Author Archives: Alex Harrowell

About Alex Harrowell

Alex Harrowell is a research analyst for a really large consulting firm on AI and semiconductors. His age is immaterial, especially as he can't be bothered to update this bio regularly. He's from Yorkshire, now an economic migrant in London. His specialist subjects are military history, Germany, the telecommunications industry, and networks of all kinds. He would like to point out that it's nothing personal. Writes the Yorkshire Ranter.

Political union is transfer union

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It is very often suggested that there is no point looking at solutions to the European crisis that don’t involve more “political union”, an EU institutional term meaning a move towards a more centralised and “federal” (in the special EU sense) union. This argument is curious.

For a start, what is it about political union that is meant to solve the problem? Some people will probably say that it would be “a message” or “a signal” or something, a demonstration of commitment to the European Union that would in itself create confidence. But this sounds a lot like hand-waving to me, or the kind of genius that suggested introducing a pan-European tax as a way of making the Union more popular (yes, Mr. Verhofstadt, it is not entirely forgotten).

More seriously, political unions tend to have a substantial budget and the capacity to use it in a discretionary sense. In the political union between the provinces of Germany, there is a systematic redistribution of money between richer and poorer parts of the union. In the political union between the states of America, there is less overt redistribution, but there are very large federal agencies that in practice tend to redistribute money around the union. NASA, for example, had a secondary and very important role subsidising the industrial development of the South-Eastern US, and this goal influenced important design decisions in the Apollo and Shuttle programs.

It is also true that some degree of redistribution is inseparable from anything that could be described as a political union. Try to imagine the opposite. The political union would have to be designed so as to make absolutely no change to the a priori distribution of income, an exercise that boggles the mind in its complexity and futility.

The simplest model would probably be a libertarian utopia/dystopia with a minimal state devoted solely to defence, funded by a flat tax on the citizens. But now imagine what would happen when its army deployed for annual exercises. A large quantity of income collected all over the union would suddenly be spent in the exercise area. If, as is likely, there were a limited number of convenient training areas, or the army tended to train where it expected to fight strategically, we would expect to see a military-industrial complex emerge in those areas.

Just because your biggest customer is the army doesn’t make you useless, of course, it may make you indispensable. And in that case, our political union that is not a transfer union would have to think about how to keep you going between deployments, in which case it would be undertaking both industrial and regional policy. A state (or political union) that has no budget, or a budget that is economically indistinguishable from the absence of one, is no state (or political union). Marx thought that the state would wither away in true communism; you can argue about what he meant, but I think he imagined a society in which the functions of the state were either unnecessary, or else carried out by the citizen as a matter of course, not even perceived as a duty. A state whose budget changed the structure of the economy so little as to be totally non-redistributive would, I think, have a fair claim to have withered away.

I can’t see how an entity that made no transfers of wealth or income can be considered to have the functions of a political union. Further, even if a political union was created that was not also a transfer union, it wouldn’t solve the problem. Various parts of Germany need transfers from others; the same goes for all political unions. Declaring “political union” doesn’t solve the problem in itself. It might be taken to mean “direct ECB management of Greek public finances”, but then this is just hoping that the Greeks can find some more money with more will, and perhaps a pony as long as the pony is Karlsruhe-compliant.

Here is the problem: political union is transfer union, or it is not political union, and anyway, if it is not transfer union it is no solution. Transfer union is unacceptable. Therefore, political union is unacceptable, and anyone who talks political union is saying “Let the file mature while we do what the EU does best, holding an Inter-Governmental Conference”.

Some thoughts on institutional capacity in South-Eastern Europe

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Now everyone’s seen the title and stopped reading…Nouriel Roubini has a simple plan for Greece:

Grezxit path: election, default, exit, capital controls, deposit freeze, drachmatization of euro claims, depreciation, return to growth/jobs

Bada bing, bada boom, and it’s peace and jobs and freedom all the way up. Dr Doom makes it all sound so simple, stuffed into 140 characters. Now, I’m sympathetic to the Greeks here, and I think that, for example, the idea of imposing nominal wages cuts across the private sector is not just counterproductive but getting on for gratuitiously cruel. But I think we could do without 140 character eurozone exit plans.

