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

Does a vigneron in Rousillon shed a tear for the Greeks?

Nik Darlington 9.42am

Suppose that North-Eastern England, the region tending to be most heavily dependent on internal transfer payments, went bust, à la Grèce. Would the rest of England feel happy, or even obliged, to bail the region out? Of course it would.

Even if Scotland went belly up, despite all the rumblings of independence, the rest of the UK would come to its aid - as it did, for instance, to bail out Scotland’s biggest financial institutions (and the North-East’s, come to think of it).

But does a vigneron in Rousillon shed much of a tear for the Greeks? Or more to the point, a bank manager in Berlin? Or a station master in Stockholm?

The emotional flaw at the centre of the European Union is that however many years of postwar ‘good Europeanism’ there have been, Europe’s citizens (has that term ever felt less secure?) still feel the tug of the historic, the local and the familiar, more than the modern, the continental and the abstract.

A Greek default and eurozone exit makes dreadful economic sense, unless, perhaps, you’re Greek. Yet Europe’s emotions are directing the popular response, and, in the case of those northern Europeans with apparently unimpeachable morals, even the economic response too.

Follow Nik on Twitter @NikDarlington

European Parliament must find a bigger voice amidst the chaos

Nik Darlington 11.08am

The European Parliament is vast, its shiny superstructure reflecting the functional surroundings of Brussels back on itself. Yet when the citizens of Europe glance proverbially in its direction, it is not a reflection of themselves that they see - a reflection of their current plight - but a remote and faceless edifice.

However once inside, the Parliament shows itself for what it is. Or at least it offers a glimpse of what it could be.

Much happens here, but few follow it, fewer truly understand it, and even fewer, maybe, genuinely care about it. Whatever one’s views about the European Union, this is something to be regretted.

What we think of as the “European Union” is in fact a smorgasbord of not always complementary (nor complimentary) institutions.

Briefly, the Council consists of ministers passing laws, coordinating policies, and generally representing individual governments depending on the subject matter (e.g. agriculture or transport). Note that this is not the European Council we read of David Cameron attending with other heads of government. That irregular grouping sets the EU’s political direction and has no power to make laws.

The European Commission comprises nominees from individual member states who are assigned a portfolio (Lord Mandelson was a trade commissioner, for instance), and represent the interests of the EU as a whole.

Then there is the European Parliament, a body of more than 700 directly elected representatives from throughout the EU. Members (MEPs) serve Europe’s citizens in a similar way to how our MPs operate in Westminster - in essence holding the executive to account, scrutinising legislation, acting on behalf of constituents, and voting on new laws. MEPs typically stand for office as candidates of traditional political parties - e.g. the Conservatives, Labour, or France’s UMP - which subsequently coalesce with other European parties under like-minded umbrella labels.

As Europe lurches from one crisis to another, I believe it is the European Parliament that has to take the lead.

At a seminar for senior editors yesterday in Brussels, an Italian socialist MEP, Roberto Gualtieri, said: “Non è una problema economica, non è una problema tecnocratica, ma è una problema democratica”. Europe is on the brink because it is suffering a crisis of democracy, above all else. While Rome, Athens, or elsewhere burns, unaccountable placemen fiddle at the fringes. Or so the narrative goes.

The response of Europe’s leaders has been politically anaemic and economically heavy-handed. Throughout the continent in recent years, failed governments have been thrown out by voters. Largely in favour of rightist or centre-right alternatives, although the Left’s renewal is gaining traction. And while politicians have scarcely been so reviled, the political process has scarcely so mattered.

At the same time, euroscepticism has probably never been as strong. And not only in Britain. Why? Because at a time of public frustration, citizens are demanding a greater voice - maybe not their voice, necessarily, but a voice that represents their hopes and fears. The European Union, however, is seen to be inimical to that visceral democratic desire.

It needn’t be. A more self-confident and, crucially, better understood European Parliament can be that voice. Its members do, after all, have a democratic mandate. Of course, European elections in Britain typically attract few voters, but apathy is as much the fault of the electors as the elected.

The European Parliament also has, in the experienced German politician Martin Schulz, a president (akin to the Speaker of the House of Commons but with more political power) with strong opinions about the current crisis, and opinions that diverge from the inflexibly austere forces that have led the EU’s response to date. Brussels sources point out that President Schulz’s strong opinions are not weakly held, not shall they be meekly guarded.

In Britain, the public seems to prize that certain sort of parliamentarian who stands tall, is independent and speaks out “for the people”. Europe’s problems are indeed largely economic, but the solutions must be political. And those solutions must be seen to be legitimate in the eyes of Europeans.

