A rare moment of common sense

The European Court of Justice (ECJ) is a political court. It actually has a most inappropriate name, as justice is not its overarching purpose. It exists rather to further the objectives of ever closer union. It therefore came therefore as something of a shock when the Court recently ruled against the European Central Bank and in favour of the UK government in a dispute about clearing houses. These financial institutions exist to ensure smooth completion of transactions of stocks and bonds. A good number are based in the City of London, even though they deal with transactions across the world in all manner of different currencies. The ECB argued that clearing houses that handle more than €5bn of euro-denominated securities should be based in a Eurozone country. However, the ECJ rejected this argument, saying that such a move goes beyond mere oversight of financial services. The ECB does have certain powers in this area according to the EU treaties, but no power to regulate market infrastructure companies. The court ruled that if the ECB wanted to regulate securities clearing houses, it must request the EU to give it such powers.

So for once, common sense has prevailed and the Government has seen off another threat to the City of London. However, that same quality was distinctly lacking in the comments of Open Europe’s Raoul Ruparel as reported in the Daily Mail. He claimed that “If the ruling had gone against the UK it would have seriously undermined the single market and significantly increased the power of the ECB – and probably would have made Brexit more likely.”

Well, if the ECB had won, perhaps a few employees of clearing houses might have been converted to outright withdrawalism, but is the issue of who supervises clearing houses really going to be the crunch issue in the electorate’s decision as to whether we leave the EU or not? Think of Peter Baldwin, the electrician in an aircraft factory who told Ed Miliband recently that working class people were leaning towards UKIP because of Labour’s refusal to offer a referendum on EU membership. Is this setback for the ECB in its desire to increase its control of financial services regulation likely to change the mind of this man or his colleagues?

Even within the City of London, clearing houses are only one part of the UK’s financial services sector. There are plenty of other people – stockbrokers, fund managers, investment bankers and so on. The EU is still keen to wrap its tentacles round this vital sector of the UK economy and will unquestionable try to do so in other ways. To think that a rebuff by one its institutions to another has been the knockout blow that will keep the UK in the EU is naïve in the extreme. There are hundreds of other reasons why we should seek our independence.

Photo by Cédric Puisney

Rising support for alternative parties

The daily round-robin e-mail from Open Europe on Monday 2nd March would have been unhappy reading for what might be termed the “EU mainstream.” No fewer than four of the eleven items featured discussed political parties in different countries which either are gaining or have gained support because of opposition to the Euro or to the EU itself.

Firstly, there is Syriza in Greece. The party leadership may have rolled over in the face of German intransigence over the bailout, but their climbdown has left a smouldering legacy within the party. A motion to oppose the bailout, put forward by one of the most left-wing factions, was defeated, but only narrowly. Furthermore, Prime Minister Alexis Tsipras insisted that there would be no third bailout. He also hit out at Spain’s Prime Minister Mariano Rajoy, saying that Spain wanted “unconditional surrender.” Rajoy replied that, “We’re not responsible for the frustration generated by the Greek radical left, which promised the Greeks what they knew they couldn’t keep – as it’s now been proved.” Although Syriza has managed to maintain a very high approval rating among the electorate even after the humiliating agreement with the Troika, the violent demonstrations in Athens last Friday suggests that sections of the Greek electorate may soon switch allegiance to other more anti-EU parties if the new government is not seen to make a difference to their everyday lives, something which will not be easy in view of the stark financial statistics. It looks likely that the main pro-EU mainstream parties in Greece will be relegated to the margins for some time yet, during which time anything, including government insolvency or an exit from the Euro, could be on the cards.

Meanwhile, in France, Nicolas Sarkozy’s attempts at a political comeback have continued with a fierce attack on Marine le Pen’s Front National. Sarkozy, who said that Tsipras had had to “eat his hat”, warned that voting for the FN would lead to a similar scenario in France. Such rhetoric, however, has not impressed the electorate. Latest opinion polls show the FN leading on 33%, with the beleaguered Socialists in third place, down to a paltry 19%. As in Greece, another pro-EU mainstream party has taken a hammering.

