Category Archives: financial crisis

The latter day Greek tragedy continues

If the Greeks vote no, they face not just potential mayhem but a complete national shutdown. Yet the majority of economists actually believe this course would serve the country best.

If the Greeks vote no, they face not just potential mayhem but a complete national shutdown. Yet the majority of economists actually believe this course would serve the country best.

What are we to make of the tragedy which is unfolding across the beautiful waters of the Aegean? Here in high summer when they should be enjoying the fruits of their glorious holiday season they are locked in a battle for their very survival with the giants of north Europe and their banking systems.

Let’s be clear about one thing: Greece has already paid a terrible price for its profligacy and easy living on the back of a strong currency of which it was never qualified to be part. Their economy has had been bludgeoned by the money men into shrinking by a horrendous 25% and their youth unemployment exceeds 60%.

Right at the beginning, the books appealing for entry into the euro were cooked, helped in no small part by that ‘Great Vampire Squid’, Goldman Sachs. But while the Germans and the rest knew very well how the Greeks went about their business and that they were not a suitable candidate, political Europe had to take precedence over economic Europe and they let them in.

With other weaker economies such those of the Spanish, Portuguese, Irish and Italians allowed to join the party, the Germans ended up with a currency much less strong than their old Deutschmark would have been and that made it much easier for them to flog their BMWs and the like. Borrowing rates for these weaker economies became much lower than ever they would have been had they been using their own currencies so, of course, they were happy to buy north Europe’s products as well as treat themselves to a much higher standard of living than their economic performances warranted.

All was well throughout the goods times that preceded the financial crash of 2008. That ill-conceived monetary union – which lacked the also essential fiscal union – of the euro could bumble along so long as there were no headwinds. But, boy, it wasn’t so much headwinds that arrived but rather a hurricane. The Credit Crunch brought the Western world’s economies to the brink of meltdown.

Today the weakest of the dominoes stands in imminent danger of falling, with the risk that others will follow. And the country that benefited most during the good times, Germany, insists on playing hardball. It needs to show a bit of humility – as well as compassion – and realise that it must take its share of the blame for the plight that Greece finds itself in today.

Despite its own banks, along with French and others, being exposed to a possible Greek default of alarming proportions, it knows that a Greek economy that cannot grow because of acute austerity will never ever be able to pay off its debts. It needs relief and restructuring. Long before this present crisis broke they acknowledged this fact. But what now are the Troika’s proposals? Even deeper austerity. Can we be surprised that a government that was elected on a mandate to end austerity has thrown up its hands and said enough?

If Greece on Sunday, in its touching desire to remain at the heart of the European family – but also out of sheer terror at the thought of the consequences of being cast adrift – votes to accept the Troika’s diktats, it faces never-ending recession. If the Greek people vote no on Sunday, they will stay in the EU and possibly even the single currency, but mayhem could follow with a complete national shutdown. Could Brussels stand by and see this happen?

Actually the majority of economists believe that this seemingly bonkers course would serve it best (Argentina went down a similar road). Economists say there would be six months of hell, or possibly longer, but then a future would open up for Greece. With holiday costs cut to half their present level, we would cast aside that old warning to ‘beware of Greeks bearing gifts’. Greece would become the continent’s playground as never before. Poor, suffering Hellas, the first of all Europe’s civilisations, would start to smile again.

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It’s time to home in on a recovery

Are we seeing the first signs of confidence returning? We must earnestly hope so. Even that prophet of doom, Sir Mervyn King – the newly retired Governor of the Bank of England – is getting excited.

Our housing stock has greatly to be increased.

Our housing stock has greatly to be increased.

Houses prices, which never quite went into the tailspin of the US, are starting to rise again and mortgages are increasing. On balance, I think it was right to kick-start the badly hit building industry by government underwriting of mortgages. But this must be of limited duration. The last thing we need is for another bubble to start inflating. Hopefully the painful lessons of what happened before will act as a cautionary tale.

The fact is that our housing stock has greatly to be increased. The reason why house prices grew to such levels was that a fundamentally sound economic model of price determination was broken: supply was hugely below demand. And when that is put into reverse, the opposite price movement will happen: prices will fall. Last year we built 100,000 new houses, when most experts said it should have been 250,000. And it should have been at this level for years.

Those millions of immigrants that Tony Blair ‘sent out his search parties’ for have to live somewhere, as do the increasing number of people needing to be separately housed due to divorce and other factors. The point to remember is that when you build a house, you not only put builders, plumbers and electricians back to work but you create orders for carpets, furnishings, double glazing, electrical goods, furniture and much else besides. The knock-on effect is tremendous. Big infrastructure projects are all very well, but they are few in number, take years to process and are localised anyway. Huge swathes of the country see no obvious activity and don’t much benefit – if at all. But houses popping up from Lands End to John O’Groats do get noticed.

People’s income has been squeezed these past five years almost like never before. They have been subject to pay freezes, cuts, short time working and even lay-offs. And throughout all this time, the relentless march of inflation has eroded their disposable income. Even their taxes were going up. And while all this was going on, people desperately sought to pay down their horrendous debt levels. No wonder confidence went out the window and they felt unable to spend. When they looked around the world, the picture was just as grim – and in some cases much worse. Fear begets retrenchment and that, until this moment, is where we have been.