There is only one European institution that can achieve this, and therein lies the European Parliament’s unenviable, but also unmissable, opportunity. And, some might add, its duty.

Follow Nik on Twitter @NikDarlington

English wine is leading the way in more ways than one

Nik Darlington 11.53am

The Greek philosopher Diogenes once said, “what I like to drink most is wine that belongs to others”.

That was, in a sense, what we inhabitants of the British Isles were forced to do for hundreds of years.

Whatever might be said about the Romans and their vines along Hadrian’s Wall, for most of history if you wanted to drink wine on these shores then you had to import it and you had to pay a pretty price for it.

Things have changed. The English (and Welsh) domestic wine industry is in very good and ever-improving health, thanks to increasing interest, investment and climate change (yes, it has its silver lining). There are more than four hundred vineyards turning out red, white and sparkling wines, which though admittedly of varying quality, have in recent years hit dizzy heights.

And yesterday the Times (£) reported on what is expected to be a ‘vintage year’ for English wine, with the Diamond Jubilee and the London Olympics earmarked as opportunities to showcase the nation’s best. Indeed, the Olympics cycling road race is due to pass close to England’s largest single vineyard, Denbies, in the Surrey Hills.

But there was another wine-related story in yesterday’s Times (£) that is worth dwelling on.

The EU has plans to abolish vine plantation regulations, which stipulate where and how much wine can be cultivated throughout Europe, so as to limit production, control quality, and maintain prices. However, a number of leading wine-producers, including France, are opposed to any relaxation of the regulations.

Supporters of the reform say it will make Europe’s wine industry more competitive and better able to meet the challenge from New World producers. They accuse France, Spain and Italy and other wine nations of trying to preserve their dominance by preventing the spread of vineyards to other regions and countries.

In 2007, the EU voted to scrap vine plantation rights, which allowed new vineyards and the extension of existing ones. Although the French Government initially backed the reforms, it has since backtracked, in the face of rural fury. President Sarkozy has vowed to fight the move.

Dominique Janin, deputy general secretary of the Assembly of European Wine Growing Regions, told The Times that liberalisation would leave vineyards at the mercy of “hedge funds and multinationals”.

“They are going to plant hundreds or thousands of hectares of vines and we will move towards industrial production,” said Mr Janin. “The consequences will be quite serious. Europe will become like Australia. When you have a plant that lasts 70 years you need rules and harmonious management.”

First of all, it is a bit of a harsh judgement on the New World producers such as Australia. That country’s recent problems, for instance, have more to do with natural disaster (drought) than industrial production. And while the New World produces some frightful cheap plonk, many of its vineyards are have been matching the old masters of Europe for some years now.

But the main point is that the likes of the French are both right and wrong. They are wrong because one of the reasons why the New World is fast catching up with the old is because its vineyards are freer to experiment with grape varieties and production methods, and to expand into new and exciting terroirs.

They are, however, right in that irrespective of how much the New World ‘catches up’ (relatively or absolutely), the unique selling point of the Old World is its history, traditions and styles. They must be protected.

The proper solution would be for the EU to forge ahead with abolishing continental regulations, so allowing certain producers to follow their own path, but to allow individual member states to maintain domestic controls. This type of flexible thinking should not run contrary to any EU anti-competition laws, because the English wine industry is already outside the existing controls.

English winemakers are proving adept at applying the best of the old - such as the classic methods of Champagne to produce top drawer sparkling wine - and at the same time pushing the boundaries, even beginning production of ‘English Malbec’ from imported Argentine grapes (which the EU is absurdly prohibiting).

Much as it is doing so in the glass, English wine could be ahead of the pack in other ways too. Europe, take note.

Follow Nik on Twitter @NikDarlington

Deregulation of small businesses is proceeding quietly but promisingly

Matthew Robertson 6.01am

If you weren’t already up-to-speed with age related allowances, income tax thresholds and VAT on hot baked foodstuffs, the past couple of weeks have put paid to that.

The Chancellor’s recent Budget hit the headlines for many of the wrong reasons. One man, however, has been surprisingly off the radar. Can anyone remember the Business Secretary?

Proposals emanating from the Department for Business, Innovation and Skills (BIS) caught my eye more than anything else in the Budget - and no, that isn’t because BIS is better than the Treasury at stopping leakages.

The Government has repeatedly stated that small businesses are key to the economy recovery. For instance, David Cameron in November 2010:

“I feel very strongly about the need to do everything we can to help and promote small and medium-sized businesses. They provide nearly 60 per cent of our jobs and half of our GDP.”

