The Great Debate UK

Cyprus deal means the cat is well and truly out of the bag

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By Laurence Copeland. The opinions expressed are his own.

The German insistence that depositors in Cyprus must face a haircut marks a new and dangerous stage in the interminable death throes of the euro zone. Up to this point, the one unshakeable principle underlying all the bailouts on both sides of the Atlantic since 2008 had seemed to be that the value of bank deposits was sacrosanct, whether they were explicitly insured or not. Now, the cat is well and truly out of the bag. It will be clear from now on, even to the most naïve investor, that there are no longer any totally safe assets. The principle of caveat emptor applies to bank deposits as much as to second-hand cars or beef-burgers. If even deposit insurance is now conditional, the difference between insured and uninsured deposits is only one of degree of risk. It is amazing how calmly the markets have reacted to the new reality, but it would be foolish in the extreme to rely on their continued insouciance.

There are a number of lessons we can learn from the events of the last fortnight, most of which relate more to Germany than to Cyprus.

For a start, recall the background to this latest crisis. At the end of last year, Mario Draghi allowed himself a pat on the back, as if he really believed all the nonsense in the financial media about the Man Who Saved The Euro. His policy of standing ready to buy unlimited quantities of short term debt from governments under pressure meant that “the darkest clouds over the euro area subsided in 2012”, he said.

When I want a weather forecast, I’ll go to the Met Office, thank you.

In case there was any doubt before, it is now plain that the ECB policy to save the euro is actually subject to German approval, so that although in principle there was no apparent reason why the Cypriot Government could not have bailed out its banks, using finance raised by borrowing from the ECB, in practice it seems they were never offered this option, which was vetoed ab initio by Angela Merkel and/or finance minister Wolfgang Schäuble. The veto itself must be seen as setting some kind of precedent.

The great dividing line in British politics

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By Stephen Evans, Director of Employment and Skills at Working Links. The opinions expressed are his own.

Chancellor Osborne’s latest budget may have been good news for beer drinkers, but it highlighted a growing dividing line in British politics that will shape the 2015 general election.

from Anatole Kaletsky:

Even Britain has now abandoned austerity

The Age of Austerity is over. This is not a prediction, but a simple statement of fact. No serious policymaker anywhere in the world is trying to reduce deficits or debt any longer, and all major central banks are happy to finance more government borrowing with printed money. After Japan’s election of Prime Minister Shinzo Abe and the undeclared budgetary ceasefire in Washington that followed President Obama’s victory last year, there were just two significant hold-outs against this trend: Britain and the euro-zone. Now, the fiscal “Austerians” and “sado-monetarists” in both these economies have surrendered, albeit for very different reasons.

Much attention has been focused this week on the chaos in Cyprus. Coming after the Italian election and subsequent easing of Italy’s fiscal conditions, the overriding necessity to keep Cyprus within the euro -- and its military bases and gas supplies outside Russian control -- will almost surely mean another retreat by Germany and the European Central Bank from their excessive austerity demands. But an even more remarkable shift has occurred in Britain. The Cameron government, which embraced fiscal austerity as its main raison d’etre, was suddenly converted to the joys of debt and borrowing in this week’s budget.

from The Great Debate:

‘Post-Communist’ Russia and China remain remarkably the same

For a Russian to live in Beijing is to experience time travel. Things long gone in Russia, or stuffed into kitschy theme bars to draw tourists, still appear in China with no sense of irony. There are endless displays of hammer-and-sickles, Red stars, and exhortations to Obey the Communist Party. There’s the rhetorical deification of the worker and the peasant. “Public-security volunteers,” elderly men and women with red arm-bands and a lot of time on their hands, lounge on little folding stools, sizing up passers-by. There are five-year plans, and front-page headlines screaming “Socialist path reaffirmed”.  I thought I left all of this in the 1980s’ Leningrad. But no, it’s all still here in Beijing, instantly recognizable even behind Chinese characters that give it  a new spin. All of which makes it tempting to think how  Russia and China have changed over the last 20 years.

But in fact the opposite is true: their political systems  remain remarkably similar. Both ditched Communism a while back. The only difference is Russia ditched the trappings while China held onto them. The system that emerged in both places operates with fewer overt ideological constraints but with a singular mission: the self-perpetuation of the ruling elite.

Predictions and wishes for Osborne’s 2013 Budget

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By Nick Hostler, tax expert at BDO. The opinions expressed are his own.

