Open speculation about whether Greece can remain a member of the eurozone is “damaging” for the whole of Europe, Chancellor George Osborne has said.

Weds 16th May:

Europe faces the potential break-up of the single currency unless it takes urgent action to deal with the euro crisis, Prime Minister David Cameron warned today.

You couldn’t make it up etc. etc.

Anyway, enough about that. Here’s Dan Hodges’ latest piece for the Telegraph.

This is total bollocks.  It’s also totally unsocialist.

Leaving the euro (and re-establishing the Drachma) may well be exceedingly good for a few Greeks, but it will be very bad news indeed for the vast majority.

While it’s impossible to say exactly how leaving the Eurozone might pan out, these will be among the consequences*:

1. Within a day of the creation and flotation of the New Drachma (probably only electronic and virtual at first as it will take three to four  months to print a new currency in sufficient quantities), its value will crash against ‘hard’ currencies, and the purchasing power of Greeks for anything imported will be slashed.  It’s impossible to know by how much, but a cut of 75% purchasing power is certainly not out of the question. 
2. In an internationalized economy like Greece, there is no such thing as ‘out of the euro’. Most rich Greeks able to do so will already have stored their wealth elsewhere and the capital flight will continue to happen.  The idea of proper capital controls is frankly fanciful.  As holders of still-valid euros, or other ‘hard’ currencies, they will then be in position to purchase both the assets and labour of the mass majority of increasingly desperate Greeks at rock-bottom rates. 
3. A dual economy will swiftly emerge, as in pretty well all countries without their own hard currencies.  This will further deepen inequalities in daily life, potentially even with usual services and products only available to those with access to hard currency, as will the emergence of black market currency trading, where the New Drachma is even less valuable than at the official exchange rate.
4. This might be exacerbated by the government seeking (understandably) to gather its tax revenues in hard currencies, although for the long-term it is better off using taxes collected in New Drachma as a way of stabilising and promoting its use within the wider economy (cf. by way of contrast Bristol City Council’s innovative plans to accept business rates payment in the “Bristol pound” as a way of promoting its use as a tool for local economic sustainability).

In short, then, it seems bizarre that socialists should be arguing for a ’resolution’ to the current crisis, whereby ordinary Greeks fall prey to even greater exploitation, and wealth inequalities become even starker.

Fortunately, the signs are that SYRZIA have decent economists, who realise what the official exit from the Eurozone would mean for their constituents.   While they are firm in their commitment to ending self-defeating austerity, they have already stated that they want Greece to remain in the Eurozone.

If British and other European socialists really want to help their comrades in Greece, they would be better off stopping the reality-free anti-German rhetoric, and starting to throw up alternatives that might assist their Greek comrades, as the latter enter an inevitable period of brinkmanship with Merkel and the European Commission.

One alternative already exists, of course.  This, as our very own union economist Duncan Weldon has set out, is through “artificial devaluation”:

By imposing a duty on imports and equal subsidy to exports a country can, in effect, devalue its currency without leaving the Eurozone. A, say, 15% surcharge on imports and a 15% subsidy to exports in Greece would be effectively a 15% devaluation in the currency.

As these countries run deficits it would, at first, be fiscally beneficial as the surcharge on imports outweighed the costs of subsidised exports.

When Duncan mooted this to economist colleagues in Rome the other week, he wasn’t laughed out of the room in the way he might have been a year ago.  Of course there is a reluctance even to think about tinkering with the fundamentals of the Single Market in this way, but as ‘eurogeddon’ approaches for both Greece and the rest of Europe, a temporary fix like this may start to seem an awful lot more attractive, and it might be possible to reach a compromise which includes a fix like this alongside a further debt ‘haircut’ for creditors, in a way which allows both Merkel and co claim that they’ve not let the Greeks of scot-free, but bringing the debt repayments into the realms of the achievable (or at least creating a breathing space while a new haircut plan is developed). 

For ordinary Greeks, artificial devaluation would also mean a major hike in prices, just as leaving the euro would, but at least it would affect ALL Greeks.  That may be preferable to a massive and permanent shift in the balance of financial muscle in favour of the part of the population that got them into this mess in the first place.

The question for socialists outside Greece is whether they prefer an end to this crisis which leave Merkel with egg on her face but the Greek people destitute, or one which lets Merkel leave office without the eggy bits but keeps the Greek people somewhere above the bread line.