But now, with the stock market reaching its highest level since the turn of the century, banks being brought under control and being required to rebuilt their balance sheets (albeit at the expense of lending), medium and large size companies sitting on £70 billion and ready to go, houses shifting, mortgages easier to get and hundreds of thousands of new jobs being created, things are changing. Those straining-at-the-bit companies will feel encouraged to invest. Now the final – and critical – part of the jigsaw to be put in place is for people to get out there and start spending. And if they start to feel that the worst is over, they will. The rest will take care of itself. People, after all, do like to spend.

We have learned one hell of a lesson these past five years, and hopefully both government and people will act more responsibly next time round. But some real good will have come out of it all – as it always does: we are emerging leaner and meaner. The recession has forced us to address issues which we all knew had to be addressed, but which, while the good times rolled, we found excuses for putting off. We, individually, have been forced to examine every item of our domestic expenditure – but so too has the public sector. Now, at last, we are cutting away the fat which we allowed to accumulate in the public sector and, boy, was there a lot of it. Everything has to be justified. Any firm will tell you that, if it had to, in order to survive it could effect colossal savings. I, myself, have seen my shop takings drop by 25%, but I am still here. I cannot take much more, but my customers have not suffered. If anything, they are getting a better deal than ever and I am doing my level best to be even sweeter to them. But when central and local government were asked to do the same thing – very belatedly I might add – they squealed like stuffed pigs.  And they had vastly more fat on them in the first place.

But, as they say, it’s an ill wind that blows no good. Soon, hopefully, we will have schoolchildren entering the job market with an education which can compare favourably with those hungry tigers in the East which are seeking to steal our thunder. Also we will have a workforce that knows and appreciates the necessity of becoming more competitive. Exports have already shown strong signs of picking up – although this has been mostly due to a weakened pound rather than anything else. Maybe, too, we will have put an effective break on those vast numbers of unskilled workers flooding into our little country who have put, unwittingly, such a strain on all our services. Even the NHS reforms may start to deliver, for as much as we love it, it cannot stay forever a holy cow which cannot be touched. We spend, now, as much as the European average, but we have nowhere like their standard of care. Where did all those scores of billions disappear? We doubled its budget in real terms in a decade. Perhaps it will improve now that it is to be under new management and not under the baleful control of that unrepentant apparatchik who presided over those scandalous deaths in North Staffordshire and who knows where else. And, finally, there is that lumbering giant, the Welfare State, who so many took for a ride. That, too, is being brought under control. Perhaps now we can get back to helping the genuinely needy, even alleviating their suffering more than we have previously been able. That would be good. So we do, very much, have positive things on the horizon. We must hope now that the Germans will continue to hold the eurozone together and stop the continent from imploding. That will give us even greater reasons to be hopeful.

We are busily re-orientating our services and export drive toward the still booming East – something which we should have done years ago. Even formerly-basket-case Africa is on a powerful upward trajectory. Uncle Sam, too, is showing distinct promise and is growing again at a healthy 2% with rising employment. He does, however, have some big problems which he has not addressed and only gets away with it, for the moment, because he stewards the world’s reserve currency – as we once did for so very, very long.

But, for our part, we must continue to hold our nerve with our own reforms. Only the police, it seems to me, remain a loose cannon among the great institutions of state. Though they have had cuts forced upon them, like almost everybody else, they still behave as though they a law unto themselves. More about that later.

Cypriot Euro raid proves banks cannot be trusted

Banks are not to be trusted. That is the shocking message the Troika of the European Central Bank, the EU and the IMF have sent out when they seized up to 60 per cent of the deposits of their wealthier customers in tiny Cyprus.

The actions of Cyprus' powerful masters to curb the country's excesses has sent shock waves not just across Europe, but the entire world.

The actions of Cyprus’ powerful masters to curb the country’s excesses has sent shock waves not just across Europe, but the entire world.

Governments have attempted to get themselves out of holes in years past by raising money in all sorts of unlikely places, some of them truly bizarre. But never, until now, had they felt themselves entitled to raid peoples’ bank accounts and plunder them. That island state of 1.2m people may only represent 0.02% of Euroland’s GDP, but the action of its powerful masters to curb Cypriot excesses has sent shock waves not just across Europe, but the entire world. The reason is simple: if you can’t lodge your money in a bank account without feeling that it is safe, where on earth can you put it? Under the bed, perhaps, or in a biscuit tin? For all the derisory interest savings have attracted in recent years, that might not seem such a bad idea. The trouble is that almost no one has a pay packet anymore – it has to go straight into the bank – and we have allowed ourselves to be seduced by the convenience of the hole in the wall that we can no longer contemplate anything else.

What has happened to Cyprus, however, should make all of us take stock. It has breached what hitherto has been held as a sacred principal: that you cannot help yourself to something which has been placed in your safekeeping.

People have believed that in an uncertain world their humble bank deposit was at least safe from predators. Just the same, what is to be done with a bank which has got itself into a mess? Is it fair that people – i.e. taxpayers – who did not even sign up to that bank should be compelled to ride to its rescue? Those taxpayers are even more innocent (if you want to use that emotive term) than the lowly deposit holders who did sign up.

What is clear is that we can never again allow ourselves to be held to ransom as we were with the 2008 rescue of British Banks. We have suffered as a result of that rescue for coming on five years now and there is no end in sight to the misery that it has inflicted. High Street banks – the ones we need most to trust implicitly – must be ring fenced against the sometimes crazy risk takers in their investment arms.

