Tag Archives: Eurozone

The Foundation Stones of the BREXIT issue

img1The Foundation Stones of the BREXIT issue

Before embarking in any detail blogs regarding the political and economic merits relating to BREXIT I would like to consider the environment leading to this referendum.

I think what is happening in the USA at this time allows us to sit back and observe what happens when the people feel that politics is stagnant, and thus irrelevant. If we use a simile of the US Congress and the House of Representatives as two conflicting factions of Europe, and President Obama as the people wanting to move forward in their lives but stifled by the conflict, then we can understand why Donald Trump is doing so well. My view is that the European Commission has lost sight of the problems in Europe being more interested in the degree of curvature of a banana than the real problems of economic inequality, global instability, and now the refugee crisis. Indeed, the refugee crisis demonstrates the difference between out-of-touch grandstanding vision, and reality.

In the late 1970’s, my mentor, Walter Wriston, and probably the most influential banker in the world at the time responded to my question regarding the political influences on deregulation of financial services and global capital flows (Big Bang in 1986) by stating that politicians come and go. Business drives economic prosperity, and the banks are the enduring stable force to ensure the required liquidity to facilitate global trade. I have never forgotten his response, essentially because it has shown over the years to be the case. I was also taught by him that there are two factors in global business decision making; inevitability, and consequence. To him (in 1979) deregulation of financial services was inevitable, with timing being the only consequence of interference from politicians.

I had the opportunity to attend a presentation to senior bankers by Jacques Delors when President of the European Commission. He was expounding ever closer European union in his attempt to convince senior bankers of the merits of forcing European federalism upon the UK. I suggested to him that businessmen, rather than politicians, would drive any unity in Europe, if deemed beneficial, while the politicians were still talking about it. Even his (French) economic adviser could not dispute the reality of my comment. It was interesting last week to see how few of the CEO’s of major corporates in the UK were prepared to openly endorse the views of David Cameron regarding BREXIT.

My opinion from many years of experience throughout the world is that the EU model is broke. The Cameron negotiations demonstrated that there is no appetite from vested interest parties to fix it other than tinker at the edges. In recent years the faults in the USA federal model have clearly demonstrated how damaging such models can be to the people when vested political interests can completely stifle the function of Government, and thus damage the lives of the people it is there to protect. Therefore, the only other route is to let the EU empire fall, and then remodel into something more worthy of consideration by the people. Does the UK want to be part of this (inevitable?) decline when it has other options? I think that a risk analysis would err on the side of caution, i.e. stand outside as a spectator and watch. And let us not forget that the Greek crisis revealed another truth – that the big decisions were made in Berlin – not Brussels.

Business will always find a way to trade, and thus survive. Thus BREXIT is only about the people of the UK, and their influence over decisions regarding their own future.

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To Be, or Not to Be (in the EU)? That is the question

img1To Be, or Not to Be (in the EU)? That is the question

At last we have a definitive timeline to determine our future. Do we want to be ruled by a Germanic invasion of Europe for the third attempt in a hundred years, or do we rely on our historic past and save Europe from a model that was broke the day the Euro was introduced?

Having not yet analysed in full the proposed deal agreed by David Cameron last week, I can only comment on what he says he has achieved, having twice listened to his claims. The first alarm bell was the excessive use of Aristotle pathos during the Andrew Marr interview Sunday morning. Invariably a sign of a weak argument.

Let us quickly deal with benefits as this is only window dressing at just £30m or thereabouts per year. The UK net membership contribution is some five times this amount per week – some £2 per head of every man, woman and child in the UK. And what about the money sent to support families in places such as Africa, India and Pakistan every year. Add to this people from places such as Switzerland who come here to retire to take advantage of our NHS, our subsidised travel costs for pensioners, and our substantially lower cost of living – what have they contributed to our country? I would argue that child credits should be paid to every worker at the same level assuming they are paying UK taxes. The fact that their children are in another country should be seen as a saving as they receive their education and healthcare outside of our system. If these children lived in the UK then they would not only receive child credit but also incur costs for education and healthcare. This would amount to considerably more Government support than £21 per week. People who come here only to sponge on our benefits system, or even our NHS, should most certainly be refused entry.

His scaremongering essentially revolves around trade and defence. I found it bizarre that he puts our membership of the EU on the same context as our membership to the UN, NATO, G7, etc. This is comparing apples and bananas. We sit at the top table at the UN, NATO, G7, etc whereas we are a secondary player in the EU, tolerated primarily because of our historic influence in the world, and our substantial contribution in membership fees (without which the EU is likely to collapse). Last week the German Foreign Minister, speaking on Radio 4, clearly stated that the UK leaving will substantially reduce the influence of the EU in the world. He recognised that the UK is a primary driver in global influence of the EU, and we would most certainly retain our influence. We are the fifth largest economy in the world, and we benefit from an historic trans-global approach to the world. I find the EU extremely introspective. Ask someone in China where is Brussels, and then where is London – the easiest example to support my argument.

As for trade, we constantly hear from politicians wishing to stay within the EU that the EU is our largest trading partner, and indeed some claim that the EU is the largest trading bloc in the world. Rubbish and rubbish. We import some £300 billion per annum in goods and services from the EU – about two months worth of our overall trade. We sell considerably less to the EU. Our largest investment market is the USA, and we would be far better served in exports by nurturing our Commonwealth nations who constitute some 1.85 billion people as against some 340 million people in the EU. Politicians in the EU would impose trade barriers against the UK at their peril – of their own corporate leaders. Ask the USA, whose corporates are still trying to recover from the ill-considered trade barriers set by the USA in the 1970’s and 1980’s.

Our finance sector is another scaremonger tactic. I found the statement, purportedly from HSBC, that should the UK leave the EU then they will have to establish investment banking activities in Paris as ludicrous as moving their headquarters back to Hong Kong. They might decide, as is normal practice in banking, to establish themselves within a market – but Paris? I also do not expect Deutschebank to reduce its presence in the City of London any time soon as the EU will need the capital raising capability of the City.

What Cameron did not achieve is any real movement in our sovereignty, as it is referred to, and the primary reason declared for Boris Johnson electing for the out of Europe campaign. Our legal system is considered as one of the best in the world, especially for trade and finance – and thus the dominance of the City of London. Its strength is that it grew with the market, and continues to rapidly evolve as is required to meet new challenges – and it is trusted. The continuing imposition of EU law can only impede our ability to retain this dominant position, and thus the dominance of the City – as has been attempted twice during my life as a banker. Germany has never been trans-global in its finance policy, and is invariably behind the curve on matters economic. For example, they dithered for some 3 years about quantitative easing meaning everyone within the Euro suffered.

The only applause to Cameron is for forcing the EU to agree a new deal in time for the referendum to occur whilst Angela Merkel is still in her final weeks of office. Politically well played – that is until Merkel’s response to the refugee crisis went sour. Had Merkel not lost her support within Germany she would have done whatever necessary to avoid the EU collapsing on her watch. There are now whispers that two other net contributor countries are considering following our lead out of the EU. Will the unelected grey suits in Brussels get the message? Today my vote is for Rule Britannia.

More to follow as the detail evolves.