Call me a hoary old social democrat washout, but I know which I prefer.  

* For a much more detailed assessment of how the euro would end as the national currency of Greece, and the New Drachma be established, Modern Monetary Theorists like Edward Harrison and Marshall Auerbach are helpful. 

Note, however, that they favour exit from the euro and the establishment of the New Drachma because they fail (or do not want) to see the economic consequences for real people, preferring instead to see Greece as a test case for their theories about how a new currency might be established  through the use of coercive currency switching (aka. theft) and Drachma-based taxation.  They also appear totally unrealistic about the capacity of the Greek government to impose its political will throughout its bureaucratic machinery.

I’ve skim-read through the collection, but one particularly interesting piece I found was the one by Tracey Crouch, the Conservative Member of Parliament for Chatham and Aylesford.

Crouch’s essay aims to show that the “Conservative party has changed so it is no longer simply focused on core policies and that it can be confident in securing public support to having an understanding of wider, modern day issues”.

Given the recent criticisms of the party, and of Cameron and Osborne in particular, that they are “arrogant posh boys” who have no idea what, among other things, the cost of a pint of milk is (which, if you’ve seen the film The Iron Lady – which as of last night I have – you will know Mrs Thatcher did, and she was not best pleased at how much it has increased. Her move on milk when she was PM was a bit hasty, but that’s for another time), it’s no wonder that up and coming figures feel they need to re-de-toxify the brand.

But on matters of personal debt, and how new conservative MPs climbing the ranks have a handle on it, there is hardly any better than Crouch to comment. I had the good fortune of interviewing her myself towards a book I’m writing, and she told me about her own financial mismanagement on leaving university. She has since called it “youthful stupidity” but her £15,000 credit card and store card debt was largely the outcome of living a lifestyle she couldn’t afford, which some of her peers could.

When I spoke to Crouch she told me that much of the problem today had to do with a kind of quick-fix “I want it all, I want it now” culture. In many ways this is correct, with products being available on the market only a short while before something else comes along, there is a race to purchase new gadgets before they are seen as out of date. But whether this is the cause of sky-high unsecured debt is another question.

As an article on soaring personal debt in the Telegraph put it “Average incomes have fallen by nearly 3.5pc in real terms over the past year, squeezing budgets even further as consumers have faced soaring bills.” We must not forget that not all debt is to do with financial imprudence, but a failure of our incomes catching up with rising cost of living today.

Elsewhere, Crouch does well to show the positive side of access to credit, but highlights the negative aspect which has seen a rise in what PWC has called the underbanked – those who still have bills to manage and cashflow problems to overcome, but are restricted in their access to mainstream credit products.

As Crouch rightly notes, this has seen “a rapid rise in [the market share of the payday lending sector] from £500 million in 2007 to £1.7 billion in 2010.”

To solve this, we need a radical rethink on how to properly regulate the credit market and curb the dominance payday lenders have over the lives of so many vulnerable people.

Although Crouch is thankful for BIS examining the idea of imposing a cap on the total cost of credit, this has been driven by yet another expensive research grant to the very worthy Personal Finance Research Centre in Bristol University – despite there already being a great wealth of supporting literature to back up the benefits of a cap.

I think Tracey Crouch is a good asset to politics, and her own experience has clearly impacted upon the way in which she views the dire personal debt outlook in the UK – a nuanced view that was perhaps missing when Cameron told us all to pay our debts back.

But I do think the coalition, which her party leads, has a lot to answer for. This is, after all, the coalition of child trust fund cuts and rollback of the social fund. I think Crouch would do better to be more critical of the government, it would certainly help her case.

On 10th & 17th June, we have a two-round electoral contest potentially as exciting, and as important for France, as the election of President Hollande.

That’s because Jean-Luc Mélenchon, leader of the leftwing group Front de gauche (FG), has just confirmed his candidacy in the 11th circonscription of the Pas-de-Calais département, where he will go up against Front National leader Marine Le Pen in the legislative elections, at which 577 deputés are elected across France to sit in the Assemblée Nationale.

This is a somewhat risky strategy, as Le Pen led here on the first round in the Presidential election with 31.4% of the vote.  The second round (Hollande vs. Sarkozy) went to Hollande with 60.5% of the vote as FN voters obeyed Le Pen and abstained.

