A - Tim CONGDON BACKS THE PETITION & FEATURES FRONT PAGE!
Hi,
Tim Congdon has unequivocally endorsed THE PETITION for a EU-Referendum and features on the front page of a free distribution magazine being mailed out to between 20 & 30,000 activists, supporters and backers across Britain from the offices of Nikki Sinclaire MEP - this will do a great deal to firmly put UKIP on the map as a democratic party that can be trusted to endorse Patriotic issues not just self interest and navel gazing for the profit of the few.
Aspects of UKIP that Tim Congdon will do all he can to progress, moving away from the endemic corruption here to fore.
Britain is a cross party issue NOT a Dog In A Manger self enrichment scheme.
UKIP should be for and about Patriotism not introspective selfish Nationalism and personal profit for the few.
For more details of THE PETITION for an EU-Referendum and co-operation with The Pledge of the EU-Referendum Campaign CLICK HERE
A recent YouGov poll found that 47 per cent wanted the UK out of the EU, compared with 33 per cent who preferred to stay in.
Bizarrely, the latest Eurobarometer of public attitudes (financed by the European Commission) had earlier demonstrated a similar result. It showed that 33 per cent of its UK respondents regarded the EU as “a bad thing”, while 29 per cent viewed it as a “a good thing”.
The current widespread opposition to the EU is hardly surprising, as EU interventions in our national life are now disrupting longestablished traditions, undermining revered institutions and damaging livelihoods.
The Commission, the Council of Ministers and their secretariats have used the passage of the Lisbon TreatyWorking Time Directive on the efficiency of British medicine and the National Health Service. last year as the pretext for further encroachments on the EU member states, including the UK. The last few months have seen a media furore over the effects of the
For many decades junior doctors have acquired experience – the experience which is essential if they are to be real doctors and not parrots of the textbooks – by working very long hours in real-world, often life-or-death clinical settings. Now, because of the Working Time Directive, they are prevented by law from this practice.
With lives being put in jeopardy by an EU directive, the puzzle is not that almost half of British people want to leave the EU, but why a third still believe in staying in. More and more people are angry and resentful about how EU decisions are affecting them in their daily lives.
There is a growing discrepancy between popular hostility to the EU and the willingness of successive British governments to hand over so-called “competences” to EU control.
This discrepancy is dangerous. When people believe that politicians are out-of-touch and untrustworthy, and ignore what they want, the risk of civil disobedience increases. In a modern democracy politicians must respect the wishes of citizens and voters. The case for a referendum on the UK’s continued membership of the EU is now overwhelming.
The 2009 Lisbon Treaty was undoubtedly a radical change in the constitutional arrangements of every EU member state, including the UK. All three of the main parties gave clear pledges in their manifestos at the 2005 general election to hold a referendum in the event of another big European constitutional upheaval.
Yet all three of them then judged that the Lisbon Treaty was not important enough to justify the holding of a referendum.
This is scandalous, an orchestrated insult to the intelligence of the British electorate. Britain must have a referendum on its membership of the European Union. That referendum needs to be held as soon as possible, to stop more damage being done to our traditions, our institutions and our way of life.
Assentors: Alan Bown, Trevor Colman MEP, Sir George Earle, Stephen Allison, Geoffrey Kingscott, Mike Nattrass MEP, Roger Knapman, Lawrence Webb, Marilyn Swain, Toby Micklethwait, Sue Colman, Richard Allen, Les Banstead, Jack Barker, Keith Barnes, Dougie Brown, Linda Brown, Christopher Browne, Rosemary Browne, Martin Bulmer, Justin Callan, Leonard Causey, Diane Cleland, Leslie Collier, David Cox, Marilyn Day, Alan Day, Richard Edwards, Alan Grant, Lawrence Gwynn, Eric Larner, Isobel Larner, Nicky Hartland, Thomas Holbrook, David Hughes, Maggie Inglis, Richard Jordan, Audrey Kirk,
Jenny Knight, Richard Leppington, Peter Lindsay, Jonathan Lovett, Robert Mackintosh, Charles Martell, John Meropoulous, Paula Murray, Ray Northcott, Guy Parfitt, Robert Parker, Bev Parker.
A personal statement from Tim Congdon on his candidacy for the leadership of the UK Independence Party
Why I support UKIP
Britain is a special nation. For the last 300 years it has been admired across the world as the home of parliamentary democracy and the champion of the rule of law. In two world wars it defended a political system which – above all – prized the freedom of the individual. Our political and legal traditions are best seen as attempts to stop the abuse of power by the state.