The thinking is this: deregulate on behalf of these companies and they will invest, grow and hire new employees.

There have been no headline grabbing proposals so far but there has been some quiet progress. In October 2011, BIS released a discussion paper entitled ‘Simpler reporting for the smallest businesses’. It was not a statement of government policy but it did offer ideas and evidence that the Government seems to have taken on board.

The main idea was to reduce reporting requirements for micro entities. These micro entities do not actually exist in this country yet but they were defined by the EU competitive council in February 2012 as any company that matches two of the following three thresholds:

1. Turnover less than €700,000
2. Gross assets less than €350,000 
3. Fewer than 10 employees

This would cover approximately 60 per cent of UK companies registered at Companies House.

The reporting requirements for these companies would be significantly reduced. A profit and loss statement would not need to be filed at Companies House and only an abridged balance sheet would need to be prepared.

In plain English, if these proposals are adopted, a significant amount of work and expense undertaken by small companies to prepare accounts would no longer be necessary.

Meanwhile, the Office of Tax Simplification (OTS) has conducted a review of small businesses, in which it was found:

“Despite devoting time, expense and care to calculating tax and filling in tax  returns, half of small businesses worry about making mistakes in applying the rules. They also found that 20 per cent of small businesses (potentially 700,000 businesses) have difficulty working out how much tax they need to pay, and that half of all small businesses had experienced difficulties identifying what is a deductible expense.”

The OTS goes on to recommend:

“Small, unincorporated businesses should have the option to calculate their taxable income on simpler cash receipts and payments basis.”

It is not certain what impact these proposals would have on small businesses if implemented, but the Government hopes they will provide businesses with more assurance on tax issues, which could lead to more business confidence and a boost to the economy.

These proposals have undoubted benefits. Whether banks would be more or less willing to lend, however, is unknown, but the thinking from BIS is that complex regulation currently impedes small businesses from accessing credit. This lack of access is in turn preventing investment and hiring.

There are many difficulties, such as the concern that these basic accounts would be inferior to those published for other, bigger entities. This could counteract any help small businesses get from reduced complexity in terms of accessing credit.

Above all, these proposals do not seem to consider how useful accounts can be. For instance, a receipts and payment account does not indicated a company’s profitability and would be subject to manipulation (e.g. a company with a cash surplus of £2 million could spend all of that on a new building or a machine just before the end of the tax year, thus giving it a net figure of zero). Users of these accounts would be handicapped by the lack of recorded trading activity, not to mention the effect it would have on the tax chargeable to these companies.

A better approach would be to simplify the tax system itself, in particular by merging PAYE and NIC operations. The contributory idea of NIC has long since disappeared. Furthermore, the result would be more upfront about true total tax rates, which would help to clarify the taxation debate and possibly put pressure on the Government to reduce taxes. The Budget states that the Government is consulting on this change so we will have to wait and see.

Whatever direction we are heading, these proposals could have a great impact on small businesses across the country. What cannot be denied is that the Government is trying to make Britain appear ‘open for business’ by assisting small businesses, the bedrock of the economy.

It might not be the most fashionable or tabloid-friendly sentiment but small businesses are going to determine how quickly Britain grows out of these difficult times - not the 50p top rate, not age related allowances, nor VAT on food.

Matthew Robertson is a trainee accountant. Follow Matthew on Twitter @FlatFootTory

Though an American will win, an African should be the next President of the World Bank

Alexander Pannett 7.15am

The World Bank is about to elect a new President.

There are three very well qualified candidates, who all promise to change an institution that has suffered severe criticism in recent years about its approach to global development.

The World Bank has a real opportunity to select a President from a developing nation and break out of its image as being run at the behest of the World’s richest nations (i.e. the West~).

In this regard, there is a clear favourite in Nigeria’s finance minister, Ngozi Okonjo-Iweala (pictured above). As well as being an economics graduate from an Ivy League university and a former managing director of the World Bank itself, she has a proven track record as a finance minister of a major developing nation.  She also has the backing of the African Union. Who better to reform the World Bank and revolutionise its approach to the developing world?

Unfortunately, every president since the bank’s creation in 1946 has been an American. This is the consequence of a gentleman’s agreement with European nations. They support an American candidate for the World Bank and, in return, the Americans support a European for the head of the International Monetary Fund (IMF), its sister organisation.

Voting at the IMF and the World Bank has also been weighted in favour of richer, Western nations. Thus the global financial institutions of the Bretton Woods system have been dominated by westerners since their inception.