Much will depend, therefore, on whether Parti Socialiste (PS) voters choose to back Mélenchon at the expense of their own candidate, Philippe Kemel, in the second round (unlike in the Presidential elections, in the legislative elections all candidates gaining more than 12.5%  if the vote in Round 1 vote go on to Round 2). 

Alternatively, Mélenchon may step back, and advise FG round 1 voters to back the PS in Round 2 and allow Kemel to retain this Assemblée Nationale seat for the PS. 

I suspect this is unlikely; Mélenchon will feel he has done the right thing by Hollande for the Presidential election, and that the favour should now be returned.  Certainly he feels he has unfinished business with Hollande, and will want to be seen to hold Hollande to his promises e.g. the renegotation of the Merkozy Fiscal Compact.

In this case, much may depend on how much Kemel really wants to be deputé, and how willing he is to risk letting Le Pen through on a split leftist vote.  Early indications from the Libération coverage suggest that  Catherine Génisson, the boss of the FS Federation the Pas-de-Calais départment, may indeed be open to a second round pact to allow Mélenchon through on the PS vote, but there are bound to be countervailing voices.

In any event, keep your eyes on results as they come out on 10th June.  While clearly who gets the seat in Round 2 is the most important, the symbolic value of round 1 can hardly be underestimated either (and may well lead to a significant PS to FG switch even in Round 1). 

If Le Pen is beaten in Round 1 on home turf (she is already on the Regional Council here), then Mélenchon may attain national, even European leftie-hero status, and the Front National will have been dealt a significant blow.  If it all goes pear-shaped, with Le Pen winning Round 1 and, heaven forbid, even sneaking through in Round 2, then it will be very bad news.

Until now, Britain’s anti-austerity movement has been fragmented and lacking in direction.  The new winds blowing in from the Continent could change all of that.

Fair enough.  

But this bit makes my blood boil*:

Those calling for a “No” in the upcoming Irish referendum on the EU Treaty – slammed as an “Austerity Treaty” by opponents – feel momentum is on their side, too. “The people of France, the people of Greece are against the policies of austerity and it is now the moment for Ireland to add our voice to that,” declared Mary Lou McDonald, a leading anti-Treaty politician.

It makes my blood boil because it gives the completely wrong impression to readers that a “No” to what Owen (justifiably) calls the Austerity Treaty will actually change anything.

It won’t.

This is because this Austerity Treaty – officially the Fiscal Compact – is little more than a show of political strength cooked up by Merkel and Sarkozy as a late desperate attempt to ward off Sarkozy’s defeat.

If, as looks likely, it is not ratified by all the 27 member states, it doesn’t matter one jot, because  (in Owen’s own terms), Keynesian fiscal expansion has already been made “illegal”.

Keynesianism was in fact made illegal on 16th November 2011, before Merkel and Sarkozy announced their grand new plan.  It was made illegal when the European Parliament signed into law the ‘six pack’ of regulations for the renewed implementation of the original Stability & Growth Pact, put together in the 1990s but broken by Germany itself in the wake of its reunification spending.

All the relevant details are here, and my formal submission to the Party of European Socialists on what the Left should do about it is here.  

It’s really, really, not that hard, and I simply can’t understand why the Left commentariat can’t get its head round the fact that the Merkozy Treaty is anything other than a diversion. 

Read the bleeding small print, you leftie commentators.  It’s what you’re paid to do (or it should be).

* Actually, it doesn’t make my blood boil at all.  Owen has written a quite legitimate piece aimed at wider concientization rather than specifics of what we need to do next, but I thought if I pretended to launch a personal attack on him, someone might read what I had to say. Still, I do hope he reads this and writes something based on the details I seek to get across.

From the first announcement in June 2010, the whole RGF thing smacked more of Cameronesque PR than real regeneration substance.  It was through TCF’s and Liberal Conspiracy’s diggings (Labour HQ never acknowledges that kind of thing, but the Guardian did) that Ed Miliband first turned the heat on Cameron’s basic governmental competence, when he used an October 2011 PMQs to ask how many businesses had yet been funded (answer: two at that stage, versus 22 press releases). 

This was the very first conscious use by Miliband of Labour’s now markedly successful ‘omnishambles’ narrative, which has largely replaced its (unsuccessful and incorrect) attempts to portray Cameron as Thatcher Mk II, rather than arrogant posh boy who sees basic governmental competence as beneath him.

