Sunday, 31 July 2016

IMF admits disastrous love affair with the euro and apologises for the immolation of Greece


Key paragraphs from the above article listed below.  The story here is just how corrupt the IMF is, and just how complicit with European Union corruption it chose to be.

I always knew why Project Fear was so desperate, but I didn’t appreciate the depths to which it was so desperate.  The story represents a height of cross-institutional corruption that Project Fear - the Remainaics - were keen to preserve, necessarily at the expense of the people.

Remember that the European Union carved out the useful and honest bits of accounting standard IAS 39, so that financial liabilities need not be recorded at fair value.  Useful for dodgy banks, no? (especially state-sponsored banks)  This helps put the IMF’s position (and that of the EU) into context.

"The International Monetary Fund’s top staff misled their own board, made a series of calamitous misjudgments in Greece, became euphoric cheerleaders for the euro project, ignored warning signs of impending crisis, and collectively failed to grasp an elemental concept of currency theory."

" “Before the launch of the euro, the IMF’s public statements tended to emphasise the advantages of the common currency," it said. Some staff members warned that the design of the euro was fundamentally flawed but they were overruled.

“After a heated internal debate, the view supportive of what was perceived to be Europe’s political project ultimately prevailed,” it said.  This pro-EMU bias continued to corrupt their thinking for years. “The IMF remained upbeat about the soundness of the European banking system and the quality of banking supervision in euro-area countries until after the start of the global financial crisis in mid-2007. This lapse was largely due to the IMF’s readiness to take the reassurances of national and euro area authorities at face value,” it said."

"In Greece, the IMF violated its own cardinal rule by signing off on a bailout in 2010 even though it could offer no assurance that the package would bring the country’s debts under control or clear the way for recovery, and many suspected from the start that it was doomed.  The organisation got around this by slipping through a radical change in IMF rescue policy, allowing an exemption (since abolished) if there was a risk of systemic contagion. “The board was not consulted or informed,” it said. The directors discovered the bombshell “tucked into the text” of the Greek package, but by then it was a fait accompli."

"While the fund’s actions were understandable in the white heat of the crisis, the harsh truth is that the bailout sacrificed Greece in a “holding action” to save the euro and north European banks. Greece endured the traditional IMF shock of austerity, without the offsetting IMF cure of debt relief and devaluation to restore viability.  A sub-report on the Greek saga said the country was forced to go through a staggering squeeze, equal to 11pc of GDP over the first three years. This set off a self-feeding downward spiral. The worse it became, the more Greece was forced to cut – what ex-finance minister Yanis Varoufakis called "fiscal water-boarding"."

"The injustice is that the cost of the bailouts was switched to ordinary Greek citizens  – the least able to support the burden  – and it was never acknowledged that the true motive of EU-IMF Troika policy was to protect monetary union. Indeed, the Greeks were repeatedly blamed for failures that stemmed from the policy itself. This unfairness – the root of so much bitterness in Greece – is finally recognised in the report."

Saturday, 30 July 2016

French ex-commissioner to lead EU Brexit talks, Britain cool on move


According to Reuters

“European Commission President Jean-Claude Juncker selected Gaullist Michel Barnier, a former European Union commissioner and center-right French foreign and agriculture minister to negotiate for the European Union in the expected Brexit negotiations.”

“Barnier, 65, was a commissioner from 2010 to 2014, in charge of internal market and services. He was involved in reforms of financial services and in the establishment of a European banking union with a single supervisor for euro zone banks.2

“Barnier presided over a frenzy of European financial rulemaking, not all welcomed by Britain.  More than 40 sets of rules were rushed onto the statute book, most based on global responses to the financial crisis.  [...] A hawkish European Parliament also insisted on caps for bankers’ bonuses, a reform Britain failed to stop.  [...] Barnier co-organized the 1992 Winter Olympics in his home region of Albertville and was a close ally of former Gaullist President Jacques Chirac, prided himself on working mostly in consensus with the City, London's financial center. He worked hard to improve his spoken English on the job.”

According to the Daily Telegraph


Barnier’s appointment is apparently “hardball”.  “As European Commissioner for internal markets in 2013 he attacked British eurosceptics for trying to negotiate a “pick and mix” approach to European financial services regulation while remaining in the EU.”

Bizarrely, the Telegraph writes:
“Diplomats have also suggested Mr Barnier he still resents Britain after losing his job after the French Government lost a referendum on the European Constitution.“

I’m not sure I understand the causal chain of events from French referendum to Barnier losing his job and somehow that being the fault of UKGov.  All the same, it’s too believable.