In 1973 the UK joined (what was then) the European ‘Common Market’, essentially for economic reasons. We wanted to be able to trade freely with our European neighbours and to match the higher economic growth they had enjoyed in the previous 15 years. Since then our political independence has been progressively whittled away.
New legislative enactments affecting our country are now mostly labelled ‘directives’ and ‘regulations’, not laws. They are passed by the Council of Ministers, not our own Parliament. The processes involved are complicated, obscure and secret, and the key movers are foreign bureaucrats and lobbyists, not our own politicians and parliamentarians. In a host of important areas of national life, known as ‘competences’, powers have passed from Westminster and Whitehall to Brussels and Strasbourg. The right to propose new directives and regulations lies not with our own government, certainly not with our Parliament in Westminster, but with the European Commission.
I support the UK Independence Party because the only way that we can restore our ability to make our own laws and to govern ourselves is for the UK to leave the European Union. The erosion of democracy The government of Britain is now shared – in an extraordinarily confused way – by a group of democratically-elected politicians in London and an entrenched bureaucracy in a foreign capital. The bureaucrats are appointed for the long term. They can and will erode the power of politicians who are in office only for a few years and can be removed by the electorate.
Not surprisingly, government by foreign bureaucrats is bad government. Whatever aspect of the interaction between the European Union and the UK we look at, we see inefficiency and failure. Think of the cost and distortions of the Common Agricultural Policy, the shambles of the Common Fisheries Policy, the burden of unnecessary business regulation, the effect of the open EU borders which have let in over a million workers from other EU countries and put pressure on our social services, the assault on habeas corpus and personal freedom represented by the new European Arrest Warrants, the encroachment on our own criminal justice system by a new European Public Prosecutor, the hit to the competitiveness of our chemical and heavy energy using industries from EU environmental directives, the damage to the City of London from misjudged intervention by new pan-European financial regulators and......., well, the list could be extended over a few pages. All these arrangements are making us poorer or less free. Nevertheless, we have to pay the European Union for the privilege of letting it misgovern us. By 2013 Britain will be handing over to the EU a net figure of about £10 billion a year. That will help foreign bureaucrats boss us around in the style to which they are accustomed. The opportunity for UKIP The EU is now unpopular in the UK. This is revealed – bizarrely – by opinion research from the European Commission itself. According to the Eurobarometer poll which it finances, in August 2010 29% of people in the UK consider EU membership ‘a good thing’, whereas 33% see it as ‘a bad thing’. Net support for EU membership had been falling for many years. The cost of membership is rising, while people will increasingly resent the attack on our institutions and way of life that the EU bureaucracy represents. Net support for the EU has now become net opposition and that net opposition will increase.
Logically, political parties advocate policies that the electorate wants. The British people have had enough of the EU. However, all three of the so-called ‘main parties’ favour continued UK membership of the EU on the present terms. In the 1997 general election Jimmy Goldsmith bravely started a new party, the Referendum Party. Its purpose was simple. By threatening to take votes away from the big parties, it would extract from them a commitment that any large future change in the UK’s relationship with the EU would be put to a referendum.
All three parties agreed that such a referendum must be held. It was reiterated in their 2005 general election manifestoes. But – when the Lisbon Treaty, undoubtedly a major constitutional upheaval, came before Parliament in 2008 – two parties, Labour and the Liberal Democrats, forgot their promise. In late 2009 the Lisbon Treaty was about to become law across the EU. The Conservatives under David Cameron then said that – if they came to power in the next general election – they also would not hold a referendum on the new treaty. They knew full well that it was a radically new and different constitutional set-up between the EU and its members. But they would do nothing about it.
The three main parties have broken a promise and betrayed the British people. The sad truth is that Britain’s ‘political class’ is corrupt and inadequate. Moreover, it is increasingly integrated with the larger European political class of which the European Commission’s bureaucracy is part. In effect, the Conservatives, Labour and the Liberal Democrats have surrendered control of our country to foreign dignitaries and officials who operate from a capital city outside our borders.
Disappointment with the EU has turned into disillusionment and disillusionment is now becoming anger. The UK Independence Party is the only significant political force that can channel this anger into votes and so take Britain out of the EU. At the next European elections, in 2014, the Conservative-Lib Dem coalition is likely to be very unpopular, because of the difficult economic situation. UKIP will have its best-ever opportunity to take more votes, in a major expression of British public opinion, than any of the three other parties.
