Tories accidentally sell the EU to Britain

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So, we’re still waiting for Cameron’s big speech on Europe, which has grown a Twitter hashtag (#TheSpeech) during its repeated postponements. Curiously, if the prime minister had set out to make the case for the European Union, he couldn’t have done better. As the dithering continues, the polls are shifting steadily towards more support for staying in the EU.

This is in the context of a longer-term swing back. In May, YouGov’s polling found that 51% of those polled would vote to leave. By the end of the year, this was down to 46%, and a week ago, 42%, with a matching increase in the vote to stay in. As the chart above shows, the lines have now crossed over. Even before the cross-over, more people thought that things would be worse outside the EU on the economy, on jobs, on their own personal interest, on the UK’s relationship with the US, and on UK foreign policy in general. Go ahead and hop over to here and get more information on legal advice.

Meanwhile, there’s been something of an elite mobilisation, with the newly deployed psuedo-thinktank the Centre for British Influence rounding up 16 Tory MPs to write to the prime minister (I was surprised they found so many) and managing to place a succession of “pro-European thinks Cameron is wrong” headlines in the papers.

One of the most surprising discoveries of this latest go-round of the Tories’ conflicts on Europe is that UKIP has stopped being a party that is primarily about the EU, in the sense that its voters don’t care about it. In general, British electors rank Europe relatively low among their priorities. For normal people, it tends to be a strong opinion but weakly held. Astonishingly, it turns out that UKIP voters are no different – their polling profile is basically identical to that of Tories. You can to get in contact with the best law firm near you.

This is important and interesting. It shows up that both the Tories and UKIP have a problem. The Tories’ problems are as follows – they’re competing for votes on both flanks, to the centre and to the extreme right (the polling is clear that UKIP wins votes from Tories), and they’re forced by their internal politics to spend time and effort making speeches about Europe and the nature of Britishness, which isn’t a productive activity. UKIP’s problem is more subtle; its leaders are fascinated by the EU. It’s why they do it. But their voters aren’t – only 27% of them rate the EU among their top three issues.

Over time, UKIP has evolved in a libertarian direction. Its leadership basically believe two things: we should get out of the EU, in order to be more neoliberal. The problem here is that libertarianism is very much a minority opinion. Most British people don’t want it or anything like it. Polling of UKIP voters shows they are no different. Instead, they seem to be Tories, but more so. They vote UKIP to register protest against the Tory leadership for compromising with the electorate and the Lib Dems.

For their part, the Tory Eurosceptics are trying to compete with UKIP in Euroscepticism and libertarianism. Therefore, the “Fresh Start” group wants David Cameron to demand three policies: an opt-out from the working time directive, and another from financial services policy. This is apparently meant to be popular. The Fresh Starters say some remarkable things – apparently the EU wants to “shut down financial services” – but it seems unlikely that the British people are desperate to avoid regulating the banks, and it is actually the declared policy of the government that the economy should be rebalanced to rely less on the City. (And they want to stop sending the European Parliament to Strasbourg, but then everybody wants that bar the mayor of Strasbourg.)

But this speaks to an important point. It’s meant to be about sovereignty, no less, and this is all they can think of to do with it?

Another interesting point. Is it really better for the public to believe in “Europe” abstractly by large majorities, and to be convinced that it is basically against their interests on concrete questions of fact, or to be suspicious of the windy speeches and wandering parliaments but to think that it’s probably better than the alternatives on real issues?

FOMC Transcripts Or Why It’s Important to Listen to the Staff

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From the 2007 US Federal Reserve meeting transcripts, Meeting of the Federal Open Market Committee (FOMC) on September 18, 2007, economist Karen Johnson during a discussion of the Northern Rock debacle —

MS. JOHNSON. But, I have to say—as when President Fisher asked that question about
whether we know what we don’t know, to which, of course, the answer is always “no”—
[laughter] five days ago, I wouldn’t have brought up Northern Rock. So, I can’t promise you
that there aren’t—
MR. FISHER. Previously Newcastle, should have been called Sandcastle. [Laughter]
MS. JOHNSON. The Spanish banks, for example, and the Spanish mortgage market are places, if I were going to dig deeper and look for hidden problems, that are a possibility.

