House of Cards

There’s now only a week left until polling day in the General Election, and I’ve managed to avoid blogging about it as much as possible. The main reason for this is that I feel almost entirely disconnected from the whole thing, as if it’s all a bit unreal. One of the things in the news this week sparked a memory of something I wrote a few weeks ago which, in turn, made me realise why I find it difficult to take this election seriously.

It emerged on Tuesday that the international money markets had downgraded Greece’s credit rating to “junk” status. Portugal and, more recently, Spain have since been downgraded too, but not as far as Greece. Yet. The reason for this downgrading is that analysts doubt whether these countries will be able to control their public spending sufficiently in order for them to honour huge levels of sovereign debt. The probability that Greece in particular will default in a big way has been growing steadily, according to the calculations of financial experts, and has now reached the level at which traders are adopting strategies that essentially involve betting on this actually happening.

The consequence of all this turmoil is that Greece would have to borrow money at huge levels of interest – over 15% – in order to carry on. The eurozone countries – particularly Germany – are trying to put together a package that that can be paid back at less ruinous rates, but while they continue to debate the details the panic continues.

The knock-on effect of a Greek default would be to remove money from the balance sheets of banks and financial institutions around the world. If a  bank has holdings of Greek debt, and the Greeks default, then the bonds become worthless and billions of pounds disappear off its balance sheet. Some British banks are exposed in this way, but nowhere near as much as France, Germany and Switzerland.

The baleout of Greece may work, but if it doesn’t it looks likely that Greece will be ejected from the euro and will have to take drastic measures to set its house in order. Fine, you might say. They’ve been living beyond their means for too long. That’s true. But so has Spain, which suffered even more than the UK from a housing bubble that went pop and is left with a huge budget deficit.  Spain is too large an economy to be rescued, even by Germany.  A default there, and there’s a real possibility of a chain reaction that will probably mean  curtains for the euro and possibly a real meltdown of the global financial system.  I’m just surprised that it has taken since 2007 for phase 2 of the global financial crisis to start. I think the contagion is still spreading.

 By some measures, our economy is in even worse shape than Spain’s.  However, the reason the markets haven’t downgraded us yet is that we’ve been given a stay of execution by the imminent general election. I’m sure analysts will be looking for very prompt and effective action to tackle our budget deficit if they are not going to put us through the wringer like they did with Greece. Greece, Portugal and Spain are all relatively recent democracies and it’s not obvious their governments can deliver huge public spending cuts and survive the resulting social unrest intact. They certainly haven’t managed to convince the markets they can anyway.

 What’s clear from the UK general election campaign is that none of the main political parties is willing to go public about the scale of the challenge facing whoever takes office after the election. The recent budget did a bit of trim around the edges here and there, and the party manifestos talk about the odd billion here and there in savings, but these are dwarfed by the real scale of our deficit. It seems the politicians have agreed to keep quiet about this to avoid frightening the electorate. When the votes are counted we’re going to get a rude awakening. The general election campaign is just a bizarre masquerade that’s too ridiculous to get involved in.

The scale of what could happen here is indicated by what’s happening in Ireland. Politicians here are talking about a public sector pay freeze. Ireland is actually cutting salaries in the public sector by up to 20%. I think the next UK government is going to have to do something similar or we’ll suffer the same fate as Greece. These next three years are going to be very grim for those of us working in the public sector, or at least for those who decide to stay in the UK.

We generally like to think we’re a mature democracy that’s a bit more sensible that all those mediterranean hotheads and that we’ll be able to grin and bear it for the sake of the economy. However, I’m old enough to remind the Winter of Discontent and it’s by no means obvious to me that cuts on the necessary scale will go through without sustained opposition. If – as seems likely – we end up with a coalition government with a fragile majority, this sort of thing could easily bring it down. If the markets see political instability in the UK they will certainly start downgrading our credit rating too. Public borrowing will  become more expensive, deeper spending cuts will be needed, and Britain be well and truly scuppered.

56 Responses to “House of Cards”

  1. I assume you saw this article on the Guardian’s site?

    http://www.guardian.co.uk/business/2010/apr/29/mervyn-king-warns-election-victor

    The governor of the Bank of England seems to share the opinion that after the election, we’ll see some of the heaviest public spending cuts for many decades.

  2. telescoper Says:

    Brendan,

    No I haven’t read today’s paper yet. But what he says is quite obviously true, which is why I’m surprised the politicians all have their heads in the sand.

    As, in fact, do most of my scientific colleagues who seem to think we might not get even deeper cuts after the election. I think they’re dreaming.

