Daily archives: July 22, 2011

Decades of Bailout

“What’s a Grecian urn? About 20,000 euros a year plus another 30,000 in EU subsidy scams.” – The Catholic Orangemen of Togo, p.7

Amazing the gems of wisdom you find scattered through my books! That variation on an old joke reflects an important truth. Most of the EU, including us, have been subsidising Greece ever since it joined the EU, through regional funds and the CAP, but mostly through the cost of massive scams and fraud perpetrated in Greece on those and indeed all other EU budgets, not to mention VAT fraud. The euro bailout is only an extension of the EU’s continuing and expensive commitment to drag Greece along with it.

The world likes a narrative of goodies and baddies. The current narrative popular with left-leaning people is that the Greeks are plucky little Keynseans being hammered to disaster by evil governments and bankers led by the IMF and EU. That is simplistic nonsense. There are no goodies in the power players on any side. Ordinary Greek people are indeed the victims, but so are ordinary German people and ordinary British people.

Greece, just like Italy (and quite probably the other Club Med countries, though on them I don’t want to claim more knowledge than I have) never actually met the EMS and euro convergence criteria. Everyone is suddenly astonished that Italy has a national debt of 140% of GDP – it was that level when I was working on the European economies in 1985, and it has never really changed. Redefinition of terms allowed a fudge to let Italy enter the Euro (that particular criteria being 40%). Greece has never produced any vaguely credible national statistics anyway. Lawlessness, tax evasion, money laundering and systematic corruption are the warp and weft of the Greek economy – it is difficult to capture that in a statistical yearbook.

These countries were brought into the Euro because of the political dynamic of European Union, which was bought into by political elites across the continent, (and which I would say has a lot of very good aspects, but that is a long argument for another day). The idea was that momentum was extremely important; that it was OK in this context to ignore reality, because the beneficial influence of the European Union would enable reality to catch up quickly to fit the framework.

Therefore Greece and Italy were allowed into the Euro even though they plainly did not meet the convergence criteria, exactly as Romania and Bulgaria were allowed into the EU even though they plainly did not meet the acquis communitaire –
reality was suspended in the interests of ever greater union. The effects of that in the Eurozone are coming home to roost now. The effects of Bulgarian and Romanian EU entry haven’t really worked through yet, but I predict tremendous problems in five years time.

I write as a supporter both of the Euro and of EU expansion – but not of the crazy decisions to abandon genuine adherence to the criteria required to make them work. I also write with the humility of knowing I have been wrong on these things in the past. Around 1995 I wrote a paper for the Cabinet Office strongly supporting Polish EU membership, in which I argued strongly that we should not join Germany in seeking a delay on the right of Poles to come to the UK. In it I predicted that at most 200,000 Poles would want to come. I was wrong by a factor of over four! That paper was very influential on UK policy.

I do not regret it in the least – I am delighted so many Poles have come. They make Britain a much better place and are a huge boost to the economy. Germany will lose out from having given us the chance to host them first.

The Euro has always been a system of subsidy from Germany to Greece; the bailout only makes that more obvious. Greeks have been paying themselves much more than they earn for a great many years. That is not stopping or starting now. Levels of public spending are a tiny bit of the problem. The Euro is a massively overvalued currency as related to the Greek domestic economy. Greece’s economic problems are much more related to lack of rule of law, massive corruption, an elite super rich paying no tax, and a gigantic black economy, than they are related to public spending.

Greece’s total debt will actually be reduced under this bailout package, plus payments delayed and maturity dates postponed. Do not be too impressed by the news that the banks are taking a haircut, variously reported at 20% or between 30 billion and 50 billion Euros. Look at it this way. These banks have lent money to Greece, at interest rates of over 10% higher than those they can charge elsewhere. If you are making 10% extra interest a year over ten years, and you have to lose 20% of your total to secure that, you are still coming out way, way ahead.

Actually the net effect of this bailout is not European taxpayers paying more to help Greeks, it is European taxpayers paying more to secure super-profits for the banks. What a surprise!

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True Courage

In test match nostalgia mode recently. For my readers from non cricket playing countries, a cricket ball is solid and hard. They can and do break bones, can fracture a skull and in those days before helmets and padding would very occasionally kill.

I was hoping to find the point a little earlier in this innings when Close fronted up and just deliberately let the ball bounce off him, which was incredible. Again to explain, if the ball is not going to hit the stumps behind you, and you keep your bat out of the way, you are very unlikely to get out. But not raising your gloves and bat to defend yourself against a lethal projectile hurtling at your face and neck at 90 mph plus is an incredible discipline, especially as you need to play it if it is heading towards your stumps, and you have a millisecond to make that decision.

About 40% of the readership of this blog is from non-cricketing countries, which is why this is explained in non-cricketing language. Cricketers can just enjoy the video.

I am not sure there has ever been a more beautiful sight in sport than Holding running in to bowl.

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