The General Election 2015 – A Sorry Tale

univestThe General Election 2015 – A Sorry Tale

Are we all now completely disillusioned with the current General Election? Whatever happened to integrity of manifestos and campaigning? Now it’s down to who has got the biggest ……

It is also noteworthy that Ed Balls has been demoted to the second rank of campaigners. The stench of his part in the last Labour Government, plus the number of times he stood at the dispatch box during the recent term condemning economic policy which actually worked in spite of the debacle in the Eurozone. So much for the Eurozone signally the end of Rule Britannia as and when we leave the EU –  it’s the EU that will collapse as well it should – for the third time.

Whilst I appreciate that some greedy bankers created havoc in the financial markets right under the eyes of the so-called regulators, this was mainly in the USA. The previous Labour Government had still spent all of the people’s hard earned taxes on populist social experiments that all failed, or left the public sector in substantial dire straits, e.g. PFI for hospitals and school that can no longer afford the poorly negotiated high payments. Indeed I am struggling to recall one Labour Government since WWII that did not leave the country bankrupt or near bankrupt with the banks being called upon to use the might of the London financial markets to beg, borrow, or otherwise as much foreign money as possible to keep the country afloat. Thus why Maggie Thatcher spent so much energy putting the “Great” back into Great Britain. I also remember that when Tony Blair took office the previous Conservative Government left him with a surplus in the Treasury.

So what about our lefty Ed Milliband; what will he do? An accountant friend of mine has put together a little tale of how our tax and benefits system will work using Ed’s plan. It is a sobering message.

Suppose that once a week, ten men go out for beer and the bill for all ten comes to £100. If they paid their bill the way we pay our taxes, it would go something like this:

  • The first four men (the poorest) would pay nothing
  • The fifth would pay £1
  • The sixth would pay £3
  • The seventh would pay £7
  • The eighth would pay £12
  • The ninth would pay £18
  • And the tenth man (the richest) would pay £59

So, that’s what they decided to do.

The ten men drank in the bar every week and seemed quite happy with the arrangement until, one day, the owner caused them a little problem. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your weekly beer by £20.” Drinks for the ten men would now cost just £80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free but what about the other six men – the paying customers? How could they divide the £20 windfall so that everyone would get his fair share?

They realized that £20 divided by six is £3.33 but if they subtracted that from everybody’s share then not only would the first four men still be drinking for free but the fifth and sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fairer to reduce each man’s bill by a higher percentage. They decided to follow the principle of the tax system they had been using and he proceeded to work out the amounts he suggested that each should now pay.

The result was that the fifth man, like the first four, now paid nothing (a100% saving).

The sixth man now paid £2 instead of £3 (a 33% saving).

The seventh man now paid £5 instead of £7 (a 28% saving).

The eighth man now paid £9 instead of £12 (a 25% saving).

The ninth man now paid £14 instead of £18 (a 22% saving).

And the tenth man now paid £49 instead of £59 (a 16% saving).

Each of the last six was better off than before with the first four continuing to drink for free.

But, once outside the bar, the men began to compare their savings.

“I only got £1 out of the £20 saving,” declared the sixth man. He pointed to the tenth man, “but he got £10!”

“Yeah, that’s right,” exclaimed the fifth man. “I only saved £1. It’s unfair that he got ten times more benefit than me!”

“That’s true!” shouted the seventh man. “Why should he get £10 back, when I only got £2? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next week the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important – they didn’t have enough money between all of them to pay for even half of the bill!

And that, boys and girls, journalists and government ministers, is how our tax system works. The people who already pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy and they just might not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

German Domination of Europe – When will they learn that there is a better way

German Domination of Europe – When will they learn that there is a better way

The poignant D Day events of last Friday reminded me that this year is also the centenary since the start of the First World War, or the Great War as it is more commonly known. Although I have many good friends in Germany, and hold absolutely no prejudice against the German people of today, it occurred to me that, for 100 years, the elite of Germany have attempted to mould Europe in their own image, initially through two catastrophic world wars, and currently through self-serving political and economic influence within the European Union.

It cannot be disputed that the engine-room behind the introduction of the Euro was Germany, and in spite of the so-called stringent rules of entry into the Euro, Germany allowed such rules to be significantly relaxed to allow countries to participate where compliance with the entry rules would result in such countries otherwise unlikely to qualify for entry for years to come. It is no secret that Germany has significantly prospered under the Euro – at the expense of the other member nations. These nations now seek financial support, and the German Government have a hard time selling these bailouts to the already over-taxed German people, albeit a problem created by Germany in its self-serving quest for the domination of Europe.

Sometimes I reflect that Germany, having left Europe devastated in 1945, forgets that much of their subsequent prosperity was built on their substantial participation in the Marshall Plan (whereas the United Kingdom, as victor, did not qualify for any such support and has been required the swallow the cost of the wars, and rebuild using its own resources). As with the so-called super-model of Japanese prosperity in the 1980’s I do not subscribe to the German economic model of today, and certainly would strongly oppose this model being at the centre of the European Union. The current German economic model has a fundamental incestuous instability at its core, just like the proverbial pack of cards, and just as with Japan before its economy collapsed.

And this week the German elite are flexing their self-serving muscle again by instruction Angela Merkel to support a tame federalist like Jean-Claude Juncker as European Commission president, a move that is counter to the fundamental reforms needed by all donor nations – except Germany.

I have just noticed a news headline  ‘German chancellor Angela Merkel has cautioned David Cameron not to use threats of a UK exit from the EU in his campaign to block a federalist candidate from taking the helm of the European Commission.’

Without these reforms my view is that the UK should not threaten to leave the EU, but make it very clear to Germany through the promised referendum that the people of the UK do not see their future dominated by the German vision of Europe. Maybe then the UK will have to pick up the pieces of an imploded Europe for the third time.

Work Related Stress – Do Corporates understand this problem, and do they care?

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Work Related Stress – Do Corporates understand this problem, and do they care?

Are major corporates playing lip service to EU OSHA (The European Agency for Safety & Health at Work) guidelines on work related stress and psychosocial risks? Having recently had the opportunity to review this campaign, and the proposed methodology of incorporation into a multinational corporate environment, where the primary implementation was the proposed OSHA poster campaign, and the implied consideration was not to blame management, I have my doubts that management understand the significant impact to bottom-line resulting from a stressed workforce.

What do we mean by stress and psychosocial risks? – as defined by the European Agency for Safety and Health at Work

Psychosocial risks arise from poor work design, organisation and management, as well as a poor social context of work, and they may result in negative psychological, physical and social outcomes such as work-related stress, burnout or depression. Some examples of working conditions leading to psychosocial risks are:

  • excessive workloads;
  • conflicting demands and lack of role clarity;
  • lack of involvement in making decisions that affect the worker and lack of influence over the way the job is done;
  • poorly managed organisational change, job insecurity;
  • ineffective communication, lack of support from management or colleagues;
  • psychological and sexual harassment, third party violence.

When considering the job demands, it is important not to confuse psychosocial risks such as excessive workload with conditions where, although stimulating and sometimes challenging, there is a supportive work environment in which workers are well trained and motivated to perform to the best of their ability. A good psychosocial environment enhances good performance and personal development, as well as workers’ mental and physical well-being.

Workers experience stress when the demands of their job are greater than their capacity to cope with them. In addition to mental health problems, workers suffering from prolonged stress can go on to develop serious physical health problems such as cardiovascular disease or musculoskeletal problems.