The National Audit Office (NAO) today published its review of the first two rounds of the Regional Growth Fund (RGF).  It reeks of the omnishambles odour now hanging heavily from the government, and I hope Miliband will refer to it at the next PMQs.* 

Some of the more striking findings in the report** are follows:

1)  The incoming government abolished Regional Development Agencies (RDAs), deriding them as “ineffective and inefficient”.  The RDAs created jobs at an average cost of £28,000 each.  by contrast, each RGF job is estimated to cost £33,000 each (fig 7, p. 24)***

2) As of March 16th 2012, only a third of all applicants had received a final offer letter.  The report notes that the pace has improved since December 2011, as more staff have been brought to the task. Labour might well want to argue that it has improved only because they brought the dire situation to light in October (with my and Sunny’s help).

3) Similarly, in December 2011, the projected underspend on the £470m earmarked for the 2011-12 financial year was £366m, 77 % of the total.   Unfortunately, the departments supposedly running the fund had failed to agree any financial year rollover provisions with the Treasury, so stood to lose all of that money. 

They had in fact been able to reduce that underspend to £10m by March 2012, partly by piling in staff resources to do due diligence on outstanding bids – better late than never, I suppose - but also by “distributing some of the Fund via endowments managed by some of the programmes supported in the second bidding round” (para 3.15).  

As I set out here in my top 10 RGF tips, and in more detail here this simply adds another layer of decision making about who actually gets the money in the end; it is not actually genuine expenditure of the fund.

4)  “Work on agreeing terms and conditions with applicants progressed slowly. The Fund has no dedicated administration budget. Its small Secretariat struggled to manage the volume of work to conduct the appraisals for the second bidding round while also negotiating final project terms and conditions with companies offered funding in the first bidding round. Delays at this stage have a significant effect on the overall time taken to finalise offers, because due diligence cannot begin until the Secretariat and the bidder have agreed factors such as the precise activities that the Fund will support. The Secretariat was supported by up to 12 full-time-equivalent economists from other departments during the project appraisal phase, but all but one of these staff returned to their home departments, before the due diligence phase started.” (para 3.11)

Enough said.  It is clear that the government wildly underestimated what needed doing, apparently intent on learning absolutely nothing from the RDAs’ experience.  Vince Cable has already agreed to “making more administrative resources available“.  This will, of course, increase the cost per job above the £33,000 currently estimated by NAO.

I look forward to PMQs on Wednesday.

*You can tell how nervous the government is about it already,  from the fact that Vince Cable has been dragged out of hiding to defend it on the morning of its publication.  Note also that it now longer appears to be a joint Pickles/Cable department programme – Cable has been left as the human shield.

** It is beyond the remit of the report to cover the major expense of abolishing RDAs, only to find that creating jobs was cheaper through them.

 *** Oddly, the £33,000 per job figure doesn’t seem to follow from the £1.4bn expenditure divided by 41,000 jobs, which is actually £34,000 per job.  I can’t explain why.

If the Europeans are telling the truth in their claim that they have killed six million Jews in the Holocaust during the World War II – which seems they are right in their claim because they insist on it and arrest and imprison those who oppose it, why should the Palestinian nation pay for the crime. Why have they come to the very heart of the Islamic world and are committing crimes against the dear Palestine using their bombs, rockets, missiles and sanctions.

Mahmoud Ahmadinejad, December, 2005

Ahmadinejad doesn’t like that Israel’s foreign policy has been predicated on events that happened during World War II.

Mr [Vladimir] Putin declared that Russia had won the “moral right” to assert its foreign policy views because its people had suffered the most in the fight against Hitler.

In a clear warning to the West that he will oppose any attempt at military intervention against regimes such as Syria or Iran, Mr Putin declared: “The strict observance of international norms and respect for each nation’s state sovereignty and choice are an indisputable guarantee that the tragedy of the past war will never repeat itself.”

Vladimir Putin, May 9 2012 (£)

But I bet the Iranian President won’t mind this.

There is a big opportunity for the Left here. 

The mainly ignorant media focus is on whether Hollande can persuade Merkel to give way on the as yet unratified Fiscal Pact (aka. the Fiscal Compact) concocted in late 2011 by Merkel and Sarkozy (no, he can’t, is the simple answer).

But the actual opportunity to set the European Union on a different course lies in potential for radical amendment of the regulatory ‘six-pack’ (to be followed by a monitoring ‘two-pack’ this summer), designed to ensure the proper implementation of the original Stability and Growth Pact, and passed into law in November 2011.

