Saturday, 31 December 2011

And a Happy New Year...


Friday, 23 December 2011

Star Child

                                              Merry Christmas!


Monday, 19 December 2011

Seigniorage to the Rescue

When the Eurozone gets its act together (which should be well under way) and supplies a unified sovereign for the European Central Bank, the Governor of the ECB will finally be able institutionally and constitutionally, to take all the necessary actions that will end the Eurozone crisis.  Wisely and resolutely  Mr Draghi has refused to step outside the remit the Bank has under current laws,  ignoring the siren calls to do just that and destroy the standing of the Bank  and its capacity to command the trust of both the markets and the people.  A Central Bank is not a sovereign, least of all in a democratic world,  even if it could be, briefly, in the face of global financial and economic meltdown fears.

It is notable that Mario Draghi has never said that he cannot act but that he cannot act under the current Treaty.  Nor has he said that he will not act if terms change.  He has both the means and the will to act as soon as there is a sovereign to instruct him to do so.  Which puts a  different, wrecker's light upon Cameron's gesture of seeking a quid pro quo entirely unrelated to the matter under discussion  in return for according unanimity, and the European Union institutional and legislative processes, to the creation of appropriate structures under which the Governor of the European Central Bank can act.

For if creating the new agreements on the actions permitted to the Central Bank is successful  there will be no Euro collapse.  Instead there will be a significant transfer of wealth from outside the Euro area into the Euro area (on balance) and, globally,  from those who have betted against  the Euro to those who accepted its  soundness.  Those who have  sold  Euro sovereign bonds  may bitterly regret having done so,  although they will lose nothing but  the profits  they would have made from them.   Those who have sold short will incur  losses.  It is difficult to assess the extent of these losses  because they depend on the time-pattern of purchases and sales,  and the size of short sales and credit default swaps cover (CDS will become worthless to the benefit of issuers);  the Euro will rise to its historical peak, around 1.50 to the dollar, the cost of Euro sovereign debt will fall leaving room for easing austerity measures and reviving the Euro economies in spite of the loss of competitiveness from a stronger Euro.

With 3.3 trillion euros of resources from its seigniorage enabling the ECB to continue its purchases of eurozone government bonds, and the changes needed in the ECB's statutes,  the Euro is unlikely to be brought down to save the profits ( how great can they be?) of  some global speculators.  The political forces ranged against the Eurozone and against the financial and economic measures it embraces have chosen an economic rather than political offensive and in so doing may well find themselves beaten off and out of pocket.

Wednesday, 14 December 2011

A Good Read: How to Resolve the Euro Crisis Without Fuss and Expense

The Debt of Nations texts can be found here and here.  The second text, in particular is an innovative and convincing thesis on the resources available to the European Central Bank and its role as a fiscal player.

Have a good read..

Monday, 12 December 2011

The Debt of Nations

The Bank of Italy and the University of Rome La Sapienza have kindly arranged for Willem Buiter to talk to us all tomorrow on:

Excessive debt in rich nations: what happens when sovereigns, banks and households deleverage at the same time?  and

The central bank as a quasi-fiscal player: theory and application for the Euro Area and other advanced industrial countries

Dinner too; Angels are promised excellent fish and considerably more sense being talked than in Brussels last weekend.

Sunday, 11 December 2011

Pacta Sunt Servanda

"If the euro breaks up because its members have to move clumsily and slowly outside the formal EU treaties and institutions because of Cameron's veto, the resulting series of bank collapses and consequent depression will hurt Britain badly.", writes Will Hutton in today's Observer.

Consider, though, the view expressed by the draftsman of the Lisbon Treaty, from this morning's Sole 24 Ore:

"The fact is that to reinforce the eurozone it is  not actually necessary to change the Treaty, it is enough to apply the clauses on the eurozone and,  further, the clause on flexibility. The final communique' of  Friday's  Council  specified among the things to be done as a priority, the reinforcing of  procedures and  sanctions for all the eurozone countries with excessive deficits  under Article 26 of the Treaty.  It is precisely  that which  is  already permitted  under Article 136 of the same Treaty." *   

The ntergovernmental  accords that Hutton fears are too slow are sought, not imposed upon the 26, by Germany.   Why? because Germany must convince its voters that something more than the low-level language of the Lisbon Treaty is reinforcing  a more disciplined and integrated fiscal stance throughout the eurozone and indeed throughout the EU ( bearing in mind that all except two of the 27  - shortly to be 28 -  member-states are necessarily candidates for entry to the Euro) and all are bound by Stability and Growth Pact requirements, euro-users or not.

Has the UK Prime Minister vetoed parts of the Lisbon Treaty signed so gracelessly by his predecessor?   And if he has what other international treaties to which the United Kingdom is a signatory  might the Coalition government be tempted to repudiate?

'Il fatto si è che per rafforzare la zona euro non era affatto necessario modificare il Trattato, bastava applicarne le clausole che riguardano la stessa zona euro, più, eventualmente, la clausola di flessibilità. Il comunicato conclusivo del Consiglio di venerdì indica tra le cose da fare con priorità il rafforzamento per i paesi dell'euro delle procedure e delle sanzioni previste dall'art.126 del Trattato per i disavanzi eccessivi di tutti gli Stati membri. È esattamente ciò che già consente di fare l'art.136 dello stesso Trattato.'

Saturday, 10 December 2011

Britain Can't Afford EU Membership

Britain must have a totally free fiscal hand for the financing and refinancing of government debt and deficit by the Bank of England.

It cannot satisfy the rules which, even without the new pact that it has failed to join, discipline all EU members' fiscal policy (regardless of the use or no of the euro) through the Growth and Stability Pact.

Nor can the the main Coalition Government partner  antagonise the City institutions that have so generously funded them in their electoral campaign and current activities.

Of course they could always have continued to go through the motions of looking as if they are following the rules, with small qualifications, , exceptions and delays, and pretexts,  as they have been doing up to now, claiming exemptions - euro, internal market, Schengen - although sooner rather than later they would have had  to accept squarely that the country is excessively indebted and that the Party is in pawn to its funders.

This might once more have been acceptable or benignly neglected by  the EU but  it hasn't helped that London-based hedge funds mounted the assault upon Italian bonds.  Italy isn't a minor, peripheral member-state  of the EU;  Merkozy is complemented by Montraghi   in the  governance of Europe.

This time bluffs have been called and exceptions not allowed.

The Full Text of the EU Statement

EUROPEAN COUNCIL Brussels, 9 December 2011


The European Union and the euro area have done much over the past 18 months to improve economic governance and adopt new measures in response to the sovereign debt crisis. However, market tensions in the euro area have increased, and we need to step up our efforts to address the current challenges. Today we agreed to move towards a stronger economic union. This implies action in two directions: 
- a  new fiscal compact and strengthened economic policy coordination;
- the development of our stabilisation tools to face short term challenges. 
A reinforced architecture for Economic and Monetary Union 

1.  The stability and integrity of the Economic and Monetary Union and of the European Union as a whole require the swift and vigorous implementation of the measures already agreed as well as further qualitative moves towards a genuine "fiscal stability union" in the euro area. Alongside the single currency, a strong economic pillar is indispensable. It will rest on an enhanced governance to foster fiscal discipline and deeper integration in the internal market as well as stronger growth, enhanced competitiveness and social cohesion. To achieve this objective, we will build on and enhance what has been achieved in the past 18 months: the enhanced Stability and Growth Pact, the implementation of the European Semester starting this month, the new macro-economic imbalances procedure, and the Euro Plus Pact.

2.  With this overriding objective in mind, and fully determined to overcome together the current difficulties, we agreed today on a new "fiscal compact" and on significantly stronger coordination of economic policies in areas of common interest. 

3.  This will require a new deal between euro area Member States to be enshrined in common, ambitious rules that translate their strong political commitment into a new legal framework.

A new fiscal compact

4.  We commit to establishing a new fiscal rule, containing the following elements: 

• General government budgets shall be balanced or in surplus; this principle shall be deemed respected if, as a rule, the annual structural deficit does not exceed 0.5% of nominal GDP.
• Such a rule will also be introduced in Member States' national legal systems at constitutional or equivalent level. The rule will contain an automatic correction mechanism that shall be triggered in the event of deviation. It will be defined by each Member State on the basis of principles proposed by the Commission. We recognise the jurisdiction of the Court of Justice to verify the transposition of this rule at national level.
• Member States shall converge towards their specific reference level, according to a calendar
proposed by the Commission.
• Member States in Excessive Deficit Procedure shall submit to the Commission and the Council for endorsement, an economic partnership programme detailing the necessary structural reforms to ensure an effectively durable correction of excessive deficits. The implementation of the programme, and the yearly budgetary plans consistent with it, will be monitored by the Commission and the Council.
• A mechanism will be put in place for the ex ante reporting by Member States of their national debt issuance plans. 

