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What Happend in Ukraine?

It’s not very often, now the daily blog has migrated to twitter, when I simply point to someone else’s work. Tim Snyder Professor of History at Yale, and currently occupying Philippe Roman Chair of International History at the London School of Economics, who specialises in the history of Central and Eastern Europe, has written some excellent pieces for the New York Review of Books, and he’s rather better qualified than most to offer an opinion on Ukraine and the Maidan. These sum up why, how and by whom the Maidan was attacked and defended, and what the players hope to gain. How did it start?

“When the riot police came and beat the students in late November, a new group, the Afghan veterans, came to the Maidan. These men of middle age, former soldiers and officers of the Red Army, many of them bearing the scars of battlefield wounds, came to protect “their children,” as they put it. They didn’t mean their own sons and daughters: they meant the best of the youth, the pride and future of the country. After the Afghan veterans came many others, tens of thousands, then hundreds of thousands, now not so much in favor of Europe but in defense of decency”

What were the underlying reasons? This post also deals with the “far-right coup” smear pretty comprehensively…

“Has it ever before happened that people associated with Ukrainian, Russian, Belarusian, Armenian, Polish, and Jewish culture have died in a revolution that was started by a Muslim? Can we who pride ourselves in our diversity and tolerance think of anything remotely similar in our own histories?”

And, finally Putin’s fantasy of a Eurasian Union, and the legitimacy of Putin’s action.

“One petition from Russian speakers and Russians in Ukraine asks Putin to leave Ukrainian citizens alone to solve their own problems. It has been signed by 140,000 people. This might seem remarkable, since everyone signing it knows that he or she will be in the bad graces of the Russian authorities if Russia completes its invasion. But it makes perfect sense. Russians in Ukraine enjoy basic political rights, whereas Russians in the Russian Federation do not.”

There is no doubt an elected government was overthrown by street protests. But the regime of Yanukovych was not democratic – elections are necessary, but not sufficient for democracy. Indeed it is the looting by the regime, pure extractive government which is behind Ukraine’s economic problems. Democracy without the rule of law, is worthless. Something too many people seem to forget when discussing “democratic” leaders like Chavez/Maduro, Putin or Yanukovych.

Secondly, why are so many people happy to repeat Putin’s propaganda at face value? Ukraine isn’t split along ethnic lines. It wasn’t a “far-right coup”. Russians don’t need “protection” from “fascist gangs”.

Russsia simply annexed part of a neighbouring country’s territory in clear and dangerous violation of international law, and Putin has lost full contact with reality. He hasn’t “won”. He’s miscalculated, and I suspect this is more ‘Argentinian Junta invades to take pressure off the economic situation at home’ than ‘Hitler annexing the Sudetenland’.

Putin needs our money even more than we need his gas, though the Russian regime has a little more ability to weather his people’s financial pain than does Merkel – Germany being the European country most in need of Russian Gas.

Dictators have underestimated democracies many, many times; usually mistaking slowness to resort to violence with weakness. He will find his rotten regime squeezed slowly, but relentlessly. And having secured Crimea, he loses Ukraine.

Russia with Ukraine is an Empire. Russia without Ukraine is a country. It’s about time Russians finally realised their days of Empire are over.

The Western Playbook in Ukraine.

Consensus appears to be that Russia has “won” and “the West”, meaning the EU and USA is weak.

Russian Troops in Ukraine (source)

Strong countries do not have trouble keeping their satellites in orbit. The need of Russia to intervene in its near abroad, like the annexation of South Ossetia from Georgia in 2008 is a signal of weakness, not strength.

The Georgians are angling for NATO membership, which is why they’re the top non-NATO contributor to the War in Afghanistan. Unlike many nations, they’re keen to put their soldiers in harms way to the extent that, with the grim humour of soldiers everywhere, the lights of a casevac helicopter into ISAF bases have become known as “Georgian disco lights”. Georgians are dying to get into NATO, quite literally.

Russia for obvious reasons feels threatened by the idea of NATO on its borders, and feels this especially strongly in Ukraine. Do you really need to be reminded that the Eastern Front accounted for 95% of German casualties between 1941 and 1944 and 65% of all allied casualties were soviets, mostly fighting on Soviet territory? Some of the Blame for the appalling casualties suffered by the Soviets in the Great Patriotic war lies at the door of the Kremlin but the Russians still fear invasion from Europe. They fear it rightly, more than we fear invasion from the East, and so Russia likes to have buffer states between it and hostile forces. NATO remains the pre-eminent military power on the planet which was (is?) conceived with Russia as the main enemy. This is why Russia sees the control of its near abroad as key to its security.

So Ukraine will not (or at least should not) get NATO membership, however much NATO or indeed the Ukrainians want it. The potential for miscalculation when NATO and Russia stare at each other directly over a border is just too great. The EU is a different matter.

