UK's EU Exit

The vitriol aimed at the UK and David Cameron, mainly from Europeans (but also some Americans) after they opt-ed out of the latest EU reform pact is something I really don't understand.

I am not his biggest fan but no sane person could have seriously expected Cameron to have signed up to a deal that put at risk 10% of the UK's GDP, assigned effective power of veto over domestic budgets (ostensibly) to the EC (de facto Germany) and increased the UK's contribution to the EU while reducing their influence. Anyone who expressed surprised at the outcome or professed belief that the UK's position was a bluff was either not very bright or faking it. The whole thing reeked of a stitch-up. Having bullied every other country into submission the choice presented was EU by Franco-German rules or not at all. Clearly Britain was going to choose smell ya later.

The "Isolated Britain" aspect is also being massively overdone. The UK has always been naturally sceptical of Europe and opting out of a restrictive deal that may never even be implemented is not really isolating them any further than they already are. From where I'm sitting Britain's recent influence in Europe seems to have been limited to vetoing things that we didn't want therefore "isolation" will not be much of a loss of power as we won't introduce these things in the first place. In fact, though my natural inclination is pro-europe (mainly from a ease-of-travel PoV rather than anything political), I'm beginning to see less and less to be gained from being an EU member.

Sarkozy's reported anger at Cameron for concentrating on issues that weren't relevant to the current crisis was disingenuous: nothing in the pact addresses the current crisis. In fact the deal itself is pretty underwhelming. The main provisions:

• A cap of 0.5% of GDP on countries' annual structural deficits - this is one of the Tory's stated aims so they would have had little argument with this.
• Automatic consequences for countries whose public deficit exceeds 3% of GDP - The same rule already exists in the Stability and Growth Pact only France and Germany both decided that the rules didn't apply to them when it didn't suit them.
• Tighter rules to be enshrined in countries' constitutions - would not have applied to the UK anyway as it doesn't have one.
• European Stability Mechanism to be accelerated and brought into force in July 2012 and it's limit raised - The Euro may well have ceased to exist by July 2012.
• EU countries to provide up to €200bn to the IMF to help debt-stricken eurozone members - This not enough to save any given economy outright and regardless all this money is coming out of one pot. If it goes to the IMF it can't also go to the ESM.

The "Tobin Tax" that was central to Cameron's rejection is not specifically mentioned in the agreement. Presumably, given that Merkozy refused to countenance an opt out, their intention was to tack it on later and hope the the UK didn't notice when it signed. Even more telling is that Ireland did manage to negotiate protection for their ultra-low corporation tax rate, an issue that often galls other EU countries especially after having had to bail them out. Clearly they felt there was little to be gained by sticking on this point for Ireland where they felt there was much to be gained by hardballing the UK. I'm sure the fact that beating-up on Les Rosbifs is domestically popular and a French presidential election is looming had nothing at all to do with it.

The real impact of a non-universal Tobin tax is unknowable in advance but as imposing a tax is clearly more of a risk than not imposing a tax why would you do it at a time when economies are already under extreme stress? Particularly as the tax disproportionately (estimated at 70% of the total) falls on the UK (and coincidentally is therefore politically popular in France and Germany) in a sector that (whatever your feelings about it's morality) is core to the UK economy and is aimed at an activity (high frequency trading) that clearly is not at fault for the Sovereign debt crisis but is culturally distasteful to the French.

Presumably, as the next biggest financial centre in Europe is Frankfurt, the Germans are actually going to be rather less keen to now see this tax imposed, which may be another reason it wasn't actually mentioned in the agreement. If the intention really is to raise more revenue (as opposed to just a punitive tax) then a much easier solution would be to cut the massive (€55bn pa; 40% of the EU budget!) CAP subsidies. However something makes me doubt that Sarkozy would be quite so willing to follow this route.

Even if you ignore all its current flaws the treaty still needs to be ratified by at least four national parliaments where it's progress is far from assured. Furthermore, in order to embed these rules in the constitution it will be necessary for national referendums to be held, referendums that are all but guaranteed to fail. In order to avoid these the provisions will have to be watered down significantly to avoid having to amend the constitution, so far in fact that they're quite likely to end up with nothing at all, rendering the current posturing and politicking completely meaningless and potentially very harmful.