    Peter

  3. Peter,

    Like you, I’m astonished it hasn’t become a political issue yet. I’m also astounded at the lack of coverage quite frankly; the BBC seems more concerned about the oil spill than the issues of Greece.

    And sadly, again like you, I can’t see anything but severely deep cuts across all the sciences without immediate economic impact post-election, no matter the party (or parliment).

    Brendan

  4. I believe this has exposed the weaknesses in many economic behaviours, most notably capitalism. The free open market capitalist system which all governments have been so ready to welcome, due to their apparent rapid wealth creation, were saved from themselves by governmental bailouts. A true capitalist system would have allowed these banks to go bankrupt, taking everybody’s money. A hard lesson to learn but a proper one!

    I find it quite incredible that a country such as the USA, who is so ready to advocate the free unregulated market, stepped in to save many banks and mortgage lenders. They’re usually quite vocal about their freedoms and rights, however everyone can predict the kind of uproar we would have witnessed if half the population had lost their savings.

    The other weakness it has exposed is that of the Keynesian school of economics, of printing money to pay off debts and controlling de/inflation. This is a wholly unsustainable method and leads to a metastable economic state.

    The other weakness is that of hedge funds and betting for failures against others. These kinds of practices were in fact illegal in the early years of US history, and were somehow legalized. I was quite chuffed when I heard of hedge funds losing £18 billion after unsuccessfully betting against Volkswagen. http://news.bbc.co.uk/1/hi/business/7697082.stm

    What Thomas Jefferson had to say about economic matters is quite enlightening. See the following link for quotation, and go to the next section at the end of the page.

    http://etext.virginia.edu/jefferson/quotations/jeff1325.htm

  5. Anton Garrett Says:

    Since 1997 the percentage of the British economy for which the State sector is responsible has risen from 37% to 50%. All of that money has come from taxpayers, many working in private businesses that actually create wealth. Services provided by government have not improved by a corresponding amount, and many have got worse since 1997.

    As the owner of a small business I want to see blood on the carpet at Town Hall. I would be more likely to vote for somebody who spoke that bluntly. The Irish way of reducing public salaries is a good start. (Unison were recently demanding above-inflation pay rises – what planet are they one?) Retirement at the same age as in the private sector must be brought in, and public sector workers must fund their pensions in exactly the same way as people in the private sector. Even then, people are still going to have to be made redundant. The question is: Which people? If you leave it to managers in town halls, they will sack workers who actually deliver services rather than themelves. Thatcher solved that problem by privatisation, but alternative ways of disposing of bureaucrats should be findable.

    Which managers? Well, if you read the public sector jobs page published weekly in The Guardian over the last 13 years, those jobs would do nicely. And the NHS has four times the ratio of managers to (doctors + nurses) as private medicine – which is acknowledged to be better! So let’s get 2/3 of NHS managers into productive priavte-sector jobs for a start.

    This is not a rant on behalf of the Tory party – if I were voting by party it would be UKIP – but it is certainly a rant against Labour. This situation has come about because Labour knows that government employees tend to vote Labour (and that, regarding cuts, turkeys never vote for Christmas). In other words, it is bribery and corruption.

    Anton

  6. Anton Garrett Says:

    I’m not surprised that Greece has crashed. Early in the present century it suddenly seemed to look affluent yet nobody was working any harder. I’m profoundly glad that we in Britain retain the pound, so that the exchange rate can take some of the strain. I don’t recall that the German people – in contrast to their utopian politicians – were all that keen on the euro either, because they saw this sort of thing coming and do not understand (rightly!) why they should bail out people in other countries.
    Anton

  7. Hew,

    Free market economics works wonderfully well in equilibrium (or quasi-equilibrium) scenarios. But with massive portions of the economy failing at once in the form of banks going bust, that’s no longer the case. In that case free-market principles simply don’t work to our benefit any more, and you have to step in and prop them up.

    The alternative is you don’t things get this bad in the first place i.e. you safeguard equilibrium by regulation. Sadly this wasn’t done either.

    Brendan

  8. One of New Labour’s biggest mistakes was to break the settlement between the private and public sectors. When I was growing up it was always understood that wages could be higher in the private sector but that public sector employees enjoyed greater security. Nowadays its possible to make a small fortune in the public sector with managers trying to claim parity with their nominal private sector counterparts. The difference in retirement age makes the public sector more attractive still.

    Not only is this development financially unsustainable, especially in view of the growth of the public sector, its also unfair. The problem ought to be addressed as soon as possible to avoid a more painful correction in the future. I agree with Anton; there needs to be blood on the Town Hall carpets.