The EU has a good track record (second only to the British Empire…) in sowing the seeds of democracy in thin soils. The carrot of EU membership, and the prosperity  it brings, has kept many states which would otherwise have descended, like Russia and Ukraine into kleptocratic oligarchy retaining only the pretence of democratic accountability, fully functioning democracies. And in having a prosperous Poland and Czech republic within the single market benefits the UK too. The EU needs to be able to hold the hope of Ukrainian membership without Russia feeling threatened. Indeed it may one day fall to the EU to finally tame the Russian bear itself.

So, in the short-term, Russia has annexed Crimea. Ukraine will probably have to accept that there’s little more the west can do to prevent Russia reclaiming a territory which is home to the Black-sea Fleet, and was only transferred by to Ukraine in 1954. It’s the most pro-Russian (about 60%, following some Soviet ethnic cleansing..) province. If that’s the limit of Putin’s ambitions, then the West will bluster, but probably let it go. But the rest of Ukraine will look firmly west, if a little grumpily in some of the Eastern provinces as a result of Putin’s invasion.

What will most discomfit Russia will be an economically successful Ukraine, firmly tied into the western democratic sphere by trade and friendship. Just as the principle complaint of the citizens of Lviv is the speed at which Poland, a country they were part of in living memory, has got richer within the EU. Russians will look at their friends and relatives in Ukraine getting richer once they pull away from Russia’s toxic orbit, and ask themselves “why?”.

Putin gets his “win” and will gloat about the annexation of Crimea. The price: it gets a little harder for Russian oligarchs to hang onto their loot as economic sanctions bite. The value of their Russian businesses falls sharply, and especially in hard-currency terms, and the relative cost of Mayfair town houses becomes that bit greater. Putin therefore hurts his most influential supporters where it matters most. The west, already nervous of the reliance on Russian energy, looks elsewhere for Gas. Funnily enough, the USA has a glut of the stuff. Europe may even start fracking its own gas one day. It takes time to build the infrastructure, but without Gas revenues from Europe, Russia would be utterly bankrupt, as they produce almost nothing anyone else wants. The Russians will not be able to afford all the new toys they’ve ordered for their over-manned and ill-disciplined military. Like the first cold war, the second one will be won by the system which delivers wealth. And yes, lefties, financial crisis notwithstanding, the West is a stronger economy than Russia.

The West’s inability and unwillingness to throw enormous military forces into the region is not weakness but a symptom of our  greatest strength. Western policy in Ukraine will be driven by our merchants to the benefit of our people, not our soldiers to the benefit of national willy-waving. This is because, unlike Russia, the interests of Western European Governments are (with exceptions, mostly) aligned with those of the people. There is simply no need to go to war over the Crimea. Ukrainians, especially in the west, have seen representative government at work in Poland. Russians, still subject to Russian regime-friendly media, are fearful of “Fascists and Nationalists” because their history has taught them to be so. Doing anything military to stop the annexation of Crimea will play into Putin’s hands.

Killing people and breaking things is sometimes necessary, but is not often the best the way to make people stop fearing you. Give Putin his Pyrrhic victory, and welcome the rest of Ukraine into the Western fold. We win, Ukrainians win. One day even Russians might win, at the expense of their nasty little regime.

Ukraine

Insofar as the world’s rivalries exist, generally were ‘the west’ win, the outcome is better for ordinary people. The Ukraine had a choice between the EU, which whatever its flaws has been a force for democracy and prosperity in post-soviet Europe, and the continued influence of Moscow’s thuggish regime.

Thatcher or Regan would have stumped up the $30bn (chum-change in the grand scheme of things) or so needed to bribe President Viktor Yanukovych to sign an agreement with the EU which wound eventually have pulled the country from Russia’s grasp. But a failure of nerve means Europe’s largest country The country which suffered most from the famines unleashed by Lenin and Stalin, will not now turn its back on Moscow and embrace a brighter, freer, more democratic future looking west.

But because of a collective failure of nerve, perhaps due to the financial crisis, Moscow threatened, the west blinked and the Ukraine turned, and walked back towards a Soviet past. Moscow is strengthened. We are weakened.

When did we get so weak? So gutless? So insecure about the fact a democratic system is simply better than all alternatives? So unwilling to face down our less-than democratic adversaries?

The rise of China is not a vindication of totalitarian communism, but complete demonstration of its failure. The financial crisis was a much needed recession, not a “failure of capitalism”. China’s rise happened immediately they abandoned state planning. They have been totally and comprehensively co-opted into the western system. They cannot afford to step out of line. We can cut china loose, if necessary at the cost of a recession. They would suffer a revolution. Their leaders know this.

And the truth is, the west is richer and more powerful relative to Russia and its remaining post-soviet empire than its ever been. And we’ve already beaten China. And yet we can’t stare down a failing, dying, alcoholic bankrupt old bear.

Everyone is better off when the west wins. Only the mewling, gutless “leadership” of western countries and their simpering left-wing cheerleaders cannot see it. Obama will go down in history as one of the worst presidents for this reason, amongst others.