5.  The rules governing the Excessive Deficit Procedure (Article 126 of the TFEU) will be reinforced for euro area Member States. As soon as a Member State is recognised to be in breach of the 3% ceiling by the Commission, there will be automatic consequences unless a qualified majority of euro area Member States is opposed. Steps and sanctions proposed or recommended by the Commission will be adopted unless a qualified majority of the euro area Member States is opposed. The specification of the debt criterion in terms of a numerical benchmark for debt reduction (1/20 rule) for Member States with a government debt in excess of 60% needs to be enshrined in the new provisions. 

6.  We will examine swiftly the new rules proposed by the Commission on 23 November 2011 on (i) the monitoring and assessment of draft budgetary plans and the correction of excessive deficit in euro area Member States and (ii) the strengthening of economic and budgetary surveillance of Member States experiencing or threatened with serious difficulties with respect to their financial stability in the euro area. We call on the Council and the European Parliament to rapidly examine these regulations so that they will be in force for the next budget cycle. Under this new legal framework, the Commission will in particular examine the key parameters of the fiscal stance in the draft budgetary plans and will, if needed, adopt an opinion on these plans. If the Commission identifies particularly serious non-compliance with the Stability and Growth Pact, it will request a revised draft budgetary plan. 

7.  For the longer term, we will continue to work on how to further deepen fiscal integration so as to better reflect our degree of interdependence. These issues will be part of the report of the President of the European Council in cooperation with the President of the Commission and the President of the Eurogroup in March 2012. They will also report on the relations between the EU and the euro area. 

Stronger policy coordination and governance

8.  We agree to make more active use of enhanced cooperation on matters which are essential for the smooth functioning of the euro area, without undermining the internal market. 

9.  We are committed to working towards a common economic policy. A procedure will be established to ensure that all major economic policy reforms planned by euro area Member States will be discussed and coordinated at the level of the euro area, with a view to benchmarking best practices. 

10.  Euro area governance  will be reinforced as agreed at the Euro Summit of 26 October. In particular, regular Euro Summits will be held at least twice a year. 

Strengthening the stabilisation tools

11.  Longer term reforms such as the ones set out above must be combined with immediate action to forcefully address current market tensions.

12.  The European Financial Stability Facility (EFSF) leveraging will be rapidly deployed, through the two concrete options agreed upon by the Eurogroup on 29 November. We welcome the readiness of the ECB to act as an agent for the EFSF in its market operations.

13.  We agree on an acceleration of the entry into force of the European Stability Mechanism (ESM) treaty. The Treaty will enter into force as soon as Member States representing 90 % of the capital commitments have ratified it. Our common objective is for the ESM to enter into force in July 2012.

14.  Concerning financial resources, we agree on the following: 

• the EFSF will remain active in financing programmes that have started until mid-2013 as provided for in the Framework Agreement; it will continue to ensure the financing of the on- going programmes as needed;
• we will reassess the adequacy of the overall ceiling of the EFSF/ESM of EUR 500 billion (USD 670 billion) in March 2012; 
• during the phasing in of the paid-in capital, we stand ready to accelerate payments of capital  in order to maintain a minimum 15% ratio between paid-in capital and the outstanding amount of ESM issuances and to ensure a combined effective lending capacity of EUR 500 billion; 
• euro area and other Member States will consider, and confirm within 10 days, the provision of additional resources for the IMF of up to EUR 200 billion (USD 270 billion), in the form of bilateral loans, to ensure that the IMF has adequate resources to deal with the crisis. We are looking forward to parallel contributions from the international community.

15.  We agree on the following adjustments to the ESM Treaty  to make it more effective:

• Concerning the involvement of the private sector, we will strictly adhere to the well established IMF principles and practices. This will be unambiguously reflected in the preamble of the treaty. We clearly reaffirm that the decisions taken on 21 July and 26/27 October  concerning Greek debt are unique and exceptional; standardised and identical Collective Action Clauses will be included, in such a way as to preserve market liquidity, in the terms and conditions of all new euro government bonds.
• In order to ensure that the ESM is in a position to take the necessary decisions in all circumstances, voting rules in the ESM will be changed to include an emergency procedure. The mutual agreement rule will be replaced by a qualified majority of 85 % in case the Commission and the ECB conclude that an urgent decision related to financial assistance is needed when the financial and economic sustainability of the euro area is threatened.1
  subject to confirmation by Finnish parliament.
16.  We welcome the measures taken by Italy; we also welcome the commitment of the new Greek government, and of the parties supporting it, to fully implement its programme, as well as the significant progress achieved by Ireland and Portugal in implementing their programmes.

Some of the measures described above can be decided through secondary legislation. The euro area Heads of State or Government consider that the other measures should be contained in primary legislation. Considering the absence of unanimity among the EU Member States, they decided to adopt them through an international agreement to be signed in March or at an earlier date. The objective remains to incorporate these provisions into the treaties of the Union as soon as possible.

The Heads of State or Government of Bulgaria, Czech Republic, Denmark, Hungary, Latvia,
Lithuania, Poland, Romania and Sweden indicated the possibility to take part in this process after
consulting their Parliaments where appropriate.


Friday, 9 December 2011

Cooked his Goose

Seventeen eurozone countries signed-up forthwith, the remaining countries are inclined to do so but will consult their Parliaments first out of sheer democratic animal spirits.  Except for the United Kingdom, whose Prime Minister displayed the brutal reality of Executive power in the United Kingdom's so-called democracy by refusing point blank to accept the greater interest of the European Union, or indeed of the United Kingdom, over that of his party's unity.   A democratic leader would have consulted his country's Parliament on Lisbon Treaty changes.

Not even   his government coalition's survival was at stake;  there is a European majority in the UK Parliament.  Cameron put at risk the economic security of most of Europe for  a Conservative party faction.  He wasn't defending City interests, despite his protestations, for City interests require the highest levels of representation within the EU and he has certainly lost that.  Nor could anything prevent greater EU surveillance over the City's 'light touch' regulation; those glory days are gone.  EU business will be regulated and (to a far greater extent than might have been with the UK properly represented) transacted within the core EU from now on.  And it is impossible to imagine the European Union taking any repatriation of powers to the UK  seriously after facing down the UK on an issue as important as  the Euro itself.

Let us hope Cameron has the courage of others' anti-EU convictions and leaves altogther; there's nothing but a price to pay  and Union meddling in the UK's internal affairs left for the UK in Europe now.  No reason to stay and every reason to go.

Innocent Tax Evasion

The refusal of the Roman Catholic Church  to volunteer to pay property taxes has been dubbed 'innocent tax evasion'.  Of course it is nothing of the sort.  There has been every sort of pressure applied to the lay State not to levy property taxes on the Church, not least the threatening claim that the Church 'does good' for the poor and deprived and it should not be interrupted in this undertaking  by having to pay taxes like everyone else.  If it paid taxes like everyone else there wouldn't be so many poor and needy because they could be supported better by all of us and not subjected to Church requirements before qualifying.

This outrage, being presented as a defence of charity by the Church, has given rise to an enormous outcry - the web has resources that have never before been available to those who oppose the primitive internet of the pulpit. 

So, just in case our efforts to assert the lay governance of Italy and its people might succeed,  a further layer of defence of the politocreligious privileged has been inserted into the  the Salva Italia provisions.   The revision of property values by the land registry (up, of course) will not be applied to ecclesiastical property:  churches, vicarages (or whatever they call them - the priest here has a house big enough for an army) hotels posing as monasteries and convents, city centre commercial developments on Church land, monuments, .....on and on goes the recitation of untaxed riches,  while the faces of the poor are being ground unless they pray (and vote) correctly.

Thursday, 8 December 2011

The Future Is Not What It Used To Be

The real problem, and the fear, facing European Union countries is not sovereign debt  or inter-bank liquidity (as the Governor of the Austrian Central Bank pointed out in Vienna, much can be done to improve  liquidity).  It is stagnation that threatens our living standards and our political arrangements.   

Governor Novotny noted too that last year the Bank of England bought 80% of new issues of UK government debt - an action not permitted to the European Central Bank.    If tomorrow the ECB were to be given  latitude  on this scale, if not unlimited powers, to buy government bonds at least in the secondary markets in exchange for tighter discipine on national governments' fiscal policy, then the Euro would be home and dry. Although frankly this can only be regarded as a quasi-fiscal activity bordering on abuse of central bank position as a monopolist of currency issue.

