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.

Britain’s Exit from the EU (in its present from) is Almost Certain by Edward Spalton and John Harrison

The EU always was a project which depended on forward momentum and an appearance of inevitability. Professor Tim Congdon likened this to the belief held by Marxists in the scientific nature of their theory and the historical inevitability of its fulfilment. With the wheel falling off the euro currency and the manifest incompetence of the EU’s leaders to deal with it, even true believers are now having doubts about the EU equivalents of those Five Year Plans and bogus statistics of tractor production which destroyed the credibility of the Soviet Union.

The euro is now on life support and there are two possible outcomes. If the life support of IMF, British and other loans is insufficient and the patient dies, then the EU, in its present form, dies with it. Frau Merkel says so and she is in a position to know.

If the euro lives, then within three years the 17 eurozone countries as a caucus will be able to dictate the policy of the whole EU to the 10 states which still retain their own currencies. Mr. Cameron and Mr. Osborne have been urging the eurozone states to form themselves into a common, united, economic government.

Mr. Cameron, having already ceded powers of control over the financial sector to the EU, appears to have woken up to the dangers of this rather late in the day – particularly with regard to the interests of the City of London. The EU is proposing an expanded Tobin tax on financial transactions. Taxing the bankers will be popular but, of course, the tax will end up being paid by the bankers’ clients. They will pass it on, rather like the oil companies do with fuel duty and VAT.

It will not “soak the rich” who will simply move their financial transactions out of its reach. It will hit the smaller savers with money invested in unit trusts, managed funds and pension funds.

Up to now such funds, if well-managed, have provided some shelter from the worst effects of inflation, especially for occupational pensioners in the private sector. If every transaction and share swap is taxed, then that ability is much reduced. It will have a similar type of effect on private pensions as Mr. Brown’s £5 billion per annum tax raid had in earlier years. Like that expropriation, it will be initially “painless”
because the deductions will start small, not appear on anybody’s payslip and will have their effect over years.

If the euro recovers, then regardless of opt outs and derogations, eurozone countries will shortly have the necessary weight to impose this tax which is particularly directed at London where the huge majority of Europe’s financial transactions takes place. From the sudden invention of the Common Fisheries Policy onwards, Britain’s relationship with the EU has been one of repeated surrenders. A British government committed to staying within the EU would have no choice but to accept it eventually. Those investors who could would simply desert London for cheaper dealing on untaxed exchanges.

Mr Cameron is pledging large amounts of Britain’s credit to the eurozone through the IMF, presumably in the hope of reviving the euro. He says so and I think we may believe him. The only conclusion to be drawn is that EU control and taxation of the City of London is the outcome he expects and accepts. His complaints and bluster against the EU’s continual attacks on the City can only be of the “In Europe but not run by Europe” variety with which we have long been acquainted.

So there are two possible outcomes in general outline:

  • The euro collapses and the EU with it, leading to a wholesale liberation of EU states including the United Kingdom. With the acquis communautaire and EU institutions irretrievably discredited and irrelevant, a genuine renegotiation of trade arrangements between states would be possible, provided we have a government willing to play for our side.
  • The euro survives and national interest will compel UK withdrawal from the eurozone-dominated EU unless the government in power is just as prepared and determined to sacrifice the City of London, as Mr. Heath’s government was with the fishermen.

Whilst people may loathe bankers and financiers as much as they do politicians it is likely that public pressure, backed by well-funded information from the City, would not permit that abject surrender. Yet the direction of Mr. Cameron’s present policy of pledging more and more of our credit to prop up the ailing euro seems geared to just that end – even as he protests his intention to defend the City. Putting very serious money on the line for a project whilst protesting against its inevitable outcome (if successful) is not a credible stance.

“OWN RESOURCES”
The EU has long aimed to acquire rights of tax raising without the need to go through the parliamentary processes for contributions from member states. This is called “own resources” and already exists to some extent in customs duties on goods entering the EU from Third Countries. These are collected by HM Revenue and Customs which retains a collection fee for expenses but passes on a fixed proportion to the EU automatically. With the reduction of customs tariffs world wide as a result of WTO agreements, to which the EU is signatory, this is not as fruitful a source of funding as it once was.

