...a blog by Richard Flowers

Wednesday, December 14, 2011

Day 3999: In Defence of Mr Balloon. A bit.


"Mush, my huskies, mush," cries Mr Balloon into the biting arctic winds, "I must hugs you later, for the wolfpack of Deadwood, Desperate-Dan-Hannan and Cash-in-the-Attic are snapping close at my heels and their foetid breath is warm on my plump Etonian behind…"

There's no getting away it: our Prime Monster has behaved VERY BADLY.

Throwing RED MEAT to the slathering Europhobes will only make them pursue him more closely, hungry for a get-out-of-Europe referendum.

And getting into a WILLY-WAVING contest with the most PRIAPIC PRESIDENT on the face of the PLANET was never going to end well.

But still…

The thing is, it kind of looks like he sort of actually did the RIGHT thing. The thing that ANY Prime Monster would have had to do – and that Hard Labour twist and turn but eventually admit that THEY would have done too.

We can't just say it was WRONG because it's made the Europhobes GIDDY with GLEE. Just as we cannot say it proves him right to see the SILLY SUGGESTIONS being tossed about in the Euro Parliament today.

But he did the sort-of right thing in ENTIRELY the WRONG way, bad-wording off the whole of the rest of the continent in the process, so even people like the Swedish and Polish who might have quite likely to see things our way.

By swaggering in all MACHO, turning up at the "save the Euro" meeting saying he'll do what's in BRITAIN'S interests, he managed to portray the REASONABLE position (presumably the one he agreed with Captain Clegg) of "let's not do anything to endanger the Single European Act that we've ALL signed up to" as "I demand special privileges for Britain, and especially for the bankers you all secretly believe got you into this mess."

He's refused to hold out the fluffy foot of friendship when they needed our help and instead gambled everything on being able to say "I told you so" if the Euro really does collapse.

In doing so, he came across as the worst item in the IKEA catalogue: the KNORB.

The FUNDAMENTAL problem with Mr Balloon's behaviour was NOT, however, that he vetoed the treaty, but that he then walked away without putting anything else in its place.

What he SHOULD have done is said: "This is a BAD treaty that DOES NOT fix the Euroland crisis. Therefore I demand that we all STAY HERE until we sort out a solution that WILL solve the problem!"

Instead, he flounced off into the night like a PRIMA CINDERELLA, unfortunately not before his dress transformed back into rags and his husky-drawn carriage turned back into a PUMPKIN!

But just because Mr Balloon did WRONG does NOT make the treaty proposed by the German'n'French axis RIGHT.

An Economic Imbalance

The options proposed by France and Germany are NOT in any way a solution to the problems of Euroland.

A bigger bailout fund (more loans) and promises to stick to tighter controls with the prospect of penalties (won't that make overspending worse?). We've seen all of this before. And it didn't work then. Why would we expect more of the same to work this time?

I will say this about the European Union's proceedings. If the rules say they require unanimity then, not matter how bloody-minded and crazy the minority of one might be, ignoring that and saying "well we'll do it anyway without you" is NOT playing by the rules.

Maybe Mr Balloon IS the dog in the manger here… but the RULES are to PERSUADE him out, not to say he's not allowed to play any more.

And the RULES are IMPORTANT because they're trying to calm the markets by saying that… they will stick to the rules.

So it is NO GOOD saying Britain is being INTRANSIGENT (even when we are) or even SELFISH (which a lot of people think might be true), because when they all signed up to the European Union they agreed that the rules would only be changed if EVERYONE agreed, that it was to be evolved by PERSUASION and CONSENSUS and not just because a couple of big countries really wanted it, not even if all but one countries wanted it.

(DIPLOMATICALLY, of course, this is a catastrophe. In fact a cat-monster-astrophe! And we are going to be in the dog house for a long time. Especially if I keep mixing metaphors like that! And just when we thought Captain Clegg and even Mr Vague had managed to come up with a workable European policy, too! We're going to have to be very patient… and very HUMBLE… for a long, long time to persuade people that we will HELP rather than BOSS ABOUT!)