“He is a renowned defender of French protectionism and is hostile to the “Anglo-Saxon” free market model of capitalism.”

“He recently wrote a paper for Mr Juncker which called for an EU army.”

“He has insisted that Britain will have to accept freedom of movement - "without exception or nuance" if it wants to retain access to the single market.”

Opinion

If Barnier is a pragmatist, then he’s correct to suggest that European integration should be no hostage to Brexit.  If anything, he’ll be delighted that UK voted to leave, because the key obstruction to European integration has chosen to leave.  This means that Barnier is likely to show lots of “hardball” in the public arena, but likely to do quick, harmless, “no-brainer” deals when the media isn’t watching.

The “freedom of movement” argument is fast becoming a non-sequitur.  In July 2016, every new day carried another new headline about some mass killing going on somewhere in continental Europe.  I perceive “freedom of movement” argument being the straw man of the negotiations, picked most likely because it is the only pretend “red-line” that the Europeans are likely to agree on, only to be demolished at 23rd hour (or month, as Article 50 requires).

Remember the concept of “solidarity” in Europe?  Every member has a good incentive to break ranks and do a deal with its main export market - the UK - so they’ll only play ball with the European Union for as long as they can afford to do so.  They’ll stick to European law: they’ll lobby the Commission instead of negotiating their own deals with the UK (which, under EU law, they can’t do).  Far from making negotiations with Britain hard pour encourages les autres to toe the European line, hard negotiations could actually encourager les autres to realise that the European Union might be part of the problem.  In other words, the longer the European Union presents the straw man argument of “freedom of movement”, the risk of the European Union’s break-up increments.  At the point where member nations realise that the European Union prevents/obstructs sustainable trade, then the cessationist contagion that France and Germany most fear might become a reality.

Even worse for the European Union, its future depends almost the economic viability of the Eurozone.  Barnier is a fan of the Eurozone, suggesting a wrong-headed view that politics rules supreme over economics, and therefore not that pragmatist.  A single big shock to the Eurozone - say, the collapse of an Italian bank followed by the Italian government breaking the rules to permit a “bail-out” instead of first performing a “bail-in” - would be enough to render governance within the Eurozone zero.  Who would then want to be invested in Euros?

So how pragmatic really is Barnier?  His track record and political background suggests more of a typical Frankish dirigiste approach to government, the very style of government that maximises problems and the one typifies the current state of France: >50% GDP consumed within the public sector (paid for by whom?), high levels of unemployment, practical impossibility of hiring people (because how does one make jobs redundant in France?).

That Junckers appointed Barnier is also noteworthy.

Meanwhile, reported by Reuters, “EU leniency for Spain, Portugal signals softer economic path”, the European Commission appears already to have decided to use Brexit as a means to subvert its own rules.  So even if Barnier were a pragmatist, the European Commission appears to have sabotaged access to the most useful negotiating outcomes.

"The Stability Pact has died a second time," said Daniel Gros, director of the Brussels-based Centre for European Policy Studies, recalling that France and Germany had torn up the first version of the rules in 2003 to avoid sanctions on themselves.

Conservative German economics commentator Werner Mussler wrote in the Frankfurter Allgemeine Zeitung that the official justification made clear the rules were "empty talk" and would never lead to fines.

"Might these (eurosceptic) doubts not be due to the constant bending and breaching of the rules by the Commission?" he asked.

An appointment that looks like an attempt to punish the British for daring to leave the superior European Union, combined with a senseless avoidance of European rules, could well end up drive the Eurozone (and therefore also the European Union) to a point where few of its member nations can afford to be.

Has the European Union realised what a high-stakes game it has just started to play?

Sunday, 24 July 2016

Miscellany 24Jul2016

Morocco asks to rejoin African Union after 32 years

Wells Fargo’s Response to Brexit? Buying in London’s Financial District
(subscription required)
Oh dear, looks like the wheels have just fallen off Project Fear.  That’ll upset Remainiacs.

Why Softbank Is Buying ARM for $32B
Remainiacs have further cause for gloom as a Japanese tech company Softbank buys UK tech company ARM Holdings, ostensibly for the acquisition of ARM’s intellectual property.  It is unlikely that ARM would ever have had financial capacity to deploy its intellectual property (i.e. it couldn’t have been another Intel).  For Brexit, there’s nothing here relevant to the European Union whatsoever.  Therefore, in matters of trade, business and economics, the deal underlines how much Europe really matters: i.e. not that much.  For Remainiacs, the news must be infuriating: the sky hasn’t fallen on our heads yet.

