As Europe sinks we should look to new horizons

Alexander Pannett 12.30pm

This week it became clear that the procrastinated efforts to save the European single currency have failed.

Greece will leave the single currency when it votes for anti-austerity political parties in a month’s time. Possibly even the European Union too if Greek anti-European sentiment continues to grow.

What must be done now is ensure the contagion does not spread to other peripheral countries: Ireland, Portugal, Spain and Italy. This may even be too late, as we receive reports of a bank run in Spain. If the markets lose confidence in these countries’ ability to manage their debts it will precipitate a collapse of the entire European banking system as capital flight prompts liquidity to dry up, as in 2008.

David Cameron has called for fiscal and political union as the only way to shore up confidence in the euro and stop it being seen as less a single currency and more a strict exchange rate union ready to be un-raveled.

The Prime Minister echoes calls from other European leaders for more concerted action to save the euro, notably via the use of ‘eurobonds’. I proposed on these pages in November last year that without further political solidarity the euro was doomed.

Political solidarity has not emerged. Instead there is growing acrimony and competing ideas. If anything, the unfolding disaster has exposed the fractious concept of common citizenship behind the entire European project, something Nik alluded to earlier this week.

There is no interest in Europe. There is only a Europe with interests.

It is not too late to salvage the ambition of closer union. But for now this can only be a Franco-German union. Only those nations who will accept being absorbed under the dictates of Paris and Berlin shall join. For the rest, the EU will remain a trading block, and an economically and politically impoverished one at that.

It seems that the great play of world history is about to leave the European stage and transpose itself to the more exciting and economically dynamic scene of Asia. Whether this new Act will be of tragedy or farce is as of yet unknown.

For Britain, we are too old an actor to play outside the limelight. Our pride is too heavy and dress bill too dear. It is time we pursued a new free trade pact with countries in Asia.

We could start with Australia, New Zealand, Korea, Japan, America, Indonesia and Singapore, perhaps with the old Commonwealth as the foundation. This could and should include those European nations that share our interests in global trade.

Such a free trade organization would also be able to promote a more responsible capitalism in global trade that protected the environment, traditional cultures and social values. Far better to promote progressive humanitarian standards by engaging with Asia rather than heckling it behind trade barriers.  

We should mirror America’s re-orientation to Asia by reversing the Suez doctrine and re-establishing naval bases in Asia. Singapore may value such a presence. This does not even have to be a military base but could be a humanitarian crisis response centre, in readiness for when another natural disaster strikes that seismically vulnerable part of the world.

Europe will still remain important to Britain. But it should be seen and supported as a neighbour. Not as our place of work.

For that we will need to travel further afield.

Follow Alexander on Twitter @alpannett

George Osborne has to dump this toxic 50p tax rate

Craig Barrett 11.48am

Time and time again, I am reminded of those words of Sir John Major, spoken early on in the Blair maladministration:

“The Conservatives are elected to govern, Labour governs to be elected.”

So nightmarishly often in those thirteen years was policy made on the hoof. We endured a bewildering array of ill-thought out responses to opinion polls, designed to retain an unnecessary lead with no election in sight.

Of all the policies adopted by the last Labour government, none was more cynically designed to make life difficult for a future Conservative government than the 50 pence tax rate.

A lot has been written saying it is unlikely to cover the costs of its administration. But even to analyse its economics is to give Messrs Brown, Balls and Miliband the undeserved courtesy of implying they have any kind of grasp of basic economics.

Put simply, the 50p tax on incomes over £150,000 was designed to be eye-catching, a demonstration to the masses that Labour was prepared to soak the rich until the pips squeaked, so to speak.

Much of Gordon Brown’s fiscal policy during his tenure at the Treasury was less about raising revenue and more about making the tax system too complicated for people to understand.

Faced with a possible Conservative election victory, Brown’s Labour government knew the 50p tax policy was one that a future Chancellor Osborne would find difficult to reverse. The left-wing media would instantly bash it as a tax cut for the rich.