We have a great opportunity – but we also face a challenge. The challenge to the party is to maximise its brand and image, to spread its vital message about the future of our country, and to obtain the most favourable possible media coverage. In a nutshell, we must maximise our message – our favourable and positive message – in the media. That is the way to secure the highest possible number of votes in a media-savvy democracy in the era of electronic communications. That is what UKIP must do. What will I bring to UKIP? In standing for the leadership of UKIP, I believe that I am the best person to meet the challenge now facing UKIP.
I believe that, over the next four years, UKIP must have the following new organizational priorities,
- To improve its image in the national and local media by presenting its case in high-quality research documents, newspaper articles, webcasts and so on,
- To set up an effective campaign and publicity machine in London, which – whether we like it or not – is where the UK media are centred,
- To work hard with the existing Eurosceptic and Eurorealist think-tanks both to strengthen the argument for withdrawal and to spread that message through the media and more widely,
- To support the organization of regular social events across the country, in order to reinforce a sense of identity with UKIP, and
- To establish a significant flow of donations by fund-raising, which will be helped by the social events and research publications I have been talking about.
Let me emphasize I want to build on the magnificent work already being done – mostly on a voluntary basis – at the branch and regional levels. I will listen to party members for new ideas about promoting the party and furthering the cause.
I do not want to be a MEP. Repeat: I do not want to be a MEP. The work I am describing must be done in the UK. I have said – and I will reiterate – that the centre of gravity of the United Kingdom Independence Party must be in the United Kingdom. Our MEP representation is a great strength to the party, and there is no conflict between working harder in both the European Parliament and the UK. We must move forward on a united front.
I have set up a research business (Lombard Street Research Ltd.) from an initial capital of £100 and built it into one of the most respected economic research companies in this country. (It now has a turnover of over £4 million and employs people in three countries.) The skills I used in establishing a successful research business will be the same skills I will be using to strengthen UKIP if I become leader.
Finally, I am one of the UK’s most influential economists. I served on the UK’s Treasury Panel from 1993 to 1997 as a so-called ‘wise person’ and was appointed Commander of the British Empire in 1997 ‘for services to economic debate’. If I am elected leader, UKIP will have the best economist in British politics. Who am I? Many party members will have seen me on television or heard me on radio, usually discussing a topical economic or financial theme. Yes, I am an economist, and my bread-and-butter for over 35 years has come from commenting on the British economy and its many problems. I don’t at present have ‘a full-time job’. I retired from Lombard Street Research in 2005, in order to have more time to write books and essays. (I love writing and seeing my name in print.) I set up a new consultancy – International Monetary Research Ltd. – in 2009, really to have a platform for my ideas, and you can have a look at its website (http://www.imr-ltd.com/.) If I don’t become leader, I will probably spent most of my time building up International Monetary Research Ltd. into a meaningful research business.
I was born in 1951 and am now 59 years old. I grew up in England, but with two spells as a child in foreign parts (Iran, for 10 months in 1956, and South Africa, for 18 months in 1959 and 1960). It has become clear to me, as I look back, that those two spells made me feel very ‘British’ and different. That has stayed with me for the rest of my life. (I can remember the Afrikaner children at my junior school sneering at me because I was from England; I can also remember the delirious crowds at Durban Docks when HMS Belfast called in for a short visit; other memories are standing in a three-deep crowd as Harold Macmillan passed by in a motorcade [the ‘wind of change’ speech] and knocking on the doors of palatial homes in Durban North for ‘bob a job’ assignments. [A ‘bob’ – you will recall – was one shilling. At that time South Africa had pounds, shillings and pence.] For most of our time in South Africa my family lived in a council flat.)
Back in England, I got the 11-plus and went to Colchester Royal Grammar School from 1962 to 1969. I was awarded an Open Scholarship by St. John’s College, Oxford, in 1969 and took a 1st Class degree (in Modern History and Economics) in 1972. The marks in my economics papers were equal top in my year.
My first job was on the economics staff of The Times from 1973 to 1976, a period of almost unrelenting (and for me most fascinating and enjoyable) economic crisis. That was where my interest in money and banking, and in monetary control to defeat inflation (‘monetarism’), began. In 1976 I went into the City as the economic adviser to a stockbroking firm, L. Messel & Co. I became a partner in 1980 and was fortunate in 1984 to be able to sell my stake in the firm to (what became) Lehman Brothers. I was briefly Lehman’s chief London economist, but in 1989 left to set up my own research and consultancy business, Lombard Street Research Ltd.