There are three inter-related crises: budget - the re-financing of the public sector;  bank - their not lending to each other ; and  in the real economy.  And the greatest of these is the crisis of the real economy, for it is this crisis that is intractable. 

The United States, Europe and Japan represent over two thirds  of the world economy.    They  are displaying all the signs that they have reached the limits of standard fiscal and monetary instruments used in the past.  In the US despite flat or declining wage levels - something that had not happened in 40 years - unemployment has increased since 2008.   Interest rates have been fixed at 0% for two years in advance.  Japan has been flat as a pancake for 20 years no matter what has been attempted, and the US is heading in the same direction.

Europe, despite the fuss surrounding government debt re-financing, and the currency,  still shows signs of life.  How can it be nurtured?  First of all  Germany  must conform to the Euro requirement for staying under but close to a 2% inflation rate just as certainly as any other member state must not exceed it. 

Paradoxically, higher wage levels are needed.  Technological innovation under-pinned by reseach and development must be  enhanced and facilitated by governmental action. Infrastructural development  (not the greenery-yallery agenda but  real provision of better communications, natural disaster protection, the recuperation of the devastations of 19th and 20th century industrialisation) undertaken.  An end is needed  to cruel programmes of 'austerity' that merely attack the weakest rather than the corrupt, driving down demand while spreading poverty, inertia, ignorance and incapacity.

For our political culture failure to ensure growth in Europe is encouraging incoherent but worrying claims for non-capitalist economic systems.  As Janos Kornai states plainly:

"At a time when socialism is being reconsidered we need to remember its human cost and we need to re-emphasize its failure on technical grounds - macro-data decision-taking failed to match market choice.  There isn't a solution to capitalist difficulties through socialist theorising or practice."

Wednesday, 7 December 2011

PIGS Breakfast

The usual 'austerity'  has been delivered, this time to the Italians, by a seriously technically and intellectually under-powered government.   The strong impression that an EU blueprint was handed to Monti and he thought  merely to give it an Italianate tweak is hard to avoid.

Rise in petrol tax, cuts in pension rights, rise in property taxes, retrospective tax grab at savings repatriated to Italy, VAT hike.   Yawn.  "Salva Italia!" ?  What for?  So Church and Mafia and  State elites can go on exploiting the captive people - the not awfully well-paid employees, the elderly on pensions and fixed incomes, and with spoiling the life chances of the young through under-funded education and training and long-term unemployment? 

The trade unions are calling a national strike; but there's a bit of a problem with timing as today is St Ambrogio, tomorrow is the Immaculate Conception and then it's virtually the weekend so nobody's counting Friday and everyone has gone skiing, or to the Alto Adige to the Christmas markets, or to the near abroad for 5 days (Vienna was already packed with Italians when we left on Tuesday evening).

The minister for Pensions wept crocodile tears in Parliament as she hacked at the incomes of the old and poor, but nothing was said about the cost of useful things like food going through the roof with the fuel hikes.  Or about people who have worked and contributed for 40 years from virtual childhood (staying at school and tertiary education is quite recent in Italy) suddenly facing five more years.  There are zillions of technical studies on limiting pensions in equitable ways but she showed no sign of knowing them, never mind understanding them.  To add injury to insult the old and poor are  also having their greater need for health services and treatment met with cuts to free medicine.

When asked why property taxes were not being levied on the Church at all,  never mind raised like other people's,  Monti acknowledged they hadn't discussed doing that.  Well, he wouldn't, would he, getting himself on the telly waving the Pope off on trips and going to mass with the missus all the time?  So there's tax  introduced on prima casa  and rises on seconda casa,  but nothing on prima and seconda chiesa.

No cuts  to the admirals and the generals either - probably wasn't discussed.  And the only nod to encouraging growth is easing payroll taxes - for the South of course: wouldn't want the special status of the corrupt South disturbed would we?

This isn't technical governance - these people couldn't find their bottoms with both hands  in broad daylight - this is maintaining the political status quo which delivered Italy to its current public indebtedness, while creeping to the Brussels statist agendas.  Just wait until we all get back from the early December holidays next week (not to be confused with the Christmas holidays of course, they go on until 6 January next year) and then we'll see how Monti and his perben'isti mates get this disgrace of iniquity and inequity through.


There is a general strike on Monday next and another of state employees probably on 16 December (they have to give prior notice because of essential services being maintained).  The spread has risen above 400 again. [Now hovering in the 390s.]

Sunday, 4 December 2011

The Best Cartoon

                  Shingo Araki, 1 January 1939 - 1 December 2011.

Thursday, 1 December 2011

School for Scandal

The London School of Economics and Political Science has always been an institution that links more widely with governments and political elites worldwide than do many universities.  Economics and political science, too,  attract more contention than most fields of study - we all have  views and experience of LSE's central concerns for they are the central concerns of all our lives.  It is to the credit of the School that until the onset of the mass corruption engendered by New Labour governance it had kept clean hands and a clear head in much of what it did and is.  It might have been disliked, contested, accused of disruptive, even revolutionary tendencies (quite wrongly, this last, but truth-telling is often confused with  subversion) but it maintained its reputation for scholarship and research, and for the independence and distance that must be maintained by any university worthy of the name.

Lord Woolf's report on  his Inquiry into the School's relations with the recently overthrown Libyan regime and its dictator ends all that.  Couched in the careful clarity and understatement of inquiryspeak it  illuminates a hinterland of collapsed political and administrative standards,  moral standards even, that typified New Labour's Third Way and its exponents and practitioners.

Wednesday, 30 November 2011

Regulating Global Markets in Times of Crisis

Il dottor Sottile, Giuliano Amato (author of the Lisbon Treaty and its predecessors) will be speaking on this attractive topic - Regulating Global Markets in Times of Crisis - at Rome's La Sapienza  at three  this afternoon.  While many of us are most disappointed that he has not figured in the new Italian government (which is overloaded with a preachy Prime Minister and his grey, male acolytes)   Angels remains convinced that he had a great deal to do with its installation.

There is no advance text.  It's stand-up, ad lib.  The audience of lawyers will find it is greatly augmented by interested political passers-by.  

Tuesday, 29 November 2011

Pecking Orders

Everything continues quietly as nothing extravagant is promised, never mind done, about the Italian state debt.  The Atlanticist media continues its hysterical screams that Italy is a baddy who owes lots of money, that Germany is a baddy who won't share even though it Lost the War, that France is a deeply baddy cheese eating surrender monkey etc.  Admittedly there is something of a stunned silence over Poland's Foreign Secretary asking Germany to do something (for the first time in Poland's history, as he himself acknowledges).

Settled political stances cannot be turned round as quickly as money markets.   Particularly when the most indebted nation on Earth is slipping from its pre-eminence and keeps using its remaining financial and other oomph to push Germany and central Europe off-balance as Europe gets itself organised; in the hope of somehow, any how, recovering US former  planetary status.

We are resettling post 1945.  It takes time; and this time the premier central European power has also taken care to make its arrangements and its settlements with the East.  Just look at the painstaking work to organise relations with Russia, and with energy supplies, that Chancellor Merkel has undertaken in recent years - and their success.

The frenzied assault upon Italy is the high tide of turning back this new settlement, an assault enabled by Berlusconi's  10 years of criminal governance of a major European power.  This  is estimated to have  caused 28.7% of Italy's  total debt, which has been   accumulated at twice the speed of any other government of the current Republic. On average  it is  60 billion euros a year, ie, over 1000 euros per Italian citizen head per year.  He's gone now, but even a national mess takes time to clean up. And that time is being organised.

Italy is not some kind of Spain, or even remotely a Portugal, Ireland, Greece or Cyprus.  ( The comparison would be to rank the UK economy with that of Ireland.) But unless the  global brinkmanship currently being practised  is not called off we will all find ourselves in a very different kind of chicken run.

Monday, 28 November 2011

Leaning Over Backwards

The pressures being applied to the euro have roots wholly other than reasonable doubt that debt can be sustained.  The unwise insistence by Germany and France that private investors should bear some of the burden of  debt  restructuring has led to the US (and others') disorderly withdrawal from financial markets for euro sovereign debt.  This has been exacerbated by the European Banking Authority insisting on the principle that such bonds should be marked to market instead of valued at their purchase price, coupled with applying this criterion to all European banks, not just those systemically important, as is the case in America.

There are other more technical problems, concerning the ratios between capitalisation and total assets that the EBA has accepted which are disadvantageous to large sections of European banking. (cf the illuminating article by Marcello de Cecco in today's RepubblicaPerche' L'EBA e' subalterna agli USA).

