The destructive power of the Euro grows

This week has seen two important developments in the evolution of the Euro. Senior European lawyers have given guidance which many see as indicating the ECB does have the power to create new money to buy up government bonds in the zone, despite heavy German opposition. The Swiss franc, which was linked to the Euro in a desperate effort to stop people fleeing the Euro to buy the Swiss franc has given up the struggle and is now being revalued against the weakening European currency. It rose by 13% on its first day of freedom, despite imposing a negative interest rate of 0.75% on deposits, such is the enthusiasm for people to switch out of the Euro.

The lawyers were not as clear as some in the press would have you believe. Whilst deciding that the ECB did need considerable autonomy in the field of monetary policy, and implying this could stretch to bond buying programmes on a scale to the Bank’s choice, they struggled more with the clear Treaty requirement that the Bank should not simply print money for European governments to spend.

Their convoluted argument accepted that the Treaty does ban lending money directly to governments in the zone. They then said two conditions had to be met to allow something like it. The first is the ECB cannot be involved in conditions and negotiations over new borrowings. The second is that the Bank cannot buy new bonds issued by a government to cover new spending, but can buy bonds already issued from someone else. This is a nice distinction which can easily break down in practice. If Government A is selling new bonds of ten years duration, and the Bank is buying old bonds also of ten years duration at the same time, there could easily be a simply swap by an intermediary from the older bond to the new one, so the Bank is very close to simply creating money to finance Government A’s expenditure. The lawyers said there had to be some timing differences and there had to be clear price formation on the new bonds before the Bank bought them up, but this still leaves some doubt on the wider issue.

However qualified the judgement may be, the spin is clear. The mood is shifting away from Germany towards allowing quantitative easing, which is an indirect way of printing money to pay for excess public spending over tax revenue by making it much cheaper and easier for government to borrow to spend more.

The loss of Switzerland from the wider area is no surprise. It is good that Switzerland still has the freedom to run its own currency, though unfortunate that it is so attractive to investors that it suffers from runs into it from the Euro with the danger that it drives up the value of the Swiss unit too much. The Swiss can’t win, either by staying within the wider Euro ambit or by leaving, but just as with the ERM the pressures within a managed European system become too great to handle.
A much bigger game is afoot. Germany may be being drawn into a lower value Euro kept going by money printing. Whilst single country currency areas have managed this process, within the Euro area it implies dragging Germany more into the role of paymaster, standing behind more of the debts of the zone. It is not what Germany had in mind. Meanwhile the delay in loosening money and the refusal to break up the zone and have economic policies which work better is dragging Euroland back into low growth and recession, and is generating mass unemployment.

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  1. Mark B
    Posted January 16, 2015 at 5:24 am | Permalink

    Good morning.

    I wonder what former German Chancellor, Helmut Kohl makes of all this. The German people were led to believe by him, that Germany would not be paymaster if they joined the Euro. I think this is a thin end of a very long wedge. A wedge that will lead the German people paying for ALL of the Eurozone. Herr and Frau Scmitt are not going to like that.

    But the EU is, and always will be, about EVER CLOSER UNION. And part of that means, financial, fiscal and political UNION. ie One people, and one nation. Which in the round, I guess is what they always would have wanted.

    • DaveM
      Posted January 16, 2015 at 8:19 am | Permalink

      I get the distinct impression that Merkel – despite the wishes of a large number of her people – would almost be happy to be Eurozone paymaster and underwriter if it guaranteed the continued pursuit of ever closer control…sorry, union.

      The majority of German people are starting to make their views fairly well known with regards to all things EU. More vocally than in this country. It looks more and more like a couple of personalities going against the wishes of the majority of the European people (or those Europeans who actually think about things anyway).

      And elsewhere, the Commission is going to publicly “tell off” Luxembourg over tax deals with Amazon during Junckers’ tenure. Be interesting to see Luxembourg’s reaction to that one. If it was Germany it’d be covered up. If it was France it’d be ignored by the French. If it was the UK Cameron would say: “yes sir, no sir, sorry sir, how much do you want sir? Oh, and please make out I refused at first because it might win me a few votes back from that pesky Ukip”.

      • APL
        Posted January 16, 2015 at 10:55 pm | Permalink

        DaveM: “Merkel – despite the wishes of a large number of her people – would almost be happy to be Eurozone paymaster”

        (S)he who pays the piper, calls the tune.

        Why wouldn’t Germany want to be in charge of the Euro zone?

        • DaveM
          Posted January 17, 2015 at 2:19 pm | Permalink

          I’m suggesting that she would happily pay out huge amounts of her taxpayers’ cash – against the wishes of her subjects – in order to prop up foreign economies just so that she can hold sway over them politically.

  2. Lifelogic
    Posted January 16, 2015 at 5:50 am | Permalink

    Indeed, and yet still all the economists, politicians, EU bureaucrats and CBI types who were wrong on the Euro/ERM/EU continue to give us their expert opinions endlessly on the BBC. Just as all the purveyors of the green crap expensive energy do.

    Indeed many are even elevated to the House of Lords for being consistently wrong.

    Matthew Paris on the daily politics yesterday (on electoral strategy) took the barmy Cameron line of continuing to take essentially the LibDum approach and ignore UKIP. The academic correctly pointed out that this was electoral suicide and going to be a complete disaster. They have to move hugely towards UKIP or they will be destroyed. Why on earth can Cameron and his “experts” not see this. They are still largely 180 degree out from the public (who are largely right) on most issues, you cannot just ignore the public and avoid these issues. No wonder he dare not debate!

    • Mark B
      Posted January 16, 2015 at 9:43 am | Permalink

      Matthew Parris may be right. Going after new votes would be key. Most Conservatives and Tories will still vote for who, or whatever is put in front of them, so long as it is wearing a blue rosette. No offence to our kind host, but I have often poured scorn on the ‘Tribal Voter’ and their negative effects on what passes as our democracy.

      • Lifelogic
        Posted January 16, 2015 at 1:29 pm | Permalink

        Well perhaps, but I would be very surprised indeed if Parris and Cameron are proved right. After all threw that last sitting duck election with his EU ratting and wet, big state, wet, greencrap approach.

        The country wants far less EU, cheaper energy, intelligent & selective immigration, lower taxes, simpler taxes, less ratting, more jobs, more road space, fewer regulations, a working NHS, decent schools and grammar schools and far smaller government. In short they want a Real Tory/UKIP line.

        After all Lady Thatcher won three elections with an increasing vote (four if you count the one Major won as her oily rag). Major was destroyed after the voters realised he was just a wet, pro EU, anti democratic, tax increasing, incompetent moderniser. Which is clearly exactly what Cameron seems to be. The Tories have not won since Major buried the party.

        Still no apology from the dreadful BBC favourite.
        A typical BBC interview question might be “Sir John, what wisdom would you like to impart to the nation today?”

        I say “more road space” as (due to two hour jam near Sevenoaks this AM) it has taken me over four hours to get from Hampstead to Tunbridge Wells this AM – just 15 MPH average speed. Perhaps I should buy a motor bike?

        • Lifelogic
          Posted January 16, 2015 at 3:04 pm | Permalink

          UKIP and the Tories have nearly 50% of the vote after all. Just a shame the pro EU, wet, green crap “Tories” types would rather lose another election than move their position to one that reflects what is right (and also the views of the electorate). Cameron dare not even debate Farage as he lack any coherent arguments.