  9. telescoper Says:

    I agree with what’s been said about the “useless third” of overpaid managers, and expecially the obscene salaries paid to high-flying Town Hall executives. I’d favour a pay cut along the Irish lines, with the % cut increasing with salary or even a salary cap to stop the worst excesses. If the incumbents complain that their salaries are not competitive with the private sector, let them try to get a job there and see how far they get.

    Likewise there should be maximum pension benefits. However, remember that not all public sector workers are highly paid, and for many of them the pension (to which they contribute) is what will keep them above the breadline in retirement.

    At the moment those few people still on final salary pensions can retire at a maximum of half their final year’s salary (depending on how many years’ service they have done and how many years’ contributions they have made). In my view this should be altered to be up to 50% of the final years salary or £X whichever is the greater. Incidentally, in Greece some public sector staff can retire on 100% of their salary, which is clearly absurd.

    I think most would agree that cuts – deep cuts – will have to be made and I think most would agree where they should be made – to protect vital services (health, police, etc) but trimming away the bloated bureaucracy. The problem is I share Anton’s view that the result is more likely to be the people at the bottom, who do the best work, feel the effects hardest.

    You can see this mirrored in the University system. The number of admin staff has increased rapidly over the last decade, many of them commanding higher salaries than academis staff. But when it comes to cutting back – which it surely will over the next few years – you can bet your bottom dollar that the response will be to close departments and make lecturers redundant. It’s the admin that make the decisions.

    Anyway, my real point was, even if a government is elected that is willing to take on the task of cutting public spending (and/or increasing tax) sufficiently, it’s not obvious that they will be able to do it quickly enough without causing widespread unrest like in 1978/9. In that case we’re bound to do a Greece. I don’t think this is at all unlikely.

    The bottom line is that the credit crunch was all about people living beyond their means, which we’ve been doing for the best part of 10 years.
    Phase 1 resulted in governments having to intervene to save the banks, and the resut of that has been ballooning public debt. Toxic loans have been absorbed into the public debt, but they haven’t gone away. The system is still extremely sick and may still collapse.

  10. Anton Garrett Says:

    Unfortunately, none of the politicians and parties who stand any chance of being elected, singly or in coalition, appears to have any appetite to slim down town halls to the necessary extent. (In the case of the Tories that policy is long-term suicidal, since public sector workers mainly vote Labour.)

    It is possible that there won’t be any crisis, that nothing much will change, and that we shall simply all get rather poorer in Britain (including public sector workers) – because of high taxes, and because we shall have to pay for everything twice: for the State version that doesn’t work, and for the private one that does. This is in fact the scenario that I think most likely. It is a great shame.

    On a separate topic raised above, Jefferson was surely right that the printing of unbacked paper money (or the minting of unbacked coins with their value on the stamp rather than in the metal) is a terrible problem. Keynes acknowledged that too, although his attitude to it was management rather than censure. The idea is that government use tax revenue to provide counter-cyclical pumping of the economy, via the public sector, and so maintain economic stability. It’s not a bad idea in principle, but the problem is that it requires the government to build a war chest during the good times, which they never do – it’s always “spend, spend, spend”. In the absence of unbacked money there would simply not be any fluctuations, no economic cycle of boom and bust. But neither left nor right has any appetite for reducing the gearing ratio of unbacked to backed money. Big business wants big loans of unbacked money, which the right supports; whereas the left rather likes the idea of wrecking the savings of its perceived ‘bourgeois’ enemies by printing paper money. Unbacked money is ultimately a lie: it says on it “I promise to pay the bearer on demand the sum of…” yet the government and Bank of England (or wherever) cannot fulfil this promise if enough people call it in, and they know it.

    Another subject discussed above is Admin. Increasingly I think that the only way to keep admin in check is to do your own. Subcontracting it to admin departments (eg, in a university) means that professors face a continuing power struggle with their own creation, and it seems to me that they do not do any less admin as a result – rather the reverse, in fact. Moreover the admin department is not cheap to run.

    Anton

  11. Anton Garrett Says:

    Something else that should be done is to empower local government at the expense of central. Town hall revenue is about 2/3 from Whitehall and only 1/3 from council tax. That suits London (Westminster + Whitehall), because he who pays the piper calls the tune, but it makes local politics a sham. We need a big income tax cut and a big council tax rise to make the system fair and transparent. Most people would be shocked at the result, because rural areas at present hugely subsidise towns. This too stems from corruption by Labour, who know that urban dwellers mainly vote Labour and the countryside mostly votes Tory.

    Anton

  12. Anton Garrett Says:

    PS Peter – re your title for this blog entry – Francis Urquhart would certainly get the job done at Town Hall. Played by the late Ian Richardson, a wonderful creation, and by far my favourite anti-hero.