What is being suggested here is a stupendous exercise in sheer administration and logistics. Apart from the problem of issuing a new currency, it’s probably going to be necessary to pull this off as a surprise. Obviously nobody will be very surprised, but there is such a thing as tactical surprise as well as strategic surprise, and although the capital flight is inevitable, less of it would be much better. All kinds of contracts must be re-written, and it’s important to get it right first time in order to minimise the amount of vulture-fund tiresomeness down the track.

Setting up capital controls basically means shutting off international payments, and without fucking up so badly that it will be impossible to start things going again. There are all sorts of trappy administrative details – what happens to OTE’s balance with their roaming partners? Olympic Airways aircraft down-route? And there’s the oil question. Some people seem to think motor fuel rationing is literally the worst thing in the world, some would disagree, but nobody would argue that a good, solid, tested contingency plan is vital.

These are all the kinds of questions Sir Humphrey Appleby would have asked. I was wondering what the Greek equivalent of Sir Humphrey was, until I realised that of course the concept is absurd. Humph is a satire of a powerful, independent, professional, and highly competent civil service, and if Greece had anything like that, it might not be in this mess.

J. K. Galbraith remarked that poverty is an equilibrium state. Now, a government that literally can’t bring in the taxes with a gun to its head isn’t something that arises by accident. There is a qualitative difference between one that could perhaps do more to collect on super-rich individuals who go to expensive and inconvenient lengths to pay no tax (like, for example, Sweden), but generally collects every damn penny it can, one that is a bit flaky but which will, by default, collect your income tax routinely (like France), and one that makes it harder to pay your taxes than not. Being that perverse takes effort, and it happens for a reason, that being “keeping the political nation together and keeping politics mostly non-lethal”.

We could go on, and we’d discover that the history of how things got this way places a lot of responsibility on the UK, Germany, the Soviet Union, and other major world powers with highly effective civil services. But none of this is going to solve anyone’s problems. Neither is barking at the Greeks to bring in the taxes, because their institutions weren’t designed that way. Trying to convert the Parthenon into a supertanker is an insane project no matter how much you need another tanker.

So much for the austerity plan.

But Dr. Doom’s plan-in-a-tweet could be expanded to Jim Hacker sending Sir Humphrey an e-mail like so:

“All the economic policy decisions since 1979. I want you to reverse them, over a Bank Holiday weekend. Can I have a brief on one side of A4 for the Cabinet? Thx xoxo PS THIS MUST NOT LEAK”

Now, well, quite a few people would say that rolling back every economic decision since ’79 sounds great. Some of us have had that feeling for much of the intervening period. But I think everyone would agree that it’s quite the project. In fact, if it came from a left-wing political party we’d probably think it unrealistic, romantic, and impractical. Which of the French Trotskyist presidential candidates was it who wanted to use war emergency powers to requisition the banking sector in its entirety? These days, it’s hard to tell them apart from Roubini and I for one think this is an improvement.

I reckon the UK civil service might be able to come up with a roughly workable contingency plan, and shut up about it. I think this because, at least into the 1970s and possibly later, they regularly maintained an economic analogue of the military’s War Book mobilisation and transition-to-war plan covering the case in which the UK had to quit the multilateral clearing system, never mind the ERM. (And they didn’t leak it.) With all due respect, I’m not so sure about the Greek civil service.

As a result, I’m forced to consider that this might be more bish bosh, loadsa money than bada bing, bada boom. And any half decent civil servant would point out that if your policy advice is impossible to implement, that’s not something you can just laugh off. Plans that cannot be implemented are so much wind, whether they come from Roubini, Syriza, or the European Central Bank.

If you want a one sentence answer-in-a-tweet, Greece doesn’t need the EU to send it a tax commissioner. It needs the EU to send it a default commissioner.

The FN: not just the UMP on the booze.

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Is the Marine Le Pen (and Nigel Farage, and more importantly Patrick Buisson) vision of re-organising the French Right around the FN viable? I prepared what follows for use elsewhere, but I think it helps here.

It isn’t as obvious as you may think that FN voters are the lost sheep of the Right.