My work in economics has not been purely day-to-day commentary. I have also written important and influential academic papers, collected in two books Reflections on Monetarism (1990) and Keynes, the Keynesians and Monetarism (2007). I was appointed Honorary Professor at Cardiff Business School in 1990 and for every year until 2006 I gave a course of lectures on monetary economics. I was also a visiting professor of economics at City University Business School from 1998 to 2004. So I sometimes call myself ‘Professor Tim Congdon’, although I no longer have an academic affiliation. I am at present finishing off an American version of Keynes, the Keynesians and Monetarism, which I hope will appear next year as Money in a Free Society.
I have been a successful businessman and investor. I am a so-called ‘Name’ (i.e., capital provider) at Lloyd’s of London and own two forest estates in Scotland. When I take a break from my consultancy and writing, I enjoy walking on those estates and thinking about how to improve them. I also enjoy foreign holidays, both in the EU and outside it.
I have been married to Dorianne for 22 years. We have a daughter, Venetia, who is 19 and is about to start a post-graduate degree at Linacre College, Oxford. My work in UKIP Until 2006 I had always supported the Conservative Party, although I could not vote for Ted Heath in either of the two general elections in 1974. I voted against ‘the Common Market’ in the 1975 referendum.
I joined UKIP in January 2007, at the prompting of the then leader, Roger Knapman, whom I had known for almost 20 years. Almost immediately, I wrote an article in The Daily Telegraph on why I couldn’t support Cameron. This coincided with the so-called ‘defection’ from the Conservatives to UKIP of Lord Pearson and Lord Willoughby. In late January 2007 the Conservative Party’s private polling put the UKIP share in the national vote at 6% - 7%. (Eight weeks of unremitting anti-UKIP ‘knocking copy’ then followed in the national press. I am not saying here where these stories came from, but I have my views.)
It is well-known that I don’t want to become a MEP; it is not a secret that I believe our main fight must be in the UK, not in Brussels or Strasbourg. The financial crisis in late 2008 came as a profound shock to me. I was also disappointed that UKIP was not, in my view, devoting enough effort to the UK public debate, particularly in view of the imminent ratification of the new EU constitution. I therefore left UKIP in order to have more access to the top brass in the Conservative Party (and to some extent UK officialdom more generally) to argue for ‘quantitative easing’, among other things. QE was in fact adopted in early March 2009 – and, I am happy to say, the economy recovered briskly.
When he became leader, Lord Pearson was keen to persuade me to rejoin UKIP. I had hoped and expected that the Conservatives would keep to their promise of holding a referendum on the Lisbon Treaty. I wrote to Lord Pearson to say that – if David Cameron reneged on that promise – I would rejoin UKIP. I copied the letter to about a dozen senior figures in British politics, including Cameron. A few weeks later Cameron said that the Conservatives would not hold a referendum on the Lisbon Treaty. I rejoined UKIP.
In all this to-ing and fro-ing (for which I must apologise), I was consistent in believing
i. that the UK must withdraw from the EU, and
ii. that the key to getting us out of the EU must be a UK-based and UK-focussed campaign to improve UKIP’s research message and media coverage.
I was doing what I could as a private citizen concerned about our country’s future. Bluntly, I felt that in 2008 UKIP was not doing enough. But it is now our only hope – and so I was glad to rejoin.
I was UKIP’s parliamentary candidate in the Forest of Dean constituency (where I live) in the 2010 general election. I hugely enjoyed the election campaign, in which – with my excellent band of supporters – I more than doubled the UKIP vote and kept my deposit.
Tim Congdon C.B.E.
1st September, 2010
Sadly for UKIP it does still look like a coronation for the leader past, present and future however that will, in my opinion, lead to the continued decline brought on by the poor leadership, vision and competence for many years and the utter incompetence of the staggeringly low grade handling of media and those thus empowered.
Little has been helped by the dishonesty and incompetence of those parasitically gathered around Farage as his public purse funded praise singers and the likes of the utterly untrustworthy David Lott, John Moran and nearly every appointment Farage has ever had a hand in - his judgement in women is bad enough but in people worse!
The fall away of support for Farage due to his ever shifting 'stories' and his open statement he is so incompetent to lead that if elected he would appoint some chum to do the job!
Yet I would opine that even so Tim Congdon will merely struggle in as Bannermen has been fielded as a no hope candidate with the express intent of splitting the opposition to Farage vote - as last time, however he is likely to take a larger percentage from Farage this time thus although damaging the challenger he WILL also damage Farage. If Batten remains he will receive a damaging vote as he will take his vote from among the challengers NOT from Farage as he has shown he lacks significance but when I say damaging it will be he who is the most damaged, by embarrassment - he would be well advised to make a grand gesture and stand aside on a deal with Congdon, thus saving face.