Stepping back, while the intention of stopping repetition of the current crisis is laudable, there are no measures agreed that will actually address the current crisis. Fundamentally the EU needs to find a way to finance the huge debt rollovers that are due in spring 2012 by multiple nations (indeed some of Sarkozy's shrillness may have been brought on by France's own economic fragility). No solution for that has yet been found. Muddling through probably won't cut it.

Stepping even further back, as has been extensively commented on in the British press, the EU is deeply unpopular outside the political classes in almost every country in the union. The desperation to avoid any kind of referendum demonstrates the politician's realisation of this. The EU is as unpopular in net contributors (UK, Germany, Netherlands) as it is in net beneficiaries (Greece, Spain Ireland). How long "the project" can last without popular support is a question many would like to remain unanswered.

Generation X.0

Mervyn King's policy of moderate long term inflation (he's extraordinarily bad at his job if it isn't) along with the current government's penny pinching is in danger of creating a new kind of generation X.

Increasing the retirement age while there is a shrinking job market is leading to mass youth unemployment and imposition of educational fees is closing the route of self-improvement to many. Even for those lucky enough to get a job, the immediate prospects are bleak. Home values are beyond their reach and the wealth firmly locked up in the generations approaching to retirement. In protecting his own generation's wealth (and admittedly the liquidity of the UK banks) Mr King is seeing to it that any cash anyone might be able to save after exorbitant rents (due to the lack of cheap houses there is little competition) is being eroded at 5% a year and will be for the foreseeable future.

Mervyn is right to say that someone is going to feel the pain, his rationale is that savers can afford it a little better than borrowers even if that's unfair on those who saved when everyone else was borrowing. However the long term implications of this decision are being ignored.

I am guessing that the medium term plan is that after the immediate issues are 'fixed' inflation will fall slightly, enough to placate businesses anyway, while still being enough to slowly erode real asset values, thus avoiding a housing market crash and destroying the UK banking sector (if the banks suddenly had to write off 40% of the value of their mortgage assets we would be in a very similar position to Ireland). After that I guess he's hoping that the economy is generating wealth in some unspecified way.

If he's right that still leaves Generation Rent. Unable to afford property and unable to save meaningfully, by the time the economy picks up they will have missed out on entering 'graduate-level' jobs by a few years and the intake will simply skip to the new generation. Even assuming they get jobs they will be relying on wage increases outstripping inflation in order to get ahead. That seems like a remote possibility right now and even if the economy does pick up there will be a long wait for average salary multiples to close with real house prices.

If he's wrong all bets are off. Inflation could keep increasing indefinitely as the value of sterling drops because of the low interest rates and we import almost everything (Eurozone interest rates are rising already; Chinese ones are going through the roof: the value of their goods will rise). This seems the likely outcome to me. On the other hand the BoE seem to be more worried about deflation. I do struggle to see how this will happen though. Energy prices might fall temporarily, but long term oil is only going in one direction and without rate rises sterling will stay weak. If the UK could start exporting manufactured goods again it might happen but that time seems past now and even if it did manufacturer would still need to import inflation-racked raw materials.

Buying property in Germany would seem like the best long term plan...

The Church of Soccer-ology

It suddenly struck me today that in FIFA Joseph Blatter has created a new church, with himself as Pope. His dictatorial approach to leadership and Machiavellian style of maintaining support remind one of the manoeuvring often portrayed in the college of cardinals.

The analogies throughout the whole system hardly need pointing out: thousands of people attending 'services' every saturday at 3pm, often giving hefty 'donations'; Blatter's insistence on separation of church and state leave him nicely infallible; opaque internal procedures always result in exactly the outcome that the top men want.

nice.

The Libyan Emergency

I find the lack of forethought on the part of some very senior politicians extremely alarming.

Now that we (NATO) have intervened Gaddafi simply must be removed. His forces dwarf those of the rebels and any continued conflict will inevitably lead to his victory and the massacre of anyone who didn't actively support him. As has been proved amply in the past air power alone cannot win wars and will simply prolong the conflict slightly by removing the more powerful elements of Gaddafi's army. He still has overwhelming manpower however and once distributed among civilians this cannot be bombed.

