the practicalities of alternative solutions to greater integration?

    There are many cyberforums (and quite a few actually operate in English) where people are clearly interested in alternative but are lacking in inspiration the opportunity to discuss details. Because the UK has the experience of Black Wednesday behind it experts could make a positive contribution to practical discussion. But they will only be heard if the cut out the xenophobic elements that so many are using this crisis to justify. The argument has to be that UK relations with Europe will be stronger and more coherent is if this issue is resolve so we want to help you explore all the options. Then these views can be properly heard in dialogue with . But at the minute they barely seem to be there.

  38. Kenneth
    Posted October 17, 2011 at 10:06 pm | Permalink

    Is the Chancellor softening us up for another ‘loan’ to the IMF?

    I am not sure as the BBC is not reporting it and is still obsessed with Liam Fox.

  39. Atypical
    Posted October 18, 2011 at 12:04 am | Permalink

    Quite simple really, forget all the rhetoric and fancy language: withdraw from the EU and therefore all the billions that is being demanded of us (words left out-ed) stop now this idiotic human rights act that is allowing all kinds of ‘sillyness’ to be enacted in this country through the judiciary which is turning us (the people who actually belong here) into the laughing stock of the world, bring to heel the energy companies that are crippling the economy (Thatchers legacy of privitisation {are they owned by foreign countries as are the airports?}). Yes, the list is truly endless.
    Cabinet ministers being found out,(words left out-ed).
    Cameron has gone the way of Blair, (remember him,etc ed) sorting out the world, whilst neglecting the needs and wants of the ordinary people of this country are being neglected. Cameron is giving millions of pounds of our money to immunising the rest of the world whilst people in Scotland have to pay £15 for a flu injection. Can this be right?
    More and more money being promised to EU countries who, through their own incompetance, are going bust. (words left out-ed)
    Enough is enough. Where is our leader, our true leader, who will take us out of the mess that the Labour government, followed by the Conservative government, are leading us, downward into an ever increasing morass that there will be no return from?
    Where are you?

  40. Anne Palmer
    Posted October 18, 2011 at 10:08 am | Permalink

    With regard to the whole business of the EURO and the ends certain Governments will go to, to save it. Even our own Government. However, this affects International law doesn’t it? Without doubt, the Treaty of Lisbon has clearly and quite deliberately been breached. It has even been breached by our own Government although it was, as I understand it, done on a friendly basis re Ireland, however it was and is, still indeed a breach. There is a No Bail Out Clause. (Clause 125 Lisbon) If our own Government, along with other EU Governments have ignored the ratified EU Treaty which is lodged with the Vienna Convention on the Law of Treaties, then surely that deliberately breach would affect the whole Treaty?

    There are various interpretations on how this breach may be interpreted in the Vienna Convention, however, as some of the money that has changed hands, originally came from the people of this Country, I think this matter should be looked into more seriously on their behalf. How on earth can the people have faith in the European Union if those that instigate the Treaties cannot and/or have no intention of sticking to the rules, themselves?

  41. Chris
    Posted October 18, 2011 at 4:34 pm | Permalink

    I see that Boris has made some comments on the Euro issue – they may well resonate with many of the voters. Reported in The Independent today. apparently Mr Johnson has said:

    “I think it would be absolutely crazy to decide the solution to the eurozone crisis is to intensify fiscal union and try to create an economic government of Europe.
    “I really can’t see for the life of me how that is going to work in the long term.
    “Fundamentally, if you look at the ERM (European Exchange Rate Mechanism) experience and what is happening now, you get back to the issue of confidence. If people know the system can dissolve, then obviously they are going to wait for the moment when it does.
    “That is the fundamental, inescapable problem that we face in endlessly trying to bail these countries out.
    “It seems to me we are slightly living in a fool’s paradise at the moment.”

  42. Conrad Jones (Cheam)
    Posted October 19, 2011 at 1:32 am | Permalink

    Mr Redwood,

    Your comment:

    ” The answer to the Euro scheme is to reduce its membership, not send it more

    Yes – agrree totally.


    “The UK should say to the IMF it should stop encouraging the idea that other countries should send money to rich countries that decided to inflict so much damage on their own economies, and intend to persist with doing so despite all the evidence”

    I believe you should also have said:

    ‘The answer to the IMF scheme is to reduce its membership, not send it more

  43. Lindsay McDougall
    Posted October 19, 2011 at 12:22 pm | Permalink

    Greece’s fiscal deficit is worse this year than last because it had negative GDP growth and is on a banker’s ramp. On the present trajectory, it can not avoid default. Germany should not be expected to bail it out more, and nor should anyone else. There is only one sensible solution – force Greece out of the Euro zone, allow it inflate the new Drachma and repay its debts in clipped coinage. This is a backdoor default of limited proportions.

  44. Chris
    Posted October 19, 2011 at 1:47 pm | Permalink

    Lord Wolfson has put forward a challenge – a £250.000 prize for “a Euro break up plan”, according to the BBC. He believes that the euro may well collapse and that what is required is for the collapse to be “managed”. Key questions to be addressed in the plan include:
    How to ensure that any new currencies would be stable?
    What areas should the new currencies cover?
    What currency would government debt be paid back in?
    What happens to individuals’ debts?

    See BBC news for details.

  • 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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