It didn’t take long for the Wikipedia graffiti artists to get to work on Formerly-Sir Fred Goodwin’s page:
“Goodwin’s knighthood, granted in 2004, was annulled in January 2012, due to his excessive use of profanity in the company of the Queen. He was shot a few days later.”
Appropriately, the key to understanding the EU’s continued failure to solve the Eurozone crisis lies in Greek mythology. The second of the Twelve Labours of Hercules was the slaying of the Learnean Hydra – a many-headed beast that had the nasty and inconvenient habit of growing two new heads every time you cut one off.
This meant that many who tried to slay the Hydra ended up exerting themselves only to make it even more ferocious and threatening. Hercules eventually triumphed because he discovered that one of its heads was mortal – only by cutting off that one could the Hydra be destroyed.
So it is with the Eurozone crisis. Politicians, observers and – most sinfully – the markets are so desperate for all the effort going into each “solution” to be worthwhile that they convince themselves that just cutting off one more head will solve the Euro’s problems.
Time after time, though, they have chosen the wrong head.
First, simply announcing no Eurozone country would go bust or could go bust was meant to do the trick. It didn’t.
Then bailing out Greece from its short term liquidity crisis would solve all of the problems. It didn’t.
After which, Greece’s austerity package being voted through their Parliament would provide a panacea. It didn’t
Then bailing Greece out again was going to put the crisis to bed once and for all. It didn’t.
Then the “bazooka” deal would unite Europe in defeating the fiscal threat. It didn’t.
Last week, only George Papandreou ditching his referendum proposal and resigning would bring the nightmare to an end. It didn’t.
Now, they have seized desperately on the idea that Berlusconi’s resignation will calm the markets and stop the carnage.
It won’t, and it won’t for a very simple reason: Berlusconi is not the problem.
Of course, he isn’t the solution, either – he’s a clownish figure who lacks the authority or the desire to solve Italy’s problems – but any idea that he is the only thing that stands between Italy and fiscal stability is a fantasy as deranged as his self-perception of being God’s gift to women.
The sad thing is that there is such desire to believe that cutting off each of these Hydra’s heads will end the crisis that the markets briefly buoy when each one approaches, only to fall back further when reality intrudes again.
With each false hope and every false promise, the credibility of the next “solution” is reduced, the panic becomes deeper and the cost of borrowing rises. For a stark illustration of this problem, just look at the trouble the EFSF is having raising money from the international markets. As Liberal Conspiracy point out, it is now paying 4 times as much to borrow as it was in June. It isn’t just Greece and Italy that international lenders such as China view as too risky to lend to – it’s the supposed solution mechanism for the crisis.
The underlying problem – the true mortal head of this economic Hydra – is that membership of the Euro has straightjacketed these economies from defaulting or devaluing to address their sovereign debt problems. But political leaders find this so unpalatable in their world of “ever closer union” that they turn a blind eye to it, and keep lopping off other heads, increasingly bewildered at the sprouting of more and more in their place.
Let me make a prediction (which is a risky business, but hey). If Berlusconi does resign, the markets will briefly rise only to dip swiftly once it becomes clear that weeks of political wrangling or even a General Election will be necessary to even form a new Italian Government, still less implement a viable austerity plan. This will radically increase the cost of Italy’s borrowing even further, leading perhaps to a crisis in other Eurozone banks and further bailouts in Benelux and France and almost certainly to an attempt at direct budget control by the European Commission.
Even Hercules was not strong enough to keep chopping off the wrong heads indefinitely. To find the right head and dispatch this Hydra before being eaten the Eurozone countries need to get on to the real issue quickly, and escape their state of denial.
The attention of the global media has been fixed – unusually – on Slovakia this week. With 16 of the 17 Eurozone nations already having committed their taxpayers to supporting a vastly increased bailout of Greece, Slovakia was the only one left standing. On Tuesday, their Parliament voted to reject the EU’s bailout plan, thanks in large part to an insurgency led by the Freedom and Solidarity Party – commonly known in Slovakia as the SaS – which led to the collapse of the governing coalition.
The SaS are a true classical liberal party, combining free market economics with civil libertarian principles such as drug legalisation. What is it that led them to bring down the coalition government of Slovakia rather than vote for the Greek bailout? What will happen next? To find out, I conducted a brief interview with my friend Juraj Droba, one of the 21 SaS MP sitting in the Slovakian Parliament and Vice-Chairman of the Parliament’s Foreign Affairs Committee. Square brackets denote my own explanatory notes.
Q. Can you sum up for British readers why you and your parliamentary colleagues have voted to reject the bailout motion?
Many reasons – the moral hazard, the fallacy of trying to solve indebtedness with more debt which will only prolong the agony, the principle that poorer people in responsible countries must not pay for irresponsibility of politicians in richer countries. This money would not go to people, but to the shareholders of the French and German banks – these profited heavily over decades from high-interest risky loans guaranteed by the governments.
Q. Why do you think it was you and your colleagues in Slovakia who said No when all the other Eurozone countries said yes to the bailout?