Considering that there is an Italian in charge of the European Banking Authority, not to mention the Italian in charge at the European Central Bank (who refuses to buy unlimited amounts of Italian bonds),  an Italian is Chief Economist of the OECD, (which has just forecast zero growth  for the Eurozone in general, and half a percentage point decline for Italy in particular, thus attracting Moody prognostications for multi-state default in the euro-area),  an outburst of Italian self-hate seems to be contributing to the financial crisis.

Saturday, 26 November 2011

The DSK Scandal

The downfall of Dominique Strauss-Kahn is well on the way to becoming one of the great conspiracies de nos jours.  Apart from his exclusion from running for the presidency of France, his abrupt departure from the IMF has had untold repercussions on global financial affairs.

This account from the New York Review of Books, reported again in the FT this morning,  is detailed but contains nothing from DSK himself - who obviously knows what happened and why better than anyone else.  Continued attempts to associate him with sexual scandal suggest the rest of this unfinished story may be published during the French presidential campaign.

Tuesday, 22 November 2011


Taking advantage of acquaintance, Mr HG asked the banking association official who is nationally responsible for retail banking payments systems what are the rules on maximum cash withdrawals.  The answer was that rules are not clear cut on the frequency of withdrawals, the treatment of joint accounts, or on cumulative limits.  Nevertheless the sensation that there is a secret retail run on Italian banks is confirmed by the rapid increase of 500 euro notes in circulation in the entire euro area.  And by the fact that the amount of cash that one is told by cashiers can be withdrawn on a single occasion falls steadily - from 10,000 to 5,000, to at present 2,500 with the warning that this might soon be reduced to 300 or even 100 euros. Certainly the media suggest that a 100 or 300 euro cash payment may be the maximum permitted in retail transactions.

Rather than attract attention by drawing 2,499  euros from the bank-at-the-bottom-of-the-hill last week, Mr HG was advised to withdraw 2,400.  After repeating the operation a couple of times he was asked to sign a declaration on the uses to which this money was to be put. He then proposed to empty his current account into a safer and more private berth  as it wasn't worth keeping our ready cash at 1% interest and suffer nosiness.  To do so triggers yet another declaration that our money is going to be kept under our mattress.

Finding we had left the main door unlocked  from Friday to Sunday on our return from Rome,  I wouldn't be a bit surprised if it was no longer there.

Friday, 18 November 2011

Good Luck

The Italian parliament has handed out yet another vote of confidence (they're really good at this if at nothing else) and the Monti administration is now in full possession of the powers of government that pertain to the Executive.  Using this circumlocution is necessary because much of the media has objected that Italian democracy has been replaced by a commission of technocrats. (Mr HG argued that though ugly, the word 'technocrat' means 'technician in power' and is more accurate than 'technician'). It has not.

Democracy is not homogeneous in form.  Italy is different from the UK.  The head of state has clearly-delineated, and wide, powers under the democratic constitution to act in specific sets of circumstances.  This clarity of powers and of occasions for intervention does not exist in the UK, nor is the head of state democratically elected, nor is there a constitutional court to hold parties to the rules.  Under the democratic principles and rules governing Italian democracy the Monti administration is not just acceptable but was required to be called into being.  Now that it has been voted on and confirmed in the Upper and Lower house (with massive majorities in both votes) it's as democratic and representative as any other western government, though validated by different parts of the democratic structure.

The test is very simple: when Monti starts cutting, taxing, stripping privileges, opening closed shops and removing undeserved special statuses we will all see if the interests concerned can overturn his administration or are forced by the greater democratic will expressed through Parliament, head of state, and constitution, to accept their lot.  He's not there at gun point.  And his remit is much, much wider than driving down spread and yield in the interests of sustaining the Euro.

Monti's intention is to govern until the elections in 2013:  he intends electoral reform, trade union reform, reform of the professions, bank restructuring, extensive changes in the levying and collection of tax, and to take a sword to the proliferation of the political classes.

He starts first thing Monday morning.

Thursday, 17 November 2011

Rendering Unto Caesar

The new Italian government will outline its policies this afternoon.  At the moment we are all fired-up with patriotic support and determination to deal with public debt.  Angels proposes requiring the Church to pay rates and taxes and the South to be denied any special subsidies, together with a determined assault upon tax evasion (a southern speciality, although widely practised throughout the country.)

Should there be any attempt to raise property taxes before forcing the Church to pay property taxes at all, or should there be an attempt to cut  pensions in general rather than concentrating on southern vitalizio abuse first, then the patriotic support will vanish at once.  We are not going to put up with gross inequalities of treatment inflicted or enforced by Church or Mafia.   Nor are we putting up with higher taxation after Berlusconi raised the tax burden from 43% of GDP to almost 50%.  We need tax cuts, we need deregulation, we need the liberalisation of professions. 

It is nonsense to say that this government of professors, lawyers and bankers is not political.  Professors are the most exquisitely political of all breeds; closely followed by lawyers and bankers.  But they are political dilettanti and like all dilettanti, they fancy themselves no end.   Let's hope they are aware that they answer to us, still, and that the fattest should be the first to be sacrificed.

Last Resort

A lender of last resort, as Walter Bagehot taught us, is the central bank function of providing unlimited liquidity to commercial banks at a penal interest rate in exchange for good quality paper.  Those who today advocate the ECB acting as a lender of last resort to Eurozone governments are misusing the terminology and thus misunderstanding the function of the central bank.

It is true that a central bank has a function of acting  as treasurer to a government (or the state) providing unlimited liquidity to fund public expenditure if and when it might be necessary.  However this traditional function has been limited over time by the myth of central bank independence and by legislative limits such as the debt ceiling in the US, or the Italian prohibition on lending money to the government (in 1980 Beniamino Andreatta introduced such a prohibition which reduced Italian inflation at the cost of paving the way to the accumulation of Italy's large public debt.) 

Angela Merkel and general German opposition to ECB purchase of government bonds should be contrasted not by appealing for a non-existent role of lender of last resort but to the traditional function of the Bank acting as treasurer to the state. There is nothing in the EU treaties that forbids this; the problem is that there is no state.  What needs to be resolved are distribution problems  across the member states.

Willem Buiter  refers to such a possible ECB role as "quasi fiscal abuse" of the ECB.  Be that as it may it is a much less expensive alternative than a generalised, large-scale default of the larger part of the Euro area.

Wednesday, 16 November 2011

Pulling Out of the Death Spiral?

The expectation that Mario Monti will confirm his acceptance of the office of prime minister and present his list of ministers to the President is growing by the minute.  Then, if the President accepts the administration and the ministers are sworn-in this afternoon, he's got to face Parliament. Both major parties, of the centre-right and of the centre-left, have confirmed their support for a Monti administration after discussions with him and within their own parties; and most of the minor parties, with the large exception of the Northern Leagues who are determined to go into opposition,  have offered their support.

But is it all too late?  Spread and yield were yesterday back to the earlier highs  that forced Berlusconi's resignation and, not unnaturally, he is remarking that it wasn't to do with him but that there is a speculative attack upon Italy which is continuing.  The consequences of his stubborn attachment to power,  in pure self interest and self defence, are still reverberating.

Yet the Italian economy has: very low private debt: net private assets over four times larger than public liabilities: a primary surplus - a budget surplus before payment of interest, where the only other European country with the same status is Germany; it has a fairly long average maturity of debt, some 7 years; it has a relatively low average interest rate on its past debt of around 4%; and a large but stable debt to GDP ratio at 120%.  The negative weighing on Italy really is the slowest growth rate in Europe. We must now add the rapidly rising marginal cost of borrowing which is inexorably driving Italy towards default (though not for the next 2 years, which of course is a very good reason not to want 10 year bonds)

The negotiations over the Monti administration are giving clear indications that some kind of immunity is being constructed, or at least favourable circumstance sought, for Berlusconi.  That may be the price for his party's agreement to a Monti government.  Which conflicts seriously with the urgent  need to pin the blame for  the market's loss of confidence  in Italy where it belongs - on Berlusconi.

[An afterthought: to appoint a Justice minister named Pomodoro is not going to help the international perception of serieta']

List of ministers in the new Italian government:

MARIO MONTI  Chancellor of the Exchequer



PAOLA SEVERINO  Ministry of Justice

CORRADO CLINI  Environment

CORRADO PASSERA  Development and Infrastructure



MARIO CATANIA  Agriculture

CATRICALA'  vice Premier


PIERO GIARDA  Parliamentary affairs

ENZO MOAVERO MILANESI  European Union affairs

FABRIZIO BARCA  Federal affairs and national cohesion


ANDREA RICCARDI  International affairs

Monday, 14 November 2011

Goodbye Silvio

Handel on Saturday night.  But after Berlusconi's broadcast last night, dripping with self pity and self justification, bitterly denouncing the celebrations on his going,  Handel strikes again.