Politics as Self-Identification: Cuts, Fracking and the Military.

There are two tribes of politics, the left and right, who are almost impossible to define in policy terms. They correlate imperfectly with Labour and Tory in the UK who, yes, in the short-run do look similar (though in the long run, very different). Whether you self-identify as left or right will define mostly what you’re angry about.
It’s the anger of these tribes, amplified in the echo-chamber of social media, with nuance and facts drowned out in the cacophony of 140 character soundbites which so distorts political debate.
Any attempt to explain detail and facts will be met with the charge that you’re one of the ‘other’ and so can be ignored.
I’ve been arguing on twitter with people on the right, whose assumptions I broadly share, who’ve persuaded themselves that the UK has cut its military to a point of irrelevance. They’re basing this view on the endless diet of “cuts” stories in the Daily Mailograph.
The fact remains the UK is a major military power, with the 4th largest Defence budget on earth, dwarfed by the USA, about half that of China, 2/3rds that of Russia and equivalent to Japan’s. From that defence budget, we maintain full-scale war-fighting competence, unlike many other mid-ranking powers (*cough* France *cough*) who maintain formations and kit which cannot be deployed for want of support formations, logistics and intelligence capability.
Britain maintains a Brigade-level deployment in Afghanistan. While this was being maintained, we are able to operate in 30 counties, maintain out-of area contingencies; and were yet able to help the French with their operation in Mali, who were unable to deploy their (significantly larger) army to their own doorstep.
The reason for the French failure in Mali is their politicians have been unwilling to cut the number of infantry batallions for political reasons, and have instead cut logistics capabilities. The UK, thanks to a continuous cycle of operations going back centuries do not have the luxury of seeing the military as a national willy to be waved at other nations, as this would leave it incapable of achieving tumescence and firing naught but blanks.
British politicians asked “what additional capabilities does a small carrier with a handful of harriers bring that couldn’t be achieved with typhoon and air to air tankers?” The answer came “nothing”. The French have not asked that question of the Charles de Gaulle, which they maintain at great expense, but to little purpose. A bit like Brazil whose flat-top carries an air-wing of… 4 jets to… nowhere in particular.
Likewise, the left, who’ve persuaded themselves that Hydrolytic Fracturing (Fracking) is poisoning groundwater, creating earthquakes and putting methane into people’s taps, and done so against all the evidence because like the right, talking to themselves about the military, they are willing to be lied to by people with axes to grind, whose assumptions they share.
I used to be angry about military cuts, until I saw dispationate discussion (at the highest level) about WHY the cuts were taken. I was forced to challenge my assumptions. I suggest you all do.
The great risk of social media is the tribes of left and right divide into mutually deaf echo-chambers who don’t challenge assumptions, instead reinforce idiocies by then endless pointing to “evidence” (in practice newspaper articles or dubious “reports”) that supports and reinforces priors.
Question everything. And in doing so accept the Government is sometimes right. Brown’s handling of the credit crunch was OK (it was his management of the economy for the decade beforehand which was criminal). The British military is effective, and enormously so for its size, and we have Labour’s willingness to slay military vested interests to thank for that. The cuts to wasteful public spending are the right policy thanks to Tory willingness to slay vested public-sector interests.
Fracking is safe and should go ahead.
The Tories are delivering cuts to that which can be cut, whatever right-wing morons who think the cuts aren’t happening may think. The cuts aren’t leaving people dead in the street, whatever left-wing morons think.
Ignore the idiots, who spout meaningless soundbites. Listen to those who force you to challenge assumptions. Some of them come from the other tribe.

Abu Qatada

I’m not a human rights lawyer. So all I have are opinions, which are worthless. One part of me thinks if Abu Qatada is protected by Human rights legislation from Torture, and the fruit from that poisoned chalice, then I am too. On the other hand, taking so long, and so much money to get him extradited to face charges in Jordan seems a little excessive.

In order to do so, there’s a possiblity that Jordan has become a better, freer, less abusive place, with a better, more just legal system. The British Government acted within the rule of law, but finally got its way. However the main beneficiaries are well-paid lawyers, and there is an argument that endless, doomed appeals aimed mainly at buying time could possibly be looked at, to see if the huge cost could be reduced.

The ECHR isn’t the problem, at least not entirely. Any British Bill of Rights would look very similar. This isn’t “europe” opposing the democratic will of the British People. Ultimately you have competing rights: that of Abu Qatada to not be tortured and not face evidence in trail obtained by torture and the right of the British Government to deport a disruptive illegal alien to face trial in a friendly country for terrorism charges. Deciding on competing rights are what courts are FOR. So I feel little anger at how long it’s taken, and distain for the more hyperventillating nonsense from much of the right.

Everyone’s done their job. Move on.

Afghansty

I’ve just finished Afghansty by Sir Roderick Braithwaite. The parallels between what the Soviets tried to do, and what ISAF is trying to do, are striking.