    You might say that; I couldn’t possibly comment…

    • telescoper Says:

      Coincidentally, I recently watched the DVD version of the wonderful old BBC series of Tinker Tailor Soldier Spy in which Ian Richardson was the traitor Bill Haydon. Alongside the great Alec Guinness, Richardson was superb.

  13. Anton Garrett Says:

    I remember that series. I found it irritating at the time but recognise its excellence now. It was obviously on the strength of the closing-credits Nunc Dimitis that Geoffrey Burgon got the contract to score the TV Brideshead Revisited. I wish I’d watched the sequel to Tinker, Smiley’s People.

    Ian Richardson is one of quite a few distinguished Shakespeareans who are better known for lighter TV work. John Laurie, the wild-eyed gloomy Scottish undertaker in Dad’s Army, is said to have been the definitive 20th century MacBeth.

    NB You can get the Francis Urquhart trilogy on DVD too. I have it, and the first two series are wonderful.

    Anton

  14. Tom Shanks Says:

    Blimey, this blog is turning into the Daily Mail! What’s next – Fred Goodwin for PM and let’s cut 20% off public sector universities? Paul Crowther’s blog could turn to promoting more savings in astro spending and Brian Cox produces a song called “Things can only get worse” and votes Conservative?

  15. telescoper Says:

    Tom,

    I notice all the other far-right papers such as the Guardian are saying exactly the same thing. The cuts are coming after the election no matter who gets in. The question is whether they fall on wasteful bureaucracy or on essential services and investment for the future.

    And in case you didn’t know, universities across the country were asked by HEFCE last year to come up with contingency plans for a 25% cut in recurrent funding.

    Peter

  16. Anton Garrett Says:

    Tom,

    If you have any of my comments in mind, feel free to hit me with a rebuttal of them.

    Fred Goodwin must never have any position of financial influence again, but he is a symptom of a sick and corrupt system as much as a cause. As for universities, lets axe administrators and get more postdocs, and let’s have tax revenue going to subsidise courses (and lecturers thereof) that do the country – and hence taxpayers – some good. That good can be fairly indirect – few mathematicians use 3rd year maths in their subsequent jobs, but they do learn about rigour of thought and how to master difficult concepts; whereas Media Studies students…

    Cheers,
    Anton

  17. Tom Shanks Says:

    “I’d favour a pay cut along the Irish lines, with the % cut increasing with salary or even a salary cap to stop the worst excesses. If the incumbents complain that their salaries are not competitive with the private sector, let them try to get a job there and see how far they get.”

    What if someone said this about physics lecturers? Solidarnosc as the Poles used to say!

    I hear Greece is setting up a Space Agency…..

  18. Anton Garrett Says:

    Any Greek Space Agency should be named after Icarus.

  19. telescoper Says:

    Tom,

    Physics lecturers aren’t getting >£150K, at least not the ones I know. My point was that if cuts are needed they should be imposed so as to protect the lowest paid but increase with salary level.

    Peter

  20. Tom Shanks Says:

    Well I fully accept that your intentions were honourable but we have to take care not to talk ourselves into an atmosphere where swingeing cuts become more probable and larger. Maybe the BBC is right not to talk up the Greek issue because it can be come a self-fulfilling prophecy of doom. Confidence is as valuable a market commodity as anything else….

    • telescoper Says:

      If you ask me, it’s an excess of confidence that is the problem…

      P.S. It’s very naive of you to imagine that I had honorable intentions.

  21. Daniel Mortlock Says:

    I agree that ‘Smiley’s People’ is better than the good but ponderous ‘Tinker, Tailor, Soldier, Spy’. ‘House Of Cards’ was a revelation to me at the time, just about matched by ‘To Play The King’. However I won’t mention ‘The Final Cut’ . . .

    • telescoper Says:

      I didn’t find Tinker Tailor ponderous. In fact I was pleased that they took it slowly enough to develop the characters so well. The one disappointment for me was that they didn’t do much with the intriguing figure of Roy Bland who could have been made into a credible suspect for the mole if they had spent a bit more time on him. As it was, I think Haydon was a bit too easy to spot.

  22. Anton Garrett Says:

    OK Daniel, you have just about convinced me to get Smiley’s People on DVD. Of the 5 series you mention, your opinion of the 4 that I have seen is identical to mine, so it is entirely rational for me to extrapolate to the 5th (Smiley’s).

    Remnants Cricket Club under way yet this season?

    Anton

  23. Anton Garrett Says:

    Peter: Without the benefit of hindsight, what did you have on Haydon before he – and not the other suspects – turned up at the rendezvous at the end?
    Anton

    • telescoper Says:

      I remember when I first watched it back in the 70s. I was convinced it was Bill Haydon after the interview with Sam Collins (the Duty Officer on the night Operation Testify went wrong). I did, in fact, have a small wager on that with a schoolfriend at the time.