Nick Drew gives the whole opera at Capitalists@Work

Sunday, 13 November 2011

Dealing with the South

If the Italian government that is to be installed this evening does not start dealing with the South and do at least  these broad-brush things very rapidly,  it is not serious about dealing with Italy's public debt.

 - Gradual but steep reduction of all forms of income subsidies; including fake invalidity pensions.

 - Instant curtailment of salaries of public officials such as members of regional administrations, consultants, and other unproductive labour.

 - Removal of tax exemptions on all Church activities (a national measure which would be particularly effective in the South).

 - Lower wages for the South to reflect relative local labour abundance; and to compensate also for the higher costs of local activities resulting from mafia taxation.

 - Once and for all abolition of prestige and useless projects such as the Messina bridge (not least because of seismic exposure but also because it is an opportunity for mafia funding).

 - No eligibility of investigated as well as convicted individuals for public office, or of firms for public contracts.

 - Campaign to detect and penalize usury.

 - Facilitated access to credit, but without subsidies.

- The removal of all tax exemptions that pertain to the South alone.

  - An enhanced fight against tax evasion with stricter penalties in the South (where tax evasion has contributed greatly to national debt).

 - Increase police funding (at the moment the Force is being starved of funds to the point of officers having to pay for their own petrol).

[There we are Yacht.  (Weekend Yachtsman feared nothing could be done in the South as many Italian governments have accepted).  Once all this is done, other southern distortions of the Italian economy and body politic can be tackled.  ]



Handel in front of the Quirinale palace on the announcement that Berlusconi had resigned

Saturday, 12 November 2011

Stability Law Passed by Lower House in Italy

380 votes were cast in favour; the opposition Democratic party abstained.


Berlusconi has now resigned.

Draghi With Monti

The Director of the European Central Bank, Mario Draghi, has arrived at palazzo Giustiniano for talks with Senator Mario Monti.  (Good name 'Mario'.)

If Mr Berlusconi resigns today then it will be Senator Monti who runs the caretaker government up to early elections, should his planned administration not receive a vote of confidence.   Which is a great deal better than having ages more Berlusconi and elections run under his government.  By moving so swiftly, in hours not weeks or month before Berlusconi would have to resign, the President has stripped Berlusconi of a major weapon - his control over large sections of the Italian media.

His Way

Crozza sings Berlusconi's way

Friday, 11 November 2011

Pictures Speaking Louder Than Words in the Italian Senate

The Corriere della Sera has a series of photos showing the reception for Mario Monti, and the entrance of Berlusconi's Finance Minister, in the Senate where the stability law was passed today.
Monti was greeted with a great round of applause.  Tremonti went silently to a seat on the government benches, next to the Finance ministry under-secretary.

Good Riddance to Bossi Too

While eyes are on Berlusconi the departure of the repellent Bossi of the Northern Leagues is just as worthy of celebration.  The new stability law which has just been passed in the Senate has been stripped of the Northern Leagues' gun law which was to make possible the far easier acquisition of 'sporting' weapons.  It should be remembered that in Italy wild boar is hunted with laser-guided rifles - little red dots flitting across the woods.

Berlusconi bought Bossi and the Leagues as a coalition party en bloc for 2 billion lira, cheap but then everything about Bossi and his party is cheap. 

Thursday, 10 November 2011

Tax the Church and Deal with the South

There are two enormous elephants no-one wants us to look at in the salotto.  The South and the Church.

Neither of them pay in any taxes and both of them slurp tax-payers' money out like, well, pigs at the trough (to borrow a phrase). Who wishes to govern Italy accommodates the South and the Church.  And while the South  has geopolitical form in many other European member-states, every one of which has its crosses to bear from regions of under- or post- development,  none of them have to put up quite so much with the pretensions of the Holy, Roman, Catholic and Apostolic church as well.

Berlusconi bought the compliance of the Church in all his goings-on by exempting from tax all property associated with it; not just churches and monasteries, but land, commercial developments, businesses etc.  Who wouldn't be a  client for that?  And deliver a micro-managed flock of voters.

The South, the Church, and (how shall I put this: more primitive governmental practices than democracy and the rule of law?) are intimately entwined with the governance exemplified by Berlusconi and his henchmen.  The South, too, is wholly committed to the provision of a vitalizio for all (southerners, that is).  The English word for vitalizio is annuity but it doesn't at all cover the extraordinary expectations of the South that it should be supported for life from wealth generated elsewhere in Italy and, indeed, the rest of Europe.

There wouldn't be an Italian  public debt without the Church and the South.  And   public debt throughout Europe would be much reduced if the 'south' problem in Europe, North and South, were faced up to.


Wednesday, 9 November 2011

Another Fallen Angel?

Angels' faith in President Napolitano has been shaken terribly.  How could he have agreed to Berlusconi remaining in office?  Certainly the vote on the budget was not formally a vote of confidence, and certainly it was passed - but to have voted against and failed to pass the state budget accounts for a second time would have been the height of irresponsibility.  We all know what those  abstention numbers signalled.

Berlusconi himself has acknowledged that the Parliament is in a state of paralysis.  Votes cannot be given against essential legislation but that does not mean that the Prime Minister has maintained democratic legitimacy.  In such circumstances the Constitution does indeed provide for presidential intervention in the governance of the country (as does the UK constitution - there would have to be such provision, wouldn't there).

So what possible assurances could have been offered to the President that would justify leaving such a man as Berlusconi in full possession of the powers of a prime minster after the Parliament has indicated their withdrawal?  What unpublished deals have been done?  And why has there been such a lack of transparency in what seems to have been arranged?

Just look at the yield and the spread.


President Napolitano has issued a note insisting that Berlusconi's resignation will be forthcoming.  He has also made Mario Monti a life Senator.

Fin des Jeux

So, after all the heart-searching, the constitutional consultations, the references to past crisis solutions, the suggested names:  Monti, Letta, Alfano - even Amato,  the possible forms the crisis government could take: 'technical', government of national unity, early elections.  All this and now we have the answer.

The post-Berlusconi administration will be led by -  Berlusconi.   And the form of the administration will be a coalition of his (scattered and shrunken) party and the Northern Leagues.   Their purpose?  Ad hominem  legislation for the interruption of legal proceedings against Berlusconi; special statuses for his family companies; generalised assaults upon the powers and independence of the judiciary. Social butchery in the name of Europe will come as a bonus, laying the ground for recast labour relations, the hollowing out of social security (in the best meaning of the term) for all from the youngest to the oldest; the extensive mulcting of the working population in higher taxes.

How do we know?  Berlusconi tried some of it with the Decree that President Napolitano refused to sign, requiring that such measures must be agreed first by Parliament.  This new Berlusconi  Executive will divide the factious opposition readily, and now has the opportunity to scoop the board.

He's even got the European Union, the European Central Bank and the IMF to help him.

Tuesday, 8 November 2011


Berlusconi is at the Quirinale with President Napolitano.
 With him is Gianni Letta, vice premier, urbane, clever, well thought of -  Berlusconi's keeper and advisor, widely touted as a possible successor.  

Coalition  Lega Nord leader Umberto Bossi, speaking to journalists at the Parliament has said,

“Aspettiamo qualche minuto. Deciderà cosa fare al Quirinale.” [Wait a moment,  he will decide what to do at the Quirinale]

when asked if Berlusconi was on his way to resign.


No.  He's still with us.   He may still be with us till the end of November, given the stages needed to pass a bill through parliament.  Getting him out of palazzo Chigi  is like getting Brown out of Downing Street; even down to the suggestion that he's been asked to stay on by the Head of State while matters are sorted out.  Just look at the difference in body-language on entering and on leaving the Quirinale.

Spread hit 500 today.  It'll be worse tomorrow when the realisation dawns that he hasn't gone at all.

Quite an Agenda

The note, scribbled by Berlusconi during the vote (and published by Il Fatto Quotidiano), lists concerns:

The ribaltone refers to the overturning of the centre right 2008 election victory if a 'technical' or national government is installed.  It notes there are 8 'traitors'.
 - Resign, he writes.
 - Pres. Repubblica.
 - A solution.