UK gives up planned presidency of European Council to focus on Brexit

Daily Mail publisher reports signs of ad market recovery after Brexit vote
It must had suddenly occurred to advertisers that attempting to lobby 17m Brexit voters means doing deals with a pro-Brexit newspaper: the Daily Mail.  Then again, this was probably going to happen anyway: advertising strategies can be quickly formed and quickly deployed, but there’s something awry about the timing of this ‘news’.

Premier Foods delivers growth ahead of noodle-tie up
Another corporate deal resulting in UK firm gaining access to non-European markets.  Again, this deal was almost certainly planned months ago, and it might even have been suspended pending the conclusion of the referendum (irrespective of outcome); deals like this just don’t happen as quickly as journalists type crap in the blogosfear.
Note that Premier Foods is said to have a base in St Albans, whose residents voted overwhelmingly (66%) for EurIn.  I wonder if Premier Foods sell a brand of irony thick enough to spread on toast?

Wednesday, 20 July 2016

Miscellany 16Jul2017

Spectator “Frexit? Stranger things have happened”: an excellent interim analysis of the French reaction to Brexit and the divergent pressures within French politics.  The public comments are also generally insightful, occasionally inciteful and once-or-twice spiteful…!  One of the comments identifies the German economy as an “unbalanced mercantile economic model” (meaning a rigged market that empowers the state ostensibly against rival states, but whose collateral damage normally includes the state’s own citizens).

Mercantilism?  Yes:
Out-Law: German banking industry online payment restrictions in violation of competition law, says regulator.  This supports the view that Germany operates an unbalance mercantile economic model.  This article reports that German rules prevent bank customers from using their bank identification data in non-bank payment systems, thereby creating a barrier to trade.  We’ve seen this sort of “abolish innovation” mentalty many times before, most notably Germany’s ban of taxi hailing service Über.

The Irish Post did a brief Q&A about the Ireland Act 1949, which blurs the definition of British citizenship in favour of the Irish citizen.  This demonstrates one reason - perhaps amongst many more - of just how complicated British law has been allowed to become, and how European law within British law has already had unexpected consequences… which no-body seems to have noticed until now.  On the face of it, the UK Parliament has discriminated in favour of Irishness, which is de facto racist and almost certainly illegal under some European law.  It would probably remain illegal under some European law for as long as either one of Ireland or UK were to remain in the current EU.

The Economist analyses the Italian solvency crisis and forecasts what sort of Euro-fudge might result.

The BBC reported that EU criticised Israel law forcing NGOs to reveal foreign funding.  It seems that the EU doesn’t like its taxpayers to know where their money is being used for political purposes of which the taxpayer might not approve.

The EU Observer reports a comment from privacy campaigner Max Schrems that the “Privacy Shield” - the replacement for the defunct “Safe Harbor” data agreement between EU & US - won’t survive.

Business leaders diverge on their plans about investing in Britain.  Siemens has realised that there’s no need to change anything just yet (if at all).  Meanwhile, a cosmetics business is moving some production to Germany… sounds like an irrational decision to me, triggered by short-term emotionalism rather than the hard, cash-based facts of trading internationally.

The BBC has taken some more vox pop about Brexit, this time about the nuanced views in Sunderland.

Saturday, 16 July 2016

New Prime Minister Theresa May appoints first cabinet

New Prime Minister Theresa May (voted to remain) has appointed her cabinet.  The key appointments relating to Brexit look encouraging:
  • Chancellor Philip Hammond (voted to remain);
  • Foreign Secretary Boris Johnson (voted to leave);
  • Leaving the European Union Secretary David Davis (voted to leave);
  • Home Secretary Amber Rudd (voted to remain);
  • International Trade Secretary Liam Fox (voted to leave);

The Independent gives a full list.  For a ‘live’ list, see also gov.uk.

Overview and political environment

For policy choices, this looks like a cabinet that looks set to hedge its bets.

May has given Brexiteers their best chance to make Brexit happen in everybody’s interests, with the Eurineers ready to over-ride the referendum result on a whim (most likely at the first sign of panic).

On the UK political spectrum, May has moved the Tory party substantially to the left-wing, occupying the core centrist ground that Blair once occupied, and would normally be occupied by the now-invisible Liberal Democrats.