      I also won a similar bet by correctly spotting who it was that shot JR in Dallas…

  24. Anton Garrett Says:

    Don’t you mean “JFK in Dallas”?

  25. Woken Postdoc Says:

    Making cuts isn’t the easiest way to settle debts and shrink a deficit. Printing money to *intentionally* sink the currency and drive up inflation devalues all debts to insignificance. Simultaneously, everything positive that we own will be demagnified by the same amount. In effect, it’ll be a uniform tax on everyone who began in positive figures.

    Greece is in the euro straight-jacket. The post-election UK goverment will be free for trickery.

    If my pessimism is right, this week might be a good time to buy gold.

  26. Tom Shanks Says:

    Well at least the postdoc knows what is most likely to happen! To a certain extent it’s already happened with the current devaluation of the pound. Maybe the Conservatives are more likely than Labour to try the more painful public sector cuts route rather than inflation. Didn’t the govt also recently guarantee STFC overseas science subscriptions? If so, this may be most valuable pre-election commitment.

    By the way, William Keegan has a good first few paras on credit rating agencies, currency speculators et al at
    http://www.guardian.co.uk/business/2010/may/01/william-keegan-ireland-debt-crisis

    • telescoper Says:

      Printing money will indeed cause our debts to reduce in real terms, but I think governments will run shy of doing this too much. For one thing, a fall in the value of sterling won’t help us meet foreign creditors’ demands. For another, the government has tried injecting money into the economy via its quantitative easing programme and it hasn’t really worked.

      What I was trying to say in this post is that whichever combination of the three main parties ends up in government after the election, there will be big cuts in public spending and/or rises in taxation. I think they’ll all be too anxious to curry favour with business to start printing money. Inflation is the one thing that hurts the rich more than it does the poor, so ipso facto the realities of modern politics rule it out.

  27. Anton Garrett Says:

    What inflation hurts is *savings*; the rich can put their money into jewellery, property etc, but those who have lived prudently to save on the scale of their salaries get shafted, whereas those who have splurged on credit do well.

    Inflation also shows in exchange rates and makes imports and overseas trips inordinately expensive.

    Printing money is positively correlated with inflation, of course, but the relation is a complex one because other variables like interest rates, exchange rates, and non-quantifiable things like Trades Union power all affect the rate of inflation.

    Anton

  28. Peter: “traders are adopting strategies that essentially involve betting on this actually happening”. Actually, most trading probably has more to do with betting and less with the traditional motivations for various financial products. This in itself isn’t new; what is new is that a country is involved and the risk of default is appreciable.

    Anton: “Since 1997 the percentage of the British economy for which the State sector is responsible has risen from 37% to 50%.” Note that some countries have a) a much larger percentage and b) a healthier economy. So, I dispute the idea that the high percentage is necessarily bad.

    Anton: “I don’t recall that the German people – in contrast to their utopian politicians – were all that keen on the euro either, because they saw this sort of thing coming and do not understand (rightly!) why they should bail out people in other countries.” True. However, the reason that joining the Euro was not put to a referendum was the fear on the part of the UK, France etc that, if it didn’t join, Germany would “be going its own way” again. In Denmark and Sweden there were referenda on the Euro and both refused to join. I wonder in how many countries there was a referendum at all? (Under the current rules, new countries MUST join the Euro. Denmark negotiated an opt-out (as have other countries on other issues) and Sweden has a de-facto opt-out by refusing to join the exchange-rate mechanism (which is a prerequisite for joining the common currency) (this loophole has now been closed for newly admitted countries).

    Note that the main problem in Greece is not the large public sector or good benefits there, but rather the fact that the majority of the people (both in the public and in the private sectors) pay much less tax than they should. This goes hand-in-hand with corruption (again, both in the public and in the private sectors) and the fact that there is a huge “black economy” (is that the English term?) so that a large fraction of income is not taxed at all.

  29. Anton Garrett Says:

    Phillip: If tax rates in Greece were lower then fewer people would feel the need to cheat in order to get by. The main problem seems to me to be that the whole place went on a credit splurge in the first decade of the present century. Perhaps they wanted to show off to the world, which came for the Olympics. The outcome is that bonds issued by an entire nation state – not a company – have been given junk status for the first time, and interest rates have rocketed to 25% in Greece becaues of the risk perceived by lenders. Via the inflexibility of the single euro currency, the problem could spread to Portugal, Spain and the UK (in that order of vulnerability) and even the USA.