In view of the banking industry’s unique capacity to bring the whole system down – even discrediting capitalism itself – they must all be closely monitored. Had this been done it is arguable the catastrophe which has overwhelmed us could have been avoided, or at least mitigated. In addition to all this we must enact laws that permit us to send bankers to jail, where reckless conduct and dodgy practices puts all our livelihoods at risk. Amazingly, there was no law in place that could hold ‘Fred the Shred’, to account: he broke no laws. This must change.

What really sticks in the public craw is that not a single banker is behind bars. Even members of the political class including peers, have ended up sporting prison blue. Their crimes, by comparison with the enormity of what the bankers did and are still doing, is of no consequence. Soon, no doubt, those numbers will be swelled by overzealous newspaper hacks and policemen who have had the temerity to keep them in the picture, even where no money has changed hands. Everybody – ministers included – it seems, can be jailed except ‘fat cat’ bankers. But even before consideration is given to criminalising certain banking activities, the Libor manipulation was an actionable crime. Why then is there no move to bring those fraudsters to justice? Their scams involved tens of billions of pounds worldwide. That question is doubtless answered by recently released figures which showed that access to Downing Street by bankers was of an order of ten times greater than that of anyone else – captains of industry and their like. Meantime the bonus culture continues on its lucrative way rubbing salt into our wounds and insulting us. These ‘gentlemen’ really are laughing all the way to the bank.

It has to be said that the Germans were unfairly treated by the hot-headed Greek Cypriots when they lampooned them as Nazis. The Germans had not wished for deposits to be seized from small depositors: that was a decision by their own Cypriot ruling class. They were fearful of upsetting all that hot money – much of it illegally acquired in Russia and stashed in Cypriot banks. It now seems that a benchmark has been set that only big investors and that, regrettably – since not all are crooks – is how it should be. If you have big holdings you should have the sense to see that when banks are offering returns out of kilter with banks generally there is likely to be a catch somewhere. If still you are prepared to take that risk, then so be it. You cannot look to others to save you from your own folly. Also you should not expect careful Fritz, who does pay his taxes and beavers away in a cold climate, along with other diligent north Europeans, to bail you out. At least the so called PIGS (Portugal, Italy, Greece and Spain) have the inestimable luxury and consolation of making a living under the Mediterranean sun. It tells you everything you need to know – that whereas Germans over the last two decades have voted themselves a 20% pay rise, the French have voted 90%.

Apart from anything else it was an affront to north European taxpayers that they should be expected to protect the ill-gotten gains of Russian oligarchs and the like and that a Euro country was being used to launder money. But you could say much the same about Luxembourg except that with more rigorous stewardship its banks have not gone belly up.

As for the future of the Euro itself, on which our own recovery is so heavily dependent, the storm clouds refuse to go away. This is because of the disparities between the economies of the north and south and the huge differences in competitiveness between them. It is so great that it has built up debt levels in the Club Med countries that are unsustainable. My belief is that the Euro will survive, but the weaker members, which never qualified for entry in the first place, will be let go. If only those rules of entry had been applied, so much of the pain currently being felt could have been avoided. But, as is so often the case, politics triumphed over sound money and we are all left with the consequences.

Plymouth is weathering the storm

A taxi driver friend of mine and I were talking recently about the terrible haemorrhaging of jobs which had taken place in Plymouth since we arrived. He had written down a list of the vanished enterprises, which I’m sure is by no means exhaustive. Glancing down the melancholy column I wondered how it was possible for any city to survive such a culling. The roll-call made for depressing reading.

  • Aggie Weston’s
  • Clarks
  • Comet
  • Derry’s Cross Co-op
  • Gaumont Palace Cinema
  • HM Dockyard
  • Hoe Theatre
  • Jaeger
  • Ladybird Factory
  • Millbay railway station
  • Navy, Army and Air Force Institute
  • Odeon Cinema
  • Plymouth Airport
  • Popham’s
  • Robert Daniel’s Cash and Carry
  • Royal Naval Engineering College
  • Royal Naval Gunnery School
  • Royal Naval Hospital
  • Seaton Barracks
  • Texas Instruments
  • Toshiba
  • Woolworths

We talk about austerity times, but if someone with a crystal ball had predicted the certain eclipse of all these enterprises and had been believed, there would have been a mass exodus from what would have been perceived as a doomed city. No one would have thought it possible to survive such a cataclysm.

So how fares the good ship Plymouth after this protracted bloodletting? Not bad! Not bad at all. Amazingly, the city which looks down on us today is little short of a stunning reincarnation. I will not say there are jobs a plenty, but its employment level compares favourably with most of the rest of the country. In my suburb of Plympton it stands at 3 per cent. In five short years much of the city centre was transformed, just in time to beat the credit crunch which brought development to a grinding halt. I have a strong feeling, however, that if you visited many another city a similar list could have been drawn up. But Plymouth, as a garrison city, suffered unduly harshly because of defence cuts due to the rundown of Empire.

Capitalism and the market do work. One way or another, jobs come to fill the void. The doomsayers are seldom right. How prescient that in the one area of the economy which has not been affected by the recession – the world of the super rich – Plymouth has found a response in Princess Yachts.

Princess Yachts has proven to be recession-proof

Princess Yachts has proven to be recession-proof

But apart from the acres of luxury, seafront apartments created out of clapped out warehouse and the sparkling, gigantic Drake Circus development, the most stunningly successful of all Plymouth’s new enterprises has been the transformation of its previously lacklustre, old polytechnic. Only a very few of the many polytechnics magicked overnight – to the scorn of many – into universities can aspire to a place at the top table of the long established universities. But Plymouth University is undoubtedly one of them. Its student numbers are vast and are a testament to the high regard in which it is held. It is architecturally new and striking; plum in the centre of the city giving it a real buzz which it has never had before, and much of its student accommodation is second to none. And its academic rigour is impressive. If its onward and upward march continues, I predict it will earn itself one day a place in that select pantheon of the elite universities in the Russell Group (I will write more of this in a later article).

