Europe’s unholy alliance

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Alexis Tsipras, Angela Merkel, Athens, austerity, bailout, Bank of England, banks, bonds, Britain, Bunds, creditors, crisis, Cyprus, debt, debt crisis, ECB, economy, EFSF, election, EU, EUR, euro, euro zone, Europe, eurozone, GBP, greece, housing, maastricht, NKK, Norway

A deal struck between debt-ridden Greece and its international creditors could safely be called an “unholy alliance”. Cobbled together under pressure and doomed to failure.

Europe has been host to many over the centuries. In 1855, the term Unholy Alliance was coined for Western European alliances with the Ottoman Empire against the interests of the orthodox Catholics of Russia, Greece, and most of the Balkans.

Before World War II, the term was used for the Molotov-Ribbentrop Pact between Nazi Germany and the Soviet Union which partitioned Poland in 1939.

Perhaps not militarily, but economically surely, the deal struck for Athens has caused humiliation to Greece. Even the Greek premier Alexis Tsipras, who appears to judge a snap election this year may help him – or perhaps ensure he doesn’t actually need to implement the pledges he made to Europe and the International Monetary Fund – recalls the brokered deal was made with “a knife to my throat”.

With that kind of language, and deep resentment between Germany’s Angela Merkel and Tsipras, is this the way Europe should be governed? Is this a credible way to win influence and win a debate? Is this really going to help Greece and Europe in the long-run or upset everyone now and later?

Europe is supposed to be a force for good. Many of us who believed in the European goal did so because we felt it would help unite and end hostilities. Although violence has been contained to the streets of Athens, there is no doubt that we have witnessed a war.

So the European Union does feel rather hollow. It is not just about whether we can trust the Greeks this time to deliver, to reform, to pay back their debts. But whether Europe can still work together.

Since the eurozone debt crisis began in 2009, some rather unsettling things have happened, which point to the Greece showdown being the beginning of the end for this European experiment.

Like Germany’s response to depositor protection in Ireland in 2010 when the crisis built up steam, to arguing over a bank levy which penalises a non-eurozone member, the City of London, to enforcing Greek compliance, there has been nothing but delays, prevarications, failed summits, and rule fudges.

When the euro was being talked about in the late 1990s I was working at Dow Jones Newswires. I was asked to write about how European fund managers were gearing up for the single common European currency which would kick off in January 1999, with Greece delayed to join until January 2001.

European fund managers were on balance keen on the currency. To them it meant doing away with 20-odd currencies and just having one to deal with. No more transactional costs or forex risks. It also meant that fund managers were beginning to think of Europe as one portfolio. Gone were the country-specific funds and in came the regional. Easier to manage with all of the then eleven eurozone member states plus Greece soon after. Well, if only all the countries had complied.

We now know that a hollow promise was sold and the Maastricht Treaty of 1992 had failed to draft law around “what if” happens scenarios. It was all about the positives and never about the negatives.

No one much cared to ask what would happen if any member state was not delivering. No one built in contingency plans, so that when the crisis started a decade later, the EU top decision-makers were bereft of making decisions and debated and procrastinated. They applied pointless compliance rules to a situation which had shifted and had no buffers in place to take the blow safely and without mess.

Now investors are starting to feel like they have been undermined by politicians. Having bought into a political pact, they now realise this may have been a mistake. Central banks are much the same.

The euro remains a major currency today, but seems to be in decline. Major central bank reserves of euros have fallen by a third since 2009 to around 20% from around 30%. That is not a vote of confidence in the currency or the policy.

Meanwhile, with the procrastination that has followed since 2009, not only have the cash sizes of bailout of places like Greece become ever more expensive, but the over-arching policy of quantitative easing by the European Central Bank has begun having peculiar consequences both inside and outside the eurozone.

The QE programme risks fuelling house price bubbles as investors seeking higher returns pour cash into real estate. Germany, Norway and the UK with ultra-low interest rates and bond yields are sending investors into real estate, according to a Moody’s Analytics report. Since 2010, average house prices in Norway have risen more than 30 per cent, in Germany by nearly 25 per cent and in the UK by nearly 15 per cent, the research found. Both sterling and the Norwegian crown are seen as safe haven currencies too.