Who Did What

These are the deputies who denied their vote to Berlusconi this afternoon:

Pdl (Berlusconi's own party): 
Roberto Antonione, 
Fabio Fava,  
Giustina Destro,   
Gennaro Malgieri (who says he was in the loo and missed the vote!), 
Alfonso Papa (who is under house arrest). 
Coalition members who were absent: 
Calogero Mannino, 
Giancarlo Pittelli, 
Luciano Sardelli, 
Francesco Stagno D'Alcontres  
Santo Versace. 
Franco Stradella,  Pdl.
The opposition coalition abstained en masse.

The state Budget accounts passed by 308 votes.  

Berlusconi needed 316 votes to demonstrate that he commands  a majority in the Lower House.

He has now left the Parliament and gone to palazzo Chigi (or Downing Street, so to speak) to consider what this can possibly mean.  

Language, Language

Berlusconi's behaviour is becoming more and more eccentric.  His language resembles that of a mafioso gangster rather than a democratic political leader and prime minister.
"I want to look in the eyes of traitors as they betray me"??  He'll want to send them all to sleep with the fishes next.  Having agreed an exit strategy with his party and its allies in Rome, he returns from spending the day in his private house in Milan with his family and personal advisors  ("That dickhead has left Rome for Milan... ", fumed a leading centre right politician)  to announce he's soldiering on; perhaps it was thought at Arcore that his private business interests and firms' interests are better served by this change of plan.

Pity about Italy's exposure to an unnecessary debt crisis - but he's only prime minister in his spare time, as he remarked recently to one of his whores. 

Monday, 7 November 2011

Italian Politics Moves On

The Italian media is reporting that Berlusconi will go today.  He has gone to Milan but will be returning to Rome this evening.

Whether this turns out to be correct or no, political debate rages now on whether there should be early general elections (Italy has fixed term parliaments and elections are not due until 2013); whether another centre right politician should be asked to form an administration and put it to a parliamentary vote of confidence (but the centre right coalition elected in 2008 has collapsed and reformed so often that it is hard to argue that the original election-winning grouping exists any more); or whether a 'technical' government be formed to put in place the measures promised by Italy to deal with public debt.

This last would face real difficulties in achieving a parliamentary confidence vote because of the unpopularity of all and any debt-cutting measures.   In truth it is a fig leaf to hide the installation of a centre left administration that runs  against the democratic vote of the last elections.

So unpopular are reforms proposed, and required by lenders, to various parts of the electorate, and so unpalatable the likely further measures that would be brought in by a centre left 'technical' government (wealth taxes, levies on current accounts, worsening of pension rights etc.) that it is hard to see any democratic way of resolving decisions on the choices for cutting state debt other than by holding early elections.  Furthermore, before proceeding to general elections there is a pressing need to reform the electoral rules (known as the porcellum - the pig's breakfast) introduced before the last elections which place the choice of candidates on the party lists entirely in the hands of party leaders (hence showgirls reborn as waged and expenses-endowed politicians, and other corruptions).

President Napolitano has held extensive consultations with all political parties in the last week.  The President is required to consult with specific people - previous presidents, constitutional advisers etc., but in the end, apart from the need for a caretaker administration to return the electoral rules to their pre-porcellum form, only a general election can assure the markets that the people have consented to the measures about to be visited upon them.


“Le voci di mie dimissioni sono destituite di fondamento e non capisco come siano circolate [word of my resignation is without foundation and I don't understand why it is circulating]”, Silvio Berlusconi has stated to the Italian news agency Ansa.  Look at the bonds, Silvio.

Further UPDATE mid afternoon

Mediobanca (+5,82%)   Intesa Sanpaolo (+5,15%).   Fiat   (+5.12% ). Fiat Industrial  (+4,06%)
Spread German - Italian 10 year bonds below 470 (it was above 490 this morning)

Early evening UPDATE

Spread Italian German bonds back up to  487. Yield on Italian 10 year bonds back to  6.67%.  The yoyo effect of Berlusconi's exit timing is quite extraordinary.

Saturday, 5 November 2011

Princess Celestia Rides Again

For those who are behind in My Little Pony story lines here they are.  Many grown-ups have allowed their My Little Pony knowledge to date and atrophy quite shamefully.  The WSJ draws timely attention to this failing.

Get along to the shops now and make your consuming contribution to saving-the-global-economy-and-the-world-as-we-know-it from  collapse.  Christmas is coming so no-one will know your Pony-purchase is really to complete your own set.

[The Little Ponies are in the soffitta,  Small, in a box.  I'm not sure about the stable.]

Thursday, 3 November 2011

Fatigue and Disbelief

Financial crisis fatigue has struck.  I look at the spectacular, manicured landscape, the gleaming cities (Rome is looking particularly fine as we watch the polished motors ferry ministers and officials about through imperial grandeur),  the streets full of new cars, the holidaymakers returning from their extended break for All Souls,  the banks functioning perfectly normally, the gold bars resting under the beds, the net private wealth, some 8,500 billion euros,  and the 1,900 bn euro  Italian government debt with its 180 billion a year interest [no, 90 billion, doubled it by mistake, sorry] and simply don't care any more about the hysteria of euro-hate that is filling the media.

Lamberto Dini, former prime minister, (there are quite a lot of those in Italy but this is the one who looks like the un-kissed frog) is probably right.  The euro is under assault for reasons nothing to do with its stability and functionality and a great deal to do with the decline of the dollar and the decline of America.  It's quite cheeky of President Obama to turn up in the South of France, basking in its wealth and sunshine, and tell us to pull ourselves together.  We are together, much more so than poor America.  The G20 is looking more and more threadbare and irrelevant - just another  global jolly for the politicians and their hangers-on who travel from  venue to venue living off our governments' largess, using our taxes and networking among themselves ostensibly for undesirable and unobtainable ends (like global governance) but in truth chasing a free lunch (and dinner, and lodging, and transport, and unearned life-style). 

Greece is another matter, of course.  It's a country burdened by poverty and corruption, by intransigent politics of right and left, by recent military rule and the costs of getting rid of it.  Anyone who had any money made for the exit ages ago.  We could  beneficially show some understanding towards Greece  -and recognise its greater claims on us than any  country  further afield on whom we spend money

Tuesday, 1 November 2011

Parliamentary Governance Should not Operate Through Referendums

Greek constitutional arrangements are, well, Greek, to most of us.  Reuters reports that:

"...the constitution... does not allow referendums on economic issues, only on matters of great national importance.
The last time Greeks held a referendum was in December 1974, when they voted to abolish the monarchy shortly after the collapse of a military dictatorship.
"It's debatable whether the constitution allows such a referendum," said Fotis Kouvelis, leader of the small Democratic Left party. "The country must go to early elections. Given the situation, it's the most honorable solution."
For a referendum result to be binding, there must be a minimum 40 percent turnout on issues of "crucial national importance" and 50 percent on a law that has already been voted on in parliament and "regulates a serious social issue,"

That's a very high threshold to clear  on turnout alone, regardless of the vote itself. 

As has been widely pointed out, if the Greek Socialist prime minister feels that his government cannot govern through Parliament the honourable course is to resign, not call spurious referendums in vainglorious terms.

And if the Italian Centre-right prime minister finds that he cannot govern, through Parliament, to deliver what is required of Italy (which he clearly cannot as his repeated defeats except on dearly-bought votes of confidence  demonstrates) the honourable course is for his resignation to be offered too.

Monday, 31 October 2011

Summer's End

The hour has gone back and summer is over, even though the days are sunshiny and near perfect.  But they are short and the night is cold, which is more or less what the doom-laden economic news is telling us.

Should we believe it?   Yes.  The jejune economic philosophy of consumption of desirables being interpreted as investment has resulted in effective Greek default on a scale comparable with Poland in the early 1980s - but without  a hope that  recovery can be effected by the dismantling of realised socialism and competent economic governance put in place.  (The Polish experience in the 1970s until the crisis of 1982 is well worth a look - and a gulp of recognition).

Look at the 'letter from 100 economists' and weep.  Keynes's "even the most practical man of affairs is usually in the thrall of the ideas of some long-dead economist" could not be more apposite - but, then, Keynes does apposite spectacularly well, even when it applies to himself.  Anyone with some acquaintance with the personnel of economic academia can see that a new generation of  statist spendthrifts has been spawned by those who believe profoundly that the benefits of capitalism can be harnessed by technology and directed to an ethically justified greater good;  a good and an ethic determined by a (preferably) meritocratically selected governing class.

Morgan Forster gave two cheers for democracy (one for individualism and one for facilitating criticism); the same two cheers can be given for capitalism.   Not perfect, but the best we've got.