We are a new party, composed of people who were previously successful in the commercial sphere. Our bottoms are not glued to the political chairs, we are ready to leave anytime and even sacrifice our mere political existence for a principle as noble as pointing out the main trobules with EFSF and ESM [the Euro bailouts].
Q. Is there any polling evidence of what the Slovakian voters think about the issue? Will this have an impact on the next general election in your country?
Over 50 percent majority did not want Slovakia to participate in the bailout. The impact on the early elections in March 2012 is questionable, several other issues are more salient than a somewhat remote and complicated EFSF.
Q. The EU is famous for making people vote again if they come out with the “wrong” answer. Will the parliament have a second vote on the issue – and if so, how soon will it be and what do you think the result will be?
Unfortunately, yes. It will happen this Friday and it will be carried with the votes of the opposition. The price we pay is early elections, because our Liberal party was removed from the government coalition.
Q. If the rest of the Eurozone goes for bailouts and further fiscal integration, can you foresee a day when Slovakia would want to leave the EU to go its own way?
No. Slovaks as people are rather euro-optimistic, as evidenced in polls. We still believe that euro is a good project. We are not against the common currency, we are against irresponsibility of governments and constant breaking of the basic rules…
Q. Have you or your colleagues been pressured from outside Slovakia to change your position and vote for the bailout – either from EU institutions, businesses or foreign politicians?
All of these combined. SaS leader Richard Sulik had a private meeting with Guido Westerwelle [German Minister for Foreign Affairs], the Prime Minister was harshly pushed by Merkel and Sarkozy, we as Liberals received a decent and polite letter from our partners from the ELDR [the European Liberal Democrats, who both the SaS and the UK Lib Dems belong to], foreign diplomats mentioned the issue at every possible meeting occassion with any of us, etc. The pressure even increased after this week’s No vote.
It never rains but it pours for the public finances. I gather that the senior ranks of the civil service right across Whitehall are currently having their annual bonuses agreed – with large numbers of them expecting to receive lump sum payments running into the tens of thousands of pounds.
It scarcely needs saying that with the deficit crashing ever onwards, the eurozone crisis at the door, junior civil servants losing their jobs, dire forecasts about the income prospects of ordinary taxpayers and unemployment continuing to rise, the prospect of paying five figure bonuses to well-paid mandarins at the top of Whitehall departments sticks in the throat.
Thanks to the recent improvements in spending transparency, we’ll find out how much of our cash is given to them, but only after it’s been handed over. The public who fund and are served by these departments will have no say in how generous their bonuses are, and will be left to howl in the wilderness should any of them appear to be excessive or undeserved after they’ve been paid.
Given the prevailing circumstances in the economy and the public finances, the very least these public servants could do to serve the public would be to voluntarily waive their bonuses this year. Ministers have already taken a pay cut, and tens of millions of people across the country have no bonus (still less generous gold plated pension) at all. Will Sir Humphrey chip in and do his bit?
It’s pretty clear now that Saturday’s riots – like most riots – were counterproductive for the anti-cuts movement. That’s good news; had the public somehow been moved to support violence and vandalism there would be something very wrong indeed.
It does raise a serious concern, though. How will the hard core of anti-cutters and so-called anarchists (who actually want a bigger state, which is far from anarchism as you can get) react as their failure becomes clear?
The psychology of these agitators is complex but worrying. They have a persecution complex, they fetishise violence and crime and they are utterly convinced that everyone agrees with them, despite all the evidence to the contrary.
In their world, any Government that doesn’t do what they want must be a Gaddafi-style dictatorship, and any indication that the public don’t back them is a sign of an oppressive bourgeois establishment who are just as bad as the totalitarian Government. They seem increasingly divorced from the real world and antipathetic to wider society.
Add into that the hefty leavening of sociopaths who gravitate toward extremism and wanton destruction and you have a potent mix.
I fear that this core – not, I should emphasise, the wider halo movement around them – could easily tip over the edge from public order crime to much more sinister activities.
They have already started widening their list of targets whom they judge legitimate – just look at the absurd attack on charity-owned Fortnum & Mason.
Only a few years ago, SHAC (Stop Huntingdon Animal Cruelty) were following scientists and investors far down the business chain to their homes and attacking and intimidating them and their families. Plenty of people in the anti-cuts hard core will be students of that terror campaign – and even the small core of the anti-cuts mob have more people and resources than SHAC.
Back in the 1960s and 70s, on the Continent a mass leftwing movement spawned groups with a very similar psychology and rhetoric to the rioters we see in Britain today. Their response to failure after failure was to become more and more extreme – shedding those who thought they were going to far, and following their “war against society” philosophy to its logical conclusion: terrorism.
It’s not inevitable – it may not happen in this case, or if it does it could be stopped – but we don’t seem too far at all from spawning a Baader Meinhof Gang or a Red Brigades for the 21st Century.
That’s a scary prospect, and everyone, from the police and the Government to the Unions, UKuncut and the vast majority of peaceful, democratic anti-cutters, must work together to nip any tendency like that in the bud.