Two other EU revenue raising proposals are being given serious consideration

  • A “carbon tax” on emissions from factory chimneys with the supposed benefit of “saving the planet” from climate change. The EU already dictates much of environmental policy, including targets of carbon dioxide which member states are allowed to emit. The EU also operates a notoriously corrupt carbon trading scheme.
  • A tax on financial transactions at a low percentage (0.1% and upwards is mooted). This is expanded from the original idea of the Tobin tax which applied only to spot currency deals. Some 70% of the EU’s financial transactions take place in London. The tax is advocated as a brake on the “greed” of financiers and on the volatility of markets. In practice it would simply be an added dealing cost which would be passed on to buyers of shares, bonds and currencies. It would also discriminate against currency transfers between eurozone and non eurozone countries within the EU, giving credible extra financial pressure for joining the euro.

It is noteworthy that two Liberal Democrat euro-fanatics are ministers with responsibilities in this field – Chris Huhne who is Minister for Energy and Climate Change and Danny Alexander who is Chief Secretary to the Treasury.

The attempted creation of a single economic government amongst eurozone members with the active support of HM Government and the impending change in EU voting procedures in three years time, which will give that eurozone group permanent outright control of all major EU decisions, provide the backdrop against which the independence struggle and any referendum campaign will take place.

The Monetary Mess

By locking incompatible economies onto the same currency, the existence of the euro is making worse a mess which already existed. It began in the Seventies at about the time Britain joined the EEC and was triggered by President Nixon’s decision to take the US dollar off the gold standard. Under the Bretton Woods system which stabilised the post war currency system, the major currencies were pegged within a small range of variation to the dollar, which was pegged to gold. Every so often, adjustments were made. Britain had to devalue on several occasions because of balance of payments difficulties.

Some people will remember Prime Minister Harold Wilson assuring us that this did not mean that “the pound in our pocket” had been devalued! When the dollar came off the gold standard it was decided that currency exchange rates would “float” and go up and down against each other according to market circumstances. In fact, this represented another devaluation for sterling. Criticising the change from the opposition benches, Mr Wilson remarked “..and the pound floated – like a brick!”. He always had a good turn of phrase.

Freed from the restrictions of the Bretton Woods system, British and other governments relaxed controls on credit, allowing the banks to become the de facto issuers of currency.

The independently owned banks used to have the right to issue bank notes. The government realised that printing bank notes can lead to inflation so it passed the Bank Charter Act of 1844 which prohibited* them from that and gave the sole power to the Bank of England to issue bank notes.

That worked fine until the advent of computers when banks became empowered to issue currency again. The liquidity ratios allowed them to lend £8 for every £1 they held in deposits. So if you deposited £1 in your account they could lend me £8. I could then pay that to you to buy your vastly inflated produce and you pay it into your account. They have now got another £8 on which they can lend me £64 and so it goes on. This is how the banks have built up bigger assets/liabilities than the countries in which they are domiciled.

Governments have been happy to turn a blind eye to this ballooning catastrophe because – guess who borrows the most money? Got it in one! The governments themselves! That is why Gordon Brown was so desperate to get the banks lending again in 2008.

But shouldn’t this vast increase in money supply have increased inflation over the last twenty years? Of course it should have, but the monetary effect was negated by the massive importation of cheap goods from the Far East. In other words China postponed the impending doom approaching the Western world.

Back to banks. What happens when the loans they made go sour? Well, first point, due to a change in accounting regulations they only have to report bad debts when insolvency proceedings commence – unlike the rest of us who have to write off as soon as we suspect the debt is bad. So the banks can and do keep bad debts off their balance sheets by throwing good money after bad. Ultimate, of course, those companies go under. As the average lending ratios are now 33:1 instead of the 8:1 I mentioned earlier, it only required bad debts of 3% of their total assets to wipe out their capital entirely, and most banks are in that situation.

So what happens then? First, the loss is sustained by the bank’s shareholders, then they borrow on the inter-bank market and lastly the government’s unwritten guarantee comes into play to protect the nation’s savers as ours did with Northern Rock, Royal Bank of Scotland et al. There you have a situation where the banks got into trouble because they had lent too much, largely to governments, and under Gordon Brown’s “Save the World” strategy, the governments took all the debt back onto their own balance sheets.

Now you have the problem where the sovereign states are buckling under the amount of debt they are carrying. So the solution is for the European Central Bank to create £2,000 billion of extra cash to bail out the governments.

But wait a minute! Who are the unwritten guarantors these new £2,000 billion of debts? Well, actually they are those very same sovereign governments which are insolvent anyway.

It will probably have the same effect as throwing a tanker load of petrol onto a fire to try to dowse it. Stand well back, if you can!

As a Dutch colleague remarked recently, it is likely that most of us will become considerably poorer as a result of this massive, immoral mismanagement. The question is whether we will be poorer serfs within the European Union which entrenches the system beyond democratic reform in perpetuity, or poorer free men in our own countries with a chance of fighting our way back.