Meanwhile, the Labour Party is heading further leftwards, so much so that a fight for control of the Labour Party is in full swing.  Crucially, the fight is between:
  • the left-wing non-parliamentary party, a faction called Momentum;
  • against the centrist/right-wing parliamentary party.

Davis and Fox are credible appointments to their respective briefs (notwithstanding Fox’s prior use of taxpayers’ money to fund an income for Adam Werritty).  Davis is a good choice, because his strong stance in favour of civil liberties is the best hedge that May has in her cabinet.  Hammond and Rudd should provide some sort of check-and-balance against Davis and Fox, to ensure that they are sufficiently challenged and don’t cut corners.

The appointment of Davis and Fox also re-assures Steven Woolfe, a candidate for leadership of UKIP. [This link also gives another list of cabinet members].  Woolfe describes himself as mixed-race, which is noteworthy: it is imperative for UKIP to ensure that it never represents a ‘one-race’ party.

Meanwhile, in Europe, Italy wants to bail-out its banks, contrary to rules that require a bail-in to happen first [a bail-out is where taxpayers subsidise private losses; a bail-in is a pre-insolvency movement, whereby the bank’s creditors write-down or write-off their claims against the bank].  This matter could come to a head before Italy’s referendum about a constitutional matter in October 2016.

On 14Jul2016, a terrorist used a truck to murder dozens of innocent people in Nice as they celebrated Bastille Day, giving rise to questions about the competence of the dirigiste French state.  On 15Jul2016, the Turkish government suppressed a small ‘attempted coup’ by some elements of the military who want Turkey to return to a secular democratic state that respects human rights, away from the authoritarian Islamist/Sharia state that Turkey is becoming.

No mention yet from the May cabinet about the abandonment of 0% interest rate monetary policy, the root cause of all of our problems.  On 14Jul2017, the Bank of England chose to keep interest rates unchanged (the blogosfear - including the City - expected a cut, because the blogosfear is still peddling Project Fear; actually, there’s no credible data yet to make any rational choice to change interest rates, even though the policy choice to keep base rates ultra-low is irrational anyway).

As at 16Jul2016, for all of my grumbling about the competence of UKGov, I think the May cabinet has the right ingredients in place.  I just feel uncomfortable about trusting them to calculate, to pick and to implement the optimum policies to enact the referendum result.

BoJo as ForSec?  Really?!

The appointment of Boris Johnson as Foreign Secretary is an odd choice.

Johnson is blunt and sensationalist to be a conventional diplomat - by trade, he’s a journalist - so how long he’s going to last is an open question.

At a guess, Johnson is probably staged for a fall, i.e. his expected “failure” as Foreign Secretary could be plausibly deniable political device by which May allows the Brexit process to unravel, giving May the chance to say “Oh well, it all looks impossible, let’s stay in the EU after all.”

That said, Johnson is, fundamentally, an internationalist - not at all a Fortress Britain Little Englander - so has the correct outlook on life, even if his bluster looks set to upset just about everybody.  His opinions on policy choices could upset the Americans and Europeans in equal measure, given that he approaches policy matters without accounting for present vested interests and appears actively to consider nuances (unlike most human beings, who see choices as pure binary) [the link is a good summary of Johnson’s foreign policy pronouncements].  The establishment would consider Johnson to be a maverick, for which Johnson gets my support.

Which is not to over-state the case.  The Foreign Office is less important today than it was decades ago, offering only opinion leadership outside UK borders than actually doing stuff.  In any event, Johnson is merely the mouthpiece, one of many implementors: a Foreign Secretary does not single-handedly devise UKGov foreign policy.  Used wisely, Johnson’s bluster can be very effective for Britain, and a very useful tool for Brexit negotiations.

Will Brexit happen?

May said that Brexit means Brexit.

So, on the face of it, Brexit as a principle is probably beyond debate.  Even so, the manner of the departure and the scope of UKGov’s relationship with the residual EU are wide open to speculation.  In this latter link, note Redwood’s preferred priority of repealing the Europan Communities Act 1972 first, then invoking Article 50 effectively as a tidy-up exercise.

However, May has not yet publicly investigated the nuances of the referendum results, i.e. for Scotland and for Northern Ireland, remain means remain.  May’s current position is to remain open to suggestions for Scotland.

May visited Sturgeon on 15Jul2016, a week since May’s appointment as Prime Minister.  I think this means that May takes Sturgeon seriously.  This feels like good politics, but I can’t yet see what useful policy choices could emerge from it.