February ended in Rome with a rally in Rome in support of Italy’s Lega Nord, a one-time partner of UKIP in the European Parliament. Like the FN in France, the Lega is not a party that fits into a tidy pigeonhole. Accounts abound of some pretty unsavoury statements by some senior figures in the party, but its leader Matteo Salvini is gaining in popularity by attacking austerity and labelling Matteo Renzi, the current Italian Prime Minister, a “dumb slave”, the “foolish servant of Brussels”. Opinion polls put the party in third place, quite a comeback for a party that polled a mere 6.2% in last year’s European Parliamentary elections. The party was founded to campaign for a separation of the northern part of Italy (Padania) from the rest of the country. Its revival, according to some commentators, has been built of switching its focus from Rome to Brussels as the source of all evil. Given the continuing popularity of Beppe Grillo’s Five Star movement, Italy too looks likely to drift further away from the pro-EU mainstream.

Then finally, there is Germany. This weekend, the anti-Euro Alternative für Deutschland party held a convention. Founded by a university professor, Bernd Lucke, AfD seemed a million miles away from the populist parties of the Mediterranean countries at its inception. Unlike Lega Nord or the Front National, AfD has never talked of withdrawal from the EU, but its recent embrace of the Pegida movement is pushing it further away from the bland centre of EU politics. Lucke’s statement that “Islam is foreign to most, or almost all Germans” is remarkably politically incorrect and the prevailing mood of the party delegates appears to be very much on the same lines as that of its leader. They voted by a large majority for a general ban on minarets and burquas.

It would be foolish in the extreme to celebrate the ascendancy of any political party purely because of its opposition to the EU. Golden Dawn in Greece and Jobbik in Hungary in particular do seem particularly unsavoury. However, whether these new alternative parties are unpleasant or not, their growing popularity is an indication that the objective of ever close union which lies at the heart of the EU project, is being challenged as never before.

Sometimes, informal discussions between CIB committee members occasionally raise the possibility that we may not have to leave the EU because it may implode from within before we get the chance to vote. While this still remains quite a long shot, recent developments on the Continent suggest it is not perhaps as absurd a scenario as it might sound.

Photo by oscar alexander

Photo by SignorDeFazio

Photo by quapan

Tsipras has taken a quick lesson in Euro-speak

Greece’s new Prime Minister Alexis Tsipras has proved a quick learner. After less than a month in office, he has finally mastered the great quality of fudge necessary for dealing with the EU institutions. Mind you, it remains to be seen how convinced the Greek people will be that his capitulation to the hated “troika” was a victory. Before last Friday’s capitulation, he enjoyed a level of popular support which most Prime Ministers could only dream of – 75%. Unless the Greek people are particularly gullible, it is hard to imagine his government retaining its popularity for long.

Tsipras’ statement on Friday that “We kept Greece standing and dignified” was a masterpiece of Euro-Speak. He went on to say that the agreement with Eurozone finance ministers “cancels austerity” and added: “In a few days we have achieved a lot, but we have a long road. We have taken a decisive step to change course within the euro zone.” Reality is very different. Tsipras declared Greece was “leaving austerity, the bailouts and the troika behind” but has been forced to continue with austerity and extend the bail-out. As for the hated “troika (the ECB, the IMF and the European Commission), Syriza has secured an agreement not to use the name “troika”, but these three bodies, now referred to as “the institutions” will still oversee Greece’s bailout.

It promised to push through a series of anti-austerity measures including upping the minimum wage, scrapping taxes and re-hiring a number of civil servants. Instead, it has had to promise not to roll back the reforms introduced by previous governments or introduce any controversial measures during the four-month period of negotiations on a new long-term deal. Although Syriza has managed to reduce the agreed level of primary surplus it must achieve and has at least been able to suggest which reforms it would like to implement, they must be agreed by the other Eurozone countries. It is, to all intents and purposes, a total capitulation.

