Thursday, 12 July 2007

Sterling Values

Labour Leader and interregnum Prime Minister of the United Kingdom, Gordon Brown has a problem. Not the publically recognised difficulties of being well along the spectrum towards non neuro-typical, rather the structural problems associated with the ill-thought out devolution in the United Kingom ten years ago.

The voting into power of a Scottish Government no longer subservient to the Labour party, coupled with the Leader being unelected by his Party and unelected by an English constituency while Scotland has its own government, has led to great Labour and Leader emphasis on 'Britishness' and 'the Britain of the Nations and the Regions.'

This last is, of course, Euro-speak writ small; the Europe of the Nations and the Regions is a primary driving force in the dismantling of the nation state within Europe and its federalisation as a single United Europe.

The promised referendum on the powers ceded by the ousted Labour leader in Berlin has to be denied because Labour has every intention of ratifying the European Union Constitutional Treaty.

The grasping of EU economic policy by Sarkozy, with the major financial and banking institutions headed by Frenchmen and the IMF nominee the French socialist Strauss-Kahn leaves Labour wholly out of the EU economic loop, even the presidency of the committee of ministers for the IMF passes from Brown to Tommaso Padoa-Schioppa, Italian minister of Finance in Prodi's centre-left government. And the UK is not in the eurozone.

For a Labour leader for whom cumannari รจ megghiu ca futtiri, the solution to devolution difficulties, and the access of power and real entry into the EU economic magic circles, is entry into the Euro after the year or so needed to formally qualify by meeting EMS requirements; the former Chancellor of the Exchequer has made very sure they can be met.


Newmania said...

the former Chancellor of the Exchequer has made very sure they can be met.

Has he ? Are we going to enter the Euro then ? The rest of it I agree with .

hatfield girl said...

In order to join the euro the UK must first join the Exchange Rate Mechanism II (ERM-II), i e. fix a central parity with the euro to be agreed with Union authorities. After at least two years of keeping the sterling/euro exchange rate within a +/- 15% band around the central parity, without changing it unilaterally, if and when they satisfy all the other Maastricht criteria of fiscal and monetary convergence, they can join Economic and Monetary Union at a final exchange rate with the euro (also to be agreed with the Union authorities) at which point the euro will replace the pound.

The four Maastricht conditions (besides the two years in ERM-II within the bounds and without central parity changes) must be satisfied in the year preceding the EU consideration of UK entry into the euro-zone.

1) an average rate of inflation, in the year prior to the convergence examination for admission, not exceeding by more than 1.5% that of the three EU countries with the most stable prices; (nb,not necessarily eurozone EU members, Lithuania narrowly failed to make the cut last year because 2 non euro Union members, Denmrk and Sweden, pushed Lithuania just over the limit).

2) a long term interest rate, as measured by the average yield on ten year government bonds in the year prior to the examination, no more than 2% above the corresponding interest rates in the three EU countries with the lowest rates of inflation;

3) an annual government budget deficit not exceeding 3% of GDP and

4) government debt not exceeding 60% of GDP – unless deficit and/or debt are close to the reference value and either have already declined substantially or exceed the reference value only temporarily.

In addition, “account should also be taken” of the development in market integration, current account balances, unit labour costs and other price indices; central bank legislation will have to be compatible with the independence of the ECB and of the European System of Central Banks; capital movements will have to be completely liberalised; an adequate regulatory framework will have been established for sound banking system and financial markets.

This process can take under 2 years, it did for Italy and for Finland, if the Union decides to 'take a view'.

The yielding of independence to the Bank of England, and the creative accounting of the last 10 years that has kept very large amounts of public debt hidden make sense only in terms of the requirements given here.

It is apparent that the '5 tests' were a) so ill-defined Brown could rule them met or not met whenever he chose and b) were a mere propaganda cover for the actual policy practice of meeting Euro joining criteria.

Will Labour join the Euro? It intends to ratify the Constitution agreed at Berlin; its problems of maintaining itself in power would be resolved in a 'Britain of the Nations and the Regions' inside a 'Europe of the Nations and the Regions'. It would offer a far larger field on which to play.

What do you think?

Newmania said...

Hang on I `ll have to read it again....

Newmania said...

Its possible HG but I `d have thought it was ratyher high profile whne the entire operation proceeds so much by stealth . Surely there would have to be a referendum and what then . You couldn`t win it .

