5 november 2011, greeks punch gift horse in mouth

Sometimes, a little time to reflect is better than instant reaction, and a week on, as opposed to a day, the results of last week's euro summit look pretty much as they did on the night: it is enough. Or at least, it is until it's not, when the actors showed themselves determined enough to go the next half-mile. The day after, the greek prime-minister's referendum announcement shattered the "no surprise" rule, and merkel and sarkozy responded in kind, breaking the "never talk about a break up" rule, saying that there was a choice for greece: take the medicine or leave the euro. That was the dose of salts needed, as while some 60% of greeks are against the bailout package, some 70% want to stay in the euro, and so the referendum proposal disappeared as quick as it arose. All this though destroyed the build-up to the much built-up g20 summit, and with the sherpa work not done, the result was dazed and confused, and so no contribution at all to the stability desperately needed. And all this in the week that the most powerful man in the eu is replaced by an italian, just as all the pressure moves to italy's woeful debt burden, and yet more pressure is put on the ecb to use its unique muscle to solve at a stroke the new and fundamental problem created in today's credit conditions of italy being solvent but unable to manage its liquidity, due to its (hardly new) dependence on constant refinancing. Laying some groundwork for that is the reason behind berlusconi's abrupt summoning by said m&s, obama and the head of the imf (21 may 2011), who told him that his country is now being monitored by the imf like it was argentina. It's going to be a big week for mario.

27 october 2011, is it enough ?

So, they (and its with a slight pang of regret it's not "we") finally seem to have come to a solution, or at least to a state that things can settle: greece can "default" in an orderly way, the other countries seen as weak but not insolvent can be left to trade their way out to stability, the banks get a bigger cushion of cash, and the first steps are taken on the long road towards stopping all this ever happening again, through treaty-change towards economic union. By nature I am an optimist, and a deep euro enthusiast, and so maybe I cannot help but be biased. However, yes, I think this is enough. The problems were never going to be solved by a dramatic gesture, but by a process around which there is confidence. It may take an age to get to china walking one step at a time, but if you walk long enough, you get there eventually. So, though confidence may again fizzle out, though the devil of the details may yet risk elements of the package unravelling, I do think that two rubicons have been crossed. First, greece has gone, and second the argument over the way the others will be guaranteed the breathing space they need, namely fiscal or monetary, has been definitively answered. It's the former, and so now all can just get on with it, and if at some point some element needs bolstering, that will happen. A classic distraction has even been thrown in to stop people talking about the deal, getting them to talk instead about whether greece should have been in the euro in the first place instead (correct but irrelevant). This gives confidence a few more precious hours to build in this ludicrous news cycle led mass media world we live in (see 15 august 2011). So there it is, we can breathe a bit easier, think a bit further ahead, and sleep rather better across europe tonight, as pax merkela reigns.

24 october 2011, no deleveraging at home

The big force behind the tea party movement in america is the perception that through government action thrifty and sensible americans are paying for the reckless overstretch of others, "do we really want to subsidise the losers' mortgages ?" ranted rick santelli, "this is america ! How many of you people want to pay for your neighbour's mortgage that has an extra bathroom and can't pay their bills ?". That's moral hazard of the personal kind, with a policy also echoed in europe. Now, they're at it again, as obama announces more government loans for homeowners whose mortgages are rather too high. Like quantative easing, the basic rationale for this seems to be stimulus, i.e. how can we get people borrowing and spending more again. The high priest of the policy, lawrence summers, says that us house-owners losses have reduced their wealth by over $7,000bn in the last 5 years, which obviously knocks confidence and reduces their spending. As I've said before though, this can't go on, and not because I've much sympathy for tea partiers, but because the time is never, ever going to be right to deleverage: but here we are, and it isn't going to feel great, especially for house buyers that gambled on ever-increasing prices. A hard lesson for all, that there's no such thing as a one-way bet.