        • stred
          Posted January 16, 2015 at 3:33 pm | Permalink

          The BBC love to have Sir John give his views, such as that Ukippers are characteristically un-English. This coming from an ex-PM who introduced French style politics to Downing Street etc ed.

    • Leslie Singleton
      Posted January 16, 2015 at 4:51 pm | Permalink

      Lifelogic–As you might have noticed, I passionately despise Cameron but it is not the case that he “dare not debate”, rather the opposite in fact, caused by his phenomenal conceit. I think his position on the Greens is perfectly logical, which is not something you will hear me say often about him. I think he should tell all TV, repeat TV, broadcasters to take a flying you know what with their screened debates, of whatever type, with all such debate being only on the Radio: I for one couldn’t care less what the debaters look like on screen. It’s like the TV News where screens (which there have to be of course on TV) are often artificially introduced fautes de mieux along the lines of, “Our correspondent, Fred Bloggs,, is outside [for example] Reading Crown Court and has this Report for us”. Such screens are useless and of course cost money.

      Reply The main point Mr C is making is one of fairness. If UKIP and the Lib Dems why not the Greens? IT is also the case that the debate will b e more interesting and different if Labour and Lib dems have to protect their green/left flank from Green party attack than if they are not under any such threat.

      • Leslie Singleton
        Posted January 16, 2015 at 4:54 pm | Permalink

        PS–Maybe no s on faute on reflection

      • Bazman
        Posted January 16, 2015 at 6:52 pm | Permalink

        The despised Green Party stance is really just him hiding in office as opposed to middle mangers who hide in their offices, in both cases to avoid having to answer questions and face their greatest fear, being talked to. Tory boy Cameron has a well known sense of entitlement to rule and this is his way of avoiding being questioned on it. The usual tantrum would be great TV though.

        • libertarian
          Posted January 17, 2015 at 1:28 pm | Permalink


          Cameron wants the Greens to take part, so he’s hardly hiding from them. He want that so that 1) They dilute the left arguement 2) He agrees with some of their crazy ideas

          Its Milliband and Clegg who are hiding.

          Oh by the way did you see this ?

          A major peer-reviewed paper in Science Bulletin, a respected academic periodical, has accused the IPCC’s climate model of being riddled with errors. The authors of the paper -‘Why models run hot: results from an irreducibly simple climate model’ – have presented a new “simple model” that suggests the doubling of CO2 emissions could warm the planet by only 1°C- significantly less than the IPCC’s predicted 3.3°C rise. Even that small level of rise has so far not happened.

          • Bazman
            Posted January 24, 2015 at 1:07 pm | Permalink

            I wonder how you would react if this was Labour and Milband. Would the yarn be the same? One report that you have found is now conclusive proof above all others. Have a think about what you are saying in both cases if you are able.

      • Denis Cooper
        Posted January 16, 2015 at 6:59 pm | Permalink

        JR, we know the true reason why Cameron wants the Greens involved, and it’s nothing to do with “fairness” and everything to do with the hope that if they do increase their support it will be diverted from Labour much more than from the Tories. Devious, of course, but then I myself have suggested in the past that rather than slagging off Clegg and the LibDems it would be better for the Tories to subtly big them up, for the same reason!

        • Lifelogic
          Posted January 16, 2015 at 10:26 pm | Permalink

          The greens would also support Cameron’s absurd and job destroying expensive energy religion and subsidies. Thus helping to protect him from the very sensible Farage/UKIP line on energy.

          Cameron certainly needs protection on this issue (if he ever does pluck up the courage to enter the debate). As indeed he does on:- open door unselective immigration, his IHT & Cast Iron ratting, his fake EU long grass renegotiation, grammar schools, the dysfunctional NHS, oversees aid, his 299+ tax increases and nearly every other lefty policy he foolishly supports.

        • Richard1
          Posted January 16, 2015 at 10:37 pm | Permalink

          I have more respect for the greens than the libdems or Labour. If leftists really think the world is going to hell in a handcart due to global warming caused by capitalism – and Miliband seems to based on the climate change act and his latest call for more subsidised windmills – then green policies have more intellectual consistency. Many greens also support the optimal population trust which believes we should have 20m people not 60m in the uk. Who’s on the list of 40m for the chop? I fear I would be.

          We need the greens therefore, and perhaps the SNP so left leaning people have a proper choice of left wing parties.

          • Denis Cooper
            Posted January 17, 2015 at 2:43 pm | Permalink

            If the SNP wish to join in offering that proper choice then they need to do so in more than the 59 seats in Scotland. But as there will be no SNP candidate standing in the 591 other constituencies it would just be an imposition on viewers in the rest of the UK to have Sturgeon taking up part of the limited time arguing why they should vote SNP when they cannot do so. Of course there could be separate debates televised just in Scotland for the benefit of the Scottish electorate, and the SNP could have their say where it would be relevant and could possibly make a difference rather just gratuitously annoying people outside Scotland.

      • Lifelogic
        Posted January 16, 2015 at 7:07 pm | Permalink

        Cameron against Farage would be demolished. Even more than Clegg was. This as Cameron pretended to be an EU sceptic but ratted on his supporters through the last election and became a pro EU, green crap, 299+ tax increasing, IHT ratting Libdum. He would just look absurd. He has even missed the main issues (for the electorate) off his list of six “themes”.

        The last national election was:
        UK Independence Party 1st 24%
        Labour 2nd 20%
        Conservative 3rd. 19%
        Greens 3%
        Scottish National Party 2%
        Liberal Democrat 6.87%

        So we have three large parties (the Tories being the smallest) by votes and three rather irrelevant, minor & regional ones. The question is why are the Libdums to be included at all? It should be a three way debate.

        Then again Labour and Cameron’s Tories are so close on everything it is almost a two way one. Also if we want a debate of substance you will not get one with LibLabCon as they are virtually all the same. All tax, borrow and piss down the drain, pro EU, big state, greencrap merchants.

        • Richard1
          Posted January 16, 2015 at 10:44 pm | Permalink

          Cameron has an excellent argument against farage which will surely get much the greatest support at the election: the EU doesn’t work at the moment for the UK but we want access to the European market. Let’s have a crack at renegotiation and if we don’t get to where we want then there’s a referendum backstop in 3 years. The large majority or people will not support an immediate exit due to the risks (real or imagined). Cameron’s arguments will have much more electoral resonance than farages on this therefore. What Cameron quite reasonably wants is the left lunatic fringe in the form of the greens and maybe the snp show up so labour and libdem voters get a more ‘radical’ option. Its democracy after all 🙂

          • Denis Cooper
            Posted January 17, 2015 at 2:46 pm | Permalink

            So that’s your idea of “an excellent argument” … well, Cameron could try it out and Farage could give it the short shrift it deserves.

        • bluedog
          Posted January 16, 2015 at 11:54 pm | Permalink

          ‘Cameron against Farage would be demolished.’ Questionable. Remember that Cameron commands the House of Commons, where Farage has yet to sit. If Cameron is properly briefed and not entrapped by his own ideological limitations he would probably trump Farage. Cameron should not be underestimated.