Like American and British forces, the Soviets lost no tactical engagements, and left with a compliant regime in place. Like the Soviets, we’ve been there for a decade, nominally at the request of the Government in Kabul. Like the Soviets, we’re actually taking part (again) in a 300-year-old inter Pashtun civil war between Kabul and Kandahar/Quetta, for control of Afghanistan.

Like the Soviets, most of our kit is heading North when we leave.

If they’ve any sense, the Americans’ll avoid the Friendship Bridge over the Amu Darya into Uzbekistan where the picture above was taken. Nevertheless There will be a picture of American troops and vehicles crossing the same border, over a bridge, somewhere. Whether Karzai and democracy survive in Afghanistan for 5 years or 500, that picture will be the legacy of a decade-long adventure, that the media narrative will decide was lost. Like the Soviets, that will not be entirely fair.

A Layman’s Guide to the Euro Crisis.

There is a lot in the news about the crisis in Europe, and a lot of the coverage is filtered through political lenses as people project their beliefs onto what’s going on. Eurosceptics are enjoying saying “I told you so!”. Left-wing parties are blaming the banks and the political right is seizing an opportunity to ‘shrink the state’. It’s often difficult to separate fact from journalistic wishful-thinking. So what’s really going on?

The EuroZone is a ‘currency union’ without a ‘fiscal union’. ‘Currency union’ means sharing the same currency. The 50 States of the USA are in a currency union with each other, and so are the nations of the UK. The EuroZone is a currency union between some European Union nations.

A ‘fiscal union’ is where a central government makes spending decisions for a currency area. Despite devolution in the UK or the American states’ tax and spending powers, the USA and UK are ‘fiscal unions’. The American Federal government distributes funds from a central pot to the individual states to spend on things, such as roads or law enforcement. In most fiscal unions, richer areas pay more tax, but don’t get more state spending per head than poorer areas, resulting in a ‘fiscal transfer’. Some ‘entitlements’, what people in the UK would call ‘benefits’ for example are paid out of a federal pot. In the UK, the greater South East subsidises the poorer areas of the UK by this method.

In the EuroZone, many thought this union would cause problems, and indeed the designers of the currency knew this too, but considered the problems would act as a driver of ever closer union, their ultimate end aim. The Euro was a political, not an economic construct.

What precipitated the crisis around Europe was the inability or unwillingness of Northern Europe to subsidise the periphery in the way London and the South East subsidises the rest of the UK. As the periphery ran out of money, and succumbed to financial crises, one-by-one the markets lost faith in the ability of these governments to meet their debts.

Governments issue debt as bonds. If investors think the risk is low, they will be willing to pay a high price, resulting in a low yield to the investor and low costs to the borrower. If the risk goes up, the price falls, and the yields rise. Countries afflicted by the financial crisis saw bond yields rise as investors sold. The money investors raised by selling this debt flooded into the good risks at the core – especially Germany, which has seen yields fall sharply as a result. The UK and Switzerland have enjoyed a similar effect, being perceived as safer-havens. This rapidly became a self perpetuating downward spiral for the bonds of the afflicted governments.

The problem with the Euro is that small countries or those which had poor track records of paying back debt, suddenly saw their borrowing costs fall when they joined the Euro. This is because the markets initially thought all EuroZone bonds ranked equal, or nearly so, to those of Germany. Because the peripheral governments’ borrowing costs fell, so too did those for business and consumers. This resulted in banks lending and people borrowing much more than they would otherwise have done. Some governments, notably Greece, fell into the same trap too.

In Ireland and Spain in particular, this very low interest rate resulted in a huge speculative property bubble as a flood of new money inflated property prices. People got rich very quickly, and numerous new developments were built. However all bubbles must burst, and the oversupply of property meant there was insufficient demand for all the new flats and houses. The market crashed. The bad loans secured on overvalued property created losses which overwhelmed the banking sector. The Irish government, despite the fact it had been ‘fiscally prudent’, by running large budget surpluses during the boom was also overwhelmed. In 2007, Irish debt was just 25 per cent of gross domestic product (GDP) – a measure of the size of an economy. Despite this, the Irish state, unlike that of the UK, simply didn’t have the line of credit to finance the enormous banking losses, and needed help from the EU and UK. Because of the banks’ losses assumed by the Irish state, debt to GDP ratio has now risen to nearly 100 per cent.

Portugal, however did not suffer such a crisis, as it lacked a big banking sector of its own, so much of its property bubble was financed from across the border in Spain. However the Portuguese government didn’t run significant surpluses in the good times, and when the economic crisis came, tax receipts fell, and the market lost confidence in the government’s ability to pay its debts. As the country was running a large deficit, when interest rates hit 7 per cent, a burden totaling 80 per cent of GDP, the market considered this unsustainable. The EU & International Monetary Fund was forced to ride to the rescue.