Following the recent loss of the UK’s AAA rating, Chancellor George Osborne will be keen to show real progress and dedication towards eliminating the UK’s structural fiscal deficit, but must balance this with ensuring that the UK is a highly competitive and attractive location for multi-national businesses. The Budget should mark a watershed moment for the coalition government as Osborne, with an eye on the next general election, treads a fine line while demonstrating an understanding of the pressures faced by individuals and businesses across the country.

Whether he strikes this balance remains to be seen, but here is what I believe the Budget will have in store.

Budget day cheer is here again

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By Laurence Copeland. The opinions expressed are his own.

Budget Day again, and the pressure on Chancellor George Osborne is rising ominously. There is little agreement about what needs to be done, but complete agreement that something has to change because the state of Britain’s economy is simply awful.

Yet just look at the facts in the table below (all the data are taken from Eurostat, the EU’s own statistical agency). For the latest quarter, the UK economy contracted by 0.3 percent – but France’s performance was just as dismal, Germany’s economy shrank by twice as much, as did the euro zone as a whole. Only the USA achieved a significantly better outcome, a dazzling growth rate of zero  – but at least it didn’t shrink. Year-on-year (Y-O-Y, as the pros call it), the picture is even clearer. Britain’s economic growth, a miserable 0.3 percent, was not significantly lower than Germany’s, but better than France’s minus-0.3 percent, or indeed the euro zone as a whole, which was down by 0.9 percent. Only the USA grew to any significant extent – and there are signs that it may now be starting to slow down, even before the impact of the fiscal cliff and the sequester are felt.

from The Great Debate:

Why the EU is right on Cyprus

The reaction to this weekend’s European Union bailout deal for Cyprus has gone from initial shock to rather predictable condemnation. “Europe botches another rescue,” ran the headline on an editorial in the Financial Times. “It’s as if the Europeans are holding up a neon sign, written in Greek and Italian, saying ‘time to stage a run on your banks,’ ” Paul Krugman, the economist and New York Times columnist wrote on his blog.

As widely reported, the deal has an important claw-back component: a one-time tax on the deposits of everyone who has a bank account in Cyprus ‑ Cypriots and foreigners alike ‑ aimed at raising 5.8 billion euros of the total rescue package of 17 billion euros. It’s always possible that the hyper-alarmist scenario of a pan-European bank run actually takes place, although by Monday afternoon, even jittery stock markets across Europe were starting to grow calmer, as EU officials insisted that the Cyprus deal was exceptional.

In defence of Osborne

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By Kathleen Brooks. The opinions expressed are her own.

The title of this piece may sound like a political rant. It is not. I am probably the least political person you could meet. I am part of the generation where political apathy looms large – you won’t find me interrupting a UKIP member live on TV. In fact, my defence of Osborne is not only from his foes, but also from himself. If that hasn’t turned you off, then read on.

As we lead up to the Budget on March 20, Osborne is coming under intense pressure to do something to save the UK’s economy from a triple-dip recession. And this pressure isn’t just coming from business leaders and the opposition Labour party, it is also coming from fellow Tories, who want to have some chance of winning the next election. It could also be coming from within – Osborne’s approval ratings are dreadful, if they don’t pick up soon he could face the axe.

from The Great Debate:

Preventing mass atrocity after Assad

As the second anniversary of the Syrian uprising approaches, close to 80,000 people have been killed, a million are refugees and several million are displaced. The Syrian army and air force are under severe stress and attacking civilian populations, the revolutionaries are increasingly radicalized in a Sunni Islamist direction and Lebanese Hezbollah as well as Iranian Revolutionary Guards are getting deeply engaged in the fight.

It may seem superfluous to worry about what happens to the Alawite community -- the mainstay of Bashar Al Assad’s regime – after he falls. But revenge killing is common after an uprising of this sort, and few regimes born in mass atrocity survive as democracies. A massacre of Alawites could be prelude to state collapse, an extremist regime and regional warfare far worse than the spillover we have seen thus far.

from Blogs Dashboard:

A devalued pound can’t save the British economy

There it goes again. Sterling has been dropping sharply this year against the U.S. dollar and especially the euro, as Britain turns to a tried and trusted remedy for its economic problems: devaluation. Even with its slight uptick on Wednesday, sterling is down more than 6 percent against the euro since the beginning of 2013 and has slid 10 percent over the past six months.

This is not something the British government is boasting about, especially at a time when there’s concern over -- and sometimes a high-level condemnation of -- countries such as Japan that allegedly seek to manipulate their currencies. But it’s also not something the British government or the Bank of England is trying to hide – or stop.

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