Blog
4 march 2011, strong vigilance
There you go then, interest rates are on the up again. It's been eminently predictable (28 jan)for a while now, and so as the ecb traffic light turns to green, no-one should be surprised that the central banks will hold back the tide no longer. I remember well getting to work on 9 august 2007, to find that we had injected some 94 billion euros into the system to keep the money markets operational, and how from seeming fantastical and revolutionary it became within hours what the world did for the next few years. Again now frankfurt leads the way, but it's echoes across europe will quickly follow. The governor of the danish central bank once said that outside the euro he has full independence to set interest rates - for about 15 minutes after the ecb announce. The others are not far behind. This is a huge problem in london, where although the hawks have been gathering on the monetary policy committee for a while now (with 3 from 9 members voting for a rise in february), the establishment has been strongly bending the knee to the treasury's need to keep the monetary stimulus flowing, but the timer is now ticking and if they can hold out to june without too much damage being done, I would be surprised. Already the pound is on the way down again. It won't be a dash upwards though. By starting what some will deem a tad early, the rise back to "normality" can be well-paced and I wouldn't expect more than perhaps one other quarter point rise before trichet hangs up his traffic lights in October.
20 february 2011, change, unfortunately, voted down
In a couple of months the uk will have its first nationwide referendum since 1974. Knowing the population's innate conservatism, the then-government joined the eu first, and only subsequently asked if the status quo should be retained, "do you think the uk should stay in the common market ?". The now-government is using the same ruse on a quirky plan for england's largest 12 provincial cites to have elected mayors, first putting them in post for a year, and then asking the question. The big one though, about moving to the "alternative vote" electoral system for general elections, is tellingly different, with a paraphrase of the question being "do you want to explode three hundred years of history and tradition by moving from a tried and tested system that has delivered empire, world war two and years of never having it so good to the experiment they use in new guinea". The other dynamic is voters' typical mid-term desire, in hyper-drive this time, to give the government of the day a good kicking; though what to do when the governing parties say both yes and no ? I suspect the yellow ("yes") bit of the government will get kicked here, as anyway voters suspect political plot in any twiddles of the electoral system. A pretty clear "no" it will surely be, which is a great shame, as av is a better proposition than the one we have today which enables sometimes just a third of voters to elect a local mp and creates an elective dictatorship that rules all it surveys. Best reason to support it, is to unblock the dam(n). Very good article on this today by andrew rawnsley. Coalition government is just months old here, but I hope that in its wake, we will look again at the electoral system status quo, hopefully with a better outcome that ultimately strengthens democracy.
12 february 2011, strasbourg: bring the roof down
A couple of years ago the roof fell in on the european parliament building in strasbourg, literally. It was plastered up, and the travelling circus that gives the parliament such a bad name continued. That was a tragedy, as to an ever larger degree it is europe, rather than national parliaments, that determine legislation, and a directly-elected institution needs deeper roots and credibility. 90% of lawmakers have now come round to this, catching up with the rest of us. However strasbourg week will continue as long as france doggedly refuses to concede, and everyone else holds up their hands and says it needs a unanimously-agreed treaty change. These do though come along more often than most people imagine (30 oct), the next set piece being when croatia becomes a member state. Change is needed: parliament works ever day on laws that directly affect citizens in areas such as car exhaust emissions, mobile phone charges, gas bills, insurance contracts and waste disposal, and, (jointly with the council, a process known as "co-decision") passes them. At that point, they are sent down to national parliaments (and governments), who translate them into national law - see parliament of bores. The 736 MEPs are also the eu's budgetary authority, deciding how to spend most of the money, and scrutineer of the commission, the ecb and the other institutions. It is ironic that whilst parliament's powers have increased with every treaty, turnout at european elections has consistently declined, from 62% in 1979 to 43% in 2009. As to why the dog ate most voters' registration forms, surely the idiocy that is the strasbourg commute and even more importantly the eu's inability to fix it - a symptomatic story of narrow self-interest blocking obviously logical reform - has to take some of the blame.