The wild card at the moment is Mad Monkton who in reality should be encouraged to stand as he is most likely to feed for votes in Farage's trough and he does have a profile with the ill informed and those who would throw coins at a fool in a market show. It is also a sad on reflection on the backwoodsmen of UKIP who depend for information on the party propaganda that many would respond to a title, however insignificant and unearned.
Monkton is not a man to be trusted as his efforts that brought UKIP into such disrepute in The Sunday Times of the Farage Fan Club meeting in Torquay shows as it spectacularly backfired on almost every level!
With Bannerman still in the squable AND Monkton there is every possibility of a fair chance for Tim Congdon but one has to ask how he can proceed the day after his election with the party funds, communications and the slime on the NEC and staff ranged agin him.
One is also inclined to wonder at Tim Congdon's wisdom in staff procurement in that he has the pro Pan EU EFD Party, pro masturbation and manual strangulation of furry animals candidate Steve Allison masquerading as his campaign manager! Had he thought of Ray Finch & Malcolm Wood as deputies and then he could start his own coven!
Tim Congdon's Election Web Site is now up and running
Bruges Group Speech by Tim Congdon + Douglas CARSWELL MP
To view Tim Congdon's Full Powerpoint Presentation on The EUrozone CLICK HERE
I’m going to be telling everyone I told you so and the older one is that most people remember what one said you know think of what you said in your 30s and your 40s because such pearls of wisdom they’ll remember you 20 years later but they don’t. So I’m going to recall some things that I said in 1998.
But in fact the central topic is really this question, can a monetary union where you have several countries, several governments sharing one currency, can that work without movement towards political union, meaning one government, one parliament, one set of laws and so on.
This was always the core question with this experiment, Europhiles called it the European construction, this was always the key issue.
Many Eurosceptics said that it couldn’t work without political union, so did many enthusiasts for the project including such people as President Mitterrand and Councillor Cole and they saw monetary union as something that would act to bring in political union over time.
There were some other people actually who said this can go on forever without proper political union and for quite a long time now they’ve appeared to be right. What I think there was never any question about was that with full political union monetary union was feasible.
And I wanted to say this for a couple of reasons, one was that in the 1990s there was obviously none of this, there’d just been German monetary union and political union, in fact monetary union I think was just before the political union and at any rate they basically went together and although it was a rather messy process it is clearly there for good and everyone’s announced that it can work.
But there was also centralisation of taxing, all centralisation in taxes in Germany applied to all of the Lander and the whole of the country and there’s also enforced centralisation of much of government spending.
So there was never any question about that and the second thing I want to say is that I did say right up 1997, I didn’t think this thing was going to happen because I thought frankly that they were like bills and they kind of have a vision, have a façade you know local columns and they were political but they hadn’t sorted out the plumbing. And you know after a good time it will start to smell and then it’s no good.
Anyhow it’s been there now for over a decade, effectively it started on January 1st 1999 and you know there was this façade and much signs of of working and it wasn’t smelling actually plumbing fixed the old problem.
But let me assure you ladies and gentlemen the plumbing isn’t working, there is a smell and in terms of the question of this thing it’s about to break up and if I’m asked for a timetable I will say the next three to six months and I’m going to try and justify that conclusion in the next few minutes.
Before I do that I’m going to be just a little bit self-indulgent and go through some things that I said and some aspects of the whole process.
When you’ve got a government, a single government, single countries and government usual monetary jurisdiction, the government can borrow from the central bank a great deal of money and if this is on excessive scale you get inflation.
When you’ve got a standard monetary jurisdiction, one government, one central bank, one money, one legal system etc etc, its very clear what the cause of the problem is, its government borrowing from the central bank, that government is to blame, that central bank is to blame so its clear what’s going on.
But the monetary union when you’ve got 16 governments, if each government borrows too much from the central bank is that government to blame for excessive inflation? I don’t think so it’s too small.
So all governments and have got an incentive as far as they can to borrow from the central bank, to be in that sense financially responsible and you’ve got a sort of free value problem.
Now that problem could be anticipated and it was anticipated by a treaty agreement on the size of budget deficits and also a prohibition on government borrowing from central bank as the 1992 Maastricht Treaty but for a number of reasons this Treaty was never really credible and I wasn’t the only person to make these points, but if governments had an excessive deficit, a deficit that breached what’s called the Stability and Growth Pact, also known as the Stagnation and Grief Pact, if there had been excessive deficits then they would be obliged to lodge sums of money which would receive no interest and there would be a fine imposed. The fine would increase the budget deficit actually paid by the government that was responsible.