Thursday, 24 March 2011


First light before 6, not dark till after 7, time to set up at the ecohouse,  look at  the spring flowers,  take the walks, read the books, eat the boar and venison (well, not me, but others can.)  Libya's over (bar the after-threats) and with any luck  Berlusconi will be too, by the time Angels comes back after the summer.

Wednesday, 23 March 2011

Technically Unskilled

Turn on the television and there is the Allied action against the Libyan regime, reported vividly in pictures and words.  Open the papers and the detail is even greater.  But for those of us unfamiliar with battle and with war, it is almost incomprehensible.  Which kinds of aircraft took off from which bases and were away for how long supported by how many refuelling craft clearly is information that should be processed.  Only it isn't, at least not by most of us, because we don't understand.  

A huge row broke out about intrusive media monitoring of this kind of data by the RAI (Berlusconi controls much of that, the Italian BBC) and other media stations (Berlusconi owns all of that).  Announcing the departure of radar-seeking planes, for instance,  leads to the radar being turned off and wastes their mission, lamented the Minister of Defence.   The coverage drew back, physically kept away from the bases, and informationally bereft.    Berlusconi's claims that the Italian jets were flying but not firing fell silent - if they are specialised in finding and destroying radar defences then the ending of announcements and filming of their departure must have profited their undertakings. 

Could it be that the Italian Prime Minister is now being kept out of the loop?  It's pretty clear whose side he's on, and it's not ours.

Criminal and Political Governance

The offensive propaganda  so unwisely adopted by last century's feminists - that politics is personal - has a reality that is far beyond their silliness.  Personal relations and networks among the powerful, (regardless of their mode of achieving power) as governance, is deeply opposed to democracy.

The stand-off between President and Parliament and the  Berlusconi/Bossi populist coalition is a casebook example of why we do not want power used without democratic control.  The people can choose to act in any way  they want, requiring that their representatives follow their choices and, sometimes, those choices, those policies, ape the policies and goals that are implemented also under mafia-style regimes.   But they are not the same thing. The policies resulting from democratic choice can be ended by the people while the policies pursued by criminal, inter-personal governance  cannot.

The Berlusconi-led  coalition is already falling apart under democratic pressures, as the personal/mafia connection diverges ever further from what the people choose and is frustrated by constitutional and democratic controls.   Berlusconi may be addolorato by what is happening to Gadaffi , his bunga-bunga best friend and  co-exploiter of the resources of their respective countries, but he will behave according to the rules and the wishes of the people, no matter how much he cries out against a politicized judiciary and personal persecution by the institutions of the democratic state.

The poor Libyans are being criminally ruled: criminally intimidated (in Tripoli)  and massacred (in Misurata).   They face much of what the people of the German Democratic Republic faced - the same 'socialist' elite, the same extensive culture of spies and apparatchik control, the same menace of interests and powers well beyond their own concerns to achieving some freedom in their lives. There may be pros and cons for the extent of intervention in Libya by Allied forces.  There are no pros for fudging clear political and institutional democratically controlled lines of authority and responsibility in the actions we are taking,  and everything against pretending there is confusion.

Tuesday, 22 March 2011

Nato Rules. OK

Everyone is agreed that the command structure of the Allied implementation of Resolution 1973 will be that of Nato according to the Italian media.  President Napolitano had stated that Nato command was essential and appropriate.  Italy was otherwise considering setting up its own command over its bases.

President Obama has squared the Turks, the French have backed down, the UK was in favour all along.  Germany has withdrawn its forces from Nato Mediterranean operations said the Ministry of Defence in Berlin - that's two frigates and 550 men plus another two ships.  The Note didn't say if they would leave the Mediterranean.

Libyan Interests

'Gaddafi threatened to replace western oil firms with companies from India and China in a March 2 speech and more than 10 days later discussed possible investments with the ambassadors of the two countries and Russia, state-run television reported.'   Bloomberg notes that as well as Rome-based Eni, foreign oil producers in Libya include France’s Total SA, Austria’s OMV AG  and Spain’s Repsoi YPF SA.    The U.K.’s largest oil companies Royal Dutch Shell  and BP  were exploring for oil and gas before suspending operations when the anti-government uprising started in the east of the country in mid-February. '  (Bloomberg)

Well he won't be acting on the outcome of any of those discussions now, will he?

Meanwhile the hyped-up 'row' about who commands the Allied intervention to protect civilians from the Regime's military is dressed in  Nato/not Nato clothes but is really about the administration of  post-'No-Fly' Libya.  Clearly humanitarian assistance is badly needed to restore electricity and water supplies, restock the hospitals,  rebuild damaged settlements and continue to hold off resurgent aggression at petty levels by Gadaffisti while the Transitional National Government establishes itself, and elections at national and local levels are held.

Humanitarian assistance comes armed and usually from military structures. Of necessity, warfare consisting in destroying humans and human support infrastructures, humanitarian assistance has to be equal to coping with it.  And Gadaffi promises to wage war on his people (and on the rest of us) for as long as he can.  Italy, from where what humanitarian assistance that has been  supplied has come, not unnaturally sees itself as a main provider, and recipient of the profits from all that provision of infrastructure and goods.  But now that the regime's international and local aggression and defence capabilities have been taken out (apart from terrorist attacks on their own and other state's civilians) the rest of the Alliance would like to offer humanitarian assistance as well, and for the same reasons as Italy.

In the meantime we can rely on the United States continuing to run the show until the humanitarian assistance allocations are sorted out.  After all, the No-Fly zone has now been extended enormously to the south and west; who knows what might be lurking, out there in the desert, that  demands further aerial intervention.

Monday, 21 March 2011

Italy Demands Nato Command for Next Phase. Italian Ship Still Sequestered

Article 5

The Parties agree that an armed attack against one or more of them in Europe or North America shall be considered an attack against them all and consequently they agree that, if such an armed attack occurs, each of them, in exercise of the right of individual or collective self-defence recognised by Article 51 of the Charter of the United Nations, will assist the Party or Parties so attacked by taking forthwith, individually and in concert with the other Parties, such action as it deems necessary, including the use of armed force, to restore and maintain the security of the North Atlantic area.
Any such armed attack and all measures taken as a result thereof shall immediately be reported to the Security Council. Such measures shall be terminated when the Security Council has taken the measures necessary to restore and maintain international peace and security .

Article 6 (1)

For the purpose of Article 5, an armed attack on one or more of the Parties is deemed to include an armed attack:
  • on the territory of any of the Parties in Europe or North America, on the Algerian Departments of France (2), on the territory of or on the Islands under the jurisdiction of any of the Parties in the North Atlantic area north of the Tropic of Cancer;
  • on the forces, vessels, or aircraft of any of the Parties, when in or over these territories or any other area in Europe in which occupation forces of any of the Parties were stationed on the date when the Treaty entered into force or the Mediterranean Sea or the North Atlantic area north of the Tropic of Cancer.

Russia Divided

It's not just the Italian government that is creaking under the strain of events in Libya.  In Russia claims by the Prime Minister Vladimir Putin that some of the requirements of United Nations Resolution 1973 read like a Crusader call to arms have been rejected by President Medvedev.  Medvedev has declared that the Resolution reflects the Russian understanding of the situation in Libya and its provisions are reasonable, and have been put into effect reasonably. (Tass reports)

In the meantime the Russian Foreign Secretary Lavrov still has steam coming out of his ears about the Allied expression of their understanding of Resolution 1973, as he visits Egypt and continues (on Tuesday) to Algeria.  Expect more Allied interventions tonight, before he gets there.

Stalin Lives!

'Representatives of youth movements have staged pickets outside the embassies of the United States, Great Britain, France and the NATO mission in Moscow in [sic] Monday, demanding to end the encroachments on Libya’s sovereignty and end a military operation against that country. The pickets were holding slogans demanding to [sic] end bomb strikes on Libya.

Maria Kislitsina, the leader of the Nashi youth organization, told Itar-Tass that “in Libya we see a vivid manifestation of ‘humanistic’ aspirations of the western leaders who launched a military operation against the peaceful population. Formally, the aim of the troops’ campaign against Gaddafi is to defend the civilian population, while in reality they aim to overthrow the legitimate government of the still independent state,” Kislitsina said.

“We do not come out in support of  ['the' for heaven's sake; get some decent English-speaking copy editors! ed.] Gaddafi regime, but we want to remind everyone of the fact that those [sic; 'that', 'those' take your pick, how about 'some'? ed.] peaceful civilians have already fallen victim to this massacre. We demand to end ['the end of'  and delete the spurious 'the' before 'encroachments'.   Pull your professional editing selves together, ed.] the encroachments on Libyan sovereignty and ['an end to'  (you'd all be sacked if you worked for me) ed.] end strikes on its citizens,” Oleg Sokolov, the leader of the Stal (Steel) youth movement told Itar-Tass.