Yet abolish it Mr Osborne must. I have written before about the dangers of punitively high and unjustifiable taxation in a mobile global economy. This applies both to individuals and companies - the news earlier this week that Prudential may shift its headquarters to Hong Kong demonstrates our loss of competitive advantage.

Nearly 30 per cent of all income tax revenue is paid by the top 1 per cent of the earning population. We would all have to work a lot harder to replace one high earner who fled abroad to protect their salary. Many people may not hold much of a candle for high earners these days, but surely it is better that they and their companies remain on these shores so their taxes pay for British hospitals, rather than Chinese ones.

I welcomed the news yesterday that 537 entrepreneurs have written a letter to the Telegraph calling for the Chancellor to abolish the 50p tax rate. I understand that self-assessment tax revenues have fallen by £509 million year-on-year, which these entrepreneurs attribute to the toxic top tax bracket.

A tax that costs more to administer than the revenue it generates is no tax at all. It is just a soundbite. An embarrassing sop.

As the Chancellor prepares this month’s Budget, fully three years before the next general election, he must take note to use the opportunity to announce that Britain is open for business and encouraging of growth.

And there is one lesson he could learn from Gordon Brown, the old master of hiding bad news amidst the details. Just as Brown silently abolished the 10p tax band (doubling the tax rate on the lowest earners), so must George Osborne silently abolish the 50p rate.

Labour MPs, rightly, wailed with fury at that earlier sleight of hand. Conservative MPs will only cheer, rightly, at the sight of the second. The loss of a tax rate whose only effect is to tell the world the UK is not on the side of the wealth generator is nothing worth crying over.

Follow Craig on Twitter @mrsteeduk

China can still learn from the West

Alexander Pannett 11.50pm

This week has seen the visit of Xi Jinping, the Vice-President of China, to the US.

It has been heralded as an important moment for the man widely expected to become China’s next president.

If this is so, Xi Jinping will be the leader of China at the moment that China has been forecast to eclipse the US as the largest economy in the world (in 2023).  To underline the importance of this fact, this will be the first time that a non-Western nation will have been the largest economy in the world for 500 years and the first non-democracy in almost 200 years.

The visit has again raised debate over the huge economic achievement of China compared with a soporific West that seems to lurch from one debilitating crisis to another. Commentators have insisted that it is now the West who should take political and economic lessons from China regarding the “China Model” of state capitalism rather than the alleged languidness and instability of the Western democratic model.

Impressive and sustained Chinese growth has been the defining feature of geo-strategic politics over the last 20 years cannot be denied. It appears that the rise of Islamic terrorism was a minor detour against the real historical changes affecting the world; the continuing transfer of wealth and power from West to East.

 Chinese advocates point to their government’s long-terms solidity, being able to implement projects that bring economic growth regardless of public opinion. The one party state can extend its will throughout China as no Western democratic government can. This allows for extensively ambitious construction works that have forged an infrastructure that has driven China to its current economic paean.

While the East has grown in importance, the West has descended into paralysis due to internal disputes. In the US, politics has never been more partisan, which has resulted in repeated failure to reach an agreement in lowering the titanic debt that is undermining America’s stature in the world, symbolic as the Chinese are the main creditors of this debt. In Europe, a sovereign debt crisis that has no end in sight threatens the very survival of the European Union.

America’s war on terrorism has shattered the Western unity that existed during the Cold War. Worse still, the Western intellectual genealogy that stemmed from a shared Enlightenment inheritance appears to be fraying as an increasingly secular and liberal Europe drifts further apart from an increasingly religious and conservative America. As America looks to the Pacific, Europe is becoming more pacific.

However, while there are undoubted merits to China’s economic growth, it still has much to learn from the West. Fractious as Western politics may be, democracies benefit from an attribute that all the economic growth in the world cannot bring: accountability.