Such a bias towards the developed world has attracted criticism that the conditions of economic funding to developing nations are often unsuited to those nation’s particular needs, concentrating on short-term GDP growth rather than long term stability. The results have often led to painful restructuring of traditional societies, local industries and employment practices as economies are forced to open up to global free markets in return for capital from the World Bank.

The experiences of Russia, Eastern Europe, Asia and Latin America in the 1990s, are all demonstrative of this economic “shock therapy”, which often achieves more harm than good by forcing countries to accept structural adjustment packages which are tied to strict conditions resulting in a developing country deepening its dependence on foreign financial flows.

The consequences have been spiralling debt, massive unemployment, rising economic inequality and widespread social depredation as social services crumbled.

Developing countries that accept credit from the World Bank to ease desperate liquidity concerns have ceded economic sovereignty to World Bank supervision, where World Bank consultants can intervene and recommend private investor infrastructure ‘partnerships’ in areas ranging from health and education to utilities.

This transfers economic authority to the IMF, World Bank and foreign investor interests, leaving the developing country with little option but to accept strict conditions in order to ensure continued access to credit in order to meet its debts. Structural adjustment packages have deepened and prolonged financial crisis and underdevelopment in many cases and undermined the sovereignty of developing countries.

This is why a World Bank president who understands the harm that neo-liberal economic policies can impose on un-prepared markets is vital if developing nations are to secure lines of credit that promote sustainable development rather than trap nations in debt.

Regrettably, the chances of a non-American becoming president are nil. With the Europeans having secured the American vote for the election of their candidate, Christine Lagarde, to lead the IMF, they are certain to return the favour. Moreover, it is election year in the United States and President Obama will not want to be seen as weak by becoming the first US President to fail to have their World Bank candidate elected.

This is not to say that President Obama’s nomination, Jim Yong Kim, is not an excellent candidate, with an impressive reputation in international development.  He is also a doctor and former World Health Organisation official. The fact that President Obama has selected an individual with deep experience in development rather than a former politician or banker, as all former American nominations have been, suggests he is starting to address concerns that the World Bank be changed to meet the needs of developing countries rather than be a mere Jesuitical proponent of laissez-faire economics.

Yet until the World Bank and IMF appoint candidates according to merit rather than arcane arrangements, we will carry on wasting chances to help developing nations in a sustainable way and alleviate the grave poverty and environmental concerns that will continue to afflict both humanity and the biosphere we live in for the foreseeable future.

Follow Alexander on Twitter @alpannett

Governments can lead industrial strategy, and Lord Heseltine for one should know how

Nik Darlington 8.48am

“Eleven years is a long time in this industry,” said technology pioneer Steve McConnell.

It is. Eleven years ago, I was plugging a clunky laptop into a telephone line in order to download a web page in the same amount of time it took Roger Bannister to run a mile. Sometimes even as long as it would take Ed Balls to run a mile. Yet this morning I travelled to work flicking through a variety of newspapers on an iPad.

But if a week is a long time in the industry of politics, on another hand, then eleven years might be considered a lifetime.

Not for TRG patron Lord Heseltine, whose maiden speech in the House of Lords was delivered last week, eleven years after his being elevated to the peerage. Reassuringly steady, I’d say. Don’t pop your head above the parapet until you’ve get the measure of a place.

Flanked by former Cabinet colleagues Lord King and honorary TRG life member Lord Howe, the former Deputy Prime Minister spoke about his new and “expanded” role improving the competitiveness of British industry.

And this morning he has an op-ed in the Times (£), in which he demands brutal frankness about the country’s weaknesses if we have any hope of becoming world-class.

“There are exciting new markets but we rarely ask ourselves how we can compete in them against German, French and Italian business if we cannot compete in our our European home market. In Government in the 1990s, I was told that 40 per cent of our companies were world-class; the German equivalent was 60 per cent. When the Chinese Prime Minister left the UK a few months ago he placed orders for £1 billion. A few days later he placed orders for £14 billion in Germany.”

Acknowledging our relative decline is but one step. Lord Heseltine insists we must invest in long-term factors such as infrastructure, R&D and schooling for the young to ensure workers are ready-made with the right skills.

And significantly, Government must have a role in shaping long-term industrial strategy and investment, because the private sector - in search of a quick(er) buck - won’t.

“It is a common criticism that we are too short-termist in our approach to investment. So we need to ask who owns British industry, and whether they see themselves as having a responsibility for anything other than short-term valuations of their shares. Our largest institutional investors are owned and managed internationally, and are thus unlikely to see themselves as a driving force of UK plc. How do we deal with that?