I think you are quite right with your point on Brown which I made myself on dale today.

I may post on the EU myself later .
I shall refer to your work

hatfield girl said...

I'm worried by referendums. They don't have any real status as they do in some countries. It would be better to have elections fought on clear policies and commitments about the European Union and the UK relations with it. Which is never going to happen.

Both the ratification of treaties, and a decision to enter the Euro are aspects of Crown prerogative; even if the parliament did assert itself I doubt rtification of the EU constitution or even euro entry would be successfully opposed.

Nick Drew said...

It is not clear to me why Brown should want to join €. I would estimate his greatest remaining ambition now is to achieve a 'term of his own' (unlike Blair he doesn't seem to want Euro-stardom or their magic circles. He's always lectured them aspergically: and he has no mission comparable to those of Sarkozy and Merkel - indeed, he thinks we've already arrived at where they hope to go).

He is both cautious, and a monstrous coward.

Caution will tell him that while there remains the clear possibility Sarkozy and the Spaniards may very soon put the € under enormous pressures, it is best to sit this one out.

Cowardice will suggest to him that the voters of the UK (yes, UK!) will not stand for the € (even if Salmond might have other ideas).

The only half-way entertainable argument I have heard is from Tapestry, viz that the EC are threatening to bust Murdoch unless Murdoch puts the frighteners on Brown.

OK, Brown's a coward, but how does that work? Murdoch says to Brown - unless you go into the next election supporting the €, the Sun will, err, support Ming Campbell? Or - unless you promise me secretly you will join the € after the next election, I will, err ... make your second term really unpleasant for you?

Even though we may assume Rupe has a very persuasive line in behind-the-bike-sheds protection-patter, this doesn't sound too plausible to me.

Here's the only scenario I could see that would appeal to Brown. Sarkozy and Merkel crave an audience with Brown. Sir Brown, may we call you Gordon, we've realised that your patented version of the Anglo-Saxon economic model is exactly the way the whole EU should develop, may we place ourselves unconditionally under your wise helmsmanship? Please accept our firstborn as hostages while we hasten to do your bidding in our respective unworthy countries, if you'd just sign on the line here and here and here

And whilst this may appeal to dour Gordon, I have a feeling it only happens in his dreams.

hatfield girl said...

Labour's constant mouthing about a 'Britain of the nations and the regions' shows the centrality of the loss of Scotland by Labour. In constantly harping on Britain also it might be assumed that northern Ireland is now written out of the Labour agenda (they have their longstanding policy of its eventual assimilation into Ireland by consent) hence the dropping of references to a United Kingdom.

How can they cope with Scotland, and the egging on of Wales, now demanding initiation of legislation powers and, with Scotland, transfers of fiscal powers to national parliaments. And do they really think the EU defined English regions with their appointed assemblies, appointed ministers and wholesale placemen ethos are acceptable as a substitute for an English parliament?

Labour and its retention of power project is in deep trouble with devolution. Euro entry ends Scottish (and Welsh)independence hopes instantly, Scotland even loses its independent notes and coins symbols.Brown doesn't like Euro policies, decision-taking, and the new direction of Union economic policies one bit - and itisn't just France that is forging the new , less 'liberal' line; Germany too, and they can hardly refuse to cut Sarkozy a bit of slack while he reforms the French wilder shores of economic practice, considering the slack cut for the reintegration of eastern Germany. Or Italy and Spain for that matter, they too have very large and reforming parties of the left they need extra time to re-order. But Labour is cut off from every bit of all this unless it enters the EMS and prepares to adopt the euro. Scotland is almost less important in comparison with the complete peripheralisation of Britain in the EU.

Why not just leave if the Leader has no other ambition than his own mandate for a full term of office (which I don't believe for a moment) and reassert the British federal state, to go its own way?

And, the Euro is not displaying signs of breakdown in any way, despite some curious claims that it's on the verge of collapse, that's wishful thinking in comparison with the awful state the dollar is getting into.

Nick Drew said...