23 october 2011, miles and miles

We have been klocking up the kilometres recently. Yesterday, we drove down to halton hall to meet my sister's family (coming up from london), although without my other half, who has gone to budapest (see this amazing photo) for a few days. And earlier this week, we had a much-needed few days in the scottish highlands. We drove up to crianlaroch, taking the train to fort william, where we spent the night, and saw snow for the first time this year, sitting nonchalantly on ben nevis. The next day was the major highlight of the gorgeous train to mallaig, now to be known forever as the harry potter train, due to the scene from the film, which was indeed breathtakingly gorgeous. We then hopped on the ferry to the isle of skye, where we spend a lovely couple of days driving round ever-more amazing scenery, before doing the whole thing in reverse, by which time ever peak was snow capped, and we also managed a lovely lunch by the fabled shores of loch lomond. It already seems like a month ago...

15 october 2011, not just yet

At the more sensible end of british think tanks on europe, the centre for european reform has maintained a cogent analysis of the euro crisis, which is essentially that its genesis lies in the inbuilt need for wages to fall for competitiveness to be maintained in one part of the eurozone vis a vis others, because the traditional way to do that, devaluation, is no longer an option. Over the euro's lifetime, germans have done precisely that, becoming both keenly competitive and also, because wages and consumer confidence have stagnated, avid savers, so depressing consumption. Being so competitive, exports boomed, great for germany, but bad for those uncompetitive areas sucking in imports, where wages and asset prices boomed instead, including through those infamous irish and spanish property bubbles. When all that ground to a halt in 2007, investors didn't know where to put their money, as suddenly debts in many countries looked unsustainable, whilst returns in the sensible ones remained as low as ever. Nothing the eu has done since has changed that essential outlook, which they argue is worsened by the (german-led) course towards more fiscal rectitude, which lowers further domestic demand. The centre's basic solution is that the only way out is growth, which I agree with, but I don't with their contention that the only way to achieve that is massive government borrowing, taking advantage of cheap money desperate to land. My problem is tectonic plates: somehow, at some point, we need to realise that it was debt that got us into this mess, and it will not be finding a reassuring way to get back to such levels of debt that will get us out. The time is never, ever, going to be right to deleverage: but here we are. In their latest publication, reaching the endgame, they've rather succumbed to the british club of pessimists, seeing the euro's first decade also as its last. A shame, as that's the easy, but wrong, analysis.

Attached File: 15 oct 2011.docx

13 october 2011, you spends your money

It is astounding what we actually spend our money on. This chart is a good bird's eye view of uk public spend, which many places, like westminster, manchester and cumbria have broken down further. It reveals that we spend most money first in people not in work, and second on people not in good health. If you add up every single penny spent annually on the three million or so people living in those places combined, on every single service, local and national, it is approximately a quarter of what the usa spent getting two men on the moon. And what did the moon dust, as brian might say, ever do for us ? Well, there's some nice photos and teflon-coated fibreglass, but value for money from a few spacesuits short of $500 billion ? Go figure.

7 october 2011, not yet at peace

It's kol nidrei (see the great jazz singer) tonight, and I'll be there, as slowly we integrate onto our community here. I'll be asking for peace, and so it's appropriate that it's also the day the most famous peace roll call is added to, as this year ellen johnson sirleaf, leymah gbowee and tawakkul karman are awarded the nobel peace prize. I do try in my own way to bring joy to those I know and a better basis of happiness to those I don't, but how can we but gasp at the laureates' incredible feats, as they show themselves ready to sacrifice their very lives, let alone wellbeing and happiness, for the vast good of millions of others. They rightly join aung san suu kyi, nelson mandela, mother theresa, martin luther king, mikhail gorbachev, the dalia lama, lech walensa, kofi annan and, er, barack obama (10 oct 2009) and al gore. I still love the story of why nobel founded the prize, having read his own obituary in a newspaper and realised he'd be remembered forever as the inventor of what was then the most destructive force known to man, dynamite. A rather better legacy, and a good exercise for us all.