Ruling through the acquiescence of the people ensures that Western governments must justify why grand endeavours are of benefit to their people. This checks the more hubristic ambitions of politicians. It also brings a modicum of transparency to the corridors of power that can too easily be swayed by vested interests, even corruption.

 A society that permits free expression will produce more innovative thinkers than a state that rejects views that differ from its priorities. It is telling that China has caught up with the technology of the West not from creating rival products or ideas through native research and development but from widespread piracy of Western intellectual property.

Though its economic growth has been herculean, China’s environmental record has been consequently sisyphean. Development has led to huge water shortages, with more than two-thirds of cities reporting an inadequate water supply and two-thirds of Chinese lakes have chemical deficiencies caused by pollution according to government estimates. Huge dust storms now envelop Beijing due to increasing desertification from over-farming. In 2005 China’s worsening air pollution cost the country $112 billion in lost economic productivity.

This is to say nothing of the social costs that have resulted from human rights abuses and a growing economic under-class. Despite its prosperity, most of China’s population earn too little to reach the threshold for income taxation. Only 24 million people make the $545 monthly threshold for taxation, according to the Ministry of Finance.

 This is the dark underside of a political system that is not accountable for its actions. The former USSR provides plenty of horrendous examples of wide-reaching government ambitions having ill-thought out and disastrous consequences. The Aral Sea is now an environmental wasteland and half its original size, due to extensive Soviet irrigation that attempted to turn Kazakhstan into a giant rice and cotton production centre. The Chernobyl nuclear disaster is another example.

 The Western model of democracy is not the only model of governance or without its own faults. Western governments have often been guilty of grand strategies that have brought more pain and suffering than any lasting achievement. It should also be recognised that the current Chinese one party model originates from political ideologies that were cultivated in the West.

 However, before China grows too confident in its own manifest destiny, it should be aware of the severe dangers of a government that rules without accountability. While China’s economic achievements currently dwarf those of the West, China still has much to learn from Western democracy.

Let us hope that the coming century will be a beacon of mutual erudition between East and West. A Confucian century of social harmony, rather than a Machiavellian century of rivalry.

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Iraq was a failure of the neo-conservative world view

Aaron Ellis 9.17am

Iraq is the centre of the world and crucial to the United States’ wider foreign policy. President Obama is a failure and President Bush is as wise and as farsighted a statesman as General Eisenhower or Ronald Reagan.

This is the context in which we must understand the U.S. withdrawal from Iraq, says Tim Montgomerie.

Last week, Mr Montgomerie attacked President Obama’s withdrawal from the country. He contrasts it with President Bush’s decision in 2007 to ‘surge’ American troops in order to regain momentum against the insurgency. Typically, Mr Montgomerie presents the reader with black-or-white choices: Bush is good, Obama is bad; and if you support the withdrawal, you “hate freedom”.

Neo-conservatives possess a dated worldview – and it shows. They are stuck in the early 2000s and the language of the War on Terror. They show no appreciation of grand strategy in his article or the coming of the ‘Pacific Century’. This is in stark contrast to President Obama, which is why Iraq should be added to the list of foreign policy failures by neo-conservatives and not the President’s.

The two decisions of Presidents Bush and Obama that we should contrast are the former’s decision to invade Iraq and the latter’s announcement last month of a new American military base in Australia.

For no good reason at all, President Bush burdened the United States with a disastrous war in a country of only marginal importance; he handed “a massive gift” to Tehran as a result, and distracted Washington from a real challenge to its power: China.

With his own announcement, however, President Obama sent a signal to Beijing that the U.S. was no longer distracted. The new base, the President said, was “a deliberate and strategic decision – as a Pacific nation, the United States will play a larger and long-term role in shaping the region and its future, by upholding core principles and in close partnership with allies and friends.”

The great scholar Walter Russell Mead has described President Obama’s announcement, and other diplomatic coups the U.S. achieved in Asia last month, as the “coming of age of the Obama administration and it was conceived and executed about as flawlessly as these things ever can be.”