But the extreme, suppose the government took no effective actions, would the Union instil these from the monetary union as was always the trend. The Treaty said nothing about the mechanics of expulsion.
Then what happens if a number of European countries with excessive deficits, they’ve all got excessive deficits, you have a blocking amendment a blocking majority on Ecofin but also by the way the government announced a VCV so that the countries can put together a vote to outvote well Germany in practice.
In the extreme the high deficit countries might outnumber the low deficit countries so the financial delinquents control Ecofin or the governing council of the ECB. In that event the incentive of every European government is straight forward, cheat on the public finances, maximise the deficit and to hell with the inflation risk.
The answer, there has to be a single federal government, there has to be a centralised treasury and so on and then monetary union has led to political union.
The central bankers are very powerful people; they need to be kept in check. So by the way are commercial banks, they’re also very powerful people and banking is a very political industry and so there has to be some accountability to the legislature, maybe the executive, maybe some combination of the two but in the eurozone you’ve got these 16 governments, you’ve got this Treaty, you’ve got this rather weird structure of the European Central Bank and the euro system with actually 16 central bank members and its very clear that the ECB is not accountable to any national government. Its true enough that Trichet is prepared, to refuse an invitation to talk to the French Parliament, its true enough that he does give evidence in the European Parliaments but that there may still be massive questions about the status of the European Parliament relative to the national Parliaments and also of course the national governments and so on.
So again we’re going to be in crisis, what is likely to happen is that the Maastricht Treaty would have to be revised, there would be new powers of European Parliament to discipline the European Central Bank political and monetary policies etc etc and by the way that’s more or less what’s happened. There is the Lisbon Treaty that has given more powers to the European Parliament and clearly intended by some people that the European Parliament is a kind of proto-parliament for the entire Union, in other words a monetary union has again led to a political union, another argument that has the same conclusion.
The cost of printing these things is a fraction of the £20 that its worth. The difference between the two is called seigniorage. Now the central banks also make profits, it may surprise you that they do actually, the banking institution is profitable but they make profits.
Who owns these profits? Who owns the seigniorage? Who owns these central bank profits?
Well in Britain there is a single Government, there is a single Parliament, there is a single set of laws governing this particular subject and there is a single central bank. So there’s no two ways about it, ultimately if the Bank of England make a huge amount of profit, that actually benefits the British Government and the British taxpayer.
Again however there is in the eurozone 16 governments, 16 central banks, they of course, their seigniorage there is also interbank profits and losses, sometimes these profits and losses are arise because of businesses in Greece or in France or in Italy, but actually how much business in Greece, in France, in Italy, how do we distribute this between the different nations?
So again you get this pressure for some federalisation, some cooling, some political union to follow monetary union.
And then another argument, you see all these arguments have the same conclusion. In America in the Great Depression the people lost a lot of money in keeping money in supposedly a very safe place, in the banks, bank deposits did not pay out 100 cents in the dollar. Since then its been accepted across the industrial world and everywhere really that public policy should be organised to ensure that the depositors receive back 100 cents in the dollar, 100 pence in the pound and so on.
Now this doesn’t occur by magic, these public deposits are protected in the first instance by the assets of the banks but suppose that something goes wrong with the banks and then you have a chain of security, there’s the capital of the banks themselves that officially deposit, capital of RBS and Barclays and so on in our country, if something goes wrong with that with one bank another bank may move in and buy it so the capital of the whole banking system is relevant. We also nowadays tend to have in Britain we have got it depositor insurance fund into which the banks contribute so if something goes wrong in a small building society, which has happened, then this fund is tapped to make sure depositors get back 100 pence in the pound.
Then all these are being exhausted, the capital bank is being exhausted, the other banks don’t want to take over the bank in trouble, the deposit insurance agencies is also passed all its funds, then the central bank can help, it will take on a big risk getting involved in a situation like this but its there but when all of these have gone all that’s left is the government. So the ultimate guarantor of the 100 pence in the pound, the 100 cents in the dollar is in fact the government.
Here it’s fairly clear, you’re a citizen of the UK, you have a deposit in a British bank, you’re protected by all of these elements and all of these links in the chain, the chain of security, Eurozone.
You have maybe it’s a French bank with operations in Spain, by the way if its actually a German individual that has got an account with this French bank in Spain and something goes wrong with this French bank in Spain or maybe it goes wrong with the Spanish bank but anyway where is the chain of security and which central bank or which government, which deposit insurance agents?