4 october 2011, politicos in town

The conservative party conference is here, so as part of the manchester team I've been hobnobbing with the government of the day and their various hangers-on, to sample the atmosphere, listen to the ideas getting worked up, and most importantly do what we can to get what we want. Even the (labour party) leader of the council has a very pragmatic view, and popped up at a fringe event on the future of the tories in the north chaired by graham brady, whom I know from my ecb days when he came over twice as part of the treasury select committee to write run on the rock. Funnily enough, richard was the most optimistic person in the room, seeing the sharing of the spoils of the demise of the liberal democrats. The talk was all about how the party could not win an outright majority next time round without transforming the situation "up here", when the point was made that "it's not about how we need to do things for people up north so we can win the general election, but how we need to win the general election so we can do things for people up north". Yesterday I spoke, on a smith institute platform, at a good event where all the speakers pretty much rubbished a recent report on pumping money into the north and forming a new "northern council". I thought andrew lansley both confident and competent, on a stellar platform with mathew taylor and stephen bubb, and our very own tom bloxham did a good turn this morning, though bob neill and mark prisk were less impressive. It's hard to deny the excitement of such a major event on the doorstep, and good to bump into journalists and talking heads that I see on the screen every night. The freebies are good too, best so far is a politicos top trumps.

1 october 2011, the missing e

It's been a year since from what was then the deepest moment of euro crisis came agreement to go back to building the "e" of economic and monetary union that was dropped in 1992. Progress however has been extremely slow, and the supposed milestone now reached is hardly worth the paper it is written on. The ecb has got little for losing its virginity in lending a hand to fiscal policy. Even the minimal steps agreed show little has been learned from the stability and growth pact, with powers to be given to the commission to fine euro area member states that a majority of them can block. This is all just the slightest of steps in economic integration, with little of any real value (like the consolidated tax base, 19 march 2011) even on the agenda. At least though the 17 can be seen marching together, rather than waiting for the laggards, and indeed one by one the parliaments have agreed to establish the european financial stability facility; london is not being asked. As predicted (p38), this is something that the lisbon treaty facilitated. Events, as everyone notes, are very far ahead of any such plans though, and if more "e" is indeed the solution, then its nowhere yet even on the horizon.

24 september 2011, rabbits, headlights, action

Two things have created the precipice of economic meltdown we find ourselves overlooking. One is powder keg, the other is sparks. The keg is the huge global imbalances that built up in our years of plenty, when china and the emerging world were very happy to lend us an endless amount of money to buy their goods, as anyway they had little faith in their own governance to manage it. The first spark was three years ago, with the implosion of the american sub-prime market, which took every fiscal policy lever we had to stabilise. The second was greece, which became the whole euro area, as inept leadership allowed the problem to fester and grow enormously. It is clear to everyone that there is deep global uncertainty about what to do, with fundamental misgivings somewhere over any particular strong course of action, making for total stalemate as to be effective any policy at this point needs everyone to be strongly rowing the same boat. We stand like rabbits, frozen in the headlights of the oncoming recessionary juggernaut. The markets are intensely volatile, as they struggle to read the runes of every move and statement, and desperately cut their losses when things momentarily subside. Though the bigger eu rescue package agreed before the summer will surely now finally come into being, it already looks too little, too late; though expect some rabbit out the hat tricks to make the number much bigger. The ecb too must surely both chip in and also find some way, at least temporarily, of underwriting the big european banks, where, just as in 2008, the fear that they are sitting on massive potential bad debts (this time sovereign) is utterly undermining confidence. These are the sorts of measures that will need to be in place to create the ring of steel within which greek debt can finally be restructured properly, something the markets have long since priced in (although that need not at all mean leaving the euro, see no way out, 16 january 2010, nor should they want to, as they're not the uk in 1992. The hope must be that default by another name will finally lance the boil, amongst other things allowing the eu's monetary and fiscal sides, which have been fundamentally at odds over the issue throughout the crisis, to lace together their actions better, hopefully beginning to restore confidence. All this is unlikely to be enough to stop the slide into recession, nor will it alter the movement of tectonic plates between east and west that is really driving the crisis. However, it may at least mark the end of a particularly chaotic phase and enable some stability of sorts to be once again established, on which the foundations for moving forward can then be built.

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