Tuesday, 31 January 2012

Eurozone Meltdown Latest

The Eurozone was from the outset a political rather than an economic construct. And therein lies the problem. This humble blogger worked in Brussels when it was being constructed, long before it was even first discussed at the dinner parties of the north London chattering classes. And from its inception it was always a political project promoted by the post-cold war European political elite, and endlessly pushed by Germany and France because they knew damn well they could dominate it.

And that is of course fundamentally why the UK did not join. It did not stack up financially and nor did it suit our politics. History may judge that this is the only decision that Gordy got right. Remember that Tony was all for it and it was Gordy who held the line. Good old Gordy. I knew I liked him!

The current pact being championed at this week’s European Council – a summit for EU leaders, and remember what summits are for children - is in essence Germany placing rules on all the other members telling them that if they fiddle their economies in ways that Germany does not like, then Germany will give them a spanking and turn off its financial tap. Which is frankly a bit rich as the much lauded rules that previously existed - the now amusingly called European Stability and Growth Pact - was spun as the most robust set of safeguards that would stop any Eurozone member fiddling their economy, and which Germany and France then utterly ignored when they broke them, strong-arming the other EU members to not censure them against the European Commission’s advice. One rule for the two big guys and new rules for everyone else. Plus ├ža change, eh?

Anyhoo, tonight is the deadline for entries to the Wolfson Prize being administered by the think tank Policy Exchange, where in March £250,000 will be awarded to the pointy head who comes up with the best 25,000 word solution designing a mechanism for a country to leave the Eurozone. Amazing that one does not exist, really, but there you are.

Factoid of the day - Since 1945, 87 countries have left various monetary unions around the world and amazingly the world did not end. So, not impossible then. Painful, yes, in the short term, but not impossible by any stretch.

The reality today is that Greece is now in complete meltdown. A friend of ours has just returned from Athens and reports that the public sector is hardly bothering to work at all, there are strikes galore everywhere, rubbish is mounting in huge piles on every street corner and the overwhelming majority of young people, university degrees or not, are all unemployed. It is more like Kandahar than a European city.

And of course Portugal’s borrowing costs are now 17% compared to Germany’s 2%. Remember, that 7% is considered unsustainable.

So what is the solution to this mess?

Taking a strategic view, the answer is of course glaringly obvious and every objective commentator has been prescribing the same medicine for at least 2 years:
  1. Fill up the bailout fund, which has been struggling to get to €1 trillion whereas in fact around €3-4 trillion is needed by all accounts
  2. Ring fence Italy as it is simply way too big an economy to be able to bail out
  3. Force/help Greece and maybe Portugal to exit the Eurozone
What is depressing is that none of the European political elite, having sold their souls, their electorates and their economies to the Euro project, can find the political leadership to accept undeniably painful but simply inevitable medicine.

It is utterly perverse logic for the sickest of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) to still believe that it is in any way in their economies’ interests to stay in the Eurozone. It’s as if they have signed their Eurozone suicide pact and won’t go back. They are happy to sacrifice their economies and political future on the altar of European political dogma. A Portuguese friend of ours who went home for Christmas told me that when she broached the idea that it might be in Portugal’s interest to leave the Eurozone, people looked at her as if she was completely stark raving mad. They simply could not comprehend the idea, such is the political unreal reality that the European political elite have constructed in their home countries.

How can it be in their interest to stay in? To get out of the mess they are in, they need to devalue and free up their economic policy. Neither of which they can do within the Eurozone. The choice is 5 years of pain if you leave or 25 years of pain if you stay. Madness.

Some Cragsbury predictions for you:
  1. Greece will inevitably default in a horribly unplanned manner
  2. Once that dam has broken, Portugal will follow suit sometime thereafter
  3. In the short-term, the UK pound will become a European safe haven currency for investors
  4. Germany will messily cobble things together, eventually, but it will takes years for the markets to trust the Euro again
All of which is avoidable, if the European political elite put away their arrogant, stupid pride and faced reality. Not a hope there then.

Monday, 30 January 2012

Back Romney

It is with wonder and awe that I look at our Republican brothers struggling to endorse Mitt Romney. Put simply, the rest of the field has included the mad, the bad and the even worse. The mere idea of Newt Gingrich - a proven liar, adulterer, incompetent and wild maverick Washington insider whom no one would have any idea what he was going to do next - is almost as risible as some of the other jokers who have put themselves forward. Judge a man by the company he keeps: endorsed by Sarah Palin, Herman Cain and the Rev Sun Myung Moon. 'Nuff said.

Sunday, 29 January 2012

Hester-gate - The Impact

Labour forcing a vote on Hester’s bonus in the next Opposition debate. Pathetic populist bullshit or what? But, with this announcement, it became inevitable that Hester could not therefore take his bonus.

The impacts:

1. Hester is now the worst paid bank CEO in Europe and will be poached within weeks/months for a job paying him 4 times as much.