Wolfgang Schäuble, the German finance Minister rubbed salt into the wounds when he said, “Being in government is a date with reality, and reality is often not as nice as a dream.” In other words, “this immature group of idealists has had to grow up quickly.” Herein lies Syriza’s problem. The party promised the impossible. The country is bust, its main creditors are fellow-EU member states and the only alternative to years of grinding cuts would have been an Iceland-style banking crash which would have forced Greece out of the Eurozone and possibly the EU as well. It would have meant a spike in inflation and things getting even worse before they got better. Faced with these tough choices, Tsipras and his finance minister Yanis Varoufakis blinked and rolled over.

What this will mean to those many Greeks who celebrated the Syriza victory with such enthusiasm less than a month ago remains to be seen. There may be issues within Syriza itself which, as has been pointed out before, is not a monolithic political party but an association or coalition of left-wing factions, some of which may not be willing to go along with this humiliation. PASOK, which Syriza has replaced as the main party of the left, was soon on the attack. “No propaganda mechanism or pirouette can hide the simple fact that they lied to citizens and sold illusions” said Evangelos Venizelos, the party leader.

In summary, Greece has secured for itself a four-month extension to the current deal at the price of an embarrassing climbdown which the party’s leadership has tried to disguise as a victory. It saves Greece’s banks from collapse for the time being while still leaving the most critical question unanswered:- How is a country that may no longer even be able to achieve a primary surplus bring down its vast debt of 175% of GDP? The markets may be happy at Friday’s deal, but it may yet prove a false dawn – a lull in, rather than a termination of, the Eurozone’s woes.
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Syriza wins in Greece. What are the implications for the Eurozone?

As widely expected, the anti-austerity Syriza alliance won the Greek General Election on 25th January. Syriza fell just short of an overall majority, but appears to have secured a deal with the Independent Greeks party to form a new government. This is an unlikely alliance, as this small party is right of centre and agrees with Syriza only on its opposition to the austerity measures imposed on Greece as a condition for a bailout by the so-called “Troika” – the European Central Bank, the European Commission and the International Monetary Fund. However, for better or worse, Greece now has a government which has pledged to stand up to its creditors and seek at least a partial forgiveness – or write-off – for the country’s debt, which stands at a staggering 175% of GDP. Given that the Greek people have been through a recession worse than the 1930s and seen GDP shrink by almost 25% in five years, they can hardly be blamed for turning to anyone who promises to offer some hope for the future.

But what are the implications for the country and the eurozone as a whole? The first question is whether the coalition will hold. While Germany is government by a “grand coalition” of left and right, Syriza is not a “mainstream” centre-left social democratic party like Germany’s SPD but an association of Maoists, Trotskyists, Marxists and Greens. It is probably the most left-wing party to have been voted into power in Western Europe since the fall of the Berlin Wall. The Independent Greeks, being conservative and nationalistic, are hardly the most obvious or suitable bedfellows for such a party. Any hint that the coalition may collapse before it has even got off the ground will only plunge the country into insecurity and talk of fresh elections. If it does hold, will Alexis Tspiras and his enthusiastic but inexperienced team be able to turn Greece around? Given the amount of ideological far-left baggage the party brings with it into government, this is unlikely. Let’s face it, Marxists, Maoists and Trotskyites don’t have a particularly good record at creating successful, prosperous economies. Venezuela, which boasts one of the world’s most left-wing administrations to have gained power through a (reasonably) democratic process, is currently suffering from an annual inflation rate of over 60% and has had to raise interest rates to over 19% to prevent a currency collapse.