As at today, it is inconceivable that May would consider the breakup of the UK to enable Scotland to go independent and immediately surrender its independence to whatever is left of the Europe Union.  On this one, only time will tell.  I think Sturgeon is smart: she’ll play the independence card to the media, but behind closed doors, she’ll be hoping that she won’t be in the position of having to negotiate Scotland’s accession into [whatever is left of] the European Union.

Industrial policy re-appears

May appears to have launched an industrial policy.  This is a typical policy choice of left-wing Tories, the most famed of whom was Michael Heseltine, the immediately-previous minister who last operated an industrial policy in the 1980s.  An industrial policy is by definition interventionist, typically resulting in some sort of state aid, which is illegal under EU law.  One could interpret this as evidence that perhaps the May cabinet really does want Brexit, and can see the advantages of Brexiting.  On the other hand, it might be equally likely that the cabinet is just as illiterate in law as its predecessors, i.e. that the cabinet hasn’t realised an industrial policy typically leads to EU-illegal outcomes.

A second problem with industrial policies is that they put governments in the position of gambling with taxpayers’ money, as if the government were an active, private investor.  And, of course, governments typically being stupid, governments normally end up backing losers, and then continue to pour taxpayers’ money into the losses (whereas a private investor would cut losses and get out).

The trigger factor for this policy appears to be energy security and decarbonisation, effectively taking a strategy out of the hands of the market (which arguably doesn’t know how to invest, partly because 0% interest rates makes the value of long-term future revenue streams unforecastable, and partly because of UKGov’s lack of policy leadership, itself following the lack of leadership of European Union energy policy).

Saturday, 9 July 2016

Miscellany 08 July 2016

Whilst Project Fear rumbles on in the blogosfear, others are getting to grips with a new reality, even if it still might never happen.

Oliver Letwin has become the public face of UKGov’s new team which looks a lot like a Brexit steering committee.

The General Data Protection Regulation looks like it might stay, whether Brexit or ChangeOfMindBremainSorryAboutThat.

Intellectual property law - one of the greatest and most cynical barriers to entry and to trade that has ever existed, creating state-sponsored parasites as part of its ‘normal’ function - is so archiac that there are multiple effects of Brexit for all the main types of intellectual property.

Health and safety law for UK onshore operations won’t change much.  The Health and Safety at Work Act 1974 works best in the UK common law system.  Offshore operations, which already complied with UK law, appears to have needed re-working anyway (why?) and there is now an open question as to whether European H&S rules for offshore industries could disappear more quickly than it appeared.

A journalist in the West Midlands has discovered that Project Fear’s slanderous presentation of Brexiteers as racist thugs was demonstrably false.  One of the public comments adds to the article, conflating Project Fear with the hard left, noting:
The hard left has never liked democracy, and the reaction to this referendum has confirmed that. They would much prefer a soviet-style hard-left hero ruling the country autocratically, while actually being controled by party aparatchiks and idealists.

Other comments seem to re-hash the pre-referendum arguments, which is quite depressing to read.  The power of Project Fear to disinform and to mislead!

Another journalist did a similar thing, walking from Liverpool to London, attributing Brexit to the legacy of Margaret Thatcher.  The result was a fairly crap journo-opinion.  No doubt, the end of the known universe in billions of years time will be the fault of Margaret Thatcher, too.  Will these idiots ever grow up?  [probably not]  Proof that Project Fear rumbles on!  As one public comment said:

it is worth noting that the Guardian writers screaming about how Brexit will destroy the culture of the UK actually mean that it will stop them having gigs in Berlin, and reduce the grants for European artists wanting to do performance art in the centre of London.

Nothing whatsoever about working class culture, rooted in Britain, and performed by British residents in parts of Britain beyond the metropolitan hubs.

Another journalist, again starting from the morbid curiosity of a standard EurIneer as to why anybody would be nuts enough to vote for Brexit, went to Port Talbot, South Wales.  A former major steel town, the local leaders screamed for EurIn and even had lots of ‘European’ money being poured into the town to keep it going.  But the local people voted for Brexit anyway.  The locals rebelled against their local overlords, and the journalist claimed that the Brexiteers had gone quiet for fear of reprisals from Tata Steel.  (Either that, or the journo couldn’t be bothered to find them in the pubs).  The only pointer to the reason for the Brexit vote was that they were “hell bent on the immigration issue”.

Foreign secretary Philip Hammond confirmed that there were no plans at present for dealing with Brexit. (Express, RT)

And Amazon is going to create 1,000 new jobs in the UK (subscription required).  Oops, Project Fear missed that one…