So well done Plymouth. You have looked adversity in the face and have prospered against the odds. You have survived a storm, different in kind, but every bit as furious as any your illustrious seafarers ever met on the oceans of the world. They would be proud of you.

Our bankers can learn a lot from Team GB

Well done Team GB. You have not just chalked up wonderful results, but you have avoided tub-thumping triumphalism and shown the world that there is a facet of Great Britain that is most appealing: our ability to self-deprecate and laugh at ourselves. Would that we could say the same about some ‘gentlemen’ in finance.

As we all know, some disastrous things have been taking place there. It truly makes MPs grubbing around for small change in the expenses scandal look quite inconsequential. These guys can sink us all; they almost did, and might yet do so.

I believe the time has come for drastic action, starting with the criminalisation of excessive and irresponsible risk-taking. Had we done so at an earlier date, ‘Fred the Shred’, and others like him, would almost certainly have thought twice before doing what they did.

Nothing concentrates the mind like a good hanging – only, in this case, we’ll settle for a lengthy prison term. Yet for some reason the powers-that-be are strangely reluctant to come down on white collar crime in anything like the way they do on blue collar. Do I detect privilege looking after its own? Is there an ‘old boys’ network in operation? David Cameron says we should not encourage banker bashing. May it not be that what he is really saying is: “leave my friends alone”? The Americans are far more willing to send financial miscreants to prison than we are. Why is this?

The whole western world is suffering to an extraordinary extent because of the misdeeds of the financiers; likely to be protracted, and life destroying to many millions of people who have done nothing wrong, the Great Recession has already been dragging on for four years now and no end can be discerned. In truth, it is likely to get much worse. Not a pundit on the planet has a clue where it is all going and when it will end.

The people who have done this to us have not only got away with it scot-free, but seem unable to grasp the enormity of what they have done. Nothing better illustrates this than the continuance of the iniquitous bonus culture they have built around their activities. Where else do such incredible sums get thrown at people with such gay abandon? How did it all start? Its insidious effect has even moved over to the public sector, where managers also now look to extra awards for merely doing their job. Getting money from Joe Public has never been easier; plastic cards by the hundred thousand now help grease the wheels.

Almost uniquely, banking is in a position to bring the whole system crashing down. That is why the innocents have been successfully compelled into saving the guilty. Only the stiffest penalties we can devise will do to punish those who have set the financial crisis in train. We must never allow ourselves to be put in a position like this again.

What a scandal that people who saved up all their lives, forgoing foreign holidays and the like, must see their savings decimated to prop up the feckless, as well as profiteering, bankers who were lending – where they care to do so – at sometimes twenty times what they are charged.

It is unfortunate that no economic model other than capitalism has been shown to deliver growth and prosperity, and it will always be down to the cleverest and best educated in our midst to operate it. But that very fact is what makes it so reprehensible that they have done this thing to the trusting billions around the world. Apart from the wicked greed they have displayed, they have provided priceless ammunition to the misguided enemies of capitalism who, even now, would drag us back into discredited and dangerous other models such as communism. (Incidentally, these Occupy protesters are confusing capitalism with corporatism, but that is not the point.)

There are four measures I believe could save us from a re-run of this saga. The first, as I have already detailed, involves banging up bankers. The second is the protection of whistleblowers. Once again here, Uncle Sam leads the way; he does not put his trust so much in setting up expensive regulatory agencies and quangos, staffed, in so many cases, by second-raters who dance to the tune of the Bob Diamonds of this world. Instead, Uncle Sam goes for insider information which makes it all the easier to secure convictions. And he gets it by rewarding the whistleblower with a percentage of any fines levied on the corporation for its misdeeds.

Right across the board, the whistleblower performs a valuable and often courageous service – often without reward. He or she is frequently someone who has witnessed scandalous activities which affront their conscience. In this country, however, whistleblowers are treated like pariahs. The people exposed – be they in the health or civil service – close ranks and sack the whistleblower. Once again the good man or women is made to pay for doing the right thing.

The third suggestion concerns our regulators. Since there will always be a need for close scrutiny of important financial activities, these agencies must be staffed by the very best – people who are cleverer than the people they are scrutinising (and not, as at present, the other way round). To secure these clever clogs, we are going to have to pay them top rates; that way, the dullards will find it next to impossible to bamboozle the cleverer man.

My fourth and final suggestion is a proper clear out of the top echelons of the Civil Service when a new government takes office. Often these civil servants are appointees who, if they disagree with the new government’s policies, will foot-drag as only the Civil Service knows how – ‘Yes Minister’ style. The clear out should take the form of the various head of departments being obliged to offer their resignation; if the incoming government feels they are not ideologically opposed to their manifesto, are on top of their brief and unlikely to be obstructive, then it could choose to keep them in their post.

A train crash in slow motion

The euro crisis rolls on like a train crash in slow motion.

The fact is, you cannot bend economics to your will. The forces which say you cannot do this are almost as immutable as the laws of gravity. Yet that is what the founding fathers of the euro set out to do.

They sought to bind nations with wildly disparate national traits, and equally disparate levels of competitiveness, into one whole. But they did it for political reasons not economic.