Ryanair Flights Transferred to Palermo Airport

Ryanair's passengers are noted for their stoicism but even they must have been alarmed in recent days as they disembarked at Trapani Airport.  However from midnight this morning all Ryanair flights have been transferred to the airport at Palermo.  Otherwise they might well have found themselves on missions along the Libyan coast. 

One of Gadaffi's Sons Assassinated?

It is rumoured that Khamis Gadaffi,  in charge of organising  African mercenaries (who are particularly resented by the Libyan people)  was killed by an aircraft pilot who had changed sides in the hostilities.  He opened fire on  Gadaffi's son in the Bab al-Aziziya bunker.  Fatto Quotidiano states the rumours, while persistent and widespread, have not been confirmed.


Italian media are showing videos of a man said to be Khamis Gadaffi meeting and greeting.  They say he may not be dead.

Communications Cease With Italian Ship

The Italian seagoing tug that was boarded by armed men in the harbour at Tripoli and then forced out to sea towards one of the oil platforms was met by an Alliance helicopter and has now turned back towards Tripoli.  Crewed by 8 Italians, 2 Ukranians and an Indian, the fate of both crew and ship are being closely monitored by the Italian government.

In March 2009 the Asso 22, which supplies the oil rigs,  rescued 350 refugees off the Libyan coast from a grossly over-loaded boat in serious difficulties; the crew are nominated for the award of the  Medaglia al Valor Civile.

The Italian Foreign Ministry has said that all communication with the ship has been broken off; there are fears that the action may be part of the threatened retaliations against civilian Italian targets by Gadaffi.


The Asso 22  has arrived in the harbour at Tripoli.  Communications with family members of the crew have been allowed; the crew have stated to their families that they are well.

Counted Back

"Mission completed and all our planes  returned safely," said Colonel Gabetta ,  commander of the 37th Stormo at Trapani; the Tornado Ecr of the 50th Stormo di Piacenza are back safely too, as well as the refuelling planes from the 6/o Stormo di Ghedi

Watching the military spokesperson for the British forces engaged in instituting the No-Fly zone and inhibiting military attacks on civilians in Libya,  I was quite struck by the lack of reaction on the part of the BBC interviewer when assured that all British planes had returned safely.  He just turned to a frowning woman in a bad coat and plastic necklace who tried to tell us what could have been explained so much better by the properly-qualified, and properly dressed, Major-General.

Sunday, 20 March 2011

Off They Go

Sunday over (seeing as we are Christian forces, according to Gadaffi, that seems noteworthy)  it's all kicked-off again.   The Italian and Danish jets have set out, together with United Kingdom, French, and US forces, on the next stage of the suppression of attacks by Gadaffi's mercenaries on the people of Libya.

The Cypriots have been tapped sharply on the snout by Mr Cameron when trying to refuse the use of Cypriot bases, for UK planes are flying from Gioia del Colle  when they aren't flying from Norfolk, and were told we didn't need them anyway.

Russia is acting like a goad (or knout, I suppose would be a more appropriate Russian utensil) to further Allied action.  Every time the Russians get up to speed the Allies are already taking out the next means of Gadaffian oppression.  One wonders what action the Russians will precipitate next with their complaints and objections.

The Pope has told us all to pray for Libya, but he's a German and not on our side, so we're not sure what outcome he's asking us to pray for.  And the Arab Leagues have just had a sharp lesson in being careful what they ask for.  

Mare Nostrum

Russian Foreign Minister Sergei Lavrov leaves for Egypt today.   The focus of the talks he will have in Egypt, and then Algeria, will be the military operations in Libya to protect civilians against  Gadaffi's regime.

 Egypt is a long-standing partner of Russia.  After the ousting of former-President Mubarak,  Lavrov would like to see what is happening now in Egypt and to establish contacts with the new leadership there.  During the visit to Cairo, "there will be meetings with the chairman of the Supreme Council of the armed forces, Hussein Tantawi, and consultations with the Foreign Minister of Egypt, Nabil al-Arabi", according to a Foreign Ministry spokesman.  

In what might be regarded as an understatement rather than a statement, he continued:
"....Focus will be [on] the recent developments in the Middle East and North African countries... The ministers will compare  assessments and are likely to work out some common approaches to this situation... In this context, of course, issues of international assistance to Egypt will be discussed".

Egypt wants to talk about tourism, on which the national economy and employment are largely dependent.   'The Egyptian Minister of Tourism recently held a large scale campaign in Moscow to attract Russians to Egyptian resorts. Observers hope that ...   during Lavrov's visit   the Foreign Ministry will announce that its advice to tourists not to visit Egypt is lifted.'

In Cairo Lavrov will also meet with the secretary-general of the League of Arab States 'to address key international and regional agenda issues'  [that's one way of putting it, ed.]  Russia has condemned the military operation undertaken by a number of NATO countries, and called for  'a dialogue of Libyans themselves to ensure a democratic future for the country.'

Lavrov will then go on to Algeria where he is scheduled to meet  President Abdelaziz Bouteflika and  Mourad Medelci, the Algerian Foreign Minister.  

"Algeria is one of   three countries, the others are India and China, with which Russia seriously develops military-technical cooperation...  We intend to continue to coordinate with Algeria on our approaches to key international problems.  ... as well as co-operation in the areas of energy,  infrastructure construction and advanced technologies. Algeria for the past several years has been among the three major partners of Russia on the African continent", the Russian Foreign Ministry ended.  (Tass)

Not for nothing, and since the time of the Roman Empire, has the Mediterranean been Mare Nostrum. There have been wars over Russia trying to muscle in.

Paying for Threatening the Mediterranean

The race is on to prevent the only real threat that the Gadaffi regime can proffer (other than the terroristic menaces to civilians in the Mediterranean already vomited once more  by Gadaffi in person - "the Mediterranean is now a battlefield") : burning the oil fields and causing an ecological catastrophe in the Mediterranean.

Objectives of attack from sea and air in an unremitting, night and day series of  rolling assaults are: radar installations, command centres, fortifications and bunkers, barracks, coastal defences,  mechanised and armoured units, missile-launch sites, fuel dumps, airfields.  As the chain of command, already strung-out and fragile, collapses there will be defections by Libyan troops, and many mercenaries will leave.

Although, as often pointed out, Gadaffi has had forty years to build his client state of supporters and the society is poisonously warped, and  riddled with apparatchiks, self-servers,  and creeps generally, the morality that animates them will readily serve to encourage a shift in allegiance to the Transition national government and hurry Gadaffi's isolation.  Nevertheless, it is the fanatics who make the terrorists: prefects throughout Italy have been ensuring a raising of the livello di guardia against terrorist infiltration and actions.

As for the fears played on by Bossi and his despicable Northern Leagues of mass immigration, arrangements can be made as well with  a transitional government as with a monster who uses the desperation of the poor of Africa to ensure his continued acceptance as a partner of our governments.

Saturday, 19 March 2011

Turkish Support

The Turkish Foreign ministry has announced that Turkey is assessing and preparing actions, both civilian and military, in support of the UN Resolution 1973 and the states acting on its implementation.

German Support

The  Allied air-strikes on the Gadaffi  regime have been co-ordinated from an American base in Germany according to an anonymous French official. (reported in Fatto Quotidiano)

"This is a multilateral operation  under the American command for American forces in Europe, based in Stuttgart ...which  co-ordinates French air operations based in Lyons and the British base in Norwood."

So now we know what the German Chancellor meant when she stated that abstaining on the UN Resolution 1973 didn't mean that Germany did not support it.

Tomahawks for Gadaffi

(Corriere della Sera)

He Would Say That Wouldn't He

"Moscow regrets the armed action undertaken in Libya by a number of countries with reference to a hastily adopted U.N. Security Council Resolution 1973,” a spokesperson for the Russian Foreign minister  Lavrov said on Saturday 19 March.

“We strongly urge both all [sic] Libyan sides and the parties involved in the military operation to do everything possible in order to prevent the suffering of the civilian population and stop fire and violence as soon as possible...
....We demand that exhaustive measures be taken in order to ensure the safety of foreign diplomatic missions and their personnel. We especially insist on the inviolability of the Russian Embassy in Tripoli and of the Russian citizens in Libya,” he said.

“We are still convinced that it is necessary to stop the bloodshed immediately and begin a dialogue between the Libyans themselves in order to achieve an effective settlement of the Libyan conflict in the interests of stability and democratic future of that country."

Angels expects Germany regrets as well.  And Poland, even if they did say they would offer 'logistic support'.