In so far as they’re protesting, they’re protesting against French conservative neoliberal euro-atlanticism. This ought to be obvious, because who’s been in charge all these years? Conservative neoliberal euro-atlanticists. The 5th Republic has mostly been governed by conservatives.

Typical FN voters aren’t, in fact, ex-communist voters, but rather, PCF voters’ kids. Studies of the FN electoral breakthrough found that it was actually quite rare for people to switch from the PCF or the PS to the FN. Instead, FN voters in the 1988 and 2002 breakthroughs were typically first-time voters in places that traditionally voted Communist.

As Bernard Girard explains, this time out the FN did well with exurban voters, especially first-time house buyers who did the French equivalent of “driving until you qualify” in the US housing bubble. This meant that places suffering from rural depopulation were partly converted into suburbs, not necessarily getting any more in the way of public services or economic development in the process, and leaving the new exurbanites vulnerable to property and petrol prices. Interestingly, this suggests that the Tea Party and the modern FN are parallel phenomena.

It strikes me that a lot of French politics in the last decade can be summed up as “France discovers that it has suburbs” and in fact I did a post on Fistful about this back in 2007. So, after this somewhat protracted radar vectoring around the Ile-de-France basin, we finally come back onto final approach. If you vote FN, you probably don’t have any socio-cultural ties to French conservatism or any intellectual conviction of its ideas, which in any case are radically opposed to those of the FN, and you’re protesting against French conservatives because they’re the ones in charge, and it makes no sense to assume that you’ll necessarily come back to vote for the conservatives, because you are an extreme-rightist and not a conservative.

FN thinking is far more sceptical of capitalism, more protectionist, more anti-European, and more anti-American than UMP thinking. FN style and tone are far more working-class than the UMP’s. The FN is mostly after a different demographic to the conservatives. The exurbanites sound more like the material of a conservative party…if it wasn’t for the fact they are furious with the conservative party, furious enough to vote for the sort-of fascists.

This has two key consequences. The first is that trying to merge the UMP and the FN might not work, because UMP people don’t want the same things as FN people. The second is that trying to make the FN the replacement for the UMP might not work, because FN people don’t want to be a boring conservative neoliberal Euroatlantic party. They want to vote something that hurts the boring conservative neoliberals.

Now, before the election, pollsters were working on the principle that about 20-30 per cent of FN voters would vote Sarkozy, between 15-25% would switch across to Hollande, and the rest would follow the party line and spoil their ballot or stay at home. We’ll need more data to know whether this happened, and no doubt it is coming. My gut impression is that the pandering had some effect and is partly responsible for the late tightening in the polls, but I don’t actually have any data that supports it. Turnout fell noticeably between the rounds – the difference could be Mélénchonistes who decided that the Left would win anyway and they didn’t need to compromise in round 2, for example.

Anyway, it didn’t have enough effect to win, and winning counts.

Fighting the real enemy

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If the PS isn’t going to give us red meat faction politics, who will? The UMP, that’s who. The parliamentary elections are only weeks away. Nicolas Sarkozy has ruled out taking part in the campaign, and so has Alain Juppé, who has decided not to stand for a parliamentary seat in favour of concentrating on his job as mayor of Bordeaux. (Don’t assume that means he’s ruled anything out in the longer term, though.)

Everyone will have to find some sort of modus vivendi to get through the campaign, but after that it’s a free for all. There are perhaps three key groups in the UMP. Let’s work through them.

One group are the sarkozystes, the former president’s personal following. Despite many efforts to identify a shared ideology among them, the biggest common factor between them is that they are relatively comfortable with the extreme Right, and many of them (like Sarko’s advisor Patrick Buisson) have a background in it, whether the FN, the wider extreme-rightist student movement, or the network around Charles Pasqua and the dodgy fringe of Gaullism. Sarkozy’s personal court was always pretty febrile, and the experience of defeat is only going to make them more so.

As Marine Le Pen is talking about trying to re-organise the Right around her party, they are the ones who like the idea and will try to reach out, although of course they will see it as bringing the FN into the UMP rather than vice versa. But they will also have to decide who their leader is, and that will be a vicious experience.