That’s a viewpoint that had trouble gaining traction among senior Spanish officials for another 3 years.

Kurds

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A serious Iraqi newspaper is saying openly that it may be time to give up the Shia-Kurdish alliance that has run Iraq since Saddam, and let the Kurds move on to independence.

Shots fired at an Iraqi army helicopter to keep it from reconnoitoring Kurdish positions, while Jalal Talabani is seriously ill.

Exxon Mobil is giving up on its contracts with Iraq to concentrate on Kurdistan.

Old story, but good: the Turks have a backchannel from their secret service to the Kurds. This caused a major demo round the corner from here today.

The Kurds have, of course, staked out a big chunk of Syria after the government withdrew to fight more worrying rebels. What if this was the year they got what they wanted? I remember blogging years ago that putting a tough and well organised mountain guerrilla army between Turkey and Iraq seemed a fine idea from a Turkish point of view.

Links: Britain and Europe

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Back in December, Anne-Marie Slaughter said she thought an EU-USA trade agreement might happen i 2013, and that the Americans saw the US and Europe pivoting together towards Asia. Art Goldhammer makes the good point that British eurosceptics should look out.

Professional super-Right Tory Peter Oborne catches up, spinning off a statement delivered by the State Department directly. There is no contradiction between the EU and the special relationship.

But there never was. The Americans have repeatedly pressed the UK to engage with the EU. I remember the same story from the Treaty of Nice; all sorts of people promised nightmares, but actual American diplomats and statesmen would repeatedly say that in their view, we ought to be in. Oborne is too partisan to say it, but the 51st state option has never existed. The Americans have never wanted the UK out of the EU. If they did, they’d say it.

It is true that a lot of Tories – Oborne names them – have dreamed that all the problems of leaving the EU would be solved by an appeal to America. The cult of America is part of the Thatcher cult in general. But Thatcher herself was never overawed by the Americans; the 30th anniversary releases on the Falklands War show that she was firm with them to a degree that the French would have considered flinty.

The belief that the Americans really want us out is pathological, relying on any blowhard willing to open the mouth as an alternative to their actual decision makers. The integrated north Atlantic market for bullshit means that internal Tory rows are exported across the sea and reflected back as evidence. As Hopi says, one result is that Thatcher’s Bruges speech would now be considered daringly pro-European.

Finally, Austrian chancellor Werner Faymann:

Mit Merkel habe ich ein gutes persönliches Verhältnis, innerhalb dessen wir inhaltliche Unterschiede haben. Warum ich mir mit David Cameron schwerer tue, vor allem auch im persönlichen Verhältnis und beim Vertrauen, auch wenn die Umgangsformen immer nett sind, liegt darin, weil ich bei ihm das Gefühl habe, dass für ihn besonders gilt, was wir vorher besprochen haben: Er redet im eigenen Land anders als im Europäischen Rat

My translation: “With Merkel, I have a good personal relationship, although we disagree about policy within that relationship. I find David Cameron more difficult, especially in our personal relationship and in terms of confidence [or trust]. Why? Even though his formal manners are always very nice, I have the feeling we discussed earlier but even more than with the others – he doesn’t talk at home like he does in the European Council.”

Some Eurolinks

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Christian Gros gets, I think, to the heart of the matter:

The key to ensuring the future of Europe’s social-security systems, and thus its social model, is faster growth. And, again, it is difficult to see how more Europe would improve the situation. The obstacles to growth are well known, and have existed for a long time without being removed. The reason is quite simple: if there were a politically easy way to generate growth, it would have been implemented already

The question isn’t whether more policy areas are moved to the Commission (or in practice the ECB) or not, it’s what the policy is. Foreign Policy argues that Christine Lagarde has changed it:

She directed her chief economist, Olivier Blanchard, to publish new estimates showing that the fiscal multipliers — a measure of the impact of budgetary tightening on economic growth — on which the IMF had based its financial support programs in Greece, Ireland, and Portugal were excessively low. The new estimates put the fiscal multipliers between 0.9 and 1.7 — up from the 0.5 that had been previously assumed. In other words, the damage done by budget tightening was likely to be two to three times as bad as the IMF had previously estimated.