10 february 2011, ecb runners and riders
Not since the start of the euro in 1998 has anyone picked an ecb president, the eu's most powerful post. Then, they agreed on wim duisenburg, with a succession by jean claude trichet, who steps down in october. Trichet was in so many ways both the perfect candidate - a personifaction of hawkish bundesbankism with french nationality - and the perfect president: part diplomat, part chairman, part politician, all central banker and outstanding intellect. More than anything he was a leader, playing an immeasurable role in establishing the euro. Tomasso padoa schioppa (25 october) was a towering presence in the central banking world, but seeing him at a board meeting with trichet was like watching a boy. Until today, bundesbank president axel weber seemed favourite for these hard to follow shoes. Now we risk a credibility-sapping race as familiar eu arguments over balance and nationality inevitably rear their head. Whilst a german candidacy in 1998 was almost unthinkable, now it is almost inevitable. However, the issing-like presence of stark is already established on the board and so with credibility, credibility and credibility the top 3 qualifications, it will be a central banker through and through, ruling out other german candidates like klaus regling. The ever more chauvinist german politics around the bailout clash with merkel's natural and indeed traditional germanic bent to be kingmaker - ensuring the best, but not a german appointment. So the second most important qualification will be hawkishness; the warm compromise of yves mersch looms. My tip though, despite however many articles that tell you isn't possible: jurgen stark. Politics has a way of trumping iffy interpretations of eurosystem law when it needs to. As to whether it is a good choice, well it ticks all the boxes and he's as rigorous and orthodox as they come, but with leadership qualities so far unproven...
5 february 2011, no magic bullet
The much maligned nick clegg is right in his protestations that there is no magic bullet to create economic growth in uk plc. Clichés they may be, but there is usually some truth at their heart: selling out the next generation is the ultimate short termism he says, politicians can fall prey to the myth that somewhere there is a lever they can pull to generate growth and that they should simply pull as many as possible in the hope of finding it. His prescription of moving away from dependence on debt-financed growth (excruciatingly painful if actually done), investing in real infrastructure and in knowledge, skills and education and attempting, to the degree possible, to diversify sources of growth, is surely right. At best though, this is going to lead to an export-led feel bad recovery, with the great majority feeling not an updraft but rather a dwindling of their spending power. Worse, there is a risk of a rump at the bottom, especially the young (first victims of all recessions) all but cut adrift. It is not just their spending power being hit, but also the various (expensive) layers of national and local support previously in place and now being stripped away as an unfortunate consequence of the cuts. This generational timebomb is worrisome not just to the left, but also the right - "youth unemployment permanently scars its victims' lives... even when they get a job, someone who has been out of work for more than a year in their youth will earn as much as 28% less over their lifetime, and is more likely to be convicted of a crime". There, that question is coupled with another, "why, with 150,000 young unemployed in london, does your waiter so seldom have a london accent ?". Following through both clegg logic and its downside, the result is that there is indeed the need for the "plan b" that everyone is talking about, but it is not fiscal splurge on business and sexy sectors, but instead mitigation tightly-targeted on unfortunates ready to work and firms ready to employ them - future jobs fund anyone ?
3 february 2011, one small LEP for manckind
As manchester often does, we have embraced a government initiative with gusto where it broadly aligns with what we wanted anyway, so why not get some extra kudos ? So it is with the not-really-replacements for the behemoths that were england's "regional development agencies", our newly-minted local enterprise partnership. We're now officially looking for 13 leaders to pull us all together and drive us all forward; an interesting job, perhaps. You'll need to read the small print to know what the lep will actually do; or rather to be on it, as the intention is very much to have big people with minds of their own who can think innovative thoughts in this highly-restrictive climate, and take the rest of us with them. We can always hope.
Attached File: lep.pdf
1 february 2011, there’s no wall in cairo, but...