For the organisation, the negative effects include poor overall business performance, increased absenteeism, presenteeism (workers turning up for work when sick and unable to function effectively) and increased accident and injury rates. Absences tend to be longer than those arising from other causes and work-related stress may contribute to increased rates of early retirement, particularly among white-collar workers. Estimates of the cost to businesses and society are significant and run into billions of euros at a national level.

How significant is the problem?
Stress is the second most frequently reported work-related health problem in Europe.
A European opinion poll conducted by EU-OSHA found that more than a half of all workers considered work-related stress to be common in their workplace. The most common causes of work-related stress were job reorganisation or job insecurity (reported by around 7 in 10 respondents), working long hours or excessive workload and bullying or harassment at work (around 6 in 10 respondents). The same poll showed that around 4 in 10 workers think that stress is not handled well in their workplace.

In the larger Enterprise Survey on New and Emerging Risks (ESENER) around 8 in 10 European managers expressed concern about work-related stress in their workplaces; however, less than 30% admitted having implemented procedures to deal with psychosocial risks. The survey also found that almost half of employers consider psychosocial risks more difficult to manage than ‘traditional’ or more obvious occupational safety and health risks.

Having considered these definitions, and reflected on my own experience over the years creating, changing or rescuing investment banking operations I found myself compiling my top ten reasons for stress in the workplace. In no particular order they are:

  • Managers who rule by fear and/or dictate cause stress
  • Managers who do not know how to manage people cause stress
  • Managers who fear for their own position cause stress
  • Managers promoted under the Peter Principle cause stress
  • Managers who are emotional and/or insecure in the decision process cause stress
  • Managers who promote politics or other unhealthy competition amongst their staff cause stress
  • Managers who do not have an intimate knowledge of the business cause stress
  • Inexperienced people – wrong people for the job – cause stress
  • People suffering stress in their private life are prone to suffer stress in the workplace
  • Likewise people stressed in the workplace can take it home and cause stress in their private life which then reflects back into the workplace

My generic definition of a manager in this list is a strategic or tactical role, from main Board director down to line manager.

Therefore, from my own experience over many years, both as a Director of Operations and Management Consultant, my observation is that management are by far the most significant cause of stress in the workplace. This is logical if you think about it because these are the people who define the workplace.

The workplace that I speak of is probably one of the most stressful. Investment banking operations are extremely dynamic, constantly changing to meet new market demands, every transaction dealt during a trading day must be processed that day, imperfect settlement means that on a normal day some 30% of transactions fail (significant funding and hedging cost considerations), more on a volatile trading day, and little errors can result in a high cost. A typical trading day could see some USD 3 billion of turnover with an average transaction value of some USD 4 million or equivalent in other currencies. An error of just 0.25% on such volumes could result in a daily loss of some USD 7.5 million – the cost to run such operations for 1 year. So the stakes are high, and there is no room for errors.

With this background in mind it should not be too difficult to imagine the impact of any of the stress situations that I have identified above. During my career I have experienced the stress caused by poor management ranging from excessive demand on staff both in effort and time, fear, incompetence, poor leadership, breaches of human dignity, mental cruelty, demand for favour (including sexual), and physical brutality. I have experienced the human impact caused by workplace stress, whether it be mental breakdown in the workplace requiring long-term medical treatment, broken marriages, dropout, and even a premature death resulting from a mental beating from a tyrant director. In the environments in which I have worked it would be very unusual not to experience the extremes of human behaviour as it is a dynamic people business, and attracts some of the most aggressive people, many of whom have no understanding of compassion, or consideration of the impact of their decisions on others.

Examples of managers who rule by fear and/or dictate are plentiful. These people are particularly bad if they have an emotional character, and/or are very insecure. If these people are given too much power they can raise havoc in the workplace. Whether they like you or not carries more weight than merit, and total loyalty is a pre-requisite irrespective of how bad the leadership, or poor the business decisions. Very much also depends on their mood on the day resulting in erratic business decisions. Sacrificial lambs are a feature of such people as they comply with the final phases of poor management, i.e. punishment of the innocent, and decoration of the uninvolved. A manager makes a mistake; some innocent underling becomes the sacrificial lamb and loses their job.

For those not familiar with the phases of a management doomed for failure I will recount the origin of the eight original phases, which I see have now been condensed to seven or even six. In the mid-1970’s I was with Chase Manhattan Bank engaged in a project being managed by the consulting firm Arthur Anderson (no longer with us). After the first year the progress of this project was so dysfunctional that a group of us within the bank compiled the equivalent of a university Rag Mag for Christmas 1977. We identified the phases of our dysfunctional project as Confidence, Enthusiasm, Confusion, Disillusionment, Panic, Search for the Guilty, Punishment of the Innocent, and Decoration of the Uninvolved. For those who remember we also designed the tie with the motif of a picture of an anchor with a ‘W’ underneath it as presents for the associated Arthur Anderson staff, and still widely available in the City of London. This was not my first experience of poor management, and the associated profound stresses on the staff, but it was by far my most prolonged period of continual stress as a result of chronic management.

I was later asked to restructure an investment bank where the existing debt securities operations was a shambles. Operations staff were working an average 60 – 80 hours per week, there was no integration of the various functions involved, politics and finger-pointing was rife, poor transaction processing was the norm, moral was non-existent, and systems were wholly inadequate.

Having immediately realised that the executive management was located 18 floors above the operations totally removed from what was happening, and the various departmental heads were lacking the knowledge required for the business, my first task was to make it clear to the management all the way up to chairman of the bank that there would be no interference, that no-one, including the MD and Chairman, could request anything from any of my staff without coming through me first, and that my authority extended across the trading floors. I also refused to join them, preferring to have my office within the operations area (which was later mimicked by the MD). As the former head of settlements had suffered a nervous breakdown I recruited a known entity to fulfil this role, and replaced all department heads who were either not qualified, or not capable. Within 3 months anyone still on the floor at 6pm had to write down why they were still there, and put it on my desk. This is a psychological process more for them than for me as they have to read what they have written, and thus ask themselves whether or not it is credible. I needed them to go home to their families, and return fresh the next day to meet the ever present challenges of a new trading day.

After 25 weeks we had a fully integrated professional operation with new in-house systems. Politics on the floor was actively discouraged, and my door was always open to anyone on the floor for non-business related issues. At least twice each year we had informal gatherings for all staff and their families at which other halves were actively encouraged to raise any concerns they had. For every 5 people on the floor a representative was appointed, and these people were encouraged to meet together monthly to discuss any issues affecting the working environment (necessary feedback). Their output came directly to me, was taken seriously, and corrections made when necessary. We had a hard working, but happy group of people with the only workplace stress being that caused by the normal everyday imperfections in the business sectors in which we operated.

From experience I would suggest that the maxim for a stress-free workplace is to rule by consent, and lead by example.

Before restructuring this investment bank it was losing some £2 million per month through stress related errors caused directly by poor management. Therefore corporates need to understand that the overwhelming cause of stress in the workplace is poor management. Neither poster campaigns or denial will address this problem. The impact on the bottom line can be substantial if such stress is not taken seriously.

A New Multilateralism – Realisable or Wishful Thinking?

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A New Multilateralism – Realisable or Wishful Thinking?

I listened to the Richard Dimbleby Lecture on Monday evening with expectation of some new thinking on the way forward. The lecture was called ‘A New Multilateralism for the 21st Century’ and was presented by Christine Lagarde, incumbent MD of the IMF. My initial reaction was that it presented some interesting ideas, but I couldn’t quite put my finger on the relevance of these ideas. So, on Tuesday, I printed off the transcript of her speech from the IMF website. Having now studied this speech in some detail I find it endorses my view that the multilateral institutions of which she leads the IMF are essentially out of touch with the real problems that we face in the 21st century.