A good start would be for the Left to denounce the violence we saw on Saturday – something UKuncut signally failed to do on Newsnight last night.
Ed Balls has evidently decided that hammering the Coalition on rising fuel duty and the double-tax on fuel through VAT is the right way to go. Politically, it’s a clever choice – the levels of tax faced by motorists are punitively high, it does harm the economy and it means ordinary taxpayers are often punished for making essential trips to work or to the shops – particularly in rural areas.
Essentially, he is shifting – at least partially – into TaxPayers’ Alliance messaging, casting himself as being on the side of the strivers, the strugglers and the just-getting-by. Heck, he even confessed this morning that maybe the previous Government might have wasted some money, an acknowledgement that seems obvious to the rest of us but is a groundshaking revelation when it comes from Balls.
As well as being political good sense, this is also part of a growing decontamination strategy that Labour are pursuing to shed the negative associations of the stealth taxes and squandered billions of 1997-2010.
The question with any decontamination strategy is “Will it work?”
With Ed Balls, you’ve got to wonder if even his powers of self-delusion will succeed this time. Today, he is an opponent for economic and moral reasons of hammering motorists. In his pomp helping to present and defend the Budget back in 2007, though, he was boasting about the ethical worthiness of, erm, hammering motorists:
That is exactly what we have been doing over the past 10 years with action to shift the tax burden from “goods” to “bads”, and with the work that we have done to support and, indeed, to pioneer international emissions control and trading. In the Budget, we have set out further actions to advance the environment agenda, including…a fuel duty increase of more than inflation
Is it really believable that the Ed Balls who spent a decade squeezing and squeezing motorists until the pips squeaked because driving was “bad” has now seen sense and is fighting on the motorists’ side? It’s about as plausible as Jeremy Clarkson being elected as the next leader of the Green Party.
I’ve written an article for the new Total Politics feature “A Blogger Writes…” in this month’s edition of TP. The full piece is here, and I won’t rehash the whole argument, but here’s a brief summary.
We’re used to the traditional political distinction between left and right, but things are changing. There’s a strong case to say that left and right are now obsolete, and are being replaced by liberty vs authority. That has been debated at great length elsewhere.
What hasn’t really been considered is the political gap opening up between the generations. Whether it’s students rioting against fees introduced by an older generation who enjoyed free education, or young workers fulminating against the prospect of a lifetime of paying off their parents’ and grandparents’ national debt, age is an increasingly wide political gulf.
It’s only going to grow as the demographics of our society become more stark – fewer and fewer young taxpayers being expected to pay for more and more old people needing care, pensions and medical treatment. The fact that the old vote far more than the young will exacerbate that further.
A really interesting recent poll by Barratt Homes/ComRes shows that resentment is already growing – it will be interesting to see how this plays out. Have a read and let me know what you think
Bad headlines have a way of colliding at the same time. So it is on the economy this week – first the CBI’s Richard Lambert alleged that the Government don’t have a coherent growth strategy across Whitehall, now the growth (or rather, not growth) figures for the last quarter have come out.
Things may well not be as bad as they seem – indeed, Fraser Nelson has a good post warning the Left against undue glee and the Right against undue gloom as a result of the new economic figures. However in economics as much as politics perception is hugely important and cannot be ignored.
So what to do?
Figures are figures, and they’re rather hard to change. It’s natural that the Government should talk about the impact of the snow, but overdoing that is quite dangerous. Politically it opens the door to stinging rebuttals from the Opposition, in media terms there’s a risk it looks like gimmickry and economically the markets have become bored of numerous companies using this as an excuse for their own poor results announcements in recent weeks.
Nelson’s argument that previous recessions have seen a jittery recovery is much more powerful. It’s based in sound fact and it communicates economic understanding. It’s notable that Ed Balls has chosen a relatively complex argument in criticising the Government today, saying that the shrinkage is due to people reducing spending in advance of cuts due to fear, so Downing Street shouldn’t be scared of using a little bit of economic complexity themselves.
More can be done to address the allegations about a lack of a clear strategy. Understandably there’s confusion – in Whitehall, Westminster and business – about how the roles of the Treasury and BIS divide when it comes to responsibility for encouraging growth.
A clear statement of these responsibilities would be a good start, identifying the Treasury and BIS as the sword and the shield of economic growth.
The Treasury holds the purse strings, so it has the most pro-active role – the sword.
It should set promoting growth as a priority, to be implemented by lowering taxes (or, depending on your ideological and economic bent, spending wildly). As a direct result, consumers, investors and businesses should find more money in their pockets.
BIS should be the shield, acting as a guardian of business around the cabinet table – monitoring the activities of other departments to make sure they aren’t introducing regulation that hobbles enterprise, weighing in against anti-growth policies from other arms of government and pursuing an aggressive purge of the bad regulation that it currently oversees.
If both Departments are simply given a blurred role of sharing the aim of delivering growth then at best they will duplicate activity and trip over each other, or at worst neither will do the job and they’ll end up blaming each other. Dividing responsibilites and encouraging specialisms is the best and clearest way to get the job done.