2. This will now become an annual blood sport for RBS CEOs.

3. We will struggle to find a good enough candidate to fill his shoes.

4. This silliness will have zero impact on other banks.

5. As ever, the 'politics of jealousy' caravan will rumble on.

Saturday, 28 January 2012

Economics for Dummies - Lesson 2

And so to Hester-gate, aka ‘21st century class war’ or ‘the next ride on the blame shift merry-go-round demonising bankers so that politicians can get away scot free’.

Let’s get straight to the facts:

Arguably one of the most important jobs, if not THE most important of jobs in the UK right now, is to get our damaged and recently part-nationalised banks back on their feet so that we taxpayers can get our money back. With interest. As soon as is practicable.

The last Government brought in Stephen Hester, apparently the best man for the job. He has been endorsed as such by the new Coalition Government as well.

He is acclaimed by everyone to be doing a good job, apart from assorted meanies on the Left who want to throw stones at him because he is a banker and rich. (They’d love to be able to denigrate him as an ex-public school boy too but sadly for them he went to a comprehensive before going up to Oxford. He is also a white Anglo Saxon protestant. If he was very ethnic, the Guardianistas would be less hopping mad but the Daily Mail would be more so).

So far, so good. He’s doing a good job, earning big money but substantially less than he could earn elsewhere in the private sector, accepting this no doubt partly because his current role is one of THE jobs of the moment and thus is a challenge and will be good for his CV, maybe partly out of altruism and probably because he will likely pick up a knighthood at the end of it, assuming he is successful. And assuming he is, the non-executive director roles will come flowing in for years to come.

So, the big three questions of the day:

Q1. Should he have such large potential remuneration in the first place?

Simply, we need the best turnaround expert for this task. And that will cost. Inevitably. Supply and demand and all that - something our Lefty luvvies often try and pretend does not exist when it does not suit their ideology.

Now he wasn’t bumbling along running some dull Government department or quango, earning around £100-200k. No, he was the acclaimed CEO of British Land, one of the top 3 property companies in the UK, one that is well run, cautious and has survived numerous booms and busts very comfortably since 1856. This boy had been earning millions for years being a high flyer at Credit Suisse and Abbey National before British Land.

When you are in intensive care, you don’t say: ‘Take away this acclaimed medical expert who is doing a brilliant job and seems to be saving my life, he is paid far too much. Bring me a more sensibly remunerated doctor.’ On the contrary, you say: ‘Can I get this wizard to make me better any quicker and would it help if I motivated him more by paying him more?’

Unless you are a Lefty, when you make cheap political points about how much he earns, how much more that is than a senior civil servant – good comparison, Chuka, really? – and how much this is in relation to a corporal in the British Army in Afghanistan – and you Peter? All of which, of course, is bollocks.

Supply and demand.


Q2. Should he get his bonus?

He should get whatever bonus the RBS’ remuneration committee feels he deserves for his last year’s performance under his contract. Populist bullshit from Lefty politicians, journalists and all the rest is just that. Bullshit.

I, as a taxpayer, want his mind 100% on the job getting my money back not on endless meetings with his chairman, UKFI, Government ministers, his comms team and others about various Lefties views on his bonus.

Q3. Should he take it?

If I was him, after all this bollocks, I’d refuse it and resign. My resignation letter would say:

‘We agreed my remuneration in my contract. Nowhere does it say the Polly Toynbee set gets a vote on what my bonus should be. I have been working night and day to turn this fucked up company around with considerable success and acclaim and all I get is bullshit from people who know nothing about what I am doing, could not understand it if I explained it to them and want to use me as a class war political football. To say I am demotivated would be a fucking understatement. I’m out.’

He would be in a higher paid job by Easter.

PS Loving the paradox of unions which endlessly use every aspect of employment law to defend their often idle and incompetent members whilst seeing no hypocrisy in demanding that a manager’s contract should be completely ignored.

Friday, 27 January 2012

Economics for Dummies - Lesson 1

OMG, I have longed to blog again. Many times I have almost started again. I have missed it. So much. But time has been against me. And still is. But daily helpings of the madness of modern British society and all its loopy nonsense, with no one pointing out the cold, hard facts of reality, have compelled me to return. Here goes:

The economics of the Left's 'anti-benefit reform' agenda

First a few facts, delivered to us on this day children, by the ONS - they're impartial, right?

Fact 1 - National mean salary = £26k

Fact 2 - Salary needed to be in the top 25% of taxpayers = £32k

Thus, lowering benefits - apparently outrageously - to a maximum of £26k (which is the equivalent of earning £34k) means that even after this change you can still earn way more than the national average and in fact be in the top 25% of earners. Unbelievable. Unless you are a bishop that is. I have blogged many times before that the Left's well intentioned but economically illiterate over-active philanthropy with other people's money (ie ours) has simply priced the low paid out of work. What incentive does someone who cannot ever earn £34k have to work? This fundamental will never change until we decrease benefits to more sensible levels. So I have a suggestion: why not create a tax ratchet, whereby starting at the new £26k benefit maximum, in each fiscal year from 2012 we decrease that maximum by £500 whilst raising the income tax nil band by £500. This would begin to decrease benefits to levels that will incentivise work but reduce tax/increase income for the low paid whilst having an almost completely negligible financial effect on those horrible greedy rich people politicians want to kick all the time. Simples.