Spain, being a larger economy than Ireland, took much longer for the bubble to deflate. Its banks were also sounder, carrying more capital than Ireland’s. Like the Irish, the Spanish government ran a prudent surplus during the boom, but it too may now struggle to raise sufficient money to bailout its banking sector, which has suffered the same fate as Ireland’s. As a result, Spain needs a bailout. And the EU has made €100bn available. Because it is not clear whether this is from the European Financial Stabiliity Fund (EFSF) or European Stability Mechanism (ESM), existing holders of Spanish debt are unsure whether the new creditors are ahead of them in the queue for repayment. Investors fear they have been ‘subordinated’ by the new line of credit. As a result, after brief euphoria on the markets, borrowing costs in Spain and Italy rose on the news.

Italy did not have a property bubble, nor did it have a banking crisis. Instead, it enjoyed a cheerfully chaotic political system which was incapable of balancing its books. Short-lived governments had little incentive to save money, finding it easier to buy off supporters without taking long-term decisions. Their problem as a result is simply an enormous debt burden of 130 per cent of GDP. Currently, Italy is running a ‘primary surplus’, that is, it is able to meet its costs – public sector wages and so on, and would be able to balance its books, were it not for debt interest. Italy’s budget deficit is therefore a direct function of the yield on its bonds. Perversely, this is the moment countries are most likely to default, as they will not need to tap the bond-market to meet existing expenditures. As a result, investors have fled Italian debt in a self perpetuating downward spiral in their bonds and increasing the likelihood of default.

Greece’s problems can be summed up as ’all of the above’, and then some.

As a result, everyone in the EuroZone is seeing their borrowing costs rise, except the dwindling core of Northern European AAA rated countries. Even France isn’t safe – they haven’t had a balanced budget since the early 1970’s, and borrow at nearly twice the price of Germany.

The UK’s debt burden is 80 per cent of GDP or so (worse than Ireland in 2010), a deficit in 2010 of 11 per cent (the worst in the developed world) and an enormous banking sector relative to GDP. So why doesn’t the UK have a massive economic crisis like Ireland, Italy and Spain? Why is UK 10-year debt yielding a paltry 1.8 per cent when equivalently indebted countries with far smaller deficits find their debt yielding over 7 per cent? Ultimately, it’s because for the time being, the debt markets have confidence the UK can meet its obligations, if necessary by printing money. This option is not open to the EuroZone, who have subcontracted this to the European Central Bank. Furthermore, the UK’s government debt has a much longer maturity than many equivalent countries, so does not need to access the bond market to ’roll over’ maturing issues, giving the UK’s government time to bring the finances under control. Finally, and this is almost certainly the least important effect, the UK’s government is committed to gradually cutting the deficit.

The EuroZone therefore is suffering from the logic of a ’currency union’ without ‘fiscal union’. As the breakup of the EuroZone looks increasingly possible, bank depositors in Greece (most urgently), Portugal, Spain, and Italy do not want to risk waking up one morning to find they’re holding Drachma, Escudos, Peseta or Lira instead of Euros. So they open bank accounts in London, Geneva or elsewhere in currencies – Euros, Dollars, Swiss Francs or Sterling which they trust to remain ‘hard’, and where their cash-strapped governments can’t get at it.

This causes a collapse in the money supply – often a cause of deep recession. Unlike in a ’fiscal union’, this money is not replaced by transfers such a grants paid out of EU pooled funds, which are simply not large enough to do this job. As the economies of the EuroZone periphery shrink, so do tax revenues. With no corresponding shrinkage in obligations, the deficit can only rise. Spending cuts cause further short-term pain as public-sector workers get laid off, and the economy risks spiraling down. Wages, for those who retain jobs get cut and living standards fall. This is the mechanism by which ’austerity’ is accused of driving economies down.

Unfortunately, for the citizens of the EU, from an economic point of view this fall in living standards and wages is exactly what is needed. The underlying problem is competitiveness. Italian workers are just more expensive than Germans per unit of output. Italians’ wages have to fall by around 20 per cent to regain competitiveness, Spaniards by 30 per cent and Greeks by 50 per cent.

The Italian economy was never really as large as the UK’s, nor were Italians as rich as Germans. They just got access to Germany’s credit card for a decade and so thought they were. Bringing the economy back to reality will be a painful process. This is called an ’internal devaluation’. It will be miserable, and scar the people forced to endure it for life, and result in a flight of talent and capital, from places suffering its effects. An internal devaluation on the scale needed may not be possible without violence.

Devaluation of the currency means most countries overcome these effects, and make their exports and workers competitive. It’s worked for the UK many times, but for the periphery, this means leaving the Euro. A new Drachma would probably fall by 50 per cent almost immediately, achieving competitiveness with the German worker in a matter of months rather than years. This is no easy option though, either from the point of view of the Greeks who will see imports, even of staples become prohibitively expensive; or the rest of the EU. Once the market has forced one country out, the next one (Portugal or Spain) looks more likely to go too, creating a cycle of instability. It is this EuroZone policymakers fear the most.