Labour is cut off from every bit of all this

UK influence is strong in several of the Directorates: the pro-competition strand of EC activity looks to UK for experience / a bit of guidance & inspiration. Almost all the (official) EC energy thrust is the UK project.

if the Leader has no other ambition than his own mandate for a full term of office (which I don't believe for a moment)

OK, well after the 100 Days have passed let's try to divine what it is. (It's taken all of 100 nanoseconds to see what Sarkozy has in mind.) Pointed reversal of Blairite casino policy - fun but not impressive. More housing - lame and reactive. Relaxation of central targets on schools & hospitals - * yawns *

And, the Euro is not displaying signs of breakdown in any way, despite some curious claims that it's on the verge of collapse, that's wishful thinking

I shall defer to CU here - see his post of yesterday*. 'Breakdown' & 'collapse' are too strong: currencies can limp along after a fashion for years. Significant stresses and tensions, though ... sufficient to cause other policies to change ?


Newmania said...

HG Ed was atying that Bronw has abolished the Regional assemblies , am I confused here ? Has he

PS Boris is standing for Mayor

Hoooooraaaay !!!!!

hatfield girl said...

You're right, ND, City's post on the neo-mercantilism growing in the European Union (if I've read him properly) is the way the Euro would become vulnerable. The member states struggling to control deficits and politically to contain socialist government coalition partners or, as in France, powerfully organised opposition forces, will be the deciders so presumably the core states are going to do everything to accommodate their 'special needs'. Italy is coping with a grotesque, accumulated over decades, pensions problem - and levering the old communist and union parties into giving up the concessions with which they had often been bought off in the past. The Padoa-Schioppa'/Amato/Prodi /D'Alema front seems to be dragging the neanderthal left into some kind of 21st century political and economic understanding; and, as one of the creators of the Euro, Padoa-Schioppa knows just what it can bear and what would be truly damaging.
Sarkozy seems to be dealing brilliantly with dead hand of socialism pressures - he just wants a bit of freedom of manouevre, he isn't seeking fundamental changes to the Euro system.
That leaves Greece; perhaps someone could comment about Greece as my impression that it's simply poor and politically fragmented is just that, only an impression.
The living standards and employment opportunities issues are too complex to respond to, member state by member state, here but there is a very high level of consultation and interaction between eurozone member-state finance ministries and institutions (from which, of course, Labour is excluded) ; apart from the ECB undertakings on inflation.
So, on the whole, a euro collapse leading to an end of European Union federal state- building, doesn't convince. Certainly the problems are there, recognised as important, and being coped with. Indeed they could be seen as one of the major drivers of the new political compromises and resultant political structures being set up even as I type.

Your point, made on Newmania I think, that the sheer force of the will to a federal European state has been seriously underestimated seems very important in considering the economics too.

Nick Drew said...

the problems are there, recognised as important, and being coped with. Indeed they could be seen as one of the major drivers of the new political compromises and resultant political structures being set up

Indeed so. From the "salvation through (individual) good works" standpoint, the problems are sufficiently heterogeneous as to require each nation (yes, nation) to sort itself out, Asian Tiger style: a priori, any attempt to enforce this from the Centre will at best be grossly inefficient, at worst doomed.

From the federalist point of view, Big Problems = Big Opportunity for the Centre to bribe each troubled 'unit' . . .

hatfield girl said...

There seemed to be a reasonable case for Labour taking the UK into the Euro; setting it out as a scenario didn't weaken it greatly, if your and City's scenario on the weaknesses of the Euro because of heterogeneous national level financial pressures doesn't prevail.

The pressures, and their heterogenity are real; the responses, as outlined, give credence to them.

But, again, the force of the drive for a federal European State is untouched by this. It may be made unrealisable, slowed down or, as it has at the moment, be very slightly modified - no bells and whistles for now (but did you see the French celebrations on the news today? Every member-state in full regalia marching and waving as appropriate, golden stars on a blue ground to the fore, along with national emblems, and Sarkozy greeting the cheering crowds). This myth, vision, narrative may be broken up, but otherwise will not be given up.

So what is the UK to do? It is peripheralised; Labour under Brown has made sure it is for all the years of his chancellorship. Perhaps a post on why? would be of interest even if wholly speculative. But so was the notion that there might be an attempt to enter the Euro and abolish the pound, yet once said it doesn't feel wholly silly.

Not true necessarily, but well-found.

hatfield girl said...

Furthermore, ND, suppose a strong euro destroys Europe's competitiveness and generates unemployment. European growing deficits would weaken the euro again. This why we all believe, or should believe, in markets.

'Can a country outsell the rest of the world?' (is this the oldest Tripos question ever set in economics?) Answers on the back of a postcard

Not even China.

Self-correcting mechanisms are always at work.