Economics Views : 17 Mar
March 18, 2010
You cannot shake hands,
with a clenched fist.
Indira Gandhi—but there are some occasions, dealing with a bully, for instance, when the threat is more efficacious than the salutation.
Politicians think they’re cleverer than the people.
As a rule, Governments are slow to acknowledge error, and even slower to take steps to reverse it. Ministers seem to imagine that, so long as they deny misjudgment, voters will give them the benefit of the doubt. That’s wishful thinking, of course. In reality, electorates are reasonably well informed and fully aware of the games politicians play.
They’re not. But they are less honest.
In the past, it used to be said that Brits were less duplicitous than others. No longer. Blair and Brown have laid that myth to rest. Their unwillingness to admit the blindingly obvious—in relation to wars, pensions, gold sales and many other issues—makes them as accomplished a pair of tellers of untruths as any elsewhere in the world.
Should we be suspicious of the Greeks bearing gifts or the French being honest?
It’s the French, rather surprisingly, who’ve begun to develop an appetite for candour. Finance Minister, Christine Lagarde, went further last week than most commentators thought possible in acknowledging that Europe’s Monetary Union was proving to be a liability rather than an asset. She didn’t put it in exactly those terms, but she did recognise that the EZ’s policy stance—fiscal balance and monetary rectitude—had delivered no dividends. Countries sticking with virtue had performed no better than those succumbing to vice.
We certainly should. Mme Lagarde probably has an agenda.
More to the point, she identified the misanalysis that had prompted the mistakes. The project’s original plan, she noted, had perceived Germany to be the ideal economy, the Bundesbank the ideal Central Bank. Accordingly, the rest of the EZ had to be encouraged to converge to the German model, not the latter to the former.
She’s right to point out that the EZ’s failed.
That would have been sensible enough so long as Germany’s economy had performed as well after the introduction of monetary union as it did before. But it didn’t. On the contrary, it was chronically disappointing, mired in semi-recession, for the last ten years or more. And the rest of Europe, chained by a currency peg to Bundesbank prejudices (borne during the Weimar Republic), has suffered similarly.
That the Greeks, for instance, can’t live with the Germans.
Mme Lagarde did not recommend that the EZ be abandoned. Instead, she wanted the budgetary rules relaxed, the monetary straitjacket loosened. In part, of course, it was a political power-play. She knew that most members of the EZ were thoroughly disenchanted; that they looked longingly at the economics flexibility and political freedom enjoyed by those who’d been sensible enough not to sign up to a currency bloc. She calculated perhaps that, getting them on-side, she’d restore France to its rightful position as the EU’s political master.
But partial reform is difficult; it has to be comprehensive.
Maybe. But it was a dangerous ploy. The Germans might, if they didn’t like the new rules, refuse to play the game. Quel cauchemar! How would the EU manage if its paymaster chose not to cough up? Who’d be blamed in such an event? French or Germans?
Will the English take advantage? Not with the Scots in charge!
There’s a lesson here for the English. The Commission, prompted by the French, are looking to impose impossibly restrictive regulatory rules on Hedge Funds. How should HMG respond? Easy. First, repeat the French analysis: recognise that membership of the EU has been a mistake. Second, repeat the (posited) German threat: tell the Regulators that the rules are unacceptable and that, if implemented, London’s financial community will take away its ball, and play elsewhere!
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