Economics « Crash Bang Wallace

Exclusive: EU official: The Euro’s existence is under threat, and we will screw the poor to save it

markwallace | No Comments » Posted on September 23, 2011

The political and economic disaster which is the Euro has reached new depths – as David Cameron noted in Ottawa yesterday “the problems in the eurozone are now so big that they have begun to threaten the stability of the world economy”.

Traditionally, the only place where logic, democracy and facts have never been able to penetrate when it comes to the glaring failure of the Euro has been the European Commission. It’s rare that they ever come clean about the EU’s dubious tactics and unheard of for them to even admit there’s a serious problem.

This morning, though, a European Commission official called Michele Calandrino was speaking at London’s City Hall as part of an EU Committee of the Regions Open Day, addressing an audience of local authorities and regional apparatchiks. My source tells me that first he confessed that:

European funding is an incentive for Member States to play the game at the European level

Which was a surprisingly frank statement in itself, given the long history of pretending that funding is allocated to target problems rather than to provide political incentives to “play the game”, ie hand over more and more sovereignty to Brussels. A confession of their dodgy dealing from the horse’s mouth.

The really fascinating bit came next, on the Eurozone crisis. The problems were so serious, said Mr Calandrino, that:

we are worried about the future of the Social Fund because of the need for fiscal consolidation to save the Euro

To translate the jargon, the European Social Fund is the main tranche of the EU budget targeted at creating jobs and providing skills training to the unemployed and disadvantaged. As well as being a large amount of money, it’s one of the EU’s posterchildren for how great Brussels is.

If the Commission thinks it may have to scrap the ESF “to save the Euro”, then they are evidently more concerned for the Euro’s future than they have previously let on. As far as I’m aware, the Commission has never previously confessed that the current crisis threatens the currency’s very existence. It’s a measure of how bad things have got that even they appear to be abandoning the pretence that the Euro will inevitably survive.

This confession is also very revealing about the EU Commission’s priorities – they would rather withdraw funding from the unemployed and poverty-stricken than abandon their disastrous vanity project. What a message to send.

Clegg’s Clause Four – abandon the Euro

markwallace | 3 Comments » Posted on September 20, 2011

In a desperate defence of his party’s continuing and increasingly absurd support for Britain joining the Euro, this morning Nick Clegg told the Today Programme that:

“I don’t think any of us could have predicted…that the rules on which the Euro was created should have been so spectacularly flouted”

His claim was that the concept of the Euro has always been and still is a good idea both in principle and in practice. The Lib Dems’ latest line of defence on the Euro is that it has never been implemented properly – that the failure of some countries to abide by the Stability and Growth Pact which regulates Member States’ budgets had undermined what was actually a really good idea.

This is getting increasingly ridiculous.

The inherent and fundamental flaw of the Euro is that it sought to bind together utterly disparate economies without any democratic or market accountability. It takes the bloated civil service of Greece, the housing market of Spain, the manufacturers of Germany and tries to force them all into the same straghtjacket. It tries to buck the market, the laws of economics and public opinion all in one go. It was always going to fail and wreak economic havoc, and the Commission’s attempt to pretend that wasn’t so was the introduction of the Convergence Criteria in the Maastricht Treaty, which later became the Stability and Growth Pact.

As many people pointed out at the time, and as history has shown us since, it was a fantasy to imagine that the Southern European countries in particular would be able or willing to keep their deficits below 3% and their Government Debt to GDP ratio below 60%. As a politically-motivated project, it was always likely that the Commission would fail to enforce these rules in order to keep the Eurodream of “ever closer union” on track no matter how great the risks. (You can see the woeful track record of adherence to the Pact here)

To say it was never predicted that this would happen is simply untrue – it has always been a mainstay of the Eurosceptic case that many EU states flout regulations and rules while others like Britain try to abide by them at great cost. It has also always been part of our critique that the Commission will bend and break as many rules as it feels necessary to keep forging ahead blindly with their obsession for EU integration.

Nick Clegg is experienced enough to know that when you have sunk to defending an ideology by claiming that “it’s never been implemented properly” – an argument normally used by student Trots defending communism from the claim that it has always resulted in tyranny and slaughter – then reality has disproved your idea and the day is lost. In fact, I think you can hear a slightly depressed realisation of this in his voice a couple of times in the Today Programme interview.

Euro-enthusiasm is a totem for the Lib Dems. It’s been one of the few things that has kept Liberals and SDPers bound together despite their many private disagreements on other topics. But given the judgement of history on the Euro, and the clear judgement of the opinion polls on the EU as a whole, isn’t it time they abandoned it?

Now that would be a proper Clause 4 moment – facing up to reality, ditching what has become an albatross around their necks, moving closer to overwhelming public opinion and finally being able to move on from an issue that, as Nick Clegg found out this morning, will otherwise keep rearing its head to bite them.