It might have worked if all involved had applied the original, sensible rules of entry and submitted their annual budgets to a Brussels power of veto, but they did not.

A monetary union not backed by a fiscal one is actually a no brainer. It cannot work. Even those American founding fathers of nearly 250 years ago understood this.

The success of the American union had a lot to do with the template drawn from a single gene pool with a single historical experience, put in place by the original thirteen colonies who decreed a single language for all.

Now ‘cruel necessity’ – as Cromwell is said to have described the decision to cut off the king’s head – is pushing Europe to cut off the head of the errant Greek state and force it back to the Drachma, Europe’s oldest currency. It is also going to force those who remain within the single currency to give up forever sole control of their countries’ spending policies.

Having done that, then you might at last have a system which actually worked. Within that system would undoubtedly develop a super strong currency with the potential to displace the dollar as the world’s reserve currency.

It all hangs on what the Greeks vote for at the forthcoming election. Despite all the serious pain they are going through a surprising number of them (over 70%) still want to stay in the euro. But, being the hot-headed Greeks that they are, they cannot help but wear their pain on their sleeves.

If this shows itself by a massive protest vote for the party which promises to bucket a lot of austerity promises – as seems likely – then Greece’s days as a euro member are numbered.

The young and inexperienced party leader in question has convinced himself that the Germans, right now, need Greece more than the Greeks need the Germans. The logic of his argument is that the loss of Greece will begin the unravelling of the euro and quite possibly the whole ‘European Project’. He will simply refuse to implement austerity and defy the Germans and north Europeans to do their worst. He’s convinced they will blink first. I fear he and his nation are in for a terrible shock.

It has to be said that no one has benefited more from the euro than the Germans.

If they have huge reserves of savings that is because for a decade they have been marketing their products in a hugely (for them) undervalued currency. Their former chancellor, Helmut Kohl, has admitted – albeit belatedly – that at the time the political elite dared not ask the German people if they would surrender their beloved deutschmark in favour of the new currency because they knew that they would get a big fat nein.

Yet if the euro were to break up, their deutschmark would be back again – only this time with a vengeance; it would become so expensive that few could afford to buy their products. Exports would plummet.

So yes, the Germans are terrified that a Greek exit will set off an unstoppable chain reaction causing the weaker southern economies to drop out, threatening to destroy the whole single currency. But the Germans are equally terrified at seeing their hard earned savings and pensions going down a bottomless ‘Club Med’ plughole and an endless future of propping up lame duck economies.

So now the previously unthinkable is being touted in Berlin and the other chancelleries of Europe: Greece can go if it will not comply with its undertakings. It will serve as a salutary lesson to other possible backsliders, say some. Provided they do not show similar defiance as Greece, then I believe that Fritz will give the European Central Bank the powers it needs to act as the lender of last resort like the American Federal Reserve or the Bank of England.

Both for narrow self-interest and deep psychological reasons Germany does not wish the European Project to fail, much less be blamed for its failure. It wants desperately to be seen as a good European and lay forever the ghosts of its troubled past. So my own belief is that Germany will do all in it power to hold the eurozone together.

IIf the markets go on to attack the other weaker economies once Greece has gone, who knows where it will all end. Even German savings may not be enough to save the euro, so big are the debts of Italy and Spain, the 7th and 9th largest economies in the world.

George Soros, the man who bet against Britain staying in the ERM in 1992 and won a billion pounds in the process, says the euro train has three months before it hits the buffers. While he is not always right, we should worry. He is 60% of the time.

It is my firm belief, however, that the euro, in one form or another, will survive. And as strange – even weird – as it may seem, given present circumstances, there are still many countries waiting in the wings to join such as Poland, the Baltic states, Czech, Slovakia, Slovenia and even perhaps Sweden and Denmark.

Had the original rules of entry been adhered to then none of the present PIIGS would have qualified to join in the first place and this nightmare would never have happened. For that, Germany must take its share of the blame; it does no good for it to get on its high horse over-much.

But a reformed euro, even if it has shed a whole swath of weaker members, may yet be something to behold. It’s been a long time in Europe since anyone has been able to boast of sound money. If it did not entail so great a loss of sovereignty, it might be a door that we ourselves might one day find ourselves greatly tempted to knock on.

Growing ourselves out of a hole

There is no better way to get yourself out of the kind of hole we find ourselves in today than to grow your way out.

All the emphasis to date has been on the debt which hangs round our neck like an albatross. But while it was right to worry about this and to take measures to bring it under control, now we must get an engine fired up whose sole purpose is growth.

Where can this growth come from? It is easier first to identify areas where it cannot and should not come from; namely the self-indulgent areas such as we had known for the decade before the credit crunch hit us in 2008.

More than any other sector, the construction industry has taken the brunt of the recession. Once, it was commonplace to see giant cranes at work in every city centre, out of town shopping development and business park. Not anymore.

All is quiet on the Western Front, yet at the same time we have a crisis in housing. Millions of newcomers have flooded into our country and they all need accommodation. And while this moribund industry is virtually at a standstill, millions of our young people cannot get on to the housing ladder because prices are still too high.

Nothing is more likely to bring these prices down than a massive programme of building which closes the gap between supply and demand.

More housing means more carpets to be fitted; more furniture and electrical appliances to be bought; more soft furnishings; more blinds; more kitchen utensils; more visits to DIY stores – the list goes on and on. So here is one area crying out for a massive growth strategy.

With interest rates at an historic low there was never a better time to take out a mortgage, if only the product was there at an affordable price.