If Southern Europe is to remain in the Euro, and yet avoid grinding recession for a decade or more sudden economic catastrophe, it is going to need vast injections of cash to pay the bills. It also needs its productivity and wealth to catch up with that of Germany and Northern Europe. For an idea of the scale of cash transfer needed, look at fiscal transfers from the North to the ex-Confederate states after the US civil war, or from West to East Germany after unification. 10-20 per cent of GDP. It is unlikely the (West) Germans can be persuaded to pay on that scale again. Nor do Germans seem willing to underwrite the deposits in EuroZone banks (a so-called banking union) or underwrite the bonds of the struggling EuroZone states (the so-called Eurobond).

People describing themselves as ’Keynesians’ think the death-spiral of austerity and internal devaluation can be averted by governments injecting demand into the economy by borrowing huge sums in order to spend. Who is going to lend to these peripheral governments? The German government seems unwilling to let the European Central Bank print enough money and the open market has already said “no”.

It is not a binary choice between ’growth’ and ‘austerity’. Even if these governments could raise the money, they may not achieve the necessary growth. There is evidence that the negative effects of increased public spending can cancel out any stimulus to the economy. Public debt often ‘crowds out’ private investment. High debt burdens may also cause people to anticipate future tax rises and rein in spending and increase their savings which will hurt the economy. These negative effects seem to become greater than the positive when the debt burden reaches 80 per cent of GDP, though this is not a hard and fast rule. Furthermore, economies seem to find any growth at all very difficult to achieve if public debt reaches 120 per cent of GDP. Thus, attempting to spend your way out of recession, an indebted Government risks fruitlessly adding to the debt burden, to no effect on overall GDP growth.

It seems the money for stimulus has probably already run out.

In my opinion, the best thing to have done is to not join the currency union in the first place! The UK’s ejection from the European Exchange Rate Mechanism in 1992 and Iceland’s experience since 2008 seem to bear this out. ’Austerity’ and the devaluation in place is painful, so ’stimulus’ is superficially attractive, but it risks creating a bigger problem for the future for little gain now. The unfortunate conclusion is what is necessary is impossible, and what is possible is unappealing. There are simply no easy answers. The Euro crisis is likely to form the backdrop to investment decision for some time to come.

An In/Out EU referendum… Not Now.

According to the Tory/UKIP narrative, the only reason that David Cameron isn’t offering an EU referendum is that he’s a closet (or not so closet) europhile. As part of the new elite, he’s bitten completely into the grand European project, hook, line and sinker. His aim is therefore to deny, like those European politicians, his people a say in the project. This makes him (and I’m quoting from various tweets from EU nutters) a Quisling, a traitor, only pretending to be a Tory, not a real conservative and so on.

If only, so the narrative goes, Cameron offered a referendum, people would dance in the streets. We would pull out, and without our Euro-dues flooding to the continent, we would be able to spend the money, invigorating our own economy. India, Australia and Canada would welcome us back with open arms. UKIP would pack up and go home, and the Tories would romp to victory at the next General election.

This is bollocks.

The electorate is broadly hostile to the EU. But they only express that feeling when asked. Even with the Euro-crisis on the nightly news, few venture this as one of their top priorities. If anything the evidence appears to be however much the electorate agree with the Tories, there is a stronger feeling that they wish the Tories would just shut up about Europe.

The straight in/out question lacks the subtlety of both the Electorate’s (and the official Tory) position. That is most people, when given the option, express an opinion supporting a middle way. Not out of the EU entirely, but certainly not part of the core federal project. If the electorate could have the free market at lower cost, and without all the Euro-laws interfering with the extradition of bearded ne’er do wells like Abu Quatada, we’d be OK. The fact that these rulings come down from the ECHR, not the EU is lost on the electorate.

So, are we “better off out”? Possibly, right now. The EU is an unattractive bureaucratic project which has got far, far too big and intrusive for the UK’s comfort. It suffers an absolutely obscene democratic deficit at its core. But, and this is crucial, leaving would be disruptive and not at all helpful to the short-term pressing problems of a flat economy, which should occupy politician’s minds. Asking the Question in 2014, risks the electorate asking back “why now, when you’ve more important things to do?”. Worse, from a Tory perspective, this could re-open the running sore of “splits”. Certainly the other parties will be opening up this old wound.

Leaving the EU is not without cost. The Free market is a benefit, an enormous one, of EU membership. As is often pointed out, the European nation with the most rigorous implementation of EU diktats is Norway, which isn’t a member of the EU, but instead suffers from “government by fax” where it is forced to adopt the measures of the free market, while having no input into their creation. Unpicking the constitutional, legal and economic effects of EU membership is a much bigger question, and will come at much greater cost than the simplistic Eurosceptics would have you believe. The UK, as a vastly more powerful nation than Norway will certainly be able to negotiate better terms than Norway, but I would vote against any “out” proposition which lost the UK free access to the EU’s single market. Leaving is a project for a stable Government with a clear mandate to do so, in good times. Ie. NOT NOW.