Guardian runs adverts from tax avoidance experts

markwallace | 1 Comment » Posted on September 06, 2011

The Guardian’s view on tax avoidance by others is well known – they regularly and deliberately conflate tax evasion (a crime) and tax avoidance (not a crime), and take the position that everyone should go out of their way to pay as much tax as possible. Regardless of how whether you pay what the law demands, the Guardian will be the final and ultimate arbiters of whether you pay your “fair share”.

However, their own affairs are less than consistent with the high standards they demand of others – as Guido has documented in the case of Polly “you should pay more tax, but why should I?” Toynbee, and their own record of careful tax avoidance through offshoring and other mechanisms.

Not content with hectoring others whilst practicing tax avoidance themselves, the Guardian has now taken things a step further – profiting by running advertising for firms of specialists who offer advice to tax avoiders and even how to deal with an HMRC tax investigation. This is a screengrab of their “Reading the Riots” web page – take a look at the ad circled in red at the bottom right:

Appleton Richardson, the advertisers in question, describe their service as “tipping the scales of justice in your favour”, will help you learn “how to play the game” and offer help to “survive a tax investigation by HMRC”. They absolutely rightly say that tax avoidance is perfectly legal, but in Guardian land it is unacceptable – how do the champions of high taxes square taking advertising from a firm like this with their crusading morals? Or is it just yet another case of Guardian double standards?

PS you’ll note that with further delicious irony the other two adverts are for Personal Injury Lawyers and, yes, a Scientology magazine. The Guardian: where Comment Is Free, but principles can be bought.

All eyes on the Eurozone crisis

markwallace | No Comments » Posted on July 11, 2011

While all eyes have been on the News of the World, the Eurozone sovereign debt crisis has deepened severely over the last few days. Italy’s stock market has taken a hammering, Chinese ratings agencies are warning of a potential credit downgrade, and a new corruption scandal has emerged which may potentially threaten the Finance Minister’s position at a crucial time.

EU President Herman van Rompuy has called an emergency meeting to discuss how to prevent the contagion worsening.

The problem the EU is discovering is that no matter how many times you say things are fine, you can’t buck the basic reality of the markets. If you don’t have the cash, then eventually you’re bound to come unstuck.

It’s remarkable that this story isn’t getting more attention in the UK. If you doubt that it’s a big one, try this quote from the embattled Italian Finance Minister Giulio Tremonti for size:

If I fall, then Italy falls. If Italy falls, then so falls the euro. It is a chain.

Can it get much bigger than that?

All of the poor are deserving – but deserving of different things

markwallace | No Comments » Posted on June 15, 2011

One of the most pernicious straw men in modern politics is the argument dragged out last week by Rowan Williams. He accused the Coalition Government of using

“the seductive language of the deserving and undeserving poor”

This is almost exclusively a phrase used by the Left – in literal terms, the Government haven’t used that language at all. The reason the Left use it is to try to close down any discussion of distinct problems and solutions for different groups within the mass of Britain’s least advantaged people. In essence, it’s a justification for continuing a blind, blanket policy of handouts, handouts and more handouts, regardless of whether they work or not or the harm they might be doing.

We on the Right should be clear – all of the poor are deserving, but they are deserving of a range of different things.

Those who are unemployed but are keen to work are deserving of our support to get a job. That means financial support, but also access to job opportunities and support through the personal trauma of losing your job. Proud, ambitious people need their pride protecting and their ambition nurturing.

Those who are trapped in addiction to alcohol or drugs are deserving of help to overcome their problems. That should not mean the current policy of handing them cash as if they are automatically going to spend it on food or clothes for their family rather than their next hit. Instead it may mean a voucher system of benefits which is better controlled. The last thing they need is the welfare state giving them the cash to fuel their addiction when we should be helping them to overcome it.

Those who can work but have no interest in doing so, or knowledge of how to do so, are deserving of an escape route from the trap they find themselves in. Given that some people find themselves the third or fourth generation in their family to live on benefits rather than go to work it is no surprise that so few manage to break the pattern. These groups are deserving too – but not deserving of the money and opportunity to simply carry on like this.

It is frankly wicked that the welfare system effectively makes it easy to continue with that life and – even worse – punishes people for trying to escape it. Those who are trapped in long-term or even multigenerational unemployment are deserving of a better education system, training to introduce them to a life of work and explain its benefits, access to job opportunities and, crucially, the removal of the penalties for choosing to break the pattern and get a job. We need to be honest and say that yes, in some cases they are deserving of some tough love, too.

Helping people to overcome their challenges, whatever they may be, and get into work is good for them, it’s good for wider society, it’s good for the economy and it’s good for the Exchequer. Unemployment kills people, it impoverishes them economically and in terms of quality of life, it deprives them of hope and a sense of self-worth. The blanket one-size-fits-all benefits system and the barriers it places in the way of those who try to get work has ended up reinforcing that harm for many people. Pernicious attempts by the Archbishop of Canterbury or anyone else to deny that this is a challenge that needs several, targeted solutions are dishonest.