Back in the 1970’s, during the oil boom, individuals in the Middle East were accumulating vast amounts of US Dollars in cash because Western banks did not want it. Indeed I remember Swiss banks charging up to 3% p.a. to take these deposits. I actually walked into a room in a palace and saw a pile of US Dollars, and was told that this pile amounted to USD 1 billion. In an attempt to give some visual impression of this pile I am reliably informed that a standard 40ft sea container will hold USD 1 billion in fresh print USD 100 denomination bills. This money was not participating in any economic benefit whatsoever, and there was no possibility that the owner could reasonably consume these funds in their lifetime. Yet just one mile away there were ordinary working people struggling to find the money for their next meal. It occurred to me that if these funds were deposited with SAMA, and used productively producing even a nominal return, such return could be used productively to provide food for these people without any degradation to the original money. Yet the owner had no interest in such a proposition, and was content to accumulate yet more piles to look at.

Unfortunately this sorry tale has since increased in propensity, and as we saw a few weeks ago, Oxfam calculated that the 85 richest people have the same wealth as the bottom half of the World’s population. Christine Lagarde added that the richest 1% in the USA captured 95% of all income gains since 2009, yet the number of people in the USA needing food parcels to survive is now reaching pandemic proportions. She further states that in India the net worth of the billionaire community increased 12 fold in the past 15 years, enough to eliminate the poverty of that country twice over. So why has she not rationalised this into the real threat to the World Order in the 21st century?

We have seen so many billionaires created out of emerging economies such as the former Soviet Union, China, and India, sapping vast amounts of sovereign assets. The rapid nature of such wealth creation should arouse suspicion. However the point that I make is that somehow a few own wealth beyond any reasonable expectation of spending throughout their life. Many will say that they invest much of their wealth, but this only increases their existing wealth. Having met a number of these oligarchs their primary objective is to continue to increase their wealth, usually at the expense of others.

What about if each billionaire set aside USD 1 billion for investment and applied just the income to relieving poverty.

In 2013 an investment return of 15%+ was easily achievable. This would provide in excess of USD 150 million from each billion invested. The billionaire has not lost their capital, but much could be achieved with the income stream. Of course a few of these billionaires are already philanthropic and names like Bill Gates easily come to mind, and who clearly understands that he does not need such vast wealth, so uses his business judgement to make every dollar count in his selected beneficial projects.

Having brushed along with the World Bank, the IMF, and the UN for over 30 years I would suggest that they are political institutions populated by political appointees and academics who have no idea about the real world. I have witnessed a number of World Bank projects which did no more for the recipient country than to provide work for a donor country corporate, create an inappropriate monster that, within 5 years, was derelict leaving the recipient with sovereign debt but with no value to show for it. I have also seen appropriate solutions costing a fraction of the price of the expensive inappropriate concrete alternative discarded because the amount of the appropriate solution did not warrant World Bank intervention. It is interesting that Christine Lagarde acknowledges that it was the fast response of the G20 that stopped the world descending into meltdown 5 years ago rather than the institutions such as the World Bank and IMF founded to deal with such events. I think that this is a good template to use in stating that the current multilateral institutions are not good at delivering effectively solutions.

Although I am clearly in support of the outcome of Bretton Woods, we should also remember that not enough people there were visionary enough to accept all of the ideas of Keynes, and which were subsequently quickly adopted as catastrophe loomed, e.g. removal of the gold standard. Other than those wearing rose tinted spectacles no-one would suggest that the institutions that emerged remotely fulfil their ambitious mandates. I have already mentioned the lack of effectiveness of the World Bank and the IMF, and the UN is little more than a toothless talking shop today – Bosnia being a classic failure.

Christine Legrande suggests that the multilateral outcome of Bretton Woods produced ‘unprecedented economic and financial stability …. Disease eradication, conflict diminished, child mortality reduced, life expectancy increased, and hundreds of millions lifted out of poverty’.

Do we not count Korea, Vietnam, Congo, Sudan, Yugoslavia, Israel, Egypt, Lebanon, Iraq, Afghanistan, Syria …….etc as conflicts? All consumed the lives of many thousands of people including Western soldiers, left chaos and destruction in their wake, and they are still very much in our minds today. When was the last time that the USA was conclusively successful in any serious military conflict? Therefore Europe and the USA may have seen peace and prosperity since Bretton Woods but how many thousands of American and European soldiers and civilians have died in the name of preserving this peace?

To suggest that Europe has been conflict free is also short-sighted. In the past 6 years Europe has been involved in an economic war. Not too many people killed with bullets and bombs, but many have become disenfranchised, lost everything, displaced, and descended into poverty. Is this not symptomatic of a conventional war? When the vision of a European Union was first put to the people the rhetoric promised peace and prosperity for all citizens. I accept that the banking crisis made a bad situation worse, but how many European politicians in France, Greece, Spain, Italy, Ireland and the UK breathed a sigh of relief that they could hide their failure to create a credible EU behind the banking crisis?

Let us examine the two reference dates that she used, i.e. 1914 and 1944. She suggests that prior to 1914 the birth of the modern industrial society brought about massive dislocation between protectionist nations, and inequality between the ‘haves’ and ‘have-nots’. Take away the country boundaries, essentially the impact of the digital age, and what is different today?

So where do I see the powder kegs of the 21st Century? Perhaps controversially I do not see the North-South Conflict as a major threat. An implosion within the Islamic community is more likely with primarily Sunni against Shi’a. If you think about it, most of the current conflicts involve the Islamic nations, and are driven by extreme religious division. The intervention by the West in some of these conflicts in the name of protecting the West has no logical outcome. These people have no regard for Western democratic values, or of secular tolerance.

At one end of the spectrum we have the blatant inequality of the distribution of wealth. We are experiencing 2 critical phenomena, both of which are counterproductive to a peaceful, all inclusive world. We have individuals and corporates accumulating vast wealth to the point where the resulting power exceeds that of some major nations. Albeit a few of these have taken a philanthropic stance we should note that such philanthropists are mostly from Western countries. Many of the new billionaires are from emerging or developing economies where democracy does not really mean very much, and a market society is the norm, i.e. everything has a price, even social and civic values. All we need is a charismatic megalomaniac, as depicted by the Carver character in the James Bond movie, ‘Tomorrow Never Dies’, to cause chaos and suffering for many throughout the world. Unfortunately Western civilisation has degraded over the past couple of decades towards a market society thus adding a significant sting to the ever increasing differential between the ‘haves’ and ‘have nots’. For example diminish the rights of the ‘have nots’ to education, justice, political influence, and healthcare because they have no money and you have a significant pool of would-be terrorists for our megalomaniac to exploit because they have nothing else, and nothing to lose.

Then we have corporate greed. So what can the people see? During the past 6 years the people have become very aware that their corporate executives have suppressed the salaries of the workers (the value drivers) to below inflation levels whilst increasing their own already attractive remuneration by some 40% average, and which has been allowed by investors because dividends have been maintained to these investors. So the people at the top have handsomely profited whilst real income to the workers has diminished. So much for sharing the pain. In addition these executives are immune to any accountability should they fail. Have any of the avaricious people who profited from the banking crisis been prosecuted, or had their ill-gotten gains repossessed? The banks themselves are being penalised by regulators who should have been more alert to the problems in the first place, and some of these funds do go to Government coffers. But these large fines diminish the capital of the banks, and thus inhibit their capability to finance the very enterprise we need to re-energise the employment market, i.e. they inadvertently stifle recovery, increasing disenfranchised young entrepreneurs.