      • fedupsouthener
        Posted January 16, 2015 at 7:30 pm | Permalink

        Sorry John but from where I am coming from Cameron, Clegg/Davey and Miliband all sing from the same hymn sheet when it comes to ‘green’ energy and all that crap. There is not a fag paper’s difference between them all. We have been taken to the cleaners with ‘green’ taxes which mean nothing at all, just another way to get money out of the public whilst pretending that all this junk ‘green’ energy is saving the planet. All it’s doing is making a few lazy farmers and landowners (many who are already rich) very rich and millionaires overnight for doing absolutely nothing but bleed the housewife dry!! Sensible people who can see right through this crap are fuming and we expect the Tories to do the right thing and not cow-tow to the Greens. We must have a change in direction because UKIP are actually the only party to see sense over this.

        • Lifelogic
          Posted January 16, 2015 at 10:31 pm | Permalink

          Exactly it is indeed clearly a scam to extort money from tax payers and fuel bill payers and divert it into artificial and uneconomic nonsense and fake “green industries”.

          Rather like HS2 in fact.

        • Lifelogic
          Posted January 17, 2015 at 12:01 pm | Permalink

          Indeed every decent power engineer and physicist knows that Green Energy is pure economic nonsense with current technology.

      • turbo terrier
        Posted January 16, 2015 at 7:42 pm | Permalink

        Reply to reply.

        Where does it stop John? Next it will be the Welsh, Irish and Scottish parties and they would dearly love to screw us to the floor to get their own short sighted way. The main players are Milliband and Cameron.
        There is not a fag paper difference between them so why do the media bother? At the end of the day all the time they stay at the top of their respective tables the UK does not have a hope in hell of realising our full potential

      • Leslie Singleton
        Posted January 16, 2015 at 8:10 pm | Permalink

        Reply to Reply–Thanks but I had in fact fully understood where Cameron is coming from, which is why I said “perfectly logical”. He should stand his ground of course.

        • Leslie Singleton
          Posted January 16, 2015 at 8:13 pm | Permalink

          PS–Whether he is doing it to be “fair” is another story of course

      • Andy
        Posted January 18, 2015 at 8:56 pm | Permalink

        Reply – Sorry John but the real reason Cameron doesn’t want to debate is that there is no advantage to him in doing so, just as there wasn’t last time if the truth were known. If I were him I would avoid it at all cost.

    • Bazman
      Posted January 16, 2015 at 6:50 pm | Permalink

      We will see how the average voter who has to live with the consequences of UKIPs and your deluded right wing world view of cuts to public services to fund unfunded tax cuts for the rich and their corporations and ever larger profits for state subsidised companies such as energy. This on top of fewer rights in the workplace and lower wages will be political suicide just to get a few geriatric right wing voters on board who often do not live in this country and certainly do not work.

      • Edward2
        Posted January 17, 2015 at 10:23 am | Permalink

        Strange then how UKIP has been winning many votes from former Labour supporters if what you say is right.

      • libertarian
        Posted January 17, 2015 at 1:37 pm | Permalink

        I couldn’t care less about the politics as all the parties are the same in my view.

        I do care about the muddled, deluded thinking of people such as yourself Bazman.

        1) There is no such thing as unfunded tax cuts

        2) Ever larger profits results in MORE tax revenue to fund public services and MORE investment in new jobs and MORE ability to provide wage increases for workers

        3) Not one political party has a manifesto promise to remove any workers rights, not one political party has talked about removing or downgrading workers rights

        4) All political parties are committed to ongoing increases in national minimum wage

        Ever thought of joining the 21st century Bazman & ditching the Dave Spart schtick

        • Bazman
          Posted January 24, 2015 at 1:16 pm | Permalink

          No such thing as an unfunded tax cut and more profits mean more tax? Get real since when has that been so, in you own deluded reality? Tax cuts/havens and cuts in services ring any bells?
          The Conservatives have been talking about revising strike laws for nearly a year, but have been forced to put their plans into the manifesto rather than legislation because of Liberal Democrat opposition.
          The Tories are considering two strike threshold options. Under the first, backed by Johnson and Gove, a strike could only take place if it was supported by a majority of the entire membership, not just those who vote. Under the second, a minimum turnout of, for example, 60% would have to take part, regardless of how they voted.
          This will of course not apply to their MP’s majorities they are in effect trying to normalise low pay and poor conditions.
          They may find that this lead to many giving them a strike they understand and there can only be so many replacements as we know that the job has to attract the right people with adequate pay and conditions does it not. A race to the bottom in effect.

  3. Mike Stallard
    Posted January 16, 2015 at 5:56 am | Permalink

    A question:
    Germany only entered the Euro on condition that the ECB would behave responsibly. This was, of course, guaranteed. What a load of qualifications since then! It seems to me that, like my grandson playing Monopoly, the EU grandees make the rules up as they go along.
    Well, if you cannot beat them, why not join them? Two merry fingers to all those rich lawyers and a declaration by our sovereign parliament that we are going to leave and apply to join EFTA? There is a lot at stake and we ourselves may very well eventually be dragged reluctantly into every closer union with the disastrous Euro and the disastrous Eurozone.
    Mr Cameron will do this? Mr Miliband will do this? Mr Clegg will do this? Ms Lucas of the rapidly growing Green Party will do this?
    Perhaps not…

    • Lifelogic
      Posted January 16, 2015 at 10:57 am | Permalink

      It the Greens do get to appear in any election debates will we get the totally scientifically deluded, but very pleasant Caroline Lucas or the equally deluded and rather unpleasant, nasty Natalie Bennett and her politics of envy I wonder?

      If I were them I would certainly go for the former.

      • Bazman
        Posted January 16, 2015 at 7:28 pm | Permalink

        Why is she scientifically deluded. She does not subscribe to your nuclear views and wants wind instead?

        • Lifelogic
          Posted January 16, 2015 at 10:51 pm | Permalink

          Well she apparently Ms Lucas read English at Exeter later gaining a PhD thesis entitled Writing for Women: a study of woman as reader in Elizabethan romance. Ideal training for the design of energy systems.

          Also I have heard her talking. The solutions she proposes simply will not work, unless she can change the laws of physics and economics that is.

          She is not exactly Richard Feynman, Freeman Dyson or Richard Lindzen is she. Not even a half competent engineer. Does she have a basic grasp of physics even at GCSE level?

          Perhaps she is brilliant at Writing for Woman & Elizabethan romance, I would not know. Hopefully the taxpayer did not have to fund all this romance reading.

        • Lifelogic
          Posted January 16, 2015 at 11:09 pm | Permalink

          Would you want to fly on an aeroplane designed by the leaders of the Green Party?

    • Denis Cooper
      Posted January 16, 2015 at 10:59 am | Permalink

      “Well, if you cannot beat them, why not join them?”

      But just as far as this particular matter is concerned it is more a case of them joining us; the Labour government got the Bank of England to start creating new money to buy up previously issued government bonds in early 2009, before the ECB started to do it; and for the same purpose – to make sure that the Labour, and later the coalition, government didn’t run out of money to pay its bills – and with similar restrictions – in deference to the EU treaties the Bank did not buy gilts direct from the government, and it also had a rule about not offering to buy up a given class of gilts from investors until a certain period had elapsed from its issue by the Treasury – and under a similar set of pretexts – “averting the threat of deflation and fulfilling the inflation objective set by the Chancellor”, “ensuring the effective transmission of its monetary policy”, “injecting liquidity into the system to stimulate the economy”, “keeping interest rates low” – you can take your pick what excuse you prefer, but as with the ECB now it all boiled down to making the central bank a kind of captive investor in government bonds to indirectly help fund the government budget deficit, supplementing or replacing the increasingly wary normal, predominantly private sector, investors in government bonds.

