Author: johnredwood

Yesterday I joined a debate at Local Government House on devolution, with the Greens, Lib Dems and Labour.

I explained how the grant of powers to the Scottish Parliament, promised for early in the next Parliament, necessitates justice for England. I reminded them that if Scotland is to settle her own income tax, there is no way England would accept a higher rate of income tax voted through with the help of Scottish MP votes at Westminster.

I argued that the artificial regions of England which some wish to create as governing units are unloved and unsuitable to be elected administrations. There is no great sense of South Eastern belonging nor any big outbreak of East Midlands feelings . England is a country of Counties and Boroughs, of ancient areas of local government that do not require Sunderland to accept government from Newcastle, Liverpool to be governed by Manchester or Plymouth to be governed by Exeter.

Governing areas need to be ones that command support and loyalty. People need to feel they belong to an area or place for it to have a government people will obey, shape and accept.

I drew attention to the idea that some Northern Councils working together should have influence over their local NHS budget. There have always been difficulties with issues that lie on the borders of NHS and Council jurisdiction. There are problems in some places finding sufficient Council places for care to allow people to leave hospital in good time. More common decision making between the NHS and Council social services could help.

How far would you go in offering devolved powers and budgets to local government? For it to work central government has to grant more power to Councils, and Councils have to show maturity in making decisions and accepting responsibility for what they decide.

It was little surprise that Greece’s late response to the demand for details of how they will run their budget was accepted yesterday by the Euro group.

The Greek state government committed itself to change tax codes to raise more money from the better off, and to find ways to improve tax collection and enforcement. They have offered to make many changes to different parts of revenue collection, with more inspections, more audits and more and better staff to do the collecting.

They have also pledged to improve their controls over public spending, concentrating on non wage expenditure which accounts for 56% of the total. They also wish to improve the provision and quality of medical services, with universal access. They are going to consolidate pension funds and seek to reduce early retirements to cut pension spending.

It will cut the number of government Ministries from 16 to 10, cut fringe benefits to MPs, Ministers and top officials, improve public sector tenders and keep wage costs down.

The government has had to accept much of the privatisation programme it inherited and disliked. It now says it will not roll back privatisations already committed. It will rejig future ones with “the emphasis on long leases,joint ventures…and contracts that maximise not only government revenues but also prospective levels of private investment”

The pledge to pay a higher Minimum wage has become “the ambition to streamline and over time raise minimum wages in a manner which safeguards competitiveness and employment prospects. The scope and timing of changes to the minimum wage will be made in consultation with social partners and the European and international institutions…..” taking into account whether changes are in line with productivity developments and competitiveness.

As expected, both sides have had to sacrifice a lot. The Euro area has agreed to lending Greece more money, and to giving more time to trying to negotiate a longer term solution later this year. In the meantime the ECB has now lent more money to Greece. The rest of the zone has to accept promises, which rely heavily on the ability of the new government to raise much more in taxation than previous governments have managed. For its part, Syriza has to accept privatisation of state assets, accept a delay in raising the Minimum Wage, accept Eurozone surveillance of its budget and loan programme, and recognise there is not going to be a large planned fiscal stimulus for the economy.

In summary, the Greeks have not slain the dragon of austerity as they see it, and the Eurozone has not weaned Greece off more loans and assistance. If revenue does not respond quickly to new treatment, the issue of how to pay for the Greek budget will intensify.

Some commentators wish to stir a battle between the generations.

The young have their advocates, telling us the baby boomers now reaching retirement have done too well at the expense of others. They point to high house prices making it difficult for first time buyers, and high rents sometimes paid to buy to let landlords who may themselves be baby boomers.

Pensioner savers have their supporters, saying that they have been hard done by with ultra low interest rates and poor annuity rates on retirement thanks to quantitative easing and the low rates in the aftermath of the banking crash.

The truth is more mixed. Both generations have their advantages and their challenges in the current situation, and both have policy interventions designed to help them.

The younger generation has the benefit of much lower interest rates when they can find a house and a mortgage than their parents faced. They also now have the benefit of very low inflation, compared to the rates we were used to in the 1970s and early 1980s. The government has added its Help to Buy scheme, and is pressing ahead with ways of securing more new homes.

The older generation of savers have made money from the rise in asset values brought on by quantitative easing and the general economic policy. Those savers who bought property or shares or certain kinds of savings bond are likely to have decent capital gains today on what they bought in past years. The government has now added the National Savings Bonds with higher interest rates for those who do not want to risk their capital but need a better return than the 0.5% base rate.