If the current NATO policy is continued the best possible case is a permanent stand-off, effectively splitting Libya into two halves and requiring the constant presence of NATO forces along the border. What place would West Libya hold in the world afterwards? No western state and none of the arab league states would be able to have any dealings with it and they would probably be under permanent total embargo (at vast expense to everyone). Anything less than best-possible would mean Gaddafi's eventual retaking of Benghazi.

If NATO is banking on Gaddafi being usurped by his own followers they are very naive. The most likely time for this to happen was in the first few days of the revolution. The more time passes and the more Tripoli is bombed the more his support will solidify.

Any scenario that ends with Gaddafi alive (other than exile in North Korea) is going to fail the Libyan people. The more the conflict is dragged out the more people will die and the more likely Gaddafi is to remain in power. The life of one extremely dangerous madman is surely worth that of thousands of ordinary Libyans? One single missile could obviate the need for thousands of sorties and save thousands of lives (not to mention billions of dollars).

Bah-rain

Bahrain calls in Saudi troops

Pretty stupid thing to do in my opinion. That's effectively admitting that they're not going to reconcile their issues in a manner they find acceptable so the rulers are simply going to try to enforce their will Gaddafi-style. Except that they don't have enough muscle to do that themselves so must call in foreign heavies from similar minded neighbours.

It will of course harden attitudes on the other side and inevitably lead to proper trouble. The sight of Saudi troops shooting Bahrainians might be a little too much for the Arab League and world at large to bear. Apparently Iran is threatening to get involved too. That could make things interesting for the west as they basically totally agree with Iran in this case.

"The west" in this case doesn't include the US though. Their flanneling and a general prevarication concerning the Arab revolts, not to mention their poorly timed vetoing of a UN resolution critical of Israeli settlements, amply demonstrates that they have after all (as many suspected) simply being paying lip service to their ideals of spreading freedom and democracy for all these years (the cynical might say that it is only their own freedom they are really interested in protecting) and that a stable energy supply is all they are really interested in. (Simply disagreeing with Iran would also seem to be a key US policy these days.)

The veto also demonstrates that, despite all his "new way" propaganda, Mr Obama is still beholden to the same right wing fundamentalist domestic interests that his Republican predecessors embraced. I don't pretend to fully understand US domestic politics but Obama strikes me as a man who cares what people think about him (he wouldn't be a politician if he didn't) so must have had some pretty strong reasons to make himself and America look so absurd in such a public manner.

Actually I really fail to understand their continued backing of the Israeli government. Like a psychotic little brother Netanyahu is exploring new paradigms in outrageous behaviour, safe in the knowledge that he is immune to serious reprisals whilst older brother is watching out for him. Older brother also knows that he can do no more than have the occasional private word as a public admonishing would seriously undermine little brother, perhaps fatally. Realpolitik would suggest that the US is better off abandoning their Israeli position in favour of weaseling into the good books of the many Islamic oil-producing states. The fact that they continue to hang on to their dogma makes me surmise that there are overpowering domestic reasons for it, though from afar I fail to see what they are.

It's pronounced "nucular"

Can't see the nuclear power industry surviving Japan's disaster.

Except in the UK of course, where the deals have already been signed and the backhanders backhanded.

Insurance - the Downfall of the West

http://www.bbc.co.uk/news/business-12606610

The startling thing about this article is not that men are charged more for insurance (duh) but that an 18 year old would need to pay £3400 a year to insure a 2003 Corsa. That is insane. My first year's insurance (on a Mk3 Escort in 1994) cost me £600. And I thought that was steep. There is no way I could have afforded to learn to drive if it cost me that much to insure the car.

Perhaps we're about to see a generation of non-drivers, or at least one where only the Haves drive. That should sit nicely with the generation that can no longer afford a home and the one that can't afford to get educated.

Motor insurance, by the way, is pure crookery. It's a compulsory part of owning a car (ie living outside London) yet is not regulated in any way. New Zealand has a compulsory 3rd party personal insurance scheme that is part of your annual road tax. In 2002 it cost about £30 for a year. I'm not a big fan of government run schemes but any UK government that wants to win votes should just introduce a similar scheme here. It would instantly get rid of all those spurious whiplash claims that inflate your premiums and would mean that anyone who bothered to buy road tax would be insured.

Nick thinks

that setting this up took so long that he's forgotten what it was he was thinking about.