And so you get pressure for a unification of the whole area. The banking system is in crisis, resources of the commercial bank, the deposit insurance agency and central bank had been swept away by a tidal wave of global losses the answer of course the government.
The tax raising powers that support the banking systems is theoretically simple. In the final analysis the government would make sure the bank deposits were repaid in full but this obligation is not without limits crucially the government would in a particular nation is most comfortable when it protects deposits made by citizens of that nation and quite bluntly think about our Government and depositors of Icelandic banks, think about our Government and depositors with VCCI, yeah and the Government wanted to help them but the truth of the situation was that they were the responsibility of you know the Emirates in the case of VCCI, Iceland in the case of the Icelandic banks. And then this is across the entire Eurozone, huge pressure for political union to support monetary union.
So we’ve got here, and they are these issues which were kind of dormant for a decade are now are now live issues. The story of exactly how we got to where we are today is a fascinating one but I have got a finite amount of time even though Douglas Carswell isn’t here yet, and so I’m going to just focus on some particular aspects of the unsustainability of the current situation.
I may be rather technical and I apologise for that. What you need to understand is this idea of a central bank which central banks they issue the notes that are used all over the eurozone, they also have got banks as customers and the banks settle their own imbalances between themselves through accounts at the European Central Bank. The euro system is actually a Central Bank of Ireland, the Bank of Spain and so on but they’re all part of the ECB and they settle their imbalances through accounts of the ECB. So the Central Bank, like any other bank, has got the most holders and it’s got depositors in the form of banks with it.
And then on the other side of the balance sheet it holds various amounts of assets but in particular for current purposes it lends to some banks and it also holds Government securities. Now I know it’s not supposed to hold Government securities under the terms of the Maastricht Treaty, it’s really complicated and I’m going to ignore that for the moment and just say it has both loans to banks and holds Government securities.
Now I’m going to cut a long story short and I’m going to simplify radically but I want to get this over to you. I’m going to say, this is evidently true but that the principle note holders and the principle depositors are French and German, maybe Dutch, they’re North European and they believe in certain things sound finance and all the rest of it and the assets are Greek Government securities, Portuguese Government securities, Spanish Government securities, loans to Italian banks, loans to Portuguese banks, loans to Irish banks.
Now I’m simplifying but what I see here is the nature of the forces that currently might be about to rupture the system. That’s simplified and it’s the guts of what’s now going on.
It is the recognised job of the Central Bank to help banks that have difficulties funding their assets, it’s supposed to do that, the Bank of England was supposed to have done that job in 2007/2008, it did in the end but it did it very badly. That is the job of the ECB and it is doing it.
To some extent also the Central Bank should be bankers to the Government, there is also part of it despite the Maastricht Treaty and there are German problems with this but lets look at this.
The big problem with large amount of public debts is as follows. You know Britain had a public debt that’s as high as the GDP, high as its national output in 1815 after the Napoleonic wars, in 1918 after the First World War and in 1945 after the Second World War but in all cases the interest rate was around about 3% so the interest payments on the debt were about 6% of GDP. That’s quite a lot of money but actually people were prepared to pay the taxes to pay the interest on the debt. That’s 6% GDP.
In the case of Greece, the public debt has risen, rising all through the last 10 or 15 years, risen to about 120% of GDP. Now until the last few months they’ve been cheating, they weren’t disclosing that it was 120% and they were saying it was more like 80/90/100% and the interest rate on Greek Government debt was a bit higher than that and the German Government debt was not much.
So you had a debt that was supposed to be 100% GDP and the interest payments say were about 4/4½%, so the interest payments were about 4/4½% of GDP. So people paying taxes to pay the bond holders and so on. 4% GDP it’s alright.
Now the truth was that the debt was 120% of GDP and they had a huge budget deficit. The deficit was in fact about 12% GDP when they said it was about 6. So this thing was 120% and moving up to 140/150%.
What do you do if you’re holding Greek Government debt, you sell it and the price goes down and the yield rises and this is the story of the yield on 10 year Greek Government debt in the last six to nine months. You see it started off about 4½% and these monthly averages, it was 9% in May; it actually for one or two days went up to over 12%. So imagine, you’ve got a trajectory where the public debt is going to be 150% of GDP and the interest rate is 12% so the interest payments on the debt are 18% of GDP.
In other words you the Greek taxpayer are required to pay taxes equal to a fifth of everything you produce in order to service the national debt. You’ve got to pay all the pensioners, you know you’ve got to pay everything else, all the subsidies, everything else the Greek Government does and this debt is rising, completely unsustainable.