What about infrastructure projects to which we are already committed? Surely these could be fast-tracked. The Olympic project has shown us what can be slung up in a remarkably short time frame.

And then there’s Boris Johnson’s pet project: the Thames Estuary Airport to complement Heathrow. The estuary project would not only send a powerful signal to the world that Britain is determined to get ahead of the curve business-wise and continue to host the world’s number one airport; it would also be a faith restoring project as well as, hopefully, the world’s most exciting and, perhaps even beautiful, airport. Even the green lobby would have to have all its boxes ticked.

In our efforts to get energy prices down – a very necessary prerequisite for growth – why don’t we and the rest of the struggling West release a large part of those strategic reserves of oil we all built up to fight the Cold War in the event that it became hot? And why, for that matter, are we pussyfooting about getting up the massive reserves of oil which lie all around the Falkland Islands? At a stroke it would make us oil self-sufficient and even allow us to make the European Union independent of Russian or any other single country’s oil. Imagine what clout that would give us in Brussels!

We could set up ‘Enterprise Zones’ in depressed areas with special tax breaks. There could also be NI exemptions for new start-ups as well as firms employing fewer than 50 who take on new employees.

Yet underpinning it all should be massive, irresistible pressure on the banks to make it all possible. And funnily enough, quite apart from the massive liquidity injected into the banking sector via quantitative easing (money printing), Britain’s big and medium-sized companies are sitting on a huge stash of cash, too frightened to spend it. Rather than wasting political capital debating House of Lords reform or gay marriage, the government must develop a more coherent business strategy to inspire confidence in the business community.

With the pound so much more competitive than before the crisis and historically low interest rates provided by our recapitalised banks, we are in so much better a place than our continental rivals who have yet to bite this most difficult of bullets. Altogether we have very much going for us, if only we could be brought to see it.

Growth can also come from the world beyond Europe which occupies 60% of our export market – some of which in the developing world is not in recession at all. In this regard we have a competitive advantage since much of what we have kept of our once mighty industrial capacity is now at the cutting edge – and consequently difficult for foreigners to poach – such as Rolls Royce aeroplane engines and other high-tech earners such as our renowned computer software sector.

While we do not exercise that hard power that we once deployed around the world any longer, we still deploy plenty of soft power. We punch far above our weight everywhere.

There is a huge amount of warmth and goodwill to be found towards us in the world. You have only to look at that great gathering of the Commonwealth of Nations every four years to see that. Nowadays you even have countries which were never part of the empire applying to join the grouping.

I do not see it as fanciful that one day Uncle Sam himself will wonder why he has not re-joined his original family. Perhaps there is some truth in what George Santayana, the famous Spanish-born American philosopher, poet, and humanist, said when he opined in the nineteenth century: ‘Never since the heroic days of Greece was the world ruled by such a sweet, just, boyish master’.

We are mad not to capitalise on all this. And the wheels have been greased for us by the world choosing to speak our language before any other. We don’t even have to take an interpreter with us.

Leading by example

For society to work we must have people whom we can respect and admire.

Every now and then we need a titan, and if the Nobel prize is any measure we’ve had them in disproportionate numbers. In former times, such people were to be found in the sciences, academia, the Civil Service, town halls, the Westminster village, hospitals, the military, the legal profession, the utilities – and yes, of course, the banks.

Of all of these – and there are still many more – only the military today continues to inspire our admiration. But today even our famed ‘James Bond’ Secret Service has been found seriously wanting (i.e. the spook in the bag scandal).

It is a sad state of affairs when we have come to conclude that they are all in it for themselves and are letting us down in the process. At the heart of it all is a me-me culture leading to the devil take the hindmost outlook. Is it not surprising, therefore, that there is a cynicism about such as we have not known before. The turnout at the recent by-elections does no more than reflect that.
 
Proposals for elected city mayors and police chiefs – which in ordinary circumstances ought to promise so much – have been greeted by a sceptical public as little more than another devious ploy to distract us and deflect our anger. We are not in a mood for more tinkering, and prefer to leave well alone rather than risk additional mayhem from people whose motives we have come to suspect.

Had these proposals come from leaders we had come to admire and trust, does anyone doubt that they would have been received differently? It would have been more a case of ‘well, if this is what they believe is for the best, then we ought at least to consider it seriously’.
 
Returning to the subject I covered last week – the continuing offensive behaviour of bankers – we are being forced to watch perfectly good businesses being allowed to go down the swanny because banks won’t help. Refusing to use taxpayers’ money – with which we’ve stuffed their gullets so full they are in danger of constipation – to fulfil their moral obligation to save small businesses from the recession they created, they insist on using it to recover from their gambling-induced hangover to begin another binge anew.

We have gone from the sublime to the gawd blimey. One minute they were throwing money at us as though it was of going out of fashion – we all remember the credit cards once raining down on us like confetti – and the next they are sitting on it like mother hens nursing their eggs. Such extreme gyrations were never going to be anything other than disastrous for the general public.

If business activity and growth are now in a trough of despondency, this is because people have finally wised up to reality and are now anxious to pay down the debts that the banks have profited on so greatly. But now that the party has stopped, the banks are being allowed to have their cake and eat it, too.
 
Having said all this about the banks, we should not forget our own shortcomings; how eagerly and irresponsibly did we succumb to their blandishments to ratchet up our own personal debt levels by taking out second mortgages and spending much more than we earned. And although many have come to realise they cannot continue living beyond their means, we can only hope and pray that once personal debts have been paid off people will not have lost the habit of spending!