Let’s be honest about the issue – we are all deserving of that.

Raponomics

markwallace | 2 Comments » Posted on March 25, 2011

Guido drew attention yesterday to the new Andrew Lansley Rap, a viral hit that is storming its way across the internet thanks to the unexpected marriage of Grime and the politics of NHS reform:

As much as I disagree with its message, it’s a brilliant example of a pretty complex issue being communicated well and amusingly through Youtube. This is the shape of political campaigning to come.

While we’re on the topic, this is the perfect opportunity to plug the best example of a geeky topic being communicated in this way – the John Maynard Keynes vs F.A.Hayek rap battle:

Definitely the quickest and most catchy way to learn all about the economic divide…and worth it just to hear someone rhyme “Austrian perspective” successfully.

The Budget typo that could cost £5.4 million

markwallace | 2 Comments » Posted on March 23, 2011

Budget Day is always a weird day in the world of politics – everyone has a couple of hours to read, analyse and digest the most important economic document of the year before they then have to start communicating their flawless insight and analysis. Add to that the potential for so many tables and technicalities to fry your brain and by the end of the day everyone’s feeling a bit wiped out.

Occasionally, though, something jumps out at you from the mass of figures and rule changes.

Take for example the tax rise today on oil and gas companies. At the minute they pay 20% tax on their profits, and the Budget says that this will rise to 32%.

The question is when will it rise?

The outline introduction (PDF) says the change takes place “from midnight tonight” – ie Wednesday 23rd March. The detail, though, says “midnight on 24 March 2011″. If I say we should meet at midnight on Tuesday, you’d assume I meant really late on Tuesday evening, not really early Tuesday morning. The Treasury seem to mean midnight on Wednesday, but that date detail implies it’s actually rising tomorrow night.

So what, you might (justifiably) ask? After all, it’s only one day. Well, here’s what: this tax rise is raising £2 billion a year, which is over £5.4 million a day. If you were a group of oil companies, wouldn’t you consider throwing fifty grand to a clever tax barrister on the off chance that your claim for the tax hike to be delayed for an extra day came off?

Liberal Conspiracy and the confession that wasn’t

markwallace | 1 Comment » Posted on March 15, 2011

Nick Clegg gets enough trouble from the things he does say (remember this?), but now it seems the good burghers of Liberal Conspiracy have started to deliberately misinterpret what he says as well.

The Left’s obsession at the moment is the artificial distinction that the Coalition’s cuts were “ideological” rather than practical. For them, perhaps, ideology is divorced from reality – it would certainly explain a lot about their views – but very few people would hold an ideological view that they didn’t think was practical.

The illogic of their position aside, it is this line of attack that has led to either a misunderstanding or a deliberate deception over at Liberal Conspiracy today. “Nick Clegg admits cuts were a political choice” blares their headline, claiming they have uncovered

Two interesting things here – first the admission that the speed of deficit reduction is a ‘choice’, in contrast to the Government’s usual ‘no alternative’ line.

Second the admission that the cuts were ‘not forced on us by the bond markets’ as in Greece and Ireland.

So what did the Deputy Prime Minister say to apparently blow his supposed cover? Well, in his speech to Lib Dem Spring Conference he announced:

[Cutting the deficit] has meant making difficult choices.

But at least they have been our choices…

Not forced on us by the bond markets as they have been in Greece and Ireland.

And the risks of delay far outweigh the risks of swift action.

The problem is, Liberal Conspiracy’s interpretation of these comments just doesn’t stand up.

Their first charge, that he said the cuts are a “choice”, is a total misinterpretation. Clegg says that cutting the deficit “has meant taking difficult choices” – ie that with deficit reduction being essential, they then had to choose which spending cuts to make. That’s no confession or change of line – it’s a reasonable acknowledgement that picking the specifics of cutting isn’t easy.

Their second charge is equally flimsy. Saying that those choices weren’t “forced on us by the bond markets as they have been in Greece and Ireland” is clearly about the timing of the spending cuts – either they would inevitably have to happen due to the collapsing confidence in Britain’s solvency or, as Clegg says in the previous half of the sentence, they could be the Coalition’s choices taken with greater consideration rather than in a panic.

This is a total dead-end for those who want to oppose the Government’s spending and tax measures. The opinion polls aren’t going to swing based on a theory of the philosophy behind the fiscal direction, they will rest ultimately on whether the measures work – will the pain be worth the gain?

Ed Balls – from Green Tax Crusader to Jeremy Clarkson

markwallace | 9 Comments » Posted on March 14, 2011

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.

The Sword and the Shield: how to deliver growth

markwallace | 2 Comments » Posted on January 25, 2011

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.

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