    I never felt able to take any part in any financial conversation until I had answered to my satisfaction the question: What *is* money? That was the key to my understanding – or at least, ability to bullshit (but so do economists).

    What is your basis for saying that the absence of a German referendum on the euro was due to the wishes of its wartime opponents? I can see the logic but it is only one side of an argument. Was pressure was put on Germany, and if so how?

    Anton

    • telescoper Says:

      The outcome is that bonds issued by an entire nation state – not a company – have been given junk status for the first time

      It’s not actually the first time. Argentina defaulted on its government bonds in 2002. But it’s obviously the first time it has happened in Europe since the inception of the euro.

  30. Anton Garrett Says:

    Didn’t know that Peter, thanks – Anton

  31. “If tax rates in Greece were lower then fewer people would feel the need to cheat in order to get by.” This excuse is always used by those in favour of tax-reduction. The fact is that tax rates in Greece are not particularly high compared to other EU countries. Denmark has the highest taxes in the world (and the ruling party is—and has been for a long time—the rough equivalent of the Liberal Democrats, i.e. not the Socialists or Communists!). It also has essentially zero corruption and extremely little tax evasion (one reason is that tax evasion is difficult, but the attitudes of people in day-to-day life indicate that this is not the main reason, but rather the people understand that taxes are necessary in order to fund what the state should fund, which again most people agree with).

    One of the most obvious things in Europe is the attitude towards the state, corruption etc, with an obvious north-south trend. Anyone at all familiar with Greece is familiar with the widespread corruption and contradictory attitude of wanting to benefit from the state without paying the corresponding taxes. One or the other, but not both, is possible. It seems absurd to try to excuse this by claims that Greek taxes are too high (especially when, compared to others, they aren’t).

    As to pressure put on Germany, this has been mentioned on this blog before. I doubt there is any official document stating this, but many politicians have indicated openly that it played a role in the so-called 2+4 negotiations leading up to reunification. I realise it might not be a definitive source, but let me quote Wikipedia ( http://en.wikipedia.org/wiki/German_reunification ) which does provide some references; in particular, check out #12:

    British and French opposition

    According to Kremlin records that became public in 2009, the British and French governments did not want German “reunification”.[11] Before the fall of the Berlin Wall, British Prime Minister Margaret Thatcher told Soviet President Gorbachev that neither Britain nor Western Europe wanted the reunification of Germany.[11] Thatcher also clarified that she wanted the Soviet leader to do what he could to stop it.[11] Thatcher said to Gorbachev “We do not want a united Germany”.[11] Similarly, a representative of French President François Mitterrand reportedly told an aide to Gorbachev, “France by no means wants German reunification, although it realises that in the end it is inevitable.”[11] Ultimately, however, both the U.K. and France ratified the Two Plus Four Treaty in September 1990, thus finalizing the reunification for purposes of international law.

    In October 2009, France released its archives from 1989–90 relating to the process of German reunification.[12] It was revealed that President Mitterand agreed to German unification in exchange for a commitment from Chancellor Kohl to the European Economic and Monetary Union.[12]

    In January 1990, Mitterand told Thatcher that a unified Germany could “make more ground than even Hitler had”.[13]

    In March 1990 the French ambassador in London reported that Margaret Thatcher had told him, “France and Great Britain should pull together today in the face of the German threat.”[13][14] Opposition in both countries was limited to older people and there were no large-scale organised protests in either country.

  32. Anton Garrett Says:

    Phillip: I wrote “If tax rates in Greece were lower then fewer people would feel the need to cheat in order to get by” and you responded “This excuse is always used by those in favour of tax-reduction.” It’s an explanation, not an excuse. Accountants here grumble that they lost a lot of bread-and-butter small-client business when Margaret Thatcher reduced taxes in the 1980s.

    In view of history within living memory I’m not surprised that France was frightened of German reunification. But what I asked about was not attitudes, nor about reunification, but about German entry into the euro, and whether the UK and France went beyond grumbling into making meaningful threats if Germany kept out of the euro or even held a referendum. I don’t otherwise understand how you can maintain that “the reason that joining the Euro was not put to a referendum was the fear on the part of the UK, France etc that, if it didn’t join, Germany would “be going its own way” again.”

    Anton

  33. Taxes: Why is there widespread corruption and lots of tax evasions in Greece, while in Scandinavia and Finland, where the public sector is just as large or larger and taxes are higher, both are practically non-existent? Go to Athens. Go to Copenhagen. It is obvious that the differing mentality is the main reason. Yes, if taxes are lower, maybe it’s not worth the fee of an accountant to try to cheat. However, the best system is one where it is impossible to cheat, rather than only the wealthy being able to get away with it.