They're not quite falling like ninepins, but there's a strong whiff of 1989 in the air as the tunisian government sort of goes, they march in yemen, the momentum to get rid of egypt's president and indeed whole regime becomes unstoppable, the lebanese government collapses (again), and in a pre-emptive strike jordan's gentle despot sacks his whole government. The arab exception to the onward march of democracy over the last decades, and the west's acquiescence in it (as it delivered stability and a degree of support for israel) has long been debated, but no-one saw this potential headlong rush towards toppling dictators and letting freedom ring. A big question for many, including israel's prime minister, is whether the result of all this will be "fundamentalist" islamic regimes in a "one person, one vote, one time" scenario. His likening a possible outcome to iran is short-sightedness and scaremongering of the worst kind, that ha'aretz, a very reliable source of israeli news, correctly called him on. How illustrative that israel has taken its place amongst the status quo of the middle east, and left so far behind its idealism, its aspirations and its pride as a light unto the nations. Even the EU has done better, calling for an "orderly transition... to a genuine process of substantial democratic reform ... paving the way for free and fair elections", which I put down as a small victory for lisbon (time for europe). Though hardly as exciting as the politics, the greatest fears should perhaps be economic. As the ever excellent nouriel roubini points out, 3 of the past 5 global recessions were sparked by geopolitical shock in the middle east that led to a spike in oil prices. Yet another reason to fear that stagflation may be stalking our economic future.
28 january 2011, growth down, inflation up, rates up
Major shock, apparently, this week, that uk growth at the end of last year was only minus 0.5%, meaning it actually shrunk; another of those and we're back in recession. Suddenly of course, everyone seems to have predicted it, but actually it's much more drastic much quicker than anyone forecast. This is not unconnected to inflation, the figures released a few days before being not that much less of a shocker themselves, and yet again way above bank of england predictions. They have now missed the 2% target 55 of the last 66 months. There is a point at which the longevity of this means that inflation expectations rising becomes a given and any concept of it being a "temporary spike" impossible. I would argue that point has come, although its usual consequence, the infamous wage-price spiral, has not - as low (now negative) growth will continue to depress wages. What this all really means to me is that uk plc is well on with its grand plan (22 nov 2009) to get rid of the debt, namely cut a third (yes, plans will slip), devalue away a third (virtually done already) and inflate away a third, that pain being spread widely through the gentle but elongated depression of all our purchasing power. It will bite that much more deeply when interest rates start to go up, and even the bank of england can hold back that rising tide only so long; it will be infinitely harder once the ecb makes the first move, as I think is now more than odds on in the next very few months.
22 january 2011, not in for a pickles, but in for a pound
In london last week to meet everyone's favour minister, eric pickles, the man fronting the local government cuts, as well as greg clarke, minister for "decentralisation". The uk is chronically centralised and so this is a timely job, but not an easy one. Whilst this ministerial brace have backed the setting up of vague local enterprise partnerships (I was there as part of a representative sample), actually transferring any sort of powers away from whitehall (mainly meaning other departments, like business, skills, employment) to local areas, even where, like manchester, the strongest foundations are already in place, is a difficult mission, but one, with all the localism rhetoric, that cities have a right to push hard on. What does success look like ? How will we know if devolution is real or just facade ? Simple really, follow the money. According to mckinsey (p63), no less than 72% of public expenditure in the uk is central, compared to 15% in switzerland, 19% in germany and even supposedly paris-centric france is just 35%. The test is whether, like amsterdam, munich and barcelona, cities like manchester are allowed in the coming years to actually decide on how to spend more of their own money, regardless of central prescription.
Attached File: ministers2.pdf
13 january 2011, the cuts come to town
And so finally, after the months of phoney war, as expectations went up and down, the size and consequence of "the cuts" comes into focus. Several councils up here have already announced numbers: 800 in oldham, 500 (maybe) in bolton, 400 in bury and stockport and today a whopping 2, 000 in 1 year in manchester, which always has to do everything bigger and better than everyone else. Plans were well advanced for taking 50 million out of the budget, but in the end the bottom line was 110, neccessitating this rather drastic news, which has gripped the council. Their leader talks about redistribution from poor areas like manchester to those more affluent, which is certainly a noticeable effect as various extra funding lines that successive governments, especially the last one, created to improve the amounts going to the worst-off areas, especially northern cities, have been wound up. Manchester, for all that it is a beacon of growth and centre of the second largest economy in the country, imports most of its skilled labour daily, and has no less than 66% of its resident population in the UK's 20% most deprived. It is also at the heart of greater manchester's drive to find innovative and hard hitting ways to reduce dependency and create efficiencies, not least through the ten councils acting as one (23 oct), and the big risk of all this is that each organisation pulls down the shutters and has neither the stomach nor inspiration for innovation as the cuts begin to take up every last ounce of everyone's energy and attention.