At a micro scale we can look at the fate of RBS under Fred Goodwin. He was a megalomaniac trying to build the biggest bank in the world. Everyone I spoke to in the City of London at the time leading up to the acquisition of ABN Amro agreed that the terms of that deal, at twice the price that anyone else was prepared to consider, was insane. Yet no-one stepped in to stop him. How much pain, and destroyed lives has RBS caused to many thousands of people. But Fred Goodwin is made for life financially; so well in fact that sticks and stones may break his bones, but he will not lose a night’s sleep over the names that he is called.

At the other end of the spectrum we have the demographic issue. We have already seen a growing view amongst the young generation of workers that their taxes should not be funding the pensions and healthcare of the graying generation. The younger generation see that they have to pay taxes to support the pensions of an ever increasing graying population, and being told that they also have to contribute a significant proportion of their disposable income to their own pension provisions as State pensions will slowly but surely phase out by the time they retire. All of this at a time when real incomes are diminishing in real purchase power terms. Rightly the graying population state that they have paid their taxes, in the form of a special National Insurance tax specifically for the right to a State pension and healthcare, throughout their working lives and thus their State pension is rightfully theirs. The problem is that successive Governments have not ring-fenced these contributions over the years, preferring to spend it in the hope that future generations with continue to fund the requirement; a little like a Ponzi scheme. Add to this the migration of young labour where they have no historic interest in the local graying population, and expect to be able to send money home to support their own aging family, and we have potential serious discourse and unrest. Bring both of the above phenomena together and we have a powder keg just looking for a fuse.

So from where can our fuse emerge? Our fuse already exists in the form of the global internet, social networking, and twitter. Christine Lagarde is right in that the Arab Spring was fuelled by the galvanising of the people through media such as Twitter and social media. But likewise these facilities can also be used to fuel discontent and confusion. Great philosophers such as Aristotle, Kent and Hume have all commented on the importance of gossip to the masses, and our lesser quality media thrives on this obsession. So the touch paper is a disenfranchised charismatic individual or group exploiting the power of gossip through Twitter and social networks. We have seen the impact of disenfranchised ‘have nots’ in riots in many cities over recent years. It is when all of these groups can be galvanised together that we need to be concerned.

EU/Eurozone – Start Again or Plod On? – Conclusions

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EU/Eurozone – Start Again or Plod On?

Conclusions

During a speech in Zurich on 19th September 1946 probably the greatest statesman of the 20th century, Winston Churchill, called for the creation of a United States of Europe modelled on the United States of America singling out the essential need for Franco-German co-operation. Churchill did not envisage the UK’s role as anything other than promoter (broker). In May 1950 Robert Schuman, the then French Foreign Minister, took up the idea of Churchill and put forward a plan.  We are now in 2013, some 67 years later, and what do we have that remotely resembles this vision?

On July 2nd 1776, the Second Continental Congress, meeting in Philadelphia, voted unanimously to declare the independence ‘of the thirteen United States of America’. Two days later, on July 4, Congress adopted the ‘Declaration of Independence’. The drafting of the Declaration was the responsibility of a Committee of Five, which included, among others, John Adams and Benjamin Franklin; it was drafted by Thomas Jefferson and revised by the others, and then by Congress as a whole. It contended that ‘all men are created equal’ with ‘certain unalienable rights, that among these are life, liberty, and the pursuit of happiness’, and that ‘to secure these rights governments are instituted among men, deriving their just powers from the consent of the governed’.

In spite of a ravaging war to overturn the Declaration of Independence, (the Revolution War involving both the British and the French), a new Constitution was adopted in 1789. It remains the basis of the United States federal government, and later included a Bill of Rights. With George Washington as the nation’s first president and Alexander Hamilton his chief financial advisor, a strong national government was created. In the First Party System, two national political parties grew up to support, or oppose presidential policies. This was achieved in just 15 years during a ravaging war, and this was all managed without telephones, internet, air travel, motorised transport systems, etc.

Peace and prosperity cannot be achieved merely by the creation of a political and economic framework if the people themselves play no active part in shaping society or in living together in harmony, i.e. without the consent of the governed. In the current EU system little or nothing of significance has been determined by the people and thus they rightly feel disillusioned and disenfranchised. It is a certainty that if the UK were to vote today on staying in the EU the vote would be a resounding ‘NO’. I am informed by my connections in Germany that the vote of the German people is fractured, and could go either way. The Mediterranean states would almost all vote ‘NO’ in spite of reliance on Germany for finance. So when do the politicians stop playing their fiddles whilst Rome is burning, and start to address the real issues, not least that the current framework does not, and will not work. Then sit back and ask the people what they need from a united Europe for themselves, their children and grandchildren. If the people elect for a United States of Europe, something similar as outlined in this series of essays, or as envisaged by Churchill, then fix a date and do it. If the people know and agree the plan, and the target date, they will respond.

And when the politicians start to address this plan they need to look at it from an outward perspective, i.e. how the world will see it, in order to guide thinking to maximise the value drivers available. For example who in the world knows where Brussels, Strasbourg, Frankfurt or even Berlin are, or that they even exist? The most known cities in Europe are Paris, Rome, London, Madrid and even Vienna. How many people do you know that, having visited Washington, the capital city of the USA, came back very disappointed with that city – even the White House is actually much smaller than pictures would have you believe. But Europe has stature with its historic cities so any plan must consider how these cities can be used as value-added drivers to the outside world. For example most people in the world know where London is, and that it is one of the most influential capital cities of the world. This is the strength of the UK, a maritime nation having built longstanding reputation and networks throughout the world, and thus a major value driver. Of course this assumes that we expand Churchill’s vision to include the UK – not a given in my thinking.

One important aspect of the plan for a united Europe was to prevent conflict in the form of another major war. With the ever growing disparity of European nation states, especially within the Eurozone crises, it is not inconceivable that conflict can occur in the form of civil insurrection, or even civil war, (history shows that civil insurrection starts with the disadvantaged versus the rich, and I do not sense that ‘love thy neighbour’ is much in evidence at this time). Was this caused by the banking crisis or, as more likely the case, the shambolic mismanagement of entry into the Euro. At the end of 1996 the European member states supposedly faced a tough test to determine which of them fulfilled the strict convergence criteria laid down for participation in the Euro. Very few passed the test as defined by the strict rules, so the rules were thrown out of the window to allow all who wanted involvement to adopt the Euro – and now we know the reality of allowing totally disparate economies to attempt to converge. What makes any European politician think that they can adopt a single currency without central control of fiscal policy and management of all states involved, and the safety nets in place such as described in my essays ‘EU/Eurozone – Start Again or Plod On’ – ‘A Social State’ and ‘Taxation’.

A major crisis would create a good framework to focus minds on an integrated approach. When Churchill gave his speech in Zurich the conditions in Europe would have been ideal to create the United States of Europe – an opportunity lost. Perhaps if the Eurozone implodes the situation will present the opportunity for a ‘clean sheet’ approach, and a rapid implementation.