    Reunification: See reference 12 in the stuff I quoted, where it explicitly says that Mitterand agreed to reunification in return for Germany joining the common currency. Couldn’t be much clearer, and apparently from official French documents.

  34. Anton Garrett Says:

    Phillip: I agree that a corrupt mentality is the deepest cause of tax fiddling, but empirically there is a positive correlation between high taxes and the amount of fiddling that goes on. That hardly surprises me.

    Thanks for ref [12]. Interesting – although unenforceable, and nothing to do with the UK (as you have been suggesting).

    Anton

  35. “empirically there is a positive correlation between high taxes and the amount of fiddling that goes on” Strange that I don’t see this. I again submit Denmark (and the rest of Scandinavia and Finland) as examples: high taxes, large public sector, practically no corruption, tax reduction hardly an issue in elections.

    I doubt Thatcher was less aggressive than Mitterrand in this respect. I suspect a lot went on behind the scenes, perhaps Mitterrand being the one to pitch the deal to Kohl (since the two got along quite well, despite being from different parties, much like Schmidt and Giscard d’Estaing).

  36. Anton Garrett Says:

    Phillip: Thatcher might very well have felt that way, but without evidence that she actually did anything, doubt is not enough to make the assertions you have been making about Britain pressing Germany over the euro (and she was seldom likely to agree with the French!)

    Correction: there is a positive correlation between raising taxes and increased amounts of fiddling. I should have referred to time derivatives from the start.

    Anton

  37. stringph Says:

    I lived in Greece for a couple of years. Taxes there are and were low – I’ll repeat that for the hard of hearing, Greek taxes are LOW – but so was pay in general, and inflation was and probably remains high. Just what one would expect for a country with (previously) cheap labour and a relatively undeveloped state sector joining the Euro. The country enjoyed for a few years the benefits of trade and the willingness to work for smaller wages, but the increasing wealth soon led to the importation of Western European prices too…

    As to the deficit and debt crisis, of course it is the government’s fault but also that of international banks and those who allowed and didn’t regulate their intrinsically unstable trading arrangements like CDO’s.

    If we go back to the mid-60s in the UK there was a similar situation with the pound tied to the dollar under Bretton Woods, and a balance of payments deficit which looked large at the time (though government spending and the deficit were tiny by current standards): devaluation was part of the solution, but so were billion-dollar international guarantees, the Labour government’s cutting of spending.

    But if the banking rules and practices of the 90s and 00s had been in place in the 60s, there could have been a much bigger crash and Britain would have been in the situation that Greece faces now. It takes two to tango, as it were, and governments can only run up huge debts if other parties are willing, able and allowed to lend to them in such volume.

  38. “Thatcher might very well have felt that way, but without evidence that she actually did anything, doubt is not enough to make the assertions you have been making about Britain pressing Germany over the euro (and she was seldom likely to agree with the French!)” At least it is clear that Mitterand put the pressure on. True, Thatcher might have seldom agreed with the French, but in this case I think it rather likely: the enemy of an enemy can become a friend. I remember a Thatcher quote along the lines of “Germany must recognise the fact that they lost the war and suffer the consequences”.

    “Taxes there are and were low – I’ll repeat that for the hard of hearing, Greek taxes are LOW” It’s not just that, but also the fact that even these low taxes are rarely paid in full.

  39. Anton Garrett Says:

    Phillip: I suspect that quote has been altered a bit. Germany has already suffered the horrible consequences of losing the war – cities bombed, country divided for a generation. I would, however, say the following is a fair comment: “Germany must recognise the fact that they *started* the war[s] and face the consequence of not being trusted by its neighbours (who paid a terrible price to maintain their own borders) on historical timescales”. Some Germans that I know are frightened of themselves, nationally speaking.

    The culture and characteristics of any nation can change for better or for worse – they are not immutable, ie I am not a racist – although I am prepared to argue against multiculturalists who assert that all cultures are equal. Without going into the deep issue of how cultures change, it is not unreasonable to ask: Have the Germans changed? At the depth that this question needs to be asked, I don’t know, and I doubt that many others know either. I do know that England has changed, and sadly is a lot more likely to go along with a dictator than it was during approximately the century to 1960.

    Anton

  40. “I would, however, say the following is a fair comment: “Germany must recognise the fact that they *started* the war[s] and face the consequence of not being trusted by its neighbours (who paid a terrible price to maintain their own borders) on historical timescales”.”