  4. Gary
    Posted January 16, 2015 at 5:57 am | Permalink

    Representatives from the UK, the country with the largest total debt to gdp in the G20, advises the EU to print money! ?

    I know what I would do with that advice.

    Of course, we know where Draghi’s career comes from, so they will print.

    He should be getting his advice from Zimbabwe, they abandoned printing.

  5. Sandra Cox
    Posted January 16, 2015 at 7:22 am | Permalink

    John, I’m really pushed for time right now so no time to think through issues in any depth, but talking of destruction, I found this when pruning my notes the other day; I can’t find the source at moment, but it relates to some of your recent articles:

    “The EU’s determination to cripple our industry and economy with punitive energy costs is not symptomatic of stupidity. It is a policy intended to facilitate economic growth in the Eurozone by crippling the Eurozone’s competitors.

    We need to understand that so that the appropriate responses can be made.

    On a related note: I’m a barrister practising in commercial law and one would perhaps have expected that my legal research primarily involved the common law, the collection of centuries’ worth of accumulated wisdom. Unfortunately, more and more of my job is taken up researching the latest EU directives which are invariably poorly drafted and have little or no guidance. In numerous areas we have replaced a clear and carefully developed rule, with an unclear and bizarre rule that is designed to suit France or Germany. When you dig even deeper you find out that the rule is often applied differently in each country and each case (since most European countries do not have a system of precedent).

    In other words, the EU is not content with ignoring the rule of law itself, it is actively seeking to undermine the rule of law that we have established ourselves, at great cost to British companies who have to try and comply. This is one of the many ‘unseen’ costs of EU membership.”

    Just a reminder of just who and what we are dealing with – in Westminster and in Brussels!

    • turbo terrier
      Posted January 16, 2015 at 9:46 am | Permalink

      Absolutely correct Sandra.

      Lived in Spain and as you say they hear it all nod their heads in agreemant then everybody goes off and carries on as before.

      It is a total wind up, and it is a sign of the lack of strength and understanding that our elected representatives cannot or will not see it.

      Our host and his self minded band of brothers must despair to where this is all going.

    • Mark B
      Posted January 16, 2015 at 9:51 am | Permalink


      I confess I envy you. You are undertaking a profession that I myself would have loved to have done. Good luck. But I hope to never be in a position to call on your services,etc

      The EU is indeed replacing our law. It is also removing the right of freedom of the individual. One day soon, we will not be allowed to do this or that without the necessary paperwork. This will create a large and corrupt bureaucracy much like that on the continent. State employees will become the new rich. Oh wait, some of them already are !

      The EU policy on trade involves sharing. They do not set out to deliberately destroy but, like all Socialist Utopias, spread the wealth, usually through taxation and regulation. The least cost effective method.

      • Sandra Cox
        Posted January 17, 2015 at 9:43 am | Permalink

        Hello Mark and Denis,

        Thank you for your comments, and apologies for any confusion – regrettably, I’m not a legal eagle – I was quoting from the experiences of a practising barrister who deals with the immediate impact of EU regulations.

        I am rather pushed at the moment and have had not had time to put many original comments together recently. Rather than drop out of contributing to John’s diaries completely, I occasionally use extracts of letters I’ve written to my MP or snippets I’ve read elsewhere that I think others might be interested in. Kind regards, Sandra

    • Denis Cooper
      Posted January 16, 2015 at 12:46 pm | Permalink

      As a barrister practising in commercial law, have you ever considered whether the currently established law of agency may be relevant to central bank purchases of bonds previously issued by a government, when the real underlying purpose of the exercise is for the central bank to indirectly help fund the budget deficit of the government in circumvention of a legal prohibition on the central bank helping to fund that budget deficit directly?

      Because the expenditure of the government exceeds its revenues it is necessary for the Treasury to borrow money to make up the shortfall, and to that end it sells bonds, gilts, to investors; under the EU treaties as approved by Acts of Parliament the Bank of England is prohibited from purchasing any of those gilts directly from the Treasury; therefore the Bank purchases them indirectly, inducing investors to buy new gilts from the Treasury in the knowledge that the Bank will subsequently offer to buy those gilts, or equivalent gilts, from the investors; which investors are therefore in effect serving as intermediaries to circumvent the legal prohibition on the Bank itself making direct purchases of gilts from the Treasury, or perhaps even in effect as agents to the Bank as principal?

      In the press release on the Opinion of the ECJ Advocate General:

      this issue is fudged as follows:

      “As regards the second question referred for a preliminary ruling, which concerns the prohibition of monetary financing laid down in the TFEU, the Advocate General considers whether the OMT programme, in permitting the ECB to purchase on secondary markets bonds of euro area States, infringes the prohibition on purchasing debt instruments directly from the Member States. He observes that that prohibition is a fundamental rule of the “constitutional framework” which governs economic and monetary union and that exceptions to it must therefore be interpreted restrictively. The TFEU does not prohibit transactions on the secondary market (since if it did the Eurosystem would be deprived of a vital tool for the ordinary conduct of monetary policy), but it does require that, when the ECB intervenes on that market, it does so with sufficient safeguards to ensure that its intervention does not infringe the prohibition of monetary financing.

      The Advocate General considers that, although implementation of the OMT programme may to some extent inevitably act as an incentive to investors to purchase bonds on the primary market, the ECB will proceed with particular caution when intervening on the secondary market, in order to prevent speculative behaviour that would severely undermine the efficacy of the OMT programme. It is essential that this incentive to purchase bonds should not be disproportionate in relation to the objectives of the measure.

      Finally, the Advocate General observes that, in order to comply with the prohibition of monetary financing, the OMT programme will, in the event of its being activated, have to be implemented in such a way that a market price can form in respect of the government bonds concerned, so that there continues to be a real difference between a purchase of bonds on the primary market and a purchase on the secondary market (given that a purchase on the secondary market made seconds after the issue of the bonds on the primary market could completely blur the distinction between the two markets).

      Advocate General Cruz Villalón thus concludes that the OMT programme is compatible with the TFEU, provided that, in the event of the programme being implemented, the timing of its implementation is such as to permit the actual formation of a market price in respect of the government bonds.”

      Well, that’s nothing, so much obfuscation; given that Mario Draghi has publicly proclaimed that the ECB will do whatever it takes to preserve the eurozone intact, with no set limit on the volume of bond purchases under OMT, obviously there can be no possibility of “sufficient safeguards to ensure that its intervention does not infringe the prohibition of monetary financing”, that would contradict the ECB’s stated policy; and this lawyer has no way of knowing whether or not the ECB “will proceed with particular caution when intervening on the secondary market”; and obviously the incentive for investors to purchase bonds will not be “disproportionate in relation to the objectives of the measure”, as the ECB will create as much incentive as may be required to ensure that the governments of distressed eurozone states will not run out of money to pay their bills, that is the primary objective of the OMT measure; and the ECB holding off from buying up a particular bond for some weeks or even months after its original issue counts for nothing if its agents – if that is how the various bond investors who are prepared to act as co-operative intermediaries should be described – know that if they buy them on issue the ECB is sure to offer to take them off their hands in due course, and in the meantime it will be buying up similar or equivalent bonds that were issued earlier.