Should the UK join a United States of Europe? There are two ways of looking at this. Integrating Europe without the UK would probably be a much easier task, not least because of its unique position in the world. It has protectorates, protected states, mandated territories, the British Commonwealth, etc. to consider involving some 1.6 billion people. What would happen to them in our United States of Europe? In this case the UK could act as independent broker (as envisaged by Churchill) to the creation of the United States of Europe ensuring that its Constitution and political systems are not unduly influenced by national interests of stronger nation states, and is outward looking to ensure that there are no difficulties integrating further countries in the future. The initial United States of America was just 13 states, but the Constitution was structured to be inviting for other states to participate – 50 states plus a federal district to date, and counting.

The alternative is that, as so many of the pillars of a United States of Europe exist, at least in part, within the UK system, finding solutions at the outset for the peripheral issue of integrating the UK will create a comprehensive framework that would accommodate any future entry of additional members, including Russia. I see the inclusion of Russia, at some point in the future, to be the completion of a United States of Europe that can compete with any other nation in the world. However, and unfortunately, the UK has too many of the value drivers needed in a United States of Europe – difficult for the other nation states of Europe to swallow. Looking at it from the rest of the world’s viewpoint London would be the logical capital. London is the largest financial centre in the world by far thus it would also be the home of the European Central Bank and the banking regulators. We could, but not necessarily, add the Supreme Court, and even the European Parliament, – and what about a monarchy head of state?

Another solution that would have a significantly better chance of success would be the integration of just a few fully committed nation states capable of convergence in order to create and refine the structure – and then invite other members as per the USA. However I cannot emphasise how important it would be to have an outward looking, and simple Constitution friendly to all. If it looks like, e.g. an expanded Germany and/or France then I see further membership as limited.

On balance, and in spite of the fact it would leave the UK disadvantaged in some respects, especially if Europe became a fully-fledged 27 member United States of Europe, instinct suggests that the UK should not participate, and certainly not in the EU as it stands today as it is a very expensive club with little or no return on investment. I do not see a massive migration of companies from the UK into Europe for a number of practical and economic reasons. Businesses always find a way to deal with other nations, in spite of politicians.

If we discount the nation states who benefit substantially from membership what proportion of the people (not the politicians) of the other member states would today think that the EU was anything other than a faceless, expensive enterprise causing unrest throughout Europe and continually imposing unnecessary and expensive interference in their lives? What about countries like Switzerland, who traditionally have been very much aligned with Germany, but sitting on the sidelines, and not now considering entry at any time in the near future.

The UK is ideally and uniquely positioned to act as nation broker, as was the case in the removal of the Berlin Wall and reunification of the Eastern states of Europe with the West. The UK would be a natural broker to act between the USA and Europe, and between Europe and Russia and the Black Sea and Caspian states.

Any European integration plan needs a people’s champion who will stay with the plan until achieved. As the natural process is for politicians to come and go, and they are certainly not neutral in their approach, this people’s champion is unlikely to be a politician. This champion could be an individual, a small group (the Group of Five structured the USA system), or even the UK as an independent broker. This champion must have an integration plan endorsed with the full consent of the people of the countries being integrated, not just their representative politicians – the people need to be directly engaged with the process.

The failure of politicians to agree a sound plan for Europe devoid of national and personal self-interests, and to engage with the people, is an affront to democracy for such an important project, and has led to the hotchpotch of a European disintegration that we see today. Now nation states want to revisit treaties, and the people of the UK might have the chance, at last, to make their voice heard. The German government states ‘no’ to revisiting treaties and, by the way, has put everything on hold for 2 months because of German elections – what about the people out there who are hungry and need medicine?

Politicians come and go, but the process of European integration cannot change every time there is a change of political guard. Europe needs a plan, ambitious and exciting, for full implementation within 2 years, fully endorsed by the people’s vote, and it needs a people’s champion to oversee the implementation. In the hour of need cometh the ‘man’, but where is he/she for this project?

I am unexpectedly fortunate to be able to conclude this series of essays in much the way they started; with an episode of Top Gear, the UK motoring programme. Last week Jeremy Clarkson, a presenter of Top Gear had the notion to determine how much automotive manufacture took place in the UK, and asked each manufacturer to contribute a selection of what they produce to a parade in The Mall in London one Sunday morning. The TV pictures of the quantity, quality, and variety of automotive products made in the UK was truly staggering and presented a message to the people of the UK more about the state of UK manufacturing in those picture than any politician could ever explain. To these pictures Clarkson added that:

  • A new car rolls off UK production lines every 20 seconds
  • Honda produces 5 of their car models in Swindon
  • The Toyota plant in Derbyshire exports cars to Japan
  • Nissan make more cars per year in just one plant than the total car production of Italy
  • Of the 11 F1 racing teams 8 are based in the UK
  • Cars such as Rolls Royce, Bentley, Aston Martin, Range Rover are the cars of choice by the rich throughout the world
  • Aston Martin has been voted the coolest brand in the world for 5 of the last 7 years

This was such a powerful 15 minutes of inspired broadcasting that the BBC repeated it again, and again as the message spread and the people connected with this better than any political message, and the resulting well-being of the people was noticeable. Contrast this with the political diatribe that comes out of the EU and it is not unreasonable to expect that the people of the UK will vote ‘NO’ to membership of the current EU disintegration.

Links

George Papandreou: Imagine a European Democracy without Borders http://www.ted.com/talks/george_papandreou_imagine_a_european_democracy_without_borders.html

Epilogue

Thank you for participating in this series of essays, and I hope that you found the debate interesting. It is very difficult within the reasonable scope of a blog to include or expand all of the arguments and debate, and thus what to include, and what to leave out. For example, with my understanding of market economies, I could have written more than the accumulated word count of all 11 essays. The key for me was to find some of the fundamental triggers of a reasonable United States of Europe that at least cause people to question what is happening in their name, and at the expense of the people. Having managed a number of very difficult, multi-faceted problems during my career, not least with disenfranchised people, and time being of the essence to find workable and accepted solutions, I have developed methods to include even the most pessimistic of people, and in timeframes considered unachievable.

The most important part of any solution was the need to explain to all of the people involved (globally in some cases) where we were, and where we needed to be. These people needed to be persuaded to engage in the process knowing some would not understand and/or believe, especially when, for two such problems, the technology we needed did not exist when we started, but we had a fixed and unmoveable delivery date. In such cases it was important that they knew that I would take full responsibility for the outcome – all I wanted from them was commitment and belief. I had one IT manager, very capable but a staunch Trekkie (as in Star Trek) who, when attending a strategy presentation, would write and speak the words ‘Star Date: (whatever the date)’ and then ‘About to go where no man has been before’ as per the start of an episode of Star Trek. This action enabled him to move beyond his anxiety, and he always delivered, albeit sometimes not quite knowing how. All I did was to instil confidence and commitment into people – what I term ‘removing constraint’ – shared my vision, and took responsibility for the result, but vesting the success in them. Such people never failed to deliver, and the sense of well-being of all at delivery was uplifting. People can be mobilised to achieve great things so long as they are properly engaged, motivated, and committed.

EU/Eurozone – Start Again or Plod On? – Common Language

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EU/Eurozone – Start Again or Plod On?