Armed with these estimates, Lagarde has pushed back against the ECB and EC [ed: we think they mean the Commission], arguing that by deepening the recession, excessive budget tightening can be counterproductive in stabilizing a country’s public finances. This has led her to recommend that Ireland, Portugal, and Spain not be subjected to another round of belt tightening if their economies continue to falter. Instead, she has argued that they should delay meeting their final budget deficit targets to allow domestic economic recovery to take hold.

Corporate Europe lives.

European operators have not talked about creating a single network with competition authorities, according to a Reuters, although they have expressed an interest in greater consolidation.

A Financial Times report earlier this week said leading operators had discussed with Joaquin Almunia, the EU’s competition chief, the idea of creating a pan-European infrastructure. The aim would be to offer better integration between Europe’s national telecoms markets.

However the later report, quoting unnamed sources, says the meeting had focused on whether the number of operators in Europe could shrink through mergers and takeovers, a process requiring regulatory scrutiny…

I can’t really comment on this, but I’m suspicious of the blue and yellow jacket round the bad whisky.

Menace to Solvency

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If you thought there was one lesson from the financial crisis of the last 5 years, it would likely be that governments need to have the ability to cut themselves loose from large financial institutions, meaning that they have the power to liquidate or restructure them without incurring massive fiscal obligations. And when people look around for a model of how this process might actually work, they cite the US Federal Deposit Insurance Corporation (FDIC).

It may be worth noting therefore that in the spending cuts bill (H.R. 6684) hastily assembled by US Congressional Republicans on Thursday to drum up votes for their fiscal cliff solution, the FDIC would have lost its expanded 2010 Orderly Liquidation Authority to liquidate or restructure bank holding companies, bank affiliates, or non-bank financial intermediaries (like AIG) — its power prior to then only included banks that it directly insured. It’s not like the bill proposed a better alternative — had it passed, it would have been simply a reversion to the 2008 situation, which worked out so well with Lehmans and AIG. And this was being presented as a solution to the country’s long-term economic problems. Lesson: the fiscal cliff isn’t just about fiscal policy. There are other very damaging agendas being pursued under its cover.

Only a madman could doubt the integrity of…

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The French conservatives tearing their party up are weird enough. And they’re still at it, with one important figure trying to get deputies to support having a new election, others picking a fight with Sarkozy’s rightist advisor Patrick Buisson, appeals to Cope to step down and rowdy public meetings, the Socialist in charge of parliamentary financing scheming to offer Fillon a little extra. Tonight’s headline: Discord persists between Cope and Fillon. You could say that.

But it’s as nothing to this German story. So there was this guy who repeatedly claimed that his wife’s division of HypoVereinsBank was smuggling cash into Switzerland for the benefit of its wealthy, tax-evading private clients. He even pressed charges with the Bavarian police but nobody took it at all seriously, although he named 24 of the clients and their advisors at HVB and gave details of the Swiss bank accounts. Eventually, he was arrested for assaulting her.

Well, you can’t condone this kind of behaviour.

Unusually, he was sent to a secure psychiatric hospital, and has been there ever since, while HVB surfed the bubble and sank in the crash. Had he been found guilty, he might not have done time at all. No, stop. Going by the account here, he was held responsible, but acquitted on the grounds of diminished responsibility and sent to the funny farm because he thought HVB was crooked, a belief that only a madman could apparently hold.

And now it turns out he was…right in every detail, even if he accused another figure in the case of being on the side of the bankers because he lived next door to one. HVB’s private clients operation was hugely involved in tax evasion, and yes, carloads of raw cash were driven to Switzerland, to be paid into accounts with codenames like “Monster”. The original file on the case has been shredded. And HVB’s internal audit knew as long ago as 2003.

Now, although the state minister of justice is getting support from the top, this isn’t stopping the taxman from working down the list, reminding those on it that an arrangement could always be made for those who voluntarily choose to settle their outstanding debts.

And if that wasn’t good enough, with its distinct Jimmy Savile flavour, a sinister lobbyist hacks into the Ministry of Health’s e-mail on behalf of one of Germany’s most powerful interest groups…the pharmacists.

Some French links

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Here’s a really interesting piece about French interior minister Manuel Valls and the network of friends around him from his days as a student activist. They include Alain Bauer, Nicolas Sarkozy’s security adviser and the man who got the contract to install Vitrolles’ CCTV surveillance network for its FN mayor.

Hubert Vedrine, former minister, was asked to prepare a report on NATO and France’s return to the integrated command structure. Olivier Kempf blogs it. The recommendations are that NATO stays very much in its classical form, a military alliance with a nuclear dimension centred in Europe and the North Atlantic, that France assert itself in the alliance more, and that the European Defence Agency and NATO Supreme Allied Command-Transformation, which are both headed by French officers, should coordinate more closely on industrial and scientific issues.

He seems to be more suspicious of the UK than of NATO as such, and is very critical of the EU defence initiatives as mostly creating duplication, committees, and complexity.

History is made at night records the moment when “discotheque” became a word in English.

502: French conservatives temporarily unavailable

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So, France’s conservative party just blew up. This is surely a major story, as the French Right is one of the most successful political organisations in the democratic world even though it’s not particularly organised most of the time.

It’s common for a party that loses an election to have a bout of feuding. Out of the beating at the polls, two major candidates emerged. Jean-Francois Cope, the party’s secretary general, argued for “getting rid of the Right’s complexes” and moving closer to the FN. Francois Fillon, Sarkozy’s prime minister, argued for moving to the centre and emphasising the Gaullist heritage. This is close to the historic dividing line between the “classical right” and Gaullism, but the division doesn’t map precisely, as it’s complicated by the UMP/FN divide, and the generally loose and personality-driven nature of French rightwing politics. It might be better to think of Fillon’s supporters as conservatives, being pro-business, pro-Euro, mildly authoritarian, and varying between mildly Atlanticist and traditionally Gaullist on foreign policy, and Cope’s as identity rightists*, being much more authoritarian, less pro-Euro, but economically more rightwing, and keen on asserting national identity (e.g. by being nastier to immigrants).

As it happened, they appealed to almost precisely equal numbers of party members. That was when the trouble started.

Cope claimed victory. The chairman of the party’s election committee said he couldn’t say who’d won. Cope claimed victory again, by a bigger margin. Fillon claimed victory. Then, it turned out that the election committee had forgotten to count the votes from three French overseas territories. Counting them put Fillon ahead. He appealed to the party’s appeals committee, which is controlled by Cope’s supporters and refuses to hear him.

France watches, fascinated, as half the political spectrum rips itself apart on live TV.

Alain Juppe, elder statesman, former finance minister, current senator and mayor of Bordeaux, still a possible presidential candidate, and convicted criminal, is called in to mediate between the pair. Juppe asks them if they can agree on who is the party leader. No. He suggests they hold a new election. Cope suggests that he should just declare victory again. Fillon insists the votes from Wallis & Futuna be counted. Cope says that he wants to protest the ballots from the Riviera, where former industry minister Christian Estrosi’s influence network delivered the election for Fillon, and suggests just striking out all the “contentious” ballots. Obviously there are more people in Nice and Marseille than Wallis & Futuna. Juppe concludes that there is literally nothing the two men can agree on, and steps aside.

Nicolas Sarkozy, for it is he, returns from making money in Shanghai and gives them a deadline to agree, or he’ll denounce them as unfit to lead. Everyone assumes he’s hoping they’ll both quit and he’ll be party leader.

Fillon sends a bailiff to the UMP HQ to seize ballots. Cope’s supporters physically prevent him from removing the ballots.

Fillon accuses Cope of misappropriating a huge quantity of party funds for his campaign. His supporters join another party, the Rassemblement UMP or RUMP, which turns out to exist in New Caledonia. This is handy because the party immediately achieves the status of a parliamentary group and becomes entitled to state funding. In all, 70 senators and 77 deputies follow Fillon. Cope is left with the rump of the UMP rather than the RUMP and, importantly, all its debts.

Fillon threatens to sue. Cope suggests voting again, but not until after the local elections next year. The Socialist parliamentary group, meanwhile, get on with passing their legislative agenda, because the UMP delegation has stopped turning up to debates. And both men’s poll ratings plummet, although Fillon remains far more popular support than Cope.

What does it all mean? Well, you wouldn’t want to bet on them not finding some way to settle their differences. French conservative politics is dominated by personalities rather than organisation, and they did manage to rule for most of the 20th century. But there is certainly no effective UMP for the time being. That creates political space for Hollande and also Le Pen.

It’s very hard to predict how the crisis will affect the competition between Le Pen and the UMP; it weakens the UMP, but it also discredits the identity-rightist current around Cope and intensifies the distinction between the rightists and the Gaullists. The project of a UMP-FN alliance is only worth having if lots of UMP deputies change sides – if it just scrapes off a few, while solidifying the rest as a centre-right block, it doesn’t change very much.

*Only re-reading this did I notice that I had alluded to the extreme-right student movement, Bloc identitaire, without knowing it. In fact, some of the same people are involved.

Thinking about the austerity trap

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In my last post, I alluded to an austerity trap, analogous to the liquidity trap. This reminded me of something. People often associate the liquidity trap with the zero lower bound on interest rates. But as people so often say, Keynes wasn’t as Keynesian as all that. He was very much interested in expectations, uncertainty, and the psychological dimension of economics.

The liquidity trap happens not just because interest rates can’t fall any further – real interest rates, of course, can go negative – but because whatever the interest rate, the demand for liquidity is very high. Firms are operating as if they perceive a level of risk so high that even negative real interest rates wouldn’t motivate them to invest. It’s not that the market price has changed, it’s that the market is closed. Nobody wants anything but cash, and what they mostly want to do with it is to sit on it. Liquidity trap conditions could set in at interest rates quite a bit higher than the zero lower bound.

And we know this could happen, because several key financial markets did indeed just cease functioning in 2007-2008. First, the asset-backed commercial paper market, then the wider mortgage-backed securities market, and finally, the enormous interbank lending market just went dark. Rather than prices moving to unusual levels, there was simply no trade.

In thinking about how an austerity trap might happen, we need to look at both the “Keynesian” hydraulics and the expectations dimension. Hydraulically, here are three stylised facts. Firstly, the rich tend to spend less of their income than the poor. This is a consequence of diminishing returns. Secondly, investment is the swing item in the national accounts, the one with the greatest variance. Thirdly, budget consolidations very often seem to redistribute in favour of the rich or at least against the poor.

Just like that. It’s also worth noting that construction, the cyclical industry par excellence and one that is very labour intensive, plays a special role in the economy. Not only does it absorb a lot of public investment, public and private investment in construction have become closely integrated in the last 30 years. Private projects are subsidised by the state; state projects are designed to lever-in private investment.

So, here’s a story; budget consolidations tend to be levered-up because the people who lose out tended to spend the income they lost. Further, it’s easier to cut capital investment than current spending, so austerity tends to disproportionately hit the economy’s swing sector and especially construction, the swing item within the swing sector.

Now let’s look at it from an expectations/uncertainty point of view. One thing that baffled a lot of people in the UK was how quickly the trap hit once it was sprung. It is true that much of the spending cuts and the tax rises were planned for the future, and that budgets since 2010 have had the effect of pushing more of them off into the future. But it’s undeniable that the UK economy tanked. The transition was astonishingly swift. This can only be explained by a change in expectations, that is to say, estimates of the future.

The key expectations, I think, were those of earnings in real terms, and of the social wage. It is important that inflation post-crisis has been quite high in the UK, even using the CPI which doesn’t include housing costs. People were credibly informed that their real terms earnings would be reduced, and that the social wage was going to get a hammering. A major effort was made to convince them of this, after all. It should not be surprising that they put off big purchases, put up with poor wage settlements, and paid off debt as fast as possible. Similarly, businesses could also expect this and therefore curtailed investment.

The austerity trap, interestingly, makes sense both in expectations or Lucasian terms and in palaeo-Keynesian terms.