But if they won't play by the rules, how much store are we ACTUALLY able to put in a pact that says "we really reeaally promise to play by the (fiscal) rules. This time. Like we didn't for the last decade"?

Instead, the solution I propose to the problems of the Euro is – entirely counterintuitive, I know – that GERMANY should be ejected from Euroland.

No, calm down. Let me explain why.

The problems of the Eurozone are NOT that the Southern European countries' currencies are overvalued but that Germany's currency is essentially UNDERVALUED. This means that German goods for export are CHEAPER than the international market might expect. Before the single currency, an excess of demand for German goods would mean more people needed German Deutschmarks to buy those goods so the currency would strengthen, cancelling out the competitive advantage. But being in Euroland keeps the German currency relatively depressed in value.

Very much the same thing has been happening with CHINALAND on an even larger scale. The Chinese government has for a long while had a policy of keeping their currency stable relative to the dollar. This has meant that Chinese goods have been kept CHEAPER, a competitive advantage that has allowed them to continue growing. This draws money into Chinaland which – because of their sort-of-communist system, allows their government to continue to depress their currency by essentially advancing more loans to Americaland, loans with which the Americans can buy yet more cheap Chinese goods and so the cycle continues.

Likewise, money drawn into Germany fills up German banks enabling them to advance more loans to the Southern Europeans.

This was one of the engines that allowed Western borrowing to go on and on and on, inflating the bubble. The Chinese government IS in some part to BLAME. But remember it takes TWO to TANGO: it was our GREED for growth that kept us borrowing when we shouldn't have.

The situation in Germany is SLIGHTLY less CULPABLE. The Germans have not ACTIVELY been maintaining this currency imbalance. But I'm sure they've been very happy to let it continue to be to their advantage.

And who wouldn't? Certainly not US in Great Britain – how many times have you heard Conservatories BOAST that we have an independent currency that lets us DEVALUE to become more competitive? Well that's just what us trying to get the SAME advantage that Germany has with the Euro, built-in as it were.

This SMALL but SIGNIFICANT advantage diverts money towards Germany. People are more likely to BUY from Germany because their exports are, relatively speaking, cheaper; people are more likely to INVEST in Germany because their successful industries are there and their labour is relatively cheap and the labour in Southern Europe which ought to be cheap is kept artificially more expensive by the same currency. (That is, wages in Southern Europe ARE less, but because of the single currency not less ENOUGH – and companies looking for cheap labour can go to INDIALAND or CHINALAND.)

And of course this happens in Great Britain too. Much of our economic base is now in the South-East, and companies coming here are more likely to invest in London and the Home Counties because OUR single currency (the good old British pound, est. 1971) has a similar effect on the cost of business.

The DIFFERENCE is that in Great Britain there is a REVERSE transfer of money in the form of government spending that recycles the extra money that comes in in London into government investments and redistributive benefits.

The OTHER solution (the REAL solution) to Euroland's problem is, of course, for German (and France and yes Britain too) to ACCEPT that there is a RESPONSIBILITY attached to the financial advantage and that there is going to have to be arrangement to transfer money – to GIVE not to LOAN – from the rich, wealth generating parts of the Euroland to the poorer bits.

For pretty obvious reasons, the German (and French… and British) people don't want to do that.

1 comment:

Simon Fernandes said...

Pretty much agree with this one in every way. Despite the Guardian's hand-wringing, I'm not at all convinced that our blind participation in the French/German agenda would have been the right way to go.

And you're also right in saying that our glorious leader's style in rejecting it was one of the worst displays of 'diplomacy' I've ever seen, and that this is not going to get him into the history books as a 'great statesman', whatever his apologists may think. That said, I think he just panicked when his bluff was called!

Interesting idea that Germany leaving the eurozone would solve a lot of problems, and not the first time I've heard that one. It does make perfect sense; but as you say, in the real world, it's never going to happen!