But human nature being what it is – and the average chap being no match for these whizz kids of finance – it is not difficult to see who was going to win the argument of persuasion. This is where the government, and in particular the Bank of England and FSA, should have stepped in.

With personal debt levels higher as a proportion of GDP than any country in the developed world, and house prices rising at a rate much greater than wages, the signals were all on red alert.

With all the gloating over Labour’s local election successes this week, the public must not forget that the last government bears a great deal of responsibility for our present woes. How could ministers warn Joe Public against the dangers of excessive debt when they themselves were the standard bearer of borrowing to the hilt? Had they shown ‘prudence’ – Gordon Brown’s now pricelessly ironic sobriquet – then they could have warned against the dangers and taken measures to restrain it.

But as well as borrowing like there was no tomorrow, the last government increased the burden of the public sector payroll by no less than 64% during its time in office.

All we can say is that these hard times are teaching us some very hard truths. History, however, does show us one encouraging thing: there never was a recession that sooner or later did not yield to better days.

The financial crisis has all given us no end of a reality check. Let’s hope that in so doing it has taught us no end of a lesson.

Shameless bankers still don’t get it

Ordinarily it is not a healthy thing to look for scapegoats in any and every bad situation, but neither is it sensible to ignore blatant wrongdoing.

Bankers have done terrible things to the peoples of the western world.

What has to be understood by the banking community is that they are in a position of trust. People deposit their precious savings in what, until recent times, was the certainty that when they needed them they would be safe and available. In old age, it would be there to ameliorate the sadder downside of being old.

The funds which the banks hold are, quite obviously, not their money; and they have certainly not earned a right to keep it. If they see it as part of their proper function to grow depositors’ money, then they are only entitled to do so in ways that are totally safe. But this is no longer their priority.

They have also have come to see themselves differently, almost as though they are the elect of god. Lloyd Blankfein, Chief Executive of that wicked empire, Goldman Sachs, certainly didn’t seem to be in any doubt when he declared in a 2009 interview that he was “doing God’s work”.

They traded financial instruments so fiendishly complex that only the former NASA scientists that created them understood them. Collateralised debt obligations? They might as well be speaking another language.

Viewing themselves as godlike Olympians with the power to move mountains, they set about gambling on a scale never before known in human history. In the run-up to the financial crisis, investment bankers annually exchanged financial derivatives to the value of one quadrillion dollars in international financial markets. To put that figure into perspective, by 2007 financial institutions were annually exchanging 10 times the inflation-adjusted value of the entire planet’s manufactured goods over the previous century.

Theirs, in their world view, was not a job to be compared to any other. The sheer scale of their operations proved that. They revelled in the sobriquet awarded them: ‘Masters of the Universe’.

Buying into the bankers’ warped take on life were the politicians, ever greedy for the crumbs which were dropping wholesale off this beneficent table into their coffers. As with the make-or-break power of the Murdochs, the politician – when asked to jump – would only reply: how high?

Now events have conspired to puncture the hubristic dreams of these lords of creation. We, the blameless, have been obliged to mortgage our and our children’s future to save the rotten system and, in the process, their necks.

The hole they have dug for us is pitiably deep. And meantime, we learn of hungry children being bought meals at their schools by their teachers.

Do we see contrition for the misery they have inflicted on so many millions, or gratitude for what has been done to keep them in work while so many others have been laid off? Do we indeed!

That shameless bonus escalator is again in full swing and everything as far as they are concerned is again business as usual. For the rest of us it is deep anxiety, joblessness, falling living standards, savings returns decimated, and no guarantee that we’ll ever get out of it.

The question therefore arises of why there should not be a system in place, as there is partially in the US, that allows for prosecutions and prison terms. Would ‘Fred the Shred’ be luxuriating today on his £400,000 a year pension were he to have been operating on the other side of the pond?

Malpractice which impacts so horrendously on people’s lives, and the very survival of the system that keeps the world afloat, should not be without the severest sanctions where it can be shown that wrongdoing has taken place.

Footballers cannot operate except within a strict framework of rules, and yet a system which can bring down the world is allowed to do virtually as it pleases. The trouble is that the people we would have to rely on as the enforcers are too much involved and in hoc to the people they are being asked to police.

Four years into this banker-driven recession we are entitled to ask why nothing meaningful has been done. Would they be so ready to destroy our livelihoods if they knew that they would face prison terms for bad and criminal practice?

That senior executives of Barclays Bank this week have awarded themselves two-thirds of their company’s profits, leaving the remaining third to the shareholders, strikes me as little more than corporate theft… or grand larceny, for want of a better term.

One way or another we have to find ways of cutting these unrepentant Masters of the Universe down to size.

Gordon Gekko, of the 1987 Wall Street movie starring Michael Douglas, would have been proud indeed that his “greed is good” message to the world had been so thoroughly absorbed and acted on by his successors.

We have recently learned that the executives of the top 100 FTSE companies will have collared 205 times the pay of their average workers within the next ten years. Fifty years ago, it was considered acceptable for the man at the top to earn twenty times that of the man on the shop floor.

Yet the FTSE barons have been awarding themselves an increase that averages 13% for each of the past twenty years. And this is from the very people who have been laying off thousands of their workers during these years of recession. They don’t even feel obliged to look after their own.

There is a shamelessness to be seen that sets no limits on greed.

Even performance does not come into the equation; failure will attract reward to almost the same degree as success.