So not only has the eurozone mismanaged itself. It has caused problems for others too.

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VE Day becomes EV Day for Tories – But what next in Europe?

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Alex Salmond, Brexit, Conservatives, David Cameron, economy, Ed Miliband, election, Labour, LIberal Democrats, Nick Clegg, Nicola Sturgeon, Nigel Farage, SNP, UK, UKIP

May 8 was an historic day. Politicians lined the Cenotaph in London to pay respects to the fallen and surviving troops of World War II on the 70th anniversary of Victory in Europe Day (VE Day), while for some of those suited individuals it was also Election Victory Day (EV Day).

Changes in Westminster politics couldn’t be more ironic. While commemorating the end of hostilities in Europe against a common enemy, Nazi Germany, Britain could now be looking to break away from its European allies.

One might forgive an air of celebration on this otherwise solemn day. After all, no one, this blog included, was prepared for the result of the UK General Election this week. And the Tories have plenty to celebrate.

Successive opinion polls pointed to a hung parliament, and it looked like the Scots would exit the union – probably at the end of the next parliament so that their coalition partners were not brought down – as their price for backing a possible weak Labour government.

Former Liberal Democrats leader Paddy Ashdown learned a lesson late in life too. Unless he orchestrated it to become the face of Liberal Dems’ failure he was the butt of jokes after he promised to eat his hat if the exit poll – which suggested a Tory majority – proved right. Ok, it predicted 316 seats for the Conservatives, 10 shy of an outright majority, and in the end David Cameron’s party lapped up 331 seats. (If anyone can explain why media keep saying Cameron has a 10-seat majority or in effect 12 as the Speaker and Deputy Speaker of the House of Commons are neutral, rather than the five seats hence seven that we see, please do get in touch!)

On Friday satirical media The Poke offered up Ashdown’s breakfast: 11 decorative hats.

There is no doubt the nearly-forgotten failed referendum in 2011 to introduce an Australian-style Alternative Vote electoral system would far more likely have resulted in a hung parliament than we received.

In fact, the Tories would have secured 75 fewer seats, and Labour too would have polled fewer. But UKIP would have 83 seats and given a strong mandate for Britain’s exit from the European Union, the so-called “Brexit”.

But with a first-past-the-post system intact, it is all about winner takes all. Even the biggest “moral winner”, UK Independence Party, failed to gain an extra seat and instead lost one it had secured in a recent by-election, to land just one MP in Westminster. And that was not the charismatic UKIP leader Nigel Farage, who failed to take South Thanet. UKIP enjoyed a 9.5% swing since the 2010 election, the biggest gainers with an impressive 3.9 million votes cast and well ahead of a meaningless 1,600 cast for ultra-right British National Party or 6,500 for English Democrats. UKIP also won their first local authority, Thanet, as once again the party proved a hit off Westminster’s porch. UKIP now has influence in Europe and its first in local authorities. The biggest failures of election night were the Lib Dems, dropping by 15%.

The surge for SNP in Scotland, while nothing short of a landslide, represented just a 3% swing in the UK as a whole for the Scottish nationalists.

For all Labour’s failure to form a government they gained 1.5% from their derisory performance which ended Gordon Brown’s tenancy at Downing Street in 2010, while for all their jubilance the Tories gained only 0.8%.

As one member of the public asked at Friday’s BBC Question Time “why did the British electorate punish the Lib Dems for the coalition’s failures yet reward the Conservatives for its successes? Evidently that must be because, even if the Lib Dems positioned themselves as the break on more extreme Tory ideology they were the party that sided with the Tories and ultimately broke promises, such as over tuition fees.

Yet the Conservatives will have a clear mandate to steer us deeper into economic recovery. Or will they?

Cameron must make further spending cuts if he’s to find GBP8bn he has pledged for the National Health Service, a pledge made in a panicky moment in the campaign! Cameron must also make good a promise to hold the EU referendum in 2017, and with his thin majority – half as big as John Major’s in 1992 – he will have to pacify the right wing elements on his backbenches in Westminster. It means bringing in unpopular policies to cut the budget deficit.

In so doing it, he risks coming across as draconian and nothing like the man he was when the Lib Dems stapled his tie to his chest. John Major suffered by-election defeat after defeat over four years and by 1996 was governing with just a one-seat majority and relying on the Ulster Unionists – who have just returned to Westminster after five years of elective exile – to pass legislation. Cameron could soon find that by-elections or MPs away on sick leave will be enough to cause legislative paralysis. He might have to even concede to SNP demands for a fresh referendum on Scotland’s independence.

But most of all, he will be unwise to ignore public sentiment. The pro-UKIP vote was frankly enormous. He cannot renege on the EU vote pledge and his own party would not let him. This makes Brexit in Europe more likely than ever.

EV Day – So how did the Tories do it?

The Conservatives brought in an Australian named Lynton Crosby. This adviser in effect told Cameron to ignore the opinion polls, but never to ignore genuine public sentiment. That means hearing what voters want and modelling a manifesto around that.

It also means using social media effectively. A late convert to Twitter, Cameron later embraced it very effectively. You can see something of an audit I carried out of political Twitter accounts in this external blog on 7 April, exactly a month before the election.

Many are saying that Lynton Crosby is the man who really won the election for the Tories. Certainly, Cameron’s Twitter account was more impressive than Labour’s Ed Miliband’s or that of other parties’ top brass.

One example was SNP Alex Salmond’s missed opportunity. Meeting a pensioner he tweeted a photo – which shows only him on a sofa with the voter’s pet cat and rather than a pensioner just her tea tray in view. It made Salmond not appear as someone interested to listen, but just enjoying a jolly.

When Cameron visited factories or shops, he would enumerate how much more take home pay those staff now receive thanks to the incumbent government’s policies.

Although also active on Twitter, when Miliband communicated his messages he reopened the class warfare of Old Labour. He wanted to move away from Tony Blair ‘ new Labour. He was keener to say how he would punish fat cats rather than how this would directly help ordinary folk. He also misjudged that voters would rather join the fat cats than stay in poverty or austerity and want revenge. Bizarrely perhaps, Labour’s only success enclave in this election was London – one of the areas most likely to be hit by a Mansion Tax proposal.

At the Conservative Party conference in 2012 Cameron laid the foundations for his fight to lead Britain without a coalition: “I’m not here to defend privilege, I’m here to spread it”.

To be fair, that’s exactly what he has done. In a movie, possibly The Iron Lady featuring Meryl Streep or another film documenting Margaret Thatcher, Tory grandees are heard to say “The Conservatives win elections when they appeal to voter’s aspirations and lose them when they defend privileges”.

So with a well-oiled social media presence, and something appealing to say, Cameron had a clean strategy to success. Talk of pro-Tory media or even people telling opinion polls they would vote for other parties because they could not bring themselves around to admitting they were sticking with the Tories, are just lame assessments.

Cameron won fair and square, but history may judge that rather than a premier with a “can do” mandate, he will soon become bogged down by Scotland, the EU renegotiation and ultimately unable to govern without coalition style forces.

Labour’s future? Europe’s future?

To stand any chance of future re-election, Labour must tread carefully selecting a new leader. It must then begin a process of really listening to what voters want. It must then design a powerful slogan – just like the Tories came up with “we inherited this mess from Labour and Gordon Brown”. How about “Labour’s partnership with people”?

Finally, it needs fresh policies and initiatives which catch the government on the hop. Making a strong case for Europe would be a good place to start. After all, even if the Tories polled 36.9% of the vote and Labour only 30.4%, the combined vote of the Tories plus 12.6% for UKIP, mean the two parties fall just short of 50%+ and hence have less than a justified mandate to quit Europe. Labour needs to fill that void and it could build credibility. Failing to seize that means that the pro-European Lib Dems will only steal their thunder – again.