Group two are the traditional Gaullists, who weren’t particularly happy with Sarkozy and fluctuated between putting up with him and outright sabotage. They are deeply suspicious of the FN, and one of their leaders, the former PM and current senator Raffarin, actually broke surface to criticise Sarko for pandering even before he lost. Look out for much talk about needing to rassembler, social peace, and the Republic. They will see Sarkozy as having lost a great conservative opportunity, and will be after revenge.

And then you have the overlap with the old droite classique, the heritage of Giscard, who don’t like the Gaullists much and don’t really want to be in a party with them. Neither do they like the far Right much, even if some people have been involved in both.

Actually, memberships and life histories tend to overlap all three, which is not surprising in a party whose original raison d’etre was just to support Jacques Chirac in the 2002 parliamentary.

The big short term decision is what strategy to adopt for the parliamentary elections, and how far to cooperate with the FN. Three-way marginal seats between the PS (or other left-wing candidate), UMP, and FN are common, and the question is whether to ally with the FN or fight it for every vote. It’s not hard to see how this fits with the factional divide, but it fits so well with it that it may end up being fudged in order to maintain some degree of unity. The fudge would be to say nothing and tacitly leave it to local initiatives, which has happened before.

The strategic question is whether to head for the centre or to keep going with the Sarkozy/Buisson strategy of “droitisation”. The sarkozystes will point to the fact that the polls pulled in some between the two rounds as evidence that the strategy was working. Everyone else will point to the fact that they still lost as evidence that pandering to the FN turns off moderates, and perhaps that FN voters aren’t sociologically very compatible with the UMP.

Meanwhile, of course, the Left has its own analogous question, which is whether and under what terms to cooperate. Ensuring a left-wing government is very important to the PS, and the degree of influence that the Front de Gauche will have as an awkward partner is vastly greater than what it would have yelling in opposition. Their incentives are to agree, and the cultural gap is less troublesome. Also, coalition between the parties of the Left is a feature of some of its proudest moments, and you can’t say the same about cooperation between French conservatism and the extreme Right.

Exit the elephants, enter the balanced budget multiplier

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So, the PS’s long faction fight is now over. The vast egos that fought over the legacy of Mitterand were known as the elephants, and we have arrived at the elephants’ graveyard. For the next five years, the PS is going to reorganise itself around whoever is closer to Francois Hollande. There will be a million micro-political questions like this, starting right away with the job of picking a prime minister and a cabinet, and then filling the huge range of posts that the president’s patronage still covers. What will happen with Ségoléne Royal, for example? One rumour puts her as speaker of the National Assembly. The head of the Socialist group is being tipped for prime minister.

But let’s get onto content. Hollande was very clear throughout the campaign that he intends to change European economic policy in the direction of more stimulus, and that he’s willing to pick a fight with the Germans about it. He referred to this in his press conference last night, and then again, hoarsely, to the crowds gathered at the Bastille. And the Germans have, as previously blogged, given the faintest suggestion that they might be willing to budge a little.

There is a detailed discussion of Hollande’s economic programme in two parts here and here. He is being notably careful not to promise a major fiscal expansion, and the balanced-budget multiplier is going to get quite a workout. On the other hand, any substantial budget consolidation is being firmly kicked down the road.

In general, it looks quite a bit like this post on the British TUC blog. On the European level, Hollande is arguing that if the Germans don’t want eurobonds, then they should accept quantitative easing, and vice versa.

There is a way out of the apparent impasse – the Germans are much warmer, or at least less icy, on expanding the European Investment Bank’s infrastructure projects than they are on eurobonds or QE, and Hollande explicitly mentions project bonds, i.e. linked to named projects. (It’s also rather like option 28 here.)

As far as the politics goes, Hollande’s working assumption seems to be that if the Germans want there to be an EU and a Euro, they’ll just have to shift somewhat, with the back-up plan of lining up the IMF and the Americans on this. As I mentioned in the last post, Hollande formally takes office on the 15th, and will be in Camp David on the 18th, which rather suggests that a call on the IMF (and its French director) and a bilateral with the Americans will be on his agenda, as at least one of the intervening days will be spent travelling. There’s also a trip to Berlin coming up, but Le Monde‘s sources left the date of that one open. Obama won the congratulations race by a country mile, getting in with an invite before Hollande got back to Paris. (As for the EU institutions, well, they want there to be an EU and a Euro.)