If we understand the Iraq withdrawal in this context then it is obvious which of the two presidents can claim to be a wise and farsighted statesman. “Regardless of whether the twenty-first century will be another ‘American century’, it is certain that it will be an Asian and Pacific century”, Richard Haass, President of the Council of Foreign Relations, has written. “It is both natural and sensible that the US be central to whatever evolves from that fact.”

This undermines many of the neo-conservatives’ other beliefs. Tim Montgomerie is disappointed that the U.S. will not have a “foothold” in Iraq but he does not explain why such a foothold is important to the U.S. He has tweeted praise for a Mitt Romney line about whether a government scheme is so crucial that it is worth borrowing money from China to pay for it, but he hasn’t yet answered whether the same test can be applied to Iraq.

The fact that the interests of the United States are in Asia-Pacific also undermines the examples of post-war Germany and Japan as templates for American policy vis-à-vis Iraq. Those two countries mattered to U.S. security after 1945, justifying the time and money spent on developing them. You cannot make the same argument with regard to Iraq.

Follow Aaron on Twitter @AaronHEllis

World Water Day 2011: Water matters for global security as well as development

Nik Darlington 12.33pm

Today is World Water Day. It was first commemorated in 1993, having been set up a year before by the historic Rio Earth Summit.

This year’s theme is “Water for Cities: Responding to the Urban Challenge”. More than one in two people live in a city - in fact, at 3.3 billion people, this is the first time that a majority of the world’s population live in cities. Urbanisation continues apace throughout the world, including in the UK, but 93 per cent of this process is happening in poor or developing countries (Africa and Asia have the fastest rates of urban migration). According to World Water Day, between 1990-2001, the world’s slums increased at a rate of 18 million people per year. This could hit 27 million between 2005 and 2020.

The key challenge is securing basic water and sanitation. Diarrheoa kills 4,000 children each day. In Africa, more children under five die from this easily treated disease than any other.

Last month, I wrote about the important work that Andrew Mitchell and DFID are doing to increase the UK’s foreign aid to the countries that need it most, to target this aid better, and to reform the way it is delivered. The root-and-branch reform of UK aid includes strong commitments to improve sanitation and water supply. This is a continuation of the good work completed under the last Labour Government. In 2009-10, DFID provided safe water to around 2.8 million people in Africa and 2.3 million people in Asia. On top of this, 1.8 million people in Africa and 14.5 million people in South Asia now have access to better sanitation. We must not let these standards slip and I am delighted that Andrew Mitchell shows no sign of doing so.

Water is one the world’s most unheralded geopolitical challenges. The ‘war on terror’, climate change or the Middle East peace process it is not. Yet in many parts of the world it is a potential flashpoint for equally destructive conflict.

This is the argument put forward by Lord Patten, chairman-elect of the BBC Trust and a TRG patron, in his superlative book What Next?: Surviving the Twenty-first Century. He writes that only $15 billion would be necessary to fulfil the Millennium Development Goal of halving the number of people without access to safe drinking water. How much do we spend every year on bottled water? $100 billion.

Most interestingly, Lord Patten takes water beyond the development mindset and into security matters, citing the massive regional significance of the river Jordan in the Middle East. Whoever controls those taps wields massive power.

Water’s critical importance is not readily apparent to us in the West. Our 24-hour news channels provide wall-to-wall coverage - and understandably so - of North Korean missile tests, bomb scares at airports, and the astonishing uprisings sweeping across the Middle East and North Africa. This is not going to change but these commemorative days, like World Water Day, hopefully go some way to reminding people of all the other very grave development and security challenges we face.

Finally, if any readers happen to be running the London Marathon next month and you spot the man running for Water Aid, give them a wave and applaud them for supporting such a good cause.

Then kick the so-and-so in the shins for pipping me to the finish line last year. After 26.2 miles, you don’t want to be beaten by a person dressed up as a toilet.

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