Of course, governments can only set the foundations - individuals and companies must stand up and deliver too. We all have to take responsibility for making Britain more competitive.

“Trade associations can encourage their members to raise their game but are they strong enough to tell their less effective members - the slowest ships in our industrial convoy - that their failure may be their fault and not that of the Government or the economy…

“I intend to ensure that these hard questions are not just grappled with in the heart of Whitehall but that they also get a response from boardrooms and council chambers up and down the country. Otherwise we will not be able to craft an industrial strategy that will give us the growth and jobs we so painfully need.”

“From Liverpool to Canary Wharf, Michael knows how it’s done,” said the Chancellor, last week. The coalition is an ideal setting, and the economic downturn an apt scenario, for this more dirigeiste approach. And few at the top of politics believe in that approach as fervently as Lord Heseltine.

Why? Because few others have proven how well it can work.

Follow Nik on Twitter @NikDarlington

Boris Johnson and the Angel in the Marble

David Cowan 10.15am

Boris Johnson is the darling of the Tory grassroots. From the pulpit of his Telegraph column he has hurled bread to his Tory base. His support for tax cuts, higher police numbers and his stance on Europe reveal a populist streak. He has earned the affection of ordinary Tory voters in a way no other Conservative politician, including David Cameron, has managed.

That is not to say Boris Johnson is a Tory ideologue. He is a very much a Tory pragmatist who has tried to appeal to the liberal metropolitan London electorate with substantial increases in the London Living Wage, criticism of housing benefit reform, and support for an amnesty for illegal immigrants. Appealing to the outer suburbs will not be sufficient for a successful re-election campaign. Getting out the vote will be his first priority and that means he has to appeal to a very broad range of people.

This approach has risked making attempts to identify Boris Johnson’s political philosophy like nailing jelly to the wall, but his appeal to the traditional Tory base and the wider liberal metropolitan electorate has been reconciled by the man himself:

“I’m a one-nation Tory. There is a duty on the part of the rich to the poor and to the needy, but you are not going to help people express that duty and satisfy it if you punish them fiscally so viciously that they leave this city and this country. I want London to be a competitive, dynamic place to come to work.”

This is reflected in his impressive record as Mayor (see my earlier blog here), with greater investment in public infrastructure, falling crime rates, and the freezing of council tax. But Boris seems to lack a singular, large achievement that people can easily identify.

By contrast, Ken Livingstone has developed his own narrative by attempting to transform the Mayoral Election into a referendum on ‘Osbornomics’.

Boris Johnson’s personal popularity and impressive record may be enough to secure a second victory but it will do very little for the Conservatives in London. Polling puts the party well behind Labour. This may well mean that the Conservatives will lose the London Assembly but, more seriously, it will also mean a lack of support in the London constituencies that are needed to win the next General Election in 2015, such as Hammersmith.

Boris Johnson must use his time in power to see the Conservative voter in the London electorate as a sculptor sees “the angel in the marble”, as the Times claimed Benjamin Disraeli once did. There are limitations to the Mayor’s powers, but the key to establishing a wider Tory base could lie in his ‘One Nation’ vision.

One of the basic foundations of ‘One Nation’ conservatism has been the ‘property-owning democracy’, as popularised by Anthony Eden and first made a reality by Harold Macmillan’s ambitious 1950s housing programme. Boris Johnson could take this one step further by establishing a new generation of property-owners, and therefore more likely to vote Tory, by implementing a Right to Own scheme, as proposed by five Conservative MPs in ‘After the Coalition’.

Under the Right to Own scheme tenants of social housing would have an automatic share in the equity of the property which they could then choose to sell onto the open market. The equity owned by the tenant would then be used to help pay for a new private property and thus begin to climb the private property ladder. The rest of the money from the sale of the property would then go to the new ‘mayoral development corporations’, which will replace the London Development Agency, and be invested into new modern social housing to meet ever increasing demand in London. This would drive down housing prices and open up access to private property in London’s deprived areas, thus increasing the number of property-owners in London.

Coverage of this year’s mayoral election will inevitably focus the personalities of Boris and Ken. But Conservatives cannot lose sight of the long-term future of the party in London. A new generation of homeowners, supported by efficient infrastructure, effective policing and a prudent City Hall would provide a new Tory base in London from which to secure an overall majority in 2015.

Follow David on Twitter @david_cowan

Subscribe, donate or volunteer atBack Boris 2012or follow on Twitter @BackBoris2012