If you’re confused by two apparently parallel (com)pacts, don’t worry.  You’re supposed to be. 

There are relatively few people (other than me) who do understand it. Charlemagne at the Economist appears to be one, as does Peter Spiegel at the FT, who says about the less-known six-pack:

Almost unnoticed by the public, the European Union has already begun transforming itself into an organisation with far more central power over national economic decision-making. The European Commission, the EU’s executive branch, has been given authority to demand spending cuts under threat of large fines….

Indeed, it is all so confusing that the European Commission has had to provide its own guide Six-pack? Two-pack? Fiscal compact? A short guide to the new EU fiscal governance, which states helpfully:

The Fiscal Compact, which is the fiscal part of the Treaty on Stability, Coordination and Governance (TSCG) – once it enters into force – and the six-pack will run in parallel.

It’s difficult to work out exactly why we have two parallel systems (other than the obvious explanation that the Compact was a late play by Sarkozy to stave off defeat by looking tough). 

My suspicion is that it’s part of a quiet power struggle between the European Parliament and its Executive, who have passed the six-pack into law (in November 2011), and the European Council (basically the heads of the 27 states), which only became a formal part of the EU structure in 2009 under the Lisbon Treaty. 

Witness, as evidence, how Olli Rehn, Commssioner for Finance (and working through the Parliament,  referred only to the Growth & stability Pact provisions in his speech at the weekend, while Merkel’s Finance Minister prefers to reference the intergovernmental aspects of the Fiscal Compact in the wake of Hollande’s victory.

It is also difficult to know which precise version of  austerity legislation will win out in time.  On balance, though, the fact that the six-pack is in place, while the Fiscal Compact still awaits ratification (notably in Ireland, which may vote ‘no’), means that the real political opportunities for the left probably lie within the Parliament, rather than (via Hollande) the European Council.  Hollande’s team probably knows this, which is why it is content to soft-soap Merkel for the moment.

Of course, the drawback is that the European Parliament will remain under the control of the Right until June 2014.  That’s a long time for Hollande to wait before he can deliver, via the European Socialist Party (PES) MEPs, a radical change in direction, if it gains a majority (although even the prospect of post-election change may be enough to slow up its implementation pre-election).

Nevertheless, the opportunity for PES is to put together a legislative manifesto which has as its centre-point precisely such a change in direction, through a ‘Keynesian’ amendment to the six/two pack regulations.  Such amendments might, for example, include a requirement on the EIB (or individual countries) to fund large-scale investment works when the economic cycle requires it.

The result could be a European election campaign like no other: a central manifesto commitment to sensible anti-austerity macro-economic management, circulated across 27 countries in countless leaflets, seeking a socialist, pan-European mandate.  

Perhaps we might even, by then, be seeing British campaigners on porte-a-porte campaigns in Cergy-Pontoise, while our French comrades hit the streets of Skelmersdale (the towns are twinned).

I’m a geek, but even I thought it was a bit geeky for the PES to launch a two year manifesto development programme, in which socialist activists across Europe are invited to put forward policy proposals (the next stage is a forum in June to collate and assess ideas).  

Now though, I understand absolutely where they were coming from, and will be forwarding a version of this post under both the ‘Fair Economy’ and the ‘Active Democracy’ themes.  There is a real chance, I contend, to put what happens in Strasbourg at the heart of our campaigning in the UK, (probably) one year before a general election, in a way which both creates a route for anti-austerity that not even Merkel can scupper AND shows up just how murky and undemocratic the European Union has been to date.

But this bit by Michael really doesn’t help the credibility of the article:

[T]he 1,000 richest persons in the UK have increased their wealth by so much in the last 3 years – £155bn – that they themselves alone could pay off the entire UK budget deficit and still leave themselves with £30bn to spare which should be enough to keep the wolf from the door.  

Yes, the deficit may well be £185 billion or so, but that’s the flow – the annual gap between national income and expenditure.  The debt, which is the stock that is actually “paid off”, is in the region of £1.3 trillion the last time I looked.

We have, of course been here before, with both Johann Hari and even the SWP making the same elementary error (the SWP denied it, to be fair).

As Kalecki once warned:

I have found what economics is; it is the science of confusing stocks with flows.

The Left has a good argument for wealth redistribution.  Let’s not muck it up by getting the basics wrong.  Let’s leave the economic illiteracy to the Right.