The UK has pursued the same foreign policy in respect to the continent since the Plantagenets abandoned the idea of an Anglo-Norman continental empire: If England (later Britain) cannot be the Hegemonic power in Europe, no one shall be. Withdrawal from the EU will cede that hegemonic power to Germany, something nearly two million Britons died in the twentieth century to prevent.

The EU is about to split into a federal core of Eurozone countries while a rump of independent countries, some of whom still say they want to adopt the Euro (but probably won’t) remain in the Free market. Britain can lead this group, ensure the reformed Holy Roman Empire can’t grow too big. With Britain in the Single Market, Poland and the rest of Central Europe may have the confidence to retain their currencies and act as a counterweight to an over mighty Teutonic empire.

Instead the Eurosceptics would rather stand on the white-cliffs of Dover in a Union-Jack tie shaking their fist at the dastardly foreigners over the Channel. We can look back on the summer of 1940, when Britain stood alone with pride. It does not mean we should try to recreate the feeling, especially when we’re about to get what we always wanted from the project. By staying in the EU and undermining its ridiculous march towards “ever closer union” from the inside, The United Kingdom is staying true to nearly a thousand years of consistent foreign policy.

Let’s not abandon that which has served us well for so long.

Cameron’s Euro Gamble.

We will find out over the next few days, but I suspect the conversation went something like:

France: “We want to impose a Tobin tax, Europe-wide”
The UK: “Um… sod off, you greasy little squit”.
Germany: “We’d like to impose regulation on financial services designed to move transactions from London to Frankfurt”
The UK: “You two are shitting me, right”.
France & Germany “No”.
The UK: “Fine then, bugger off”.

Everyone is claiming either victory, or that Cameron’s made a terrible error. UKIP, because we’re not getting a referendum that for some reason they think will solve everything, STILL call Cameron a Europhile. Labour think it’s terrible that Britain is “isolated”.

Actually I think the situation is broadly what the Conservative party AND the British people want: a 2 Teir Europe, with the UK the leading member of the small “never going to join the Euro” club. These will slide towards a Norwegian/Swiss position, while everyone else forges ahead with a Franco-German empire monetary and fiscal union.

So Cameron has shot UKIPs fox who will continue to frot themselves about a referendum which is no longer needed and will fade into irrelevance. Labour will find themselves arguing that Cameron SHOULDN’T have wielded his veto and should have instead bent over for whatever the Merkozy borg was suggesting. This demonstrates Ed Miliband’s tactical and strategic ineptness, and may have cost him the poll lead.

I am not sure Cameron could or should have played it differently. But there are deeper and more lasting issues here, which may or may not cause problems further down the line. This is an epoch-making moment. It is the end of 500 years of consistent English (& 300 years of British) foreign policy towards the continent. Namely that if the dominant hegemonic power isn’t England, no other power, or combination of powers should be able to rise to dominate the continent. As I mentioned before

Since the wars with Spain in the 1500s, when England stood at the head of an alliance of anti-Spanish nations culminating in the Armada of 1588. Next, through the Wars of religion Protestant England was happy to ally with anyone including Catholic powers keeping Spain down. France was (believe it or not, after strings of stunning military victories) next up in an attempt to become the dominant power in Europe, first under the Bourbon monarchy and later under Bonaparte. Comprehensive British victories at Trafalgar in 1805 and Waterloo (with a little help from ze Prussians) in 1815 put pay to Napoleon’s ambitions in that regard. The Russians made an abortive bid but were seen off by a Anglo-French alliance in the Crimea and turned their imperial ambitions east. A long peace saw the Rise of Germany, and the brokering of an Entente Cordiale between France and the UK should Germany get uppity and start throwing its weight around. They took some stopping, and the help of the Americans but Germany was prevented from getting a massive European empire….

…1914-1918 and 1939-1945 were the same war, with a bit of time to let Fritz regroup. The hun may have been utterly defeated, but they have never abandoned the dream of European empire which has burned in the Teutonic heart since the unification of Germany under the Hohenzollerns in 1871. The hush-puppy may have replaced the jackboot but the Boche are still marching in step.

Well that nightmare is upon us. A unified Europe stares at us across the Channel and our only allies are Sweden, the Czech republic and Hungary to block the behemoth that is the Eurozone and the lackeys who STILL wish to join. Our influence in a club, which by treaty and Geography, still affects us deeply, is much, much less today than it was yesterday. The UK cannot outvote a EU17 voting at Merkozy’s whim as a block. Euroskeptics, amongst whom I count myself, should not kid themselves that this decision is without cost.

Even if we leave the European Union, we still have to deal with that European behemoth, which will remain our biggest trading partner and closest neighbour, linked by money, blood, and habit. Unlike yesterday, we have no reins with which to control the monster which a federal German-dominated euro zone will become. It will rapidly become under French influence, more protectionist and inward-looking as our counterbalancing influence will wane. This isn’t in Britain’s interest.