Then comes the tricky question of the relationship with the rest of the EU. Comments on the election results from Northern European Eurozone members have been very stern in tone and quite uncompromising. Angela Merkel has insisted that the new Greek government must stick to the commitments made by its predecessors. Jeroen Dijsselbloem, the Dutch finance minister and chairman of the Euro Group was equally forthright. He stated that he would work with the new Greek government but there would be no softening of the line on austerity. “Membership of the eurozone also means you comply with all that we have agreed with each other,” he insisted.

Will there be any give and take on either side? Fudge and compromise are part and parcel of EU horse trading. For established political parties and their leaders, it is grist to the mill, but what of a party that has never been in government before? – especially a party that won a victory pledging NOT to compromise? Tsipras’ rhetoric in his victory speech is not the sort of language Brussels likes to hear:- “Greece is leaving behind the destructive austerity, fear and authoritarianism. It is leaving behind five years of humiliation and pain…The verdict of the Greek people, your verdict, annuls today in an indisputable fashion the bailout agreements of austerity and disaster…The verdict of the Greek people renders the troika a thing of the past for our common European framework.” It’s pretty uncompromising stuff, but what if it comes to a standoff? Syriza, like most left-of-centre-parties, claims to be strongly pro-EU, but will Syriza’s more hard-line members and supporters allow Tsipras to be bulldozed buy the EU juggernaut? What if he stands his ground and Greece is expelled from the Eurozone?

While unofficially, some politicians, especially in Germany, state that life would carry on for the other 18 countries without Greece and that a default would not cause the same problems as would have been the case at the height of the Greek debt crisis in 2010-12. But what if Greece then prospers outside the Eurozone? Admittedly, as has been stated, this looks pretty unlikely, but suppose after expulsion Greece, in a subsequent election, voted in a different party that turned the Greek economy around. Would other nations be tempted to leave too?

It is hard to say. Norway and Switzerland have shone for many years as a beacon of light showing how well a nation can do outside the EU completely, but so far, only in the UK are there many people keen to point this out and to suggest that their country ought to follow suit. However, as last May’s European Parliamentary election shows, increasing numbers of people are across the entire continent falling out of love with the EU. Once a nation effects a successful exit from the EU or even the Eurozone, the failure of the whole EU project will become apparent to all and sundry. That is inevitably going to cause a few worries in Brussels, but after years of ignoring referendum results that go the “wrong” way, can the EU élite really be surprised if voters discover other ways of expressing their discontent? General elections are due this year not just on the UK but also in Denmark, Poland, Estonia, Finland Portugal and Spain. In the latter country, a similar hard-left party, Podemos, has been rising in the polls and has also been closely watching Syriza’s progress. “Greeks finally have a government, not a Merkel envoy” was the reaction of one Podemos official to the result. Interesting times ahead, indeed!

The single market – not as wonderful as we thought

The Bertelsmann Foundation has just published a report to mark twenty years of the single market and interesting reading it makes. It found that, between 1992 and 2012, Germany’s GDP increased by €37.1bn per year as a result of its membership of the EU’s single market – equivalent to €450 per inhabitant. By contrast, UK GDP only benefited by an additional €1bn per year, equivalent to €10 (or just over £8.50) per inhabitant.

Denmark has benefitted even more than Germany. Its GDP increased by €500 per inhabitant per year. However, Southern European nations have not done so well. The per capita figures for Italy, Spain, Greece and Portugal are €80, €70, €70 and €20 respectively. It is unsurprising that these countries have fared badly relative to Germany. Tied to the single currency, their exports to Germany have become progressively more expensive while Germany has been able to grow its exports across the Eurozone after making significant gains in productivity a decade or so ago.

However, even Greece and Portugal, hamstrung by a currency that has not worked in their favour, have gained more from the Single Market than our country. As the debate about EU membership hots up, one of the concerns frequently expressed by figures from the business world is that it would be a calamity to be excluded from the Single Market. It has been taken as read that any trading arrangement with the EU for a newly-independent UK should include access to the Single Market and there is no question that this remains the cases. However, the size of the benefit to the UK economy has not proved nearly as significant as we were led to believe.