    I agree, with three qualifications. One, this has to expire at some point. The sins of the fathers cannot plague future generations indefinitely. Two, I think most serious historians agree that, while Hitler directly started WWII, an important indirect cause was the Treaty of Versailles after WWI (a war which was quite complicated, but which Germany did not start) which stipulated that Germany was to pay reparations until 1985 or something (definitely the sins of the fathers plaguing future generations). Three, anyone at all familiar with modern-day Germany cannot overlook the fact that it is less warlike than most other countries in Europe (and often gets criticised for this reason). Recalling an episode of Fawlty Towers, John Cleese is a sponsor of a “Don’t mention the war” essay contest designed to bring people up-to-date and get rid of WRONG stereotypes and prejudices ( http://london.daad.de/html/popUp/Smith.html ), for example an essay written by someone who had worked with a gay barber at a barber shop in Berlin. As you say, things can change, and in Germany they definitely have.

    I’m certainly with you in a) not being a racist and b) definitely rejecting multiculturists who assert that all cultures are equal (though we probably disagree on which cultures are best).

    “Have the Germans changed? At the depth that this question needs to be asked, I don’t know, and I doubt that many others know either.” As someone who has lived in Germany for 27 years (I was born and grew up in the US) and has also lived and worked in England and the Netherlands, I can definitely say a) it has changed (probably more than any other country in Europe since WWII) and b) this is not always appreciated by people in other countries (mainly due to lack of familiarity; many have never been to Germany).

  41. Anton Garrett Says:

    Phillip: I certainly do not hold sons guilty of any crimes committed by their fathers (although, to extend the analogy, reparation might be appropriate on a familial rather than an individual basis). I would not, however, trust the family in question until I know that the sons are different in outlook from the fathers.

    Hitler simply could not have happened in interwar Britain. There would have been enough people willing to sacrifice their careers on moral grounds to stop him early on. There weren’t in Germany. There are exceptions to any rule, but to a large extent I believe people get the governments they deserve. That is why I try not to fulminate too much about corruption in politics.

    You know Germany well – I, slightly – and I am glad of your report that it has changed.

    I too do not particularly wish to get into a ranking of human cultures. But I would say that too many people who call themselves multiculturalists take for granted things such as modern farming that produces food reliably and effortlessly, modern medicine, availability of clean water and sewerage facilities, etc. I hope these spread worldwide, but they are the fruits of a specific culture: as a visit to places that do not have them quickly reminds us.

    Anton

  42. “Hitler simply could not have happened in interwar Britain.”. I agree. But what if Britain had lost WWI?

    “You know Germany well – I, slightly – and I am glad of your report that it has changed.” As I indicated, I am here voluntarily, not through an accident of birth. There are some things I don’t like, things which are organised much better elsewhere. From time to time I have toyed with the idea of living somewhere else permanently, but on balance decided to stay here, since (at least for me personally) the quality of life is highest.

    By the way, today I read (a translation of) an interview with Nick Clegg who characterised the English electoral system as “a joke”. If I understand correctly, even if his party gets a huge majority of the popular vote, they probably won’t get a majority in Parliament. However, his party might gain influence as a result, whether or not it is part of a coalition government. If that happens, what are the chances that PR will be introduced for UK national elections? (IIRC Labour promised to hold a referendum on electoral reform but didn’t.) Of course his party stands to gain from PR, but the other two big parties benefit from the status quo.

  43. Anton Garrett Says:

    Phillip: “But what if Britain had lost WWI?” Nobody can answer that question in detail. But what I am saying is that the British people had better public morality than the German people for at least a couple of generations, and it would have stood them in good stead.

    If Clegg’s party achieves parity with one of the other two then it will get a comparable number of seats. The system is nonlinear against ANY party that comes third. It’s far from clear whether a close result will eventually generate PR, but the reform I would prefer to see is a weakening of the party system at Westminster. A conscience vote against your party was not always the kiss of death to your political career that it now is, and reform that has the practical effect of reverting to that would be a good thing.

    Anton

  44. “the British people had better public morality than the German people for at least a couple of generations” I agree, I just think that the Treaty of Versailies was part of the reason for the bad public morality.

  45. Anton Garrett Says:

    No, but it made it worse rather than better.

  46. Tom Shanks Says:

    Gosh! Just saw Gordon Brown giving a speech in Manchester. The man seems to have woken up at last and decided to push the inspiration button.
    He instantly made Messrs Cameron and Clegg look lightweight, simply by talking about Labour’s record and aspirations. Had been reconciled to Conservative victory – now am not so sure. “If you’re voting for change, make sure you know the change you’re going to get.” Anyway have dusted off my “Vote Labour” poster and put it in our window, at last.

  47. […] already explained why I’m not as caught up in the campaigning this time as I have been in previous years, so I […]

  48. […] already confessed my annoyance that the main parties connived to keep the details of the deep cuts they were all planning to […]

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