Britain got what she wanted and may yet regret it.

So. Tunisian revolution. Worthwhile?

After the outpourings of joy in the wake of the departure of Tunisia’s Ben Ali (14th January) and Egypt’s Mubarak (11th February), there has been a period where other Arab regimes have offered concessions: Morocco & Jordan, bought off their people: Saudi Arabia or repressed viciously in the face of growing unrest: Bahrain Syria.

So what’s happening 6 months on from the Arab spring in the country where it all kicked off? The Economist is more optimistic than the Spectator, which raises the bogeyman of previously repressed Islamists gaining power, at the expense of relatively liberal, if despotic strongmen.

The intellectual elite threw their support behind the revolution, in which only a tiny percentage of the population participated. Now they complain of a lack of police protection. But the laconic policeman in charge at a local station, in response to a plea for help from a member of the CinemAfricArt audience [where a film by Nadia El Fani “Neither God, Nor Master” exploring Atheism was being shown], rather hit the nail on the head. ‘Ben Ali was protecting you, and you kicked him out,’ he reportedly said, and shrugged.

Despite this, the Economist concludes

COMPARED with the other upheavals across the Arab world this year, Tunisia’s is still the runaway winner. Since the country’s dictator, Zine el-Abidine Ben Ali, with his greedy wife, Leila Trabelsi, flew off into a Saudi twilight on January 14th after a nationwide uprising that lasted barely a month, there have been political hiccups, sit-ins, strikes and riots, especially in the fly-blown towns of the interior, and several new governments. But under Beji Caid Sebsi, an avuncular 84-year-old who first served in a cabinet in the 1960s and took over as prime minister on February 27th, Tunisia has calmed down.

So. The warnings were at the time, that Islamists, who formed by far the best organised would prevail. Journalists, who made that prediction at the time, are finding enough evidence to support the view that they were right. And those who were optimistic, can still do so. I fell on the cautiously optimistic side at the time urging (writing about Egypt) the people of the Middle East to…

…contain their expectations – democratic systems are not perfect, and do not in themselves lead to freedom and the rule of law, nor do they always lead to good government. What it does ensure is that tired, ineffectual or repressive regimes get booted out before they become a liability and stupid ideas such as socialism, get tested to destruction.

But whatever happens – there is reason to be optimistic about the world right now, until politicians and religious leaders get together and screw it up for everyone…

Of Course there is much that could still go wrong. But to imagine that Islamists were NOT going to be influential in ex-dictatorships was clearly naive. In any future Middle-Eastern democracy is going to have Islamists in Government or it isn’t a democracy. This means that movies by Atheist feminists are going to be harder to show in public. It also means that, if democracy takes root, the islamists are confined to the Margins, and committed to democracy in much the same way as Eastern European communists are today.

I still remain optimistic that a better, freer, more democratic Middle East is on the cards. A democratic Syria will be both more Islamic, and freer than that of the Boy Assad. The Egyptian Military interim council is perhaps “new boss, same as the old boss”. But even they’re planning elections, which have a chance of being fair. Islamists may run amok in the Tunisian interior, but that’s economic – the despair of angry young men without jobs, and these people have been manipulated by extremists for the whole of history.

The Islamists are not the boogeyman. The Arab spring, it should be remembered, started not with an Islamic group but an unemployed fruit-seller, Mohammed Bouazizi, who was selling vegetables without a permit. Being unable to bribe the police, he suffered harassment. His self-immolation which led to The Arab spring was economic, not political. Tyrannies are tough enough to resist Islamism and other political opponents but insufficiently flexible to provide employment for their people. The lack of jobs changes the risk/reward profile of protest, by removing the economic levers the dictator can pull to blackmail his population. Unless the new leaders CAN reverse the economic factors that led to the revolution, Arabs will lose the faith that democracy can bring economic benefits.

The problem is that Democracy doesn’t in itself, bring employment. Free markets and the rule of law, strong property rights, and a lack of corruption in public services do. And these take generations to develop – generations the newly democratic countries do not have. Islamists are merely the latest incarnation of political extremists to use economic demands of the to impose political ideologies on them. Before them were the communists & fascists. Anarchists, religious fanatics and military men have all through history done exactly the same. Democracy itself is remarkably fragile, especially in its early years. Whoever gets control of Egypt and Libya can either use the levers of a democratic state for patronage for favoured groups leading to the African vision of elections as tribal head-counts, Or the European/Western model of democratic parties leading interest groups who get showered with economic favours when their favoured party wins. Neither is particularly good at upholding the real guarantors of freedom: Institutions such as a civil service & law enforcement which upholds rather than flouts the law, without corruption. We in the west HAVE to help Tunisia & Egypt build strong institutions. Whether their new institutions will last, though, That’s up to the Arab people themselves.