      • acorn
        Posted January 16, 2015 at 6:54 pm | Permalink

        Denis, I don’t remember you jumping up and down when Draghi’s Securities Market Program was brought in by the ECB in May 2010? That involved it buying public and private debt in massive volumes, but it didn’t have to. The mere threat made Bond market vigilantes, dive into the nearest hole and put up the white flag. OMT is the same with a different name.

        The ECB can buy (swap) any EZ country debt, as much as it likes, it is the Euro currency issuer. The Treaty allows this via secondary markets, so that the Spiv City of London can make large bonuses moving government money from the Treasury to its Central Bank and back again.

        The ECB can eliminate any problems with bond markets and higher yields; it will never run out of Euro. The ECB can guarantee the solvency of any EZ country implicitly, without breaking any EU (fiscally stupid) rules. Quantitative easing will be a waste of time and will just result in higher Equity prices.

        • Denis Cooper
          Posted January 17, 2015 at 11:26 am | Permalink

          Maybe that’s because I never jump and down, I only ever provide a calm and measured, if sometimes over-detailed and rather boring, commentary.

          It seems you haven’t noticed the many occasions over the past five and a half years when I’ve quietly questioned the legality of various policies and actions of the UK government, including QE, and with respect both to the EU treaties and UK domestic law, and similarly for policies and actions of EU institutions including the ECB.

    • forthurst
      Posted January 16, 2015 at 3:43 pm | Permalink

      “The EU’s determination to cripple our industry and economy with punitive energy costs is not symptomatic of stupidity. It is a policy intended to facilitate economic growth in the Eurozone by crippling the Eurozone’s competitors.”

      A comparison of electricity costs demonstrates that Germany’s cost of electricity is higher than the UK’s.

      The AGW hoax is about wrecking Europe. Never underestimate the congenital idiocy or duplicity of the political class. As to Merkel, it is as difficult to understand the mindset of someone brought up in the Bolshevik terror state, as it will be to understand the generation of children passing through our schools now, in which it is considered seemly for little children to know “what do lesbians do”.

      “In numerous areas we have replaced a clear and carefully developed rule, with an unclear and bizarre rule that is designed to suit France or Germany.”

      A slight generalisation, however, in general, we English evolved a system of law largely based on the rules of cricket; it is noteworthy that Continentals do not play this game although they have shamelessly expropriated many other games that we have invented. In general, Continentals, as do others (etc ed), believe that rules exist for others to obey in order that the former may derive an unfair advantage over the latter; this also applies to some who live here, who are not in point of fact English, who have in fact brought about changes in our law to benefit themselves to the gross disadvantage of the English, such that it is only the English who appear to get locked up for thoughtcrime despite the far more egregious, supremecist and provocative utterances of others.

      • M Davis
        Posted January 16, 2015 at 7:47 pm | Permalink

        I notice no comments are allowed on this particular Telegraph post. I wonder why? Surely it couldn’t be that the majority of readers would be absolutely incensed by this type of behaviour by Ofsted?

        I am sick to the back teeth of children being force-fed Socialist propaganda in schools. I would advise parents to look into home schooling, purely because of this brainwashing. And all this under a CONservative Government! No wonder they have lost many voters, including me.

        • Lifelogic
          Posted January 16, 2015 at 11:05 pm | Permalink

          Indeed it seems that Nicky Morgan last year “required schools actively to promote “British values” including democracy, liberty and tolerance.” Endless lefty drivel, religious indocrination, EU promotion and fake green crap science in schools and exams too.

          Meanwhile the coalition is destroying any residual democracy with submission to the EU, destroying liberty with legal protections for irrational belief systems and constant further invasions of privacy.

          Tolerance can be good or bad, it rather depends on what is being tolerated.

    • Kenneth R Moore
      Posted January 16, 2015 at 4:02 pm | Permalink

      Well said Sandra.

      The Eu is largely misunderstand. It is not as it is through incompetence or mismanagement.. or in need of reform for it is working as intended for those that designed it.
      German and French eyes looked enviously at the British record of Engineering excellence, self sufficiency and of a happy stable nation with excellent energy and food resources . They decided since they had only partially destroyed us during the Great wars , they would get the British establishment to do their own work and get them to destroy us from within. In a nutshell, that is the EU project.

  6. Peter van Leeuwen
    Posted January 16, 2015 at 7:23 am | Permalink

    Evolution maybe, but why destructive?
    Germany is more than the AFD and the continent is more than just Germany. Also, quantitive easing is not unheard of in the UK, and doesn’t London support some less wealthy regions in the UK?

    • JoeSoap
      Posted January 16, 2015 at 7:49 am | Permalink

      You don’t call enormous unemployment in southern Europe destructive?
      Or Greeks on the edge of a financial precipice?
      Or the Swiss caught between being unable to export or buying Euros like crazy so they can still sell to Germany?
      What will it take for you to understand what is going on?

      • Peter van Leeuwen
        Posted January 16, 2015 at 3:19 pm | Permalink

        @JoeSoap: If the Greeks had blamed their misfortune on the euro rather than other factors, they would have left the euro. They might still do so after the impending elections but as I understand it, also the new anti-establishment Syriza party doesn’t want to leave the euro. A weaker euro, some QE and some investments may all help Greece, which is already back on a path of growth with a slowly reducing (high) level of unemployment.

        • adams
          Posted January 16, 2015 at 6:41 pm | Permalink

          Peter , yup the Greeks are doing so well that they are going to default on their debt sometime this year . It will not be called default though that would scare the horses . How about Quantitative teasing ?

          • Denis Cooper
            Posted January 17, 2015 at 11:11 am | Permalink

            Yes, one does wonder how many times what is in reality a default can be relabelled as a voluntary restructuring.

    • Mark B
      Posted January 16, 2015 at 9:55 am | Permalink


      Take Germany put of the equation, and the main burden of paying the Eurozones bills would fall on the Netherlands. Which I think is a great idea ! As a fully committed EU thingy, I am sure you would not mind having your taxes raised, you bank account raided and your own infrastructure reduced to help the less efficient, and corrupt ?

      • Peter van Leeuwen
        Posted January 16, 2015 at 3:24 pm | Permalink

        @Mark B: You obviously don’t take me very seriously, but from my perspective all this QE will not be as dramatic as you think. Both Dutch and Germans have large export markets inside the EU, which will benefit if “the South” will be doing better. Next to the North helping the South in the EU, there is still a measure of leverage over structural reforms in those countries doing less well.

    • REPay
      Posted January 16, 2015 at 2:28 pm | Permalink


      Yes, the UK does support less wealthy areas. It is one country. The Germans were sold the euro on the basis it would not be a transfer union. If you have democracy, you need a demos, I would argue the EU is a long way from having a genuine demos. Does Germany (and the Netherlands and other well run countries) have to endlessly prop up profligate governments – e.g. Greece under PASOC?

      The monetary union will accelerate an EU government…to the detriment of democracy.

      • Peter van Leeuwen
        Posted January 16, 2015 at 11:12 pm | Permalink

        @REPay: The monetary union will lead to more EU integration, I agree, not necessarily a government as in the national sense. The EU is and will remain a hybrid of intergovernmental and supranational cooperation. I don’t see this going to the detriment of democracy. Already now the European parliament (only one of the layers in democracy) is a better reflection of the variety in public opinions among the peoples of the EU than the Westminster parliament correctly reflects the variety of opinion among the British people, at least that is how I see it.

  7. stred
    Posted January 16, 2015 at 7:23 am | Permalink

    The lawyers were not as clear……

    Are they ever? Do lawyers like money?

  8. Margaret Brandreth-J
    Posted January 16, 2015 at 7:40 am | Permalink

    It is perceptual and designed to be, for flexibility and lawyers wouldn’t stand a chance without it. When is a bond old or new? when is something part of contract or essentially subcontracted? When is something worth buying at a loss to eventually make a conquest ? I can’t see the Swiss bankers falling though.

  9. JoeSoap
    Posted January 16, 2015 at 7:53 am | Permalink

    The next logical step has to be for Germany to leave the Eurozone or split it in two – which will relieve it of obligations to the southern half.
    Now that the strongest member of the Euro-linked club can’t stand the pressure, it can surely only be a matter of time before the Northern or Core Euro is established?

  10. Steve Cox
    Posted January 16, 2015 at 8:14 am | Permalink

    Germany would probably be the biggest beneficiary of a lower Euro given its dependence on exports. If all those Mercedes and Audis and BMW’s, not to mention machine tools and white goods, become 20% cheaper in the UK and US (and elsewhere outside the Eurozone) due to a devalued Euro resulting from QE then one would think that the Germans ought to be cheering. Their nightmare must be a break-up of the Eurozone leaving them with a much more valuable currency and much more expensive exports that would wreck their current Wirtschaftwunder. For all their concern about sound money and fiscal prudence if QE was to actually work and stimulate the whole Eurozone economy then that would surely be good for Germany too. ECB QE seems like a win-win situation for Germany to me.

  11. Bert
    Posted January 16, 2015 at 9:26 am | Permalink

    Germany can now enjoy the full benefits of its EU membership by having its reserves exposed to the full weakness of the union . The upside is its exports will be cheaper to the buyers of its products , the downside is its savers will see their wealth exposed and weakened . This balance is tested by the recent decision to release the ECB from German control ; it will be interesting to see how the Germans react . Southern areas of the EU will rub their hands in glee if Germany surrenders .

  12. formula57
    Posted January 16, 2015 at 9:42 am | Permalink

    “…quantitative easing, which is an indirect way of printing money to pay for excess public spending over tax revenue by making it much cheaper and easier for government to borrow to spend more” – that is not what Mervyn King told us!!!!

    • Denis Cooper
      Posted January 16, 2015 at 1:44 pm | Permalink

      Not what King told us, or what Darling told us, or indeed what Osborne told us after his initial, premature and never repeated, outburst in January 2009.

  13. formula57
    Posted January 16, 2015 at 9:50 am | Permalink

    Should we in the UK not rejoice that putative ECB action in the near future will place “..Germany more into the role of paymaster, standing behind more of the debts of the zone” since that may see extra economic activity by Eurozone countries, thereby benefiting us?

    • Peter van Leeuwen
      Posted January 16, 2015 at 3:57 pm | Permalink

      @formula57: I agree with you. The UK (and for that matter any country outside the eurozone) will benefit from better performing weak eurozone countries.

  14. Bernanke_lives
    Posted January 16, 2015 at 10:12 am | Permalink

    It would have helped if the moron western media had described US Fed balance sheet operations accurately. There was some Treasury bond buying, but the majority was the purchase of ‘prime’ mortgage-backed securities. Bernanke tried over and over to convey this credit-easing operation to the media. But the media were too taken with calling things QE for some reason.

    It is not necessary to fund government imprudence over spending in order to ease credit conditions by central bank balance sheet operations. The trick is finding suitable private sector bonds.

    • Gary
      Posted January 16, 2015 at 12:28 pm | Permalink

      The BOE bought gilts, the Fed bought TBonds during QE. The bonds were repurchases of bonds that were already out in the market.

      The central banks can and probably did buy all sorts of other stuff, like mortgages and even shares.

    • Denis Cooper
      Posted January 16, 2015 at 1:33 pm | Permalink

      As I recall the Fed wasn’t buying US government bonds as part of its QE until it decided to copy what the Bank of England was doing, and apparently it ended up owning something like 12% of all the government bonds in issue, much less than the corresponding fraction for the Bank.

      Of the first £200 billion of new money created by the Bank under the Labour government only about £2 billion was spent on purchasing private sector assets, far less than Darling had said in the letters of authorisation he sent to King, with £198 billion spent on buying up gilts.

      As I read the Bank’s excuse was that it had been unable to find suitable private sector assets available in sufficient volumes, but in reality what ostensibly started out as a scheme for the Bank to improve liquidity in financial markets through asset purchases funded by existing money lent to it by the Treasury had quickly morphed into a scheme for the Bank to indirectly fund the Labour government’s budget deficit in the year leading up to the general election.

      In the second programme of QE under the coalition government all of the £175 billion of new money was used to buy gilts to help fund the budget deficit.

  15. Mike Wilson
    Posted January 16, 2015 at 10:14 am | Permalink

    Does this mean cheaper BMWs for us? Every cloud eh?

    • ChrisS
      Posted January 16, 2015 at 1:09 pm | Permalink

      But think of the effect on our exports :

      Jaguars, Range Rovers and Land Rovers will be more expensive as will as Nissans, Toyotas, Hondas and all the engines made in Wales for Fords.

      However this is most definitely NOT an argument for us joining the Euro.

  16. oldtimer
    Posted January 16, 2015 at 10:15 am | Permalink

    Another salami slice of power for the EU vs the nation states within the EZ. The question, to which I do not have an answer, is how will the German establishment respond? Politically it will, I imagine, reinforce those in Germany who want to get out of the EZ.

  17. Tad Davison
    Posted January 16, 2015 at 10:27 am | Permalink

    It’s a pity more people in politics didn’t have your grasp on things John. A lot of us could see this coming, but not it seems, the people in Parliament.

    For me personally, the most frustrating thing is to point out to these people where this EU experiment is likely to go wrong, and for them not to understand the dangers, and just sit on their hands or go along with the safety of the party line.


    • fedupsouthener
      Posted January 16, 2015 at 11:56 am | Permalink

      The dangers of the EU will not bother the likes of Clegg, Cameron and Miliband because they’ll just become another cog in the EU parliament and reap the benefits of high incomes and pensions while the rest of us suffer the consequences of their actions.

    • Mike Wilson
      Posted January 16, 2015 at 1:16 pm | Permalink

      The ‘people in Parliament’ are lapdogs. We are run by an executive.

  18. Narrow Shoulders
    Posted January 16, 2015 at 10:54 am | Permalink

    The Swiss franc, which was linked to the DM in a desperate effort to stop people fleeing the Euro to buy the Swiss franc has given up the struggle

    Freudian Mr Redwood?

    The lawyers do seem to have taken a logical step. The Euro is a Fiat currency and can therefore be printed by its central bank. European banks have been creating Euros since its inception and Germany held no objections. What is the difference who creates them out of thin air.

    The sooner this whole deck of cards collapses the sooner we can start our future.

    • acorn
      Posted January 16, 2015 at 12:59 pm | Permalink

      The Swiss Franc was capped against the Euro to prevent Swiss exports to the EZ dropping as the Euro dropped; “fleeing the Euro” was a minor side show.

      Swiss exports are tending to go to the far east now; less to the EZ, so for a while the US Dollar / Swiss Frank exchange rate is becoming more significant than the Euro rate.

      • Narrow Shoulders
        Posted January 16, 2015 at 3:07 pm | Permalink

        So “country looks after its own interests” move along nothing to see here.

        If only the UK government would look after its own interests with regard to Europe instead of being Europe’s patsy.

  19. alan jutson
    Posted January 16, 2015 at 11:28 am | Permalink


    Thank you for your clear explanation of this potential financial nightmare.

    Clearly with your in depth knowledge of the Banking system, how it works, how it should work, and how it can/could be manipulated, is all rather worrying.

    Given the points you raise, such possible manipulation should be a real concern to the governments of all members of the EU, if only they were not complicit with its set up by either design or ignorance.

    The simple fact is once you start trying to be clever with creative accounting in its many forms, it is difficult to draw the line between what is deemed to be acceptable, and what is in all but name, simply fraud.

    The Accounting of money should be a fairly simple affair, as it involves simple mathematics.

    Borrowing is also reasonably simple, you borrow (secured or unsecured) at an agreed rate of interest, for an agreed number of years, and you simply either keep up the payments or fail to do so and incur penalties, which were agreed in advance.

    Once anybody starts to want to manipulate or be clever with complicated schemes, alarm bells should ring loud and clear.

    What a shame our Government cannot stand on their moral high horse and expose the EU for such actions, because they are guilty of the same or similar offences.

    The saying, “a fool and his money are soon parted” really does apply to most politicians (yourself excluded) and Governments no matter what their colour.

    The real sad fact is, it is not their money and debt, but ours.

  20. ChrisS
    Posted January 16, 2015 at 12:08 pm | Permalink

    We must surely be approaching the long-overdue end game for the Euro.

    The German Constitutional Court will have to stop sitting on the fence and make a ruling over QE. Unless they give in to overwhelming pressure from Frau Merkel and the rest of the leaders of the Eurozone they will rule it illegal for Germany to become involved in QE. After all, that’s what German law says.

    This will cause immense problems for the Eurozone because it finally force them to confront reality :

    Everybody knows but has chosen to ignore the awkward fact that there is no support in Germany for taking on the debts of the ClubMed countries. Nor is there support almost anywhere for full, integrated budgetary control from Brussels. This is especially true of protectionist and deeply uncompetitive France which is one of the EZ countries that needs it most !

    Without collectivised debt and strict budgetary control from Brussels, the Eurozone is fatally flawed but the political dreamers who thought up the whole project always knew that. It’s just that they thought they could “convince,” or more likely drag, the electorate kicking and screaming as they went along.

    Well, we all know what happened to that plan !

    • Denis Cooper
      Posted January 16, 2015 at 2:01 pm | Permalink

      On past form the German Constitutional Court will capitulate.

      It will do so with mild protests and with vague caveats, but nevertheless it will bow to the EU court which the German constitution has long ago recognised as being in principle the supreme authority on the interpretation of the EU treaties, and as evinced just by its step of referring these questions about the legality of the OMT under the treaties to that court for its decision:

      “Request for a preliminary ruling from the Bundesverfassungsgericht (Germany) lodged on 10 February 2014 — Peter Gauweiler and Others”

      A higher court does not request a lower court to rule on questions of law.

      • Monza 71
        Posted January 16, 2015 at 6:51 pm | Permalink

        Denis, I suspect you are right and the German Court will give in.

        That outcome will do nothing to solve Merkel’s problem, in fact it will make things worse. The German population remains steadfastly dead against collectivising the debt, QE and transferring German budgetary control to Brussels.

        All along the people have been hoping that their Tante Angelika and the Constitutional Court would protect them.

        It seems that absolutely everything including constitutional principles have to be sacrificed on the alter that is the EU.

        What an utterly disasterous situation they have all got themselves into.

        Unless we can overcome the entire establishment here and persuade the people to vote to leave, sooner or later Brussels we ensure that we are
        backed into a corner from which we cannot escape.

  21. Brian Tomkinson
    Posted January 16, 2015 at 12:10 pm | Permalink

    Come what may, your leader will do all he can to ensure that the UK remains imprisoned in this mad house enthusiastically supported by the majority of your MPs, Labour, LiB Dems, SNP and Greens.

    Posted January 16, 2015 at 12:29 pm | Permalink

    “The destructive power of the Euro grows” sounds like a typical newspaper Shock-Horror headline without much meat behind it. But not so in this case.
    I believe there will be more EU countries jumping ship liker Switzerland. Ms Lagarde Chief of the IMF when asked yesterday about Greece and whether it would decide to get out of the Euro replied curtly: “Greece can’t…. We’ll have to have some negotiations. ” It is certain other nations in Europe gritted their teeth when they heard this, irrespective of their own financial standing.

    It will be interesting in the coming months whether the Swiss based company Syngenta will continue to make inroads on America’s Monsanto expensive dollar based exports to South America. Asia and Africa and how US Caterpillar will fair against European and Japanese rivals.

    The Conservative Party’s policy, never mind arguments about anything other, in regard to the deficit, the debt and the Euro is correct. Our economy needs to have practically zero debt for I feel it will soon need to withstand a series of economic tsunamis from Europe and the most massive one hitting us, a surprise to many, from across the Atlantic.

  23. ian
    Posted January 16, 2015 at 2:07 pm | Permalink

    All going to plan, ECB comes in to saving the elite stock market and housing market, maybe not next week, it all depends on how big of a correction they want in the stock market. I think it could come in march with our budget as wet&mad save you from deflation with his own QE and the cheapest mortgages ever to set the tory party up for election win in may with houses prices and rents leaping up in march and april and pound going down to get it back in line with the euro with more immigrants flooding in to keep wages down.

    The next four year will be the best elite have ever had when the tory win the election with government trying to hold the 10 year bond at 1% as of the march budget. Mortgages less than 2% and 3.50% for loans up to 15,000 pounds. Look forward to the biggest spending and borrowing binge in the history of this country.

    It just what the elite have order. As the debts pile up in the eurozone with germany doing as little as they can, i see them pulling out of the eurozone in a few years having it costed them next door to nothing to keep there exports going, as soon as a big bill come up for payment they will be gone.

    Don”t worry about the 1000 foot yachts with there gold plateted hulls.

  24. REPay
    Posted January 16, 2015 at 2:21 pm | Permalink

    By definition, the euro was always destined to be a transfer union. I am afraid that the EU political caste will spend every cent of their subjects money and sacrifice their well-being to defend it. No one in Brussels will lose a second’s sleep over impacting the Swiss…or the UK.

    Let’s wait and see what the Greeks vote next week…

  25. Denis Cooper
    Posted January 16, 2015 at 2:36 pm | Permalink

    Somewhat off-topic, JR, it seems that Osborne will have no problem at all borrowing £10 billion through the new pensioner bonds:

    So the question which crosses my mind is this: why has he waited until now to make use of National Savings to help fund his budget deficit?

    As soon as he became Chancellor he could have appealed to patriotic British people to help their country: “Thanks largely to the last government I need £143 billion this year to keep your public services going, please help me by buying National Savings.”

    Instead until now he has preferred to borrow wholesale from corporate international investors by issuing gilts, and pay them the interest on his borrowings, rather than borrow retail from ordinary British people and pay them the interest.

    Reply Because Nat Savs were thought to be dearer than conventional gilts for the government. Now without QE the govt is diversifying it sources of borrowing a bit more.

    • Graham
      Posted January 16, 2015 at 6:17 pm | Permalink

      …and,of course, pensioners vote – 2015 election and all that!!!!

    • Denis Cooper
      Posted January 16, 2015 at 7:12 pm | Permalink

      On the face of it, but potentially in the end it gets more expensive overall if the interest is paid to overseas corporate gilts investors rather than to individual British savers who are much more likely to then spend it into the UK economy, mostly also being British consumers, thus increasing tax revenues and helping the Chancellor to reduce the budget deficit so that he doesn’t have to borrow so much in the future.

    • petermartin2001
      Posted January 16, 2015 at 11:36 pm | Permalink


      Your question illustrates nicely the point I’ve been making that Government borrowing is just the mirror image of non government saving or lending.

      Indeed if no-one saved , and that included our overseas suppliers, including those in Switzerland who seem to like to save our currency in their central banks, year in and year out, instead of spending it, then government borrowing would be totally unnecessary!

      • Denis Cooper
        Posted January 17, 2015 at 2:53 pm | Permalink

        Well, my point is that Osborne’s preferred gilts route means that he pays interest to corporate investors, some of whom are outside the country and none of whom are significant consumers within the UK, whereas the retail National Savings route means that most of the interest payments would be to British people living and therefore consuming within this country.

  26. lojolondon
    Posted January 16, 2015 at 2:49 pm | Permalink

    More good news for Germany – as the cost of a Porsche, Mercedes, BMW drops on the global markets, Germany will be seen as a miracle industrial country – all the way until Greece leaves the Euro and has their own miracle financial recovery with the new Drachma. Then all the Mediterranean countries will be clamouring to leave the Euro and the EU. The cracks are appearing and I for one can’t wait!

  27. ian
    Posted January 16, 2015 at 3:12 pm | Permalink

    As for the debt, the treasury computer is set at 41% debt to gdp, as gdp go up and 10 year bond sits at 1% the actual 77% of debt to gdp will come back into line with gdp going well above 2 trillion pounds with houses prices and so on going up. Iike i say the biggest borrowing and spending binge in the country history has ever seen and that includes all you reading this running out to treat yourselfs saying i deserve it.

    Everything you have said over the years will go straight out of the window as you fill your boots, as you see the debt coming down, more you will spend and borrow.

    You will have to have more cupboard fitted and wardrobe

  28. Atlas
    Posted January 16, 2015 at 4:09 pm | Permalink

    Last night there was TV programme on the Inca Empire – and why it fell. History is littered with the debris of Empires that came – and went. So I wonder whether archaeologists in 2ooo years time will be looking at the ruins of European cities and opining on what brought about their destruction – Fiat money perhaps – a la Euro?

    • DaveM
      Posted January 16, 2015 at 10:47 pm | Permalink

      “History is littered with the debris of Empires that came – and went.”

      Well, we keep saying this kind of thing, but today’s politicians are so clever and special that they know better than to consider the entire history of the human race!

      Funny thing is, being a very patriotic – and one time slightly xenophobic Englishman – the events of the past few weeks and months have made me feel more connected to our European cousins than ever. Connected by our shared desire to live next door to each other as friends and allies without having to share the same house or bank account. We also share a common aversion to self-appointed arrogant out-of-touch bureaucrats it would seem.

  29. Aatif Ahmad
    Posted January 16, 2015 at 4:37 pm | Permalink

    If the Euro goes down in value, it will be good for Club Med, because it will become competitive again and thus be able to increase sales of goods for export. It will also result in higher inflation in the Germanic North, reducing the competitiveness of that area and reducing its current account surpluses. So higher inflation as a result of more money printing is just the thing the Eurozone needs at the moment.

    • petermartin2001
      Posted January 16, 2015 at 11:47 pm | Permalink

      Not quite. A lower Euro will increase German and Dutch surpluses. They’ll be working ever harder to produce even more goods and services to the outside world than their receive back in return.

      The Germans and Dutch are good like that. It’s much better to give than receive must be their motto!

      Thank, you Peter Van Leeuwen for your net contribution to British well-being. I’m sorry if we give you a hard time now and again. You must think we are so ungrateful 🙂

      • Peter van Leeuwen
        Posted January 18, 2015 at 10:02 pm | Permalink

        You paint us (Germans and Dutch) as philanthropists, but you realise that a lower euro will make for competitive prices and thus increased exports. For a short period it may help, it is of course no long-term solution.
        If I look at the limited improvement of UK exports after it de-facto devalued the pound by 25% in 2008 (still not quite recoveredto its the former sterling value) it is as yet unsure whether Dutch and Germans will fare better.

    • waramess
      Posted January 17, 2015 at 4:37 pm | Permalink

      The effect of the Euro being devalued is that everybody takes a pay cut, nothing else.

      Exports become cheaper, or more likely exporters will increase their prices, whilst imports become more expensive and, if you are a nation in deficit on the current account, you become poorer.

      Of course, as usual, the burden falls mainly on the poor, who are not able to have their wage packet increased to adjust to the new import prices.

  30. ian
    Posted January 16, 2015 at 6:37 pm | Permalink

    I am not worry about the Greece election because if the new party win the man in charge of that party will have been fitted with biggest back pocket in the history Greek politician. No millionaire in greece has ever paid a penney in tax in there lives.

  31. Jon
    Posted January 16, 2015 at 6:58 pm | Permalink

    Yes poor old Swiss I think there could be a small hit on their alpine trade, expensive there so the Italian and French sides will benefit. However, a not so busy area can be worth paying a premium.

    If anything Germany will want us in the EU even more though it’s looking less attractive than it already wasn’t.

  32. turbo terrier
    Posted January 16, 2015 at 7:51 pm | Permalink

    Nothing has changed in 1000s of years.

    If the Uk stays in Europe then the old cry from the Colosseum will resurrect itself from the English nation. “We who are about to die salute you”

    The time has come and that is now

  33. DaveM
    Posted January 16, 2015 at 11:08 pm | Permalink

    OT – our govt makes self-righteous comments about Russian attitudes towards homosexuality and Chinese human rights and so on. Yet every year they send thousands of soldiers and sailors to the desert to conduct totally non-beneficial training exercises so they can sell stuff to, and buy oil from…..

    These people don’t even let women drive cars.

  34. bluedog
    Posted January 17, 2015 at 12:12 am | Permalink

    A major inflection point approaches, Dr JR. Events are coinciding to maximise pressure on existing EU institutions and underlying policies. In the DT, Ambrose E-P is correct in pointing out that once again a major issue of sovereignty is being decided without the participation of EU electorates. Who will lead the masses to revolt?

    Some commentators are predicting that the German Constitutional Court will buckle through the medium of fudge yet again. But it may not. As the Eurozone starts to look increasingly like a liability rather than an asset from the German perspective, at some point the Germans will walk rather than be forced into a debt union that bankrupts them.

    The obvious solution for the Germans is to form a north European currency union out of themselves, the Netherlands, Austria, Finland and probably Hungary. Poland and the Czech Republic would probably demur for sentimental reasons. The Danes are also likely to continue to pretend they are completely separate.

    As Germany is a federal republic, it is also constitutionally quite easy for other states to become German Lande, should all parties agree. A greater Germany might even extend into the Flemish parts of what is now Belgium.

  35. Javelin
    Posted January 17, 2015 at 11:24 am | Permalink

    It’s been 6 years since the last crash so the next one is due in a few years

    Europe has last a decade and these shod be boom times.

    They are not and Europe will be very weak when the next dip happens.

  • 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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