Now the only way of stopping this, a genuine Government economist to slash Government spending, get the deficit down or some help, get that bond yield down. And what happened over the weekend of the 8th and 9th May was that Sarkozy threatened Merkel... actually it was three Frenchmen, it was Sarkozy, it was Trichet and Strauss-Kahn behind it they threatened Merkel and said if you don’t agree to this France is going to leave the eurozone so Merkel gave in. She agrees that on the morning of the 10th May, the ECB could buy Greek Government Bonds, completely breaching the Maastricht Treaty.
The Bond yield fell 8%, crippling. What is the Bond yield today, well by the way there was a Greek Government deal that raised some money where it raised some six month money which was actually oversubscribed as a bit under 5% and there was all this spiel about relieve the markets, the Greek Government raises six month money at 5%.
Please you can’t have... you’ve got your whole debt that size at six months, so they have actually got some money in the bank now to see them through the next few weeks and months given to them by the EU.
What is the yield on tending Government debt at the moment, it was over 10%, it’s gone back up from after a fall from 12 to 8 to 10 and Trichet said we can’t keep on buying Greek Government bonds.
It’s clearly finite they can’t keep on buying this stuff bit by bit. And it is just a matter of weeks and months. I mean if there really are even more convincing cuts in Greek Government spending and all the rest of it and the Bond yield holds isn’t too high, I don’t think so, it’s over. And if you’re simply talking about weeks and months it’s not very long.
Now Spain is actually in some ways a much sadder case because the Spanish did actually have strong public finances right through until 2008. What was happening in the Spanish case was they had a banking system, remember there was a long boom in the property market in Spain, people having holidays there, people going to live there or emigrating into Spain from North Africa, increasing population, building new hotels, new houses, new second homes and so on.
This boom was financed largely by Spanish banks and other banks operating in Spain which in turn were borrowing from the international banking system in practice in fact largely from Asian banks. Spain was running a large current account deficit and you can see this line it just goes up and up you know like that alright and that is Spanish banks’ external borrowings.
We then get to the middle of 2007 and this international wholesale market closed. So the Spanish banks had got to either find other sources of funding or reduce their assets and get some of the developers to repay the loans, sell off the houses, sell off the office blocks, sell off the hotels and repay the loans or find some other source of funding.
Now there were various sources they might go to and to some extent those were Spanish public, Spanish Government but actually the lender of last resort is the central bank which is none other than the European Central Bank in the particular from of the Bank of Spain.
Well since the middle of 2007 you can see that line has gone sideways. Spain in fact at the end of last year, the Spanish banks were not that heavily indebted to the ECB, they had managed to source other kinds of funding more or less, they weren’t growing their businesses in the same way and the Spanish economy was growing but in the last three months they had been borrowing the only place they can borrow is from the European Central Bank.
The European authorities are in a bind. Ireland went through a very similar process.
Ireland, the same story basically but an even more dramatic turn, to some extent the UK is in the same situation, in the Irish case, there’s the Irish banks also borrowing heavily from the inside wholesale market.
They really were completely stuffed, the banks were completely bust and they had to borrow from there to get the Irish Government to come in to bring some capital in and the Irish banks, half of Irish banks’ funding, half of Irish banks’ liabilities funding from the European Central Bank, liabilities to the European Central Bank. The Irish banking system is about the same size as national output, the European Central Bank’s lending to Irish banks is equal to half of Ireland’s national output.
That can’t go on and Spain similarly is in this situation, not to the same degree but the last few weeks the Spanish banks’ borrowing from the European Central Bank has been rising steadily because they’ve got this funding problem, they’re trying to persuade investors that the Spanish banks has got capital etc. etc. Maybe it will work, it hasn’t really worked up until now, watch this space.
The European Central Bank can’t keep on buying the Government securities of the Greece, Ireland, Italy, Portugal, Spain; it can’t keep on making loans to the banking systems of these countries. When it says no these countries have got an unenviable set of choices but really they are in effect being expelled from this union because I don’t see, since prices are finite, this wonderful thing that economists say the process is unsustainable, it will stop and this will stop. I think we’re talking about the next three to six months.
The other possible way this thing breaks up is actually that Germany, because the Maastricht Treaty has been breached, and I gather there is another case going to the German Constitutional Court, I will be very surprised if the German Constitutional Court just gives in the way that Merkel did and that also is another mechanism by which the eurozone might break up.
Well thank you very much for listening to me. I can assure you that 12 years from now I will again be telling you I told you so but I’m not quite sure what will be the topic but thank you very much.
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