There is another truth which the generation warriors ignore. Within most families one generation helps another. Much of the wealth of the baby boomers will be passed on to their children and grandchildren on death. Some of it is being passed on before death, as parents help children with home deposits or other large ticket items in their budgets. Just as some grandparents help with the household chores and childcare of their children, so some help with gifts of cash. The money which is not passed on will be taken in tax by the state. That money can then be spent on those most in need.

Conservatives have announced they will keep Pensioner bus passes, free tv licences for the over 75s,and winter heating allowances. Do you agree?

It is one of those ironies of history that democracy should be under such pressure in the European country commonly claimed to be its birthplace.

The most recent Greek election and the battles over Greek policy within the Euro have been about whether national democracy is compatible with the single currency. It appears it is not.

The Greek people made their views known all too clearly in January. They said No to more austerity, No to the Euro area requirements to cut their debts and deficits, No to various reforms of their economy that the rest of Europe wishes to visit upon them. Their newly elected government took that message volubly to Brussels.

The Greek government soon had to back down. It backed down over its refusal to deal with the troika. It backed down over the need to extend the old loan agreement. It backed down over the principle of having to negotiate its budget and future economic policies with the rest of the Euro area. It was left with a fig leaf of choice, as the Euro area said there might be some flexibility on how Greece achieved the austerity targets which had to remain in place.

The Greek government has been using rhetoric about national self determination and democratic government. It has discovered that if it wishes to stay in the Eurozone it has to play by the general rules of that zone. It is also the case it has learned an older and more basic truth. If you want to borrow more money from certain institutions, you may need to honour the terms of the loans you already have from them.

I find it fascinating that Syriza saw the confrontation as one of national democracy against the Eurozone, not just as a debtor having to deal with its creditors. As a result of hyping the rhetoric in that way the Greek government has made its possible defeat into a defeat for democracy in Greece.

In that sense Syriza has done us all a service. They have highlighted how in the Euro a country cannot have an independent economic policy. As economic policy is one of the main things electorates wish to influence and change, the loss of those freedoms is a major blow to a national democracy. Many of us in the UK find there are too many constraints on our national democracy from membership of the EU outside the Euro. It is many times worse for those in the single currency.

As expected, Germany blinked and Homer nodded. The Germans had to agree to more money being lent to Greece whilst they have the proper argument about what the future should hold. The European Central Bank continues to bail out Greece via emergency assistance to its banking system. There is a delay in implementing all the requirements of the last loan package, whilst Greece tables new proposals. Germany’s promise to enforce all the old loan agreements and to offer no new money has been broken. The message to other countries strapped for cash and disliking the conditions of loans is to cause trouble.

Greece had to swallow much of their bold rhetoric. Greece has had to apply to extend the old loan agreement which it said it intended to tear up. Greece does have to deal with the troika, though perhaps under a different name, when she said she would not do so. Greece will have to table austerity proposals next week to substitute for any of the current austerity requirements in the loan agreement which she does not like.

Meanwhile, in the real world, Greece will spend and borrow more, with likely overruns on the permitted deficit (called a primary surplus by being struck before interest charges). The European institutions will continue to finance Greece. It is more extend and pretend. The Euro has decided to be a bit more flexible to avoid a Greek exit, despite their fine strong words that a Greek exit would now be a minor matter for all but Greece.

Is this just kicking the can down the road for a couple of days? Or for a few weeks? Or will it result in a longer term fix? Time will tell. It appears that Germany is allowed to make the weather with the words, trying to spin the outcome as a tough settlement, a victory for austerity. Meanwhile the officials and the institutions which increasingly drive Euro policy are working behind the scenes on flexible language to cloak the truth, which is the zone so far has decided to extend more credit and pretend Greece can meet her obligations.

It’s no way to run a serious major world currency. If they carry on like this their economies will continue to malfunction, unemployment in parts of the zone will stay far too high, political protest will grow, and from time to time there will be alarms in the markets and in the weaker national banking systems. Cyprus shows us one way out of a financial mess for a state in the Euro – capital controls. Another way is for the rest of the zone to write off more of the offending state debts. They still have to arm wrestle electorates and some political parties as they seek to impose stricter controls on future spending and borrowing by states that cannot pay their way. Greece does not today suddenly become a paradigm of German virtues meeting all her loan conditions as some German comment would have you believe.