The market insta-response has been promising, although everyone’s attention is riveted by Greece, the Spanish industrial production numbers, and the banking sector. Speaking of which, does anyone else wonder whether the bail-in directive figures in his plans in that respect?

Frelections: roundup

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The day after, some French election blogging. A somewhat ambiguous photo from the Sarkozy rally – he’s despairing, she’s…not. Sarkozy gets made to eat his Flamby, an allusion to Francois Hollande’s enemies’ habit of likening him to a wobbly jelly. But in the end, it wasn’t a wobbly jelly but more of an epic blob. Sarko kept throwing punches, but it just kept coming.

The exact details show that the polls narrowed at the last, to 51.6% vs 48.4%, not as decisive as you might have expected earlier in the campaign. However, as the winner said in an interview last week, the nature of the poll is that a win is a win, and the Left’s support, the peuple de gauche, put on a spectacular crowd at the Bastille for Hollande to struggle through with the sixty motorbike cops that were the security state’s own special tribute, today’s version of a bodyguard of lancers.

Transition of power in France is somewhere between the astonishingly swift process in Britain, where the old and new prime ministers’ official cars both park up outside Buckingham Palace while the first has their farewell audience and the second officially accepts the appointment, and the weeks long grind from a US presidential election to inauguration. The handover was fixed this morning for the 15th of May.

It couldn’t be much later, as the president will then have to zap off to the G-8 summit at Camp David on the 18th and then on to the NATO summit in Chicago on the 20th, as well as whatever happens on the European scene in the meantime.

Catherine Ashton

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Is it time for AFOE to declare victory on this post about Catherine Ashton’s appointment as EU foreign minister (but we don’t call it that)? Laura Rozen writes that the Iran nuclear talks are making progress for the first time in ages.

The Russians are being constructive. The head of the Israeli military thinks that there has been no decision to build the Bomb, and that the talks are going the right way. David Ignatius sketches some details of a possible agreement, which would combine a halt to uranium enrichment with a promise of regular supplies of 20% enriched uranium and explicit recognition of the right to own the fuel cycle. And it’s been suggested that the Iranian government is trying to prepare public opinion for a deal.

In this context, Laura Rozen profiles the three women at the core of the Western negotiating team, Catherine Ashton from the EU, Helga Schmid from the German Foreign Ministry, and Wendy Sherman of the US State Department. Quote of note:

“She is totally working class,” the European diplomat said. “The criticism from the British press if anything is that she is from northern England, and speaks with a northern accent…

Yeah, well, if you think international understanding is difficult…

Frelections: a round-up between the rounds

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No need to guess what’s got the headlines. Mediapart published what purports to be a document demonstrating that (as has been repeatedly rumoured) Libya offered Nicolas Sarkozy a substantial sum of money (€50 million) for his 2007 campaign. The finances of Sarkozy and the broader French right are a deep dark subject, as the continuing Karachi affair makes clear – the treasurer of the 1995 Balladur campaign just described how they concealed large donations in used banknotes. Of course, the campaign manager was none other than Nicolas Sarkozy. Quite a few of the same personalities involved also turn up in the note. It’s not clear, even if the document is genuine, if the money was ever paid out, and its addressee denies ever receiving it. Meanwhile, the arms dealer Ziad Takieddine, who shows up in the whole range of scandals, says he was refused entry to France in the hope of preventing him from producing the document.

However, so far the response from the Sarkozy camp has just been to complain that it’s “undignified” and to point out that the legal maximum campaign spending is €22 million. Obviously you’d have to be naive to think that this somehow excludes finding something else to do with the spare money.

Obviously, the frantic last chance that the interval between the two rounds provides brings everyone with a grudge boiling up to the surface. Dominique Strauss-Kahn re-appeared, with what claims to be an interview with him appearing in the Guardian (rather-too-helpfully translated here) and causing Nicolas Sarkozy to start talking about him a lot. Weirdly, DSK then walked it back, denying that the piece was an interview. Perhaps it helped to move some books. The founder of Rue89 publishes an open letter calling on him to shut up.