A Common Language

The cost of operating in so many languages in the EU is obscenely expensive, and probably enough to lift all children in Europe out of poverty. If we look to our template of the United States of America, and energise my rusty memory of the formation, and formulation of the US Constitution, one of the debates was which language would be adopted – English, French, or German. Even though there were strong, conflicting opinions as there were many immigrants from many European countries all speaking different languages, they all agreed that inclusion of everyone was important in the process and thus they had to select one language which would become the language of the country. Shakespeare won the argument. We see today that Spanish has emerged as a minor second language of the USA as a result of widespread immigration from South America, and there are still small pockets of German and Dutch (primarily Amish communities), French (New Orleans), albeit none are a replacement for the use of English.

During a discussion last year with a former Federal Councillor and Minister of Justice of Switzerland, and Swiss business people, there was a clear pride that Switzerland was able to function in 4 languages, i.e. German, French, Italian, and Romantsch. I posed a question regarding what language they would use for the military command centre in the event that Switzerland was attacked by a foreign invader. After a long silence of pondering, the answer came back as ‘English’. I could only congratulate this inspired response.

This question reminded the former Swiss Federal Councillor of a funny story where this language principle was taken to extremes. In Switzerland they have 2 cantons (federal states) where the boundary passes through the city of Basel, and even along the middle of the street. The language of one canton is German, and the other is French. Each canton, without consultation with each other, introduced different regulations regarding the behaviour of dogs on the street. However they did not succeed in teaching the dogs how to read these different regulations so the dogs could not know how to change their behaviour when they crossed over the street into the other canton.

This is a great illustration on 3 different levels. The first is the natural human reluctance of neighbours, who speak different languages, to try to communicate with each other – language creates its own barriers. The second is the breakdown in the democratic pillar of subsidiarity – there is no point decentralising government if there is a lack of communication at the lower levels. The third is the problem of someone living in the community but who does not converse in either of the languages of the regulations.

Language is about communication, and is meaningless if communication does not result. Even within one language a multitude of dialects can cause lack of communication (look what the Americans did to the English language), but the written word will invariably succeed.

Having used interpreters for business discussions for many years, and even afforded the time to work with the interpreter prior to the main event in order to familiarise the interpreter with my use of words and phrasing, much still gets lost in translation – result: lack of communication.

Therefore I propose that our United States of Europe move towards a single language for, at least in the first instance, government, business, finance, and law, as it already exists today in part. I would also propose that the most widely spoken language in Europe, including as a second language, is English. As English is also the most widely spoken international language in the world, especially for business, adopting this language also makes trading in the global markets much easier. It is also the easiest language for the younger generation to learn in that they are surrounded by media primarily in English. I remember one person I know, having studied English, was amazed at the increase to her watching pleasure on hearing the real voice of John Wayne, and Humphrey Bogart in Casablanca.

As regards relative population size the next logical choice word be German. However even Germany has recognised that the German language is practically exhausted in that there is little realistic capacity for expansion, and as such is not really a realistic choice for the future. Indeed the German language is already littered with English words where no suitable word exists in German.

In the late 1980’s I attended the annual American Banker’s Club dinner at the Savoy in London. The speakers were Jacques Delors, a senior French economist (I think Jacques Attali before he was head of the European Bank of Reconstruction & Development), and an Executive Vice President of CitiGroup. One comment from the French economist stunned the room into silence as he spoke of European integration and stated ‘of course the language of the resulting integrated Europe will be English’. The stunned reaction revealed the thunderous thoughts around the room that a French politician is stating that the language of Europe can only be English, and this was over 20 years ago.

I fully appreciate that, for the older generation and traditionalists, learning a new language can be a step too far. However, under the tenet of democracy, provision will exist for this situation, and I do not expect the other European languages to disappear in social society just as they have not disappeared in the USA or indeed in Brazil where a number of such languages survive, including Welsh. Full transition to a single language system will take at least a generation in any event. What is important in our model is to state that there will be a single language so that people can see the target and thus slowly, but surely, move towards it.

The major emerging economies of the future, such as India – a potential major trading partner, – already speak English. Thus the global nature of business and banking has already started the transition to a common language within Europe to meet the demands of global corporations, so all we need to do for our model is to formalise this process.

Thank you for your continued interest in this European venture.

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EU/Eurozone – Start Again or Plod On – Why Integrate?

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EU/Eurozone – Start Again or Plod On?

Why Integrate?

Why does Europe need to integrate, or even unite, especially now that the reasons behind the original Common Market have long been overshadowed with more pressing issues – explain. This was a message from an economist friend, having read my blogs on the EU/Eurozone, who felt that I should at least make some attempt to justify yet another grand plan for Europe after so much pain, misery, and expense of existing failed plans. As he is a professor of economics I feel obliged to take note and thus attempt to explain the logistics behind my interest in this subject.

As Europeans we do have choices regarding the future direction of Europe. We can disintegrate the current debacle, and return to independent nation states. The other extreme is to totally unite into a new United States of Europe – the idealist model in this debate. What I do not think we can do is to continue with the current model of part this, part that, one foot in …….. crazy system of fudge upon fudge which has wreaked havoc on weaker members, and to which the people of Europe feel totally disenfranchised. The basic tenet of a democratic system is that it is created ‘by the people, for the people’ and the current situation does not even remotely look anything like.

Where does Europe sit in the World today, and where does it see its future in the grand scheme of the world? It is steeped in history. It is the birthplace of the industrial revolution, and technology. Its pioneers explored the world, and provided answers to many unknowns across the spectrum of the sciences, medicine and philosophy. It developed global trade and finance. It is the cradle from which mankind developed democracy, free speech, and equality for all. But this is all in the past. The various empires created have essentially gone, and new centres of power and creativity have emerged in other parts of the world challenging the once might of Europe.

Can the individual nation states of Europe hold their own in the world of today, and more importantly the world of tomorrow? The short answer is that probably only two or three of the current nation states could be influential, whilst the others become second division players. Is this really the end of a long and proud heritage? There is no question that the nation states of Europe have suffered some serious differences throughout history, and some horrific differences within living memory, but what of the future? There are current distractions such as the current sabre rattling from Spain regarding Gibraltar which echoes of ‘The Mouse That Roared’. Will Europe really just wallow in the past and make the future for its children, and grandchildren, one of ‘we were once at the centre of the world, and at the forefront of progress – but that was yesterday’. Or does Europe reinvent itself, and takes its rightful place as a key player in the world of tomorrow?

Thus there is a case for an integrated Europe.

Recent pioneers have recognised that Europe needs to do something to stay influential in the world, and, to date, Europe has tried market integration, economic integration, trade integration, monetary integration, etc. but national self-interest, and the vested self-interest of the various politicians, in varying degrees, have created such an unmanageable hotchpotch of multi-dimensional chaos and unintended consequences that the people no longer understand what the plan is, if they ever did, and feel that they have little or no say in their own destiny. The people from the Eastern European states must think that they have emerged out of one fire, into another. All the European people really know is that it is all very expensive, painful, and with little obvious benefit.

A quick look at some of the (real and perceived) issues that stir great resentment by the British people to what is happening in the EU/Eurozone show that they do not have apathy, but hostility – and hence the rise of the UK Independence Party (UKIP) who polled enough votes in the most recent political elections to demonstrate that these votes were not just a protest vote. For example a common view is that it feels like the whole process of the creation of the Eurozone was engineered by the Germans, in favour of Germany – they could not capture Europe by military force, so they now they try by economic force. There are still many people alive in the UK who can remember the misery of rationing and other shortages they experienced whilst the UK had to rebuild itself after the last War, selling state assets and begging for loans while Germany was being rebuilt using $ billions under the Marshall Plan, and of course people will always quote that it was 2 British army officers who engineered the first Beetle car starting a successful rebuild of the German car industry.

