Author: johnredwood

The recent resignation of the Leader of the CDU in Germany, AKK, received little attention in the UK media compared say to the daily stories about the Democrat opposition in the USA.  We should consider why the lead party in the German governing coalition has just lost its new Leader, who was meant to be taking over from Mrs Merkel as Chancellor candidate or as Chancellor before the next election. Germany is an important country and economy, and her current troubles will have an impact on our economy  just as US politics has an impact on it.

The tribulations of AKK got worse late last October  with the Thuringia State election. We are told far more about the Democrat caucus in Iowa than such Lander elections in Germany. In that election Mrs Merkel’s CDU party fell to third place with just 21.7% of the vote, losing 13  of its 34 seats in the Parliament. The AFD came second with 23.4% of the vote, adding 11 seats to its existing 11. Its leader is a very contentious figure with views about Germany’s past  that all mainstream parties find unacceptable.   Mrs Merkel’s main coalition partner, the SPD (Social Democrats) sank to just 8.2% of the vote, losing 4 of their 12 seats. Die Linke, the left wing challenger party stayed top with 31% and 29 seats.

In this state election the combined forces of CDU and SPD (Traditional centre right and centre left dominant parties, Conservative and Labour in UK terms) polled just 29.9% of the vote. Two radical parties of left and right polled 54.4% between them. In the hung Parliament created in a recent vote CDU members helped the AFD throw out the Die Linke left radical  Minister President  and replace him with the Leader of the  Free Democrats who got just 5% of the vote. This broke the Merkel rule that CDU members should not support the AFD, and led AKK to take the hit and resign, for the bad result and above all for the voting decision taken in the new Thuringia Parliament. Public protest soon led to the resignation of the new Minister President. The Parliament is currently unwilling to hold new elections which Mrs Merkel and some others want and has yet to appoint a new Minister President.

This tells us there is great unhappiness in Germany about current policy and the stance of the present government. It means there is a lack of leadership in the CDU who have been leading government for much of the time in recent years. Mrs Merkel clings to her pro EU green strategy, offering no support to her struggling car industry. The economy has plunged from good performance to little or no growth interspersed with the odd negative quarter.  There is a big argument going on about how to spend the surplus on the budget within the coalition, with some CDU hawks still unhappy about the whole idea of fiscal reflation.

It is still not clear what will happen about who should govern Thuringia. Many Germans are alarmed at what has happened there.

As expected the twin squeezes on the UK from monetary and fiscal policy along with a weak world background produced no growth in the fourth quarter of 2019.

For the year as a whole the UK managed a creditable 1.4% growth, a bit higher than I expected given the policy background and a testimony to the underlying strength of the economy. This means the UK outgrew the Eurozone again last year. This happened despite the world car manufacturing recession and the impact of higher taxes on UK homes and cars.

Given the weakening world background the UK needs positive action from the authorities to support the uplift in confidence generated by the result of the election.

After years of being wrongly told UK supply chains will be disrupted when we leave the EU, today there is surprisingly little discussion of the impact of the corona virus on world output.

  The Chinese  had to extend their New Year holiday production shut downs this year. Yesterday there was some return to work, but there must still be many closed factories, and  factories with reduced workforces. Some cities  continue with restrictions on travel and activity, and some people in China are isolating themselves at home for 14 days after contact with someone who had the virus.

The South Korean car companies have announced periods of closure as they are short of Chinese components. It is highly likely other companies and countries face shortages which may entail closing their plants for a period.

Meanwhile the worries about the virus have led to a big decline in international travel, the loss of tourism business in China and other parts of Asia, some loss of luxury goods sales which accompany travel by the rich and other knock on effects from the epidemic.

The Chinese economy is the second largest in the world and was meant to grow at 6% this year, meaning it was forecast to provide the single largest boost to world growth of any economy. In the first quarter of 2020 it is very unlikely the Chinese economy will be able to achieve anything like this growth rate. The oil price is down 20% from its January peak as markets worry about lost Chinese consumption and orders.

All this implies the western economies need a bigger monetary and fiscal boost to offset these negative trends from China. It also acts as a reminder that dependence on components from far away can be an additional worry or weakness in manufacturing.

The UK has many campaigners against carbon dioxide who worry about levels of man made gas being put into the atmosphere. I suggest today to them that the UK has been one of the most successful countries at getting its CO2 emissions down. They should now divert their energies to cutting CO 2 in places putting out much more and not cutting in the way the UK has.

They should start with China. China adds around  around 30 times more CO2 to the atmosphere each year  than the UK. It also puts out considerably more CO2  per head. At around 30% of world new CO2 output it is surely the place to start, as its output is still increasing.

If that is too difficult then surely they could turn their talents to changing the EU. After our departure they account for around 8 times our output with a higher CO2  output per head. They still mine and burn a lot of coal, which we have stopped doing,

Germany in particular needs attention. At more than double our CO2 output there could be quick wins. They might also like to campaign about the German motor industry which is still based around fossil fuels for most of its output.

Clearly it is much easier and cheaper to cut CO2 output in a country like China where there are quick wins and easy changes the UK has already made. It should also be welcome to the EU if we offer them advice on how we got to much lower levels per head than them, as their whole new economic and regulatory policy is based around CO2 reduction.

The new government is allocating more money to the police and recruiting more police personnel. At the same time figures have emerged showing a current low level of clear up of many reported crimes. I would be interested in your views on what the police priorities should be, as they set about deploying the additional police that become available to them.

Some say there is currently insufficient attention to burglary, breaking and entering and car theft. Others counter that social media hate crime can lead to crimes of violence, and that on line fraud is now a more serious source of theft than break ins. Given that the police cannot be everywhere and have  to prioritise their energy and time, what would be a good  balance?

How much attention should be given to traffic offences?  How can the police prevent domestic violence without getting dragged into many family disputes that will not end in violence?  Can we get better at spending  the big sums the state as a whole spends on troubled families? Then  there could be  less need for police intervention as social services and welfare have found ways to  get people through their problems that could otherwise spark anti social behaviour and worse.

Nationally there is considerable concern about knife crime, and a clear wish to see convicted terrorists kept away from harming the public more. There is also a strong wish to police our  borders better once fully out of the EU so we do not admit additional  criminals in the first place.

Yesterday I heard a short discussion on the media about the rising cost of renewables on the typical electricity bill. Some think it unfair that  low income consumers have to pay the renewable surcharge alongside better off consumers. Others think it right as we are all users of power, and the cost has risen thanks to the renewable surcharge. Those who want to take the surcharge off lower income consumers either want the whole charge put onto general taxation as a subsidy to the power industry, or want means testing of the bills with reductions for low incomes.

This raises the bigger question of how much are people prepared to pay to go green. In Chile there were riots over higher charges that led to the last global climate change conference having to move to a different country to avoid the protests. In France the gilets jaune movement started as a protest over high fuel taxes imposed for green policy reasons. In the UK it was popular politics to suspend or cancel  planned fuel tax increases.

As governments consider new tough targets for the next fifteen years they start to have more reality. They do mean according to their advocates the end of all diesel and petrol cars, the wholesale replacement of all conventional heating systems in people’s homes, the complete electrification of the railways and the total greening of the electricity generation system within a few years. Given the increasing reliance on electrical power it will also require a substantial increase in generating capacity.

I would be interested to hear views on how much of these  big investment and spending programmes should be paid for by the users and consumers, and how much from  higher taxes on those same consumers. The polling points to a tension between the numbers who think we should do all these things, and  the numbers who think they should help pay for it. This also has a bearing on the pace of change people want.