Sarko, meanwhile, claims that he’s hoping for a unprecedented mobilisation of the electorate, although the 80% turnout in the first round didn’t seem to help his cause much. Both candidates finish their formal campaigns with a rally today, before the TV debate on Wednesday night.

In terms of actual content, the debate between the rounds has been marked by both candidates denying they were trying to suck up to the FN while also doing so. Rue89 takes a left-wing view of the FN electorate. Sarkozy announces he wants “a presumption of self defence” for the police, in a transparent sop to the FN, while also denying that he would ever form a coalition with them, although also basking in FN rhetoric. He also did a bit of culture war. There are limits to this: Sarko’s enemies in his own party, including two former prime ministers, are angry about the pandering.

Pandering is bipartisan, of course: Hollande has discovered a desire to have an annual parliamentary debate on an immigration quota, as well as doing a bit of security politics about policemen and cannabis. The PS has been measuring the dosage carefully, though – Ségoléne Royal was sent out to remind the public that the party wants foreigners to have the vote, at least in local elections, as a form of republican integration. However, this promise goes back as far as Mitterand’s 1981 campaign and has yet to be implemented.

Hollande is also trying to score off the European Union, or rather, off the ECB and Angela Merkel. In an interview this weekend, she suggested that she might be willing to support a “growth agenda”, perhaps making use of the EIB, but also said nobody was going to re-open the stability pact. Hollande took the credit and remarked that things had moved and were going to move further.

Le Pen and Mélénchon, meanwhile, are looking ahead to the parliamentary elections in June. Interestingly, the deal setting up the Front de Gauche gave the Communists the majority of parliamentary candidates in exchange for letting JLM run for president, but the man himself is bored with being an MEP and feels the need for a bigger megaphone in French politics. A big deal for both will be whether they can get an agreement with the bigger party on their side of politics to cooperate in three-way marginal seats. This is crucial for the smaller parties, as you need to get 12.5% of the vote in round one to be on the ballot in round two. The UMP and the PS are both playing hard to get.

Out with the PS in La Courneuve, where the local secretary reminds us that Barack Obama didn’t invent canvassing.

Apparently, Nigel Farage has been suggesting that Marine Le Pen dump the FN and create something like UKIP. All I can say to that is that perhaps he could give advice when he gets one in five Britons to vote for him as prime minister.

Frelections: a little more

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Wondering what I meant about Mélénchon performing Frenchness? L’Humanité does an in-depth interview, in which he says as much. If you read French, well worth reading the whole thing. Anyway, his take-home message is that the mission is now just to beat (even to eliminate) the Right.

Elsewhere, IFOP reckons 31% of FN voters are reverse-switchers, but then they were off by 2.5 on both MLP and JLM, and not too good on Sarko or Hollande either.

So far, Le Pen has won one département, the Gard, a mountainous, wild, Protestant former Communist fief down south, where she got 25.5% of the vote, with Sarkozy and Hollande on 24% each and Mélénchon on 13%.

Looking at the first few results from Paris, I get the impression Mélénchon’s campaign did poorly in the capital. This may just be because some districts haven’t reported yet, but he got scores around 13% in quite a few départements and he’s struggled to break 10% in Paris so far. Hollande got 43% in the 18th, for example.

Frelections: first post-election perspectives

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The first post-election poll is in, and it has Hollande winning 54% to 46%. The inner workings are interesting; they reckon that 33% of the Bayrou votes go to the PS, 32% to Sarko, and the rest nowhere, 86% of the Mélénchon votes go PS, 60% of the FN go Sarkozy, 18% go PS, the rest nowhere. You can see why Sarko is still trying to get more FN voters.

IPSOS was within 0.2 percentage points of the current estimated result for Hollande, which is excellent, and 0.6 for Sarko, which is OK, but they were out by 3 for Mélénchon and 2.5 for Le Pen, so set your Bayesian estimator accordingly.

Also, here’s a chart of the FN vote over time: