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Why I am not a EuroSkeptic

Norman Tebbitt, one of the few Politicians to really get blogging, says

“A sovereignty clause on EU law will place on the statute book this eternal truth: what a sovereign parliament can do, a sovereign parliament can also undo”. That really does worry me. It is a general rule of life that if a man in a pub declares loudly that he is stone cold sober, the odds are that he is drunk

of course this is the central fear of the Euroskeptic, for whom the EU is nothing but Napoleon and Hitler’s attempts to conquer Europe presented with a Ribbon round it. Now I am no fan of the EU, and on balance, were there a referendum on the issue tomorrow, I’d vote to leave, but I have flipflopped on the issue. Such a policy would not be without cost, and frankly, I don’t think it would change much. Most of the x% of British law that comes from the EU is perfectly reasonable attempts to keep the single market on an even keel. People jest about the relative lengths of the American declaration of independence vs. the EU rules for the importation of Duck eggs, but trade standards have to be detailed, wherever they come from. Does it really matter whether we write our own Duck Egg standard? Is that what you’re going to the barricades for?

Of course some of it, EU arrest warrant etc… are potentially more sinister, placing Her Majesty’s subjects under the legal jurisdiction of some foreign courts. And there is some idea that EU law has primacy over British law. And legally, it may do. For now.

But the idea that this cannot be undone, at a stroke is just ludicrous. At the international level, power flows from the Barrel of a gun, and Britain with the 3rd largest defence budget in the world, and the worlds second largest deployable military could simply say “no” to the EU whenever it likes. Who, pray is going to force duck egg standards on Britain? I’ve worked with German troops. They go home at the weekends for some soft drugs and hard sports, when British troops are still digging in. They’ve not the martial spirit of their grandparents.

So… EU law is paramount for now, but crucially it is BECAUSE, for whatever reason PARLIAMENT WILLS IT. In final analysis, whatever “EU law” says, Hague is right.

Now my heart would love what the Devil dismissively refers to “our new coalition overlords” to pick a fight with the EU. But if you were a Government having to pick a fight with the entire public sector, who are quiescent, for now; but are itching to trun the UK into France where the Unions call everyone out onto the streets because the retirement age is being RAISED TO 62, and who are going to resist every single “cut” with every last ounce of their strength. If you were having to take on the Major opinion former in the Land whilst doing so. If you were going to take on the Teaching profession, a fight st. Margaret of Thatcher shied away from, over a policy the public barely understand; would you really, honestly want to fight the EU too? Especially when the coalition contains one broadly Euroskeptic party and one bunch of filthy federasts, and a fight over the EU would split the coalition, and play into the BBC’s hands. If YOU were Dave Cameron, would YOU want to fight the EU under these conditions?

Resistance to the EU will have to come when the damage wrought by Labour is undone, when every school is in the private sector, and parents are given vouchers, when the benefit system has been shrunk from 72 different benefits to a handful, when a flatter, fairer tax system is in place, which makes work pay, when the NHS has been given back to the Doctors from whom it was stolen in 1948, and when the banks are back in the hands of the Private sector, and when the Government accounts are in surplus again. Frankly the most illiberal, authoritarian, jack-booted nonsense as well as the fiscal lunacy and economic incompetence of the last couple of decades has come, not from Europe, but from Westminster. It is Westminster, not Brussels which turned the UK into a bankrupt panopticon.

The EU is not that important, to the UK, to the Electorate, and to the economy. In European elections, the people vote to indicate they don’t like it much, by voting for UKIP in large numbers.. But they don’t vote on the issue in the General election. As I predicted, UKIP polled fewer than a million votes. A Coalition battle over Europe would let Labour back in, and they’re the people who left the UK in its current cancer-ridden state.

The best place for “Europe” as a political issue therefore is under the carpet.

Those unfunded pensions.

The state employs, give or take, after Gordon Brown’s lunatic handling of the economy about half the people in the workforce. Many of these people are on unfunded final salary pension schemes. What people who want to suggest that “we’re broke” do, is add the net present value of some 20m public sector pension liabilties and tack that onto the National debt. Then they add the banks (at an effective value of the assetts of Zero) and suggest that we’re much, much worse than any other country in the world.

Now what I am about to say is not to defend Gordon Brown’s idiocy. He took the Deficit to 12% of GDP, and that is utterly unsustainable and probably criminal. But even at this rate, given Japan’s example, we could keep going for a several years before the shit hit the fan. When a quarter of Government spending is borrowed, you do not need to make stuff up to make it appear that we’re in a mess. The fact is that the UK started the Noughties with the lowest share of public debt as a proportion of GDP in the developed world. Because of Browns tax rises since 1997, and sticking to Tory spending plans, he took Debt:GDP from a creditable 43% to an excellent 30% by 2000.

Since then, he’s spent with the care and concern of a man urinating after 13 pints. That is not in dispute. The speed at which the debt is increasing is the issue. Not its absolute size, which for the UK remains lower as a percentage of GDP than Germany (though we will overtake them soon) France, Italy, the USA and the outlier on the list, which does not have a AAA rating, Japan.

I digress. People with an axe to grind often whack a number they claim is the unfunded public pension liability, and another “the cost of the bail out”. Both are meaningless.

The banks are financial assets on which the state is likely to make a return. They certainly are not going to lose everything they invested. To add that to the debt makes no sense at all. Unfunded pensions are more complicated.

Why are pensions unfunded? For the simple reason that a manager of a pension pot of the scale nessesary to fund the civil service superannuation scheme would wield more power than the Chancellor, and probably more power than that of the Prime-Minister too.

So the ‘liabilities’ have become just another ongoing cost of employing existing civil servants. To add a net present value (what’s the discount rate going to be? how are you forecasting indexation?) is to apply a meaningless number to a problem that isn’t there. There is no rating, the cost doesn’t go up or down with the country’s Credit rating. It is not ever going to be called in one go. It is an annual cost built into budget forecasts. No country in the world puts a value on the unfunded pension liabilties of public sector workers, nor does any country “fund” such a scheme (except Norway, but they’re a special case with options not open to the rest of the world). Public sector pensions are paid everywhere out of General taxation. My guess is in the event of a severe budgetary crisis, it will be the welfare junkies who can work who will feel the pinch, not the pensioners, who can’t.

To whack it onto the national debt just demonstrates ignorance. There are major problems with the state’s finances. Public sector pensions just aren’t one of them.

Of course if you wanted funded pensions, the only way to do it would be to have personal pensions for everyone and ban final salary schemes. But that would simply add another burden to the Generation that’s already paying off Gordon Brown’s legacy. That of course is an issue for another post.

“The EU Should Issue Debt Jointly”

The international economic system is full of stabilizing feedback loops.

If your economy is weak, you will export less, your foreign reserves will fall, your currency will weaken, making your exports more attractive, meaning you export more, pouring money into reserves, strengthening your currency and so on… If your economy is strong, your inflation rises causing higher interest rates, which makes your currency more attractive to foreign reserve holders so it strengthens. This makes your exports less attractive causing exports to fall and so on…

Look at what both these examples rely on: Yes! A freely floating currency and domestic control of interest rates. And look at what is happening to Greece (and is about to happen to Spain). They cannot control their currency, and therefore suffer disproportionately when they have the wrong interest rate and currency level. Of course, in both these countries, and in Greece especially, they’ve had Socialist Governments for most of the last 40 years, the centre right only managing to win consistently in the 90s. This means a bloated state bureaucracy and rampant government spending. And of course, since Greece joined the Euro in 2002, both the centre Right and Pan Hellenic Socialist movement have had the ability to borrow at a rate subsidised by the mighty German economy.

I TOLD YOU SO

For those of us who ALWAYS regarded the Euro as a stupid thing to recommend for anyone outside the Franco-German-Benelux core, the problems of Greece should stand as a warning to anyone recommending it in the future.

And if you add to the idiocy of removing the automatic stabilizers of currency fluctuation to the idiocy of Socialist government to whom you give the temptation of nearly free money, OF COURSE YOU’RE GOING TO GO BANKRUPT.

Schadenfreude is not pleasant to see, but if the misery the Greeks are feeling now can serve as a warning to Europhiles to prevent them advocating UK ever going into the Euro, I shall indulge in it a bit. And if the queues of Jobless in Greece and Spain lead to unrest, then perhaps that should serve as a warning to the UK electorate. And maybe the British Government will get on with firing the parasites in the public sector (no, not the sainted Nurses ‘n Teachers – I’m talking about the worthless box-tickers, the prod-noses, the diversity outreach co-ordinators, the 5-a-day workers, the Quangocrats, the Fake-Charity wallahs) to prevent the same happening here.

Britain is NOT Greece. Our National Debt, measured as a balance outstanding as a percentage of GDP is one of the smallest in the developed world. Though our deficit is large, we are still able to borrow Long-term, and we also have the longest-dated national debt in the OECD. Furthermore, Sterling is a major currency which floats freely. We have time to sort out the catastrophic mess left by our last Lunatic government.

Today a low-grade Bank Clerk called Herbert Van Rumpy-Pumpy or something like that suggested that “EU countries should issue debt jointly”. Basically that allows socialist lunatics in Greece to spend even more of German tax-payers money (ie that earned by Germans not yet born) than they do already.

We are NOT in Greece’s position in part because of the economic policies of the Thatcher Major years to pay down the National debt (which stood at just 45% of GDP in 1997 and fell to 30% by 2000, as Brown stuck to Tory spending plans), in part because a well-developed financial sector provides a market for all that Government borrowing and in part because we’re not in the Euro. A Liberal Conservative Government is fixing it, and the federast Lib-Dems have realised that ‘Europe’ is a tough sell right now. Remember this; and don’t let socialist europhiles ruin it. Again.

On the insanity of banning short selling.

The Germans have mistaken “causing” for “profiting from”. There is so much wrong with banning short selling that I don’t know where to begin.

First, a little about short selling. It is the practice of selling stock you don’t own (selling whilst “short” of the stock) in the hope of buying it back cheaper at some future point. You can either do this “Naked” without owning stock (this is not allowed on most stockmarkets) or you can borrow the stock from someone else for the purpose. On derivative markets you either go long or short depending on which side of the contract you’re on.

Most trading strategies (I’ll stick to equities, because that’s what I know best) involving shorts are “pairs trades” or similar. That is you seek to exploit the difference between two similar, but not identical securities. You go Long (buy), for example Barclays and go Short (sell) RBS. By doing so you hope to profit from the fact that Barclays can still pay its traders enough to stick around, and RBS can’t and therefore can’t make money.

So… what happens when you ban short selling: all those people wisely hedging out market risk as in the above example are forced to buy the stock they consider crap, and sell the stock they consider good. By denying the prospect of hedging, the market’s risk goes up, and the value falls. Basically if you think that banning short selling will prevent “speculators” from “driving the price down”, whether it’s currency derivatives or equity then you’re demonstrating your profound ignorance.

If you’re selling the socialist worker, that’s fine. When you’re running the third largest economy in the world, it’s not so good.

So… the Box-heads have succeeded in giving me the buying opportunity I’ve been waiting for for months. Bravo. And it won’t stop whatever it is – euro weakness, banks going bust you thought you were protecting yourself from. If anything, it creates an imbalance and will make likely anything you’re trying to avoid.

Don’t believe me? look at the charts for the banks around the dates of the 08/09 short selling ban.