Just like the politicians with their fraudulent expenses, the bankers in their casino madness just don’t get it. They feel themselves to be unjustifiably picked on: the hapless victims of a wicked witch hunt.

The virus has spread to the Civil Service, the Town Halls, the Utilities and others paid from the public purse. They too have seen the chance to enrich themselves: they too have joined this pernicious business of ratcheting up the pay differentials.

Is there no limit to the shamelessness on display? Would a differential of a thousand times satisfy their ravenous appetites?

Desperate to plug the glaring hole in the country’s finances, the Chancellor of the Exchequer must wait to get the better part of half a billion pounds that Goldman Sachs owes all of us. Despite a £1.5bn profit from its British operations, they have found a way of delaying payment which they readily admit is due. Shame on them.

That bank truly represents what a former British Prime Minister once memorably described as the “unacceptable face of capitalism”. No bank in history has had so many fines levied on it for scams and bad practice.

As for the American CEO of Barclays, Bob Diamond, he truly does live up to his name. That £26.4m package of his would buy an awful lot of the sparklers. Never mind diamonds being a girl’s best friend. They’re Bob’s, too.

A Marshall Plan for PIGS

I recently watched a BBC interview with Angela Merkel, the German Chancellor – a very rare event since she has only once before given an interview to the foreign media.

The interview represented a considerable feather in the cap of the BBC, further confirming its status as the world’s premier broadcaster.

The interviewer, Newsnight’s Gavin Esler, wanted to get inside the head of the person who will largely determine the future of the eurozone and, to some degree, the rest of the world.

The visual aspect of TV makes it very difficult for an interviewee to ‘fake it’; to pass himself off as someone else. His body language and emotions are often plain to see; and when his face occupies most of a 42″ screen in your living room, you feel you can almost look into his soul. TV greatly assists in our quest to sort out the wheat from the chav.

Merkel came over as a pleasant, but no-nonsense, woman – interested more in getting the job done than in sound bites. Astute as she was with thoughtful responses, she seemed genuine.

And there was more than a little guile there too (but you don’t get to lead the most powerful economy in Europe without a level of that).

It was not difficult to understand why she had taken a shine to our own prime minister – the polished, well-mannered product of England’s leading public school. She may even have fancied the younger man a little, or perhaps felt a tad motherly, seeing him as the archetypal English gentleman as opposed to the coarse, bling-loving French president who wants to smother her at every opportunity with Gallic kisses. The contrast is stark.

Cameron is a most courtly emissary from a fellow Teutonic power which, from early childhood, she had come to respect. Yet despite its bombing of large areas of her beloved homeland almost back to the Stone Age only a generation or two before, it is apparent that – in economic terms at least – Merkel regards Britain as a natural ally and one she is most unwilling either to offend or marginalise.

The BBC was right in picking Gavin Esler as the interviewer, since Paxo might have been too adversarial by adopting his characteristic ‘master inquisitor’ approach.

But what I really gleaned from the interview is an appreciation of the lengths to which Germany will go to save the single currency.

Up to now, Angela Merkel has, understandably, played hardball. The German taxpayer is not going to throw his money at profligate nations which show an unsatisfactory willingness to change their ways.

The Germans want a new economic order in Europe so that nations act responsibly in the future; and to this end they want robust systems in place in the form of a fiscal union.

Germany is not interested in imposing a German jackboot, but wants the whole exercise to be seen as a pan-European affair – even though a fiscal union would result in all 17 eurozone nations’ budgets being overseen by EU officials: a fact masked by a Byzantium-level of cunningness or ingenuity (call it what you will).

I came away from that interview convinced that the German political elite do not want a single member – not even Greece – to drop out of the eurozone. And when push comes to shove, they will do everything in their power to see that this does not happen. They see the loss of a single country as the trigger that will begin the unravelling of the entire single currency and, more than that, of the whole ‘European Project’ to which it is so utterly and irredeemably committed.

So now, it would seem, it is down to the individual eurozone member states to do what is necessary. Only time will tell whether the eurozone’s peripheral countries’ impoverished citizens will – or even can – stay the course.

Pain levels in Greece – and now, more alarmingly, Spain – are at breaking point. A pistol shot to the head outside the Greek Parliament of a 77-year-old retired pharmacist has a terrible resonance with that pistol shot long ago at Sarajevo which set in motion the chain of events which led to the First World War.

Germany has to understand that PIGS’ (Portugal, Italy, Greece and Spain) citizens can take little more pain. While it was necessary to start the austerity drive and change PIGS’ spending habits, it is clear that austerity alone is fast becoming counter-productive.

If Germany wishes them to hold on, she must give them hope – and this can only mean a plan not just for cuts, but for growth. She must put together and spearhead a new Marshall Plan of aid – such as saved Europe in the aftermath of the Second World War.

Germany does not wish to be cast as the villain all over again; the one who did wrong by Europe for a third time, only now by economic, rather than military, might.

Now that we have all come to understand that we must stop living beyond our means, and that the social model we have developed is unsustainable, we are in a position to go forward.

Only by means of growth and a smaller state sector have we a chance of paying down our debt.

Fearful and envious as we may be of the developing countries – and that includes the oil producers – they are as one in wanting us to succeed; for if we go down the pan, we are as likely as not to drag them down with us – and they know this.

They might even feel that it is in their interest to involve themselves in such a rescue plan. But they will not do so if they see north Europe, and in particular the Germans, sitting on a pot of gold but refusing to use it to kick start their own salvation.

God, as they say, helps those who help themselves.

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