This attitude by the British people is very unfortunate and unhelpful as it breeds distrust and suspicion of the whole process, but it has foundation and thus requires sensitive consideration when looking for support for an integrated Europe. It does not help that Germany, until 2 years ago, was the clear winner from the introduction of the Euro, albeit that the disciplines associated with the Euro exposed hidden cracks in the economic condition of a number of the Euro nation states. I can remember in 2011 that, contrary to market sentiment, Eurozone interest rates rose to offset inflationary pressures within Germany causing much pain to other Euro members – not the way to win support. Sometimes one has to ask if Germany just arrogantly believes that their way is the only way, or whether it is just a cultural problem. Years ago Germany imposed withholding taxes within Germany on some types of International bonds that are specifically designed to be tax neutral, and then surprised with the number of Germans crossing the border into banks in Luxembourg to buy and sell these bonds to avoid the taxes. The recent attempt, led by Germany, to introduce a transaction tax on banks trading within the EU is another classic example of an ambivalent attitude to the global nature of banking and its importance, not only to the UK, but to the whole of Europe. As the UK is second only to Germany as a net contributor to the existing EU budget they have good reason to be concerned at this behaviour, and have no desire to become just another federal state of Germany – indeed this would be  seriously counterproductive to the desired outcome. I have many German friends, and clearly Germany is a successful country, but a nation is more than an economic machine and thus I think integration requires a new way of inclusive thinking, as was required by the founding fathers of the USA. Indeed Jacques Delors, President of the European Commission between 1985 and 1994, stated that ‘Europe needs a soul’. A further important consideration is that one cannot ignore the important historic influence of the UK throughout the world as a valuable asset to an integrated Europe. For both Germany and the UK integration will be 1 step back to take 2 steps forward – probably painful for both, but necessary for the peaceful co-existence of all nation states.

Can the current situation be fixed so that Europe can obtain a reasonable degree of integration that works without suspicion of vested interest by any nation state, and enables an appropriate external status in the World to be influential? For many this is probably akin to attempting to solve a Rubik cube blindfolded, and many, including nation state leaders, know this. For example while there are a multitude of nation state leaders all voicing their own views to the world, and seeking self-promotion, the outside world will not understand what an integrated Europe really means.

David Cameron, the British Prime Minister, has stated that if his party are re-elected at the next General Election, then he will give the British people a vote in 2016 on whether or not to stay in the EU. As a senior banker understanding the economic and trade benefits of integration my vote would still be ‘no’ in the expectation that, without the UK, the current European model will implode, and then we could start again with a seriously less wealthy Germany. I remember when Margaret Thatcher was being forced by her colleagues to take sterling into the European Rate Mechanism (ERM) – but she managed to include a time bomb which eventually imploded the ERM – another expensive, ill-conceived European political experiment that did not work.

Thus we are back to the underlying tenet of my proposed model. First seek the ideal situation, and then see how close you can get to it in practice without loss of integrity.

Many will say that full integration, i.e. my United States of Europe model, is not a new idea. This is very true – Jacques Delors, probably the founding father of the idea of a fully integrated Europe, constantly promoted this idea. But has anyone ever been able to explain and sell this idea to the people in a way that they can understand the benefits to them, their children, and their grandchildren, and thus fully embrace the transition? To date the debate has been about the technical issues of economic benefit, trade, financial stability, national sovereignty, no borders, etc. etc. etc.

Has any politician told the people that a fully integrated Europe, i.e. a United States of Europe, will:

  • be 2nd only to India as the largest democracy in the world;
  • will be a larger economy than the USA;
  • will have less overall debt than the USA (if the politicians step away and let the bankers solve the debt issues);
  • will be the centre of the global financial system;
  • will have superior, and less expensive organs of government per capita (if they get it right) than any other major power;
  • will be a major force in the global arena;
  • significant economies of scale should lower the cost of living, i.e. a better lifestyle for all;
  • will provide substantial new job opportunities as more international companies seek to be part of such a large market;
  • will certainly be a major, if not the strongest force in sport throughout the world;
  • etc etc.

People can understand these statements, and thus they can feel a sense of real value and belonging as a new European citizen.

We should look to the speeches of Winston Churchill during the Second World War. He was from an aristocratic family, and went to the top private schools – but he knew how to speak with the people to galvanise and instil resolve towards a common goal, especially in the dark days. In the hour of need cometh the man, but where is he/her today?

So back to our model to see if we can show the politicians what the people see as an integrated Europe, and thus what they could be prepared to buy into.

Thank you for your continued interest in this European venture.

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EU/Eurozone – Start Again or Plod On? – Model Outline

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The EU/Eurozone – Start Again or Plod On?

A Model Outline

Following on from my Intro blog yesterday what is the future for Europe – do we need a new European model, or can we fix the existing model? To date the politicians have held the cards, but is it now time for the people to speak. Even the countries of the former Soviet Union now have had enough time and understanding to know what is possible, and what they would like to see as a sustainable future. Do we revise the current model, or just as with the EEC and the ERM, we put it down to experience and start again with the benefit of hindsight? I am looking for input so I would like to start with a provocative statement or two as I would like to encourage discussion and comment on the future of Europe for our children and grandchildren.

I hope that this will be an evolving blog where interested parties feel that they can contribute to the debate with comments, and be heard. Non-Europeans are welcome to participate as all input is valuable input. The resulting model for Europe should not be insular, and it is important both in relations and trade that the outside world sees a friend and partner with whom it can engage politically, and conduct business.

For the purpose of this discussion can I propose that we call our new model the United States of Europe. I have an utter dislike of any name using the word ‘Federal’ (sounds like a police state), and any reference to the word ‘Republic’ automatically removes any debate about a monarchy, and I am far from convinced that many people in Europe feel that a republic is the only option. Furthermore I would suggest that the United States of Europe is fully inclusive of all countries in Europe, as with the United States of America.

So let us start with the provocation.

  • I believe that it is a fact that the EU has no democratic legitimacy. Has any member state to date asked the people to vote on whether or not their country should become a member? This should not be confused with referendums for treaty ratifications.
  • For over 2 years now the politicians have attempted to solve the financial problems within the Eurozone. I would suggest that if you put some of the best banking minds into a room for 4 – 6 weeks, devoid of politics, vested interests, and with open minds, workable solutions to the financial problems of the Eurozone can be achieved. The pills may not be sweet, but they would be equitable and sustainable in the long-term. For example Germany was by far the economic winner with the introduction of the Euro – now it must deal with the appropriate reciprocity.
  • We must start with the tenet that a democracy consists of a framework of a Government freely elected ‘by the people, for the people’ with oversight from an independent judiciary built on merit, not election. This Government needs to build a social and legal framework based on the rule of law, respect for human rights, free speech, respect for International law, and equality for all. In return the electorate need to respect the law, and take responsibility for their role in society.
  • A secure, self-sufficient, free market economy consists of a sustainable supply of raw materials and energy, a relatively cheap labour force, innovative skills (excellent education), technology transfer skills, manufacturing, marketing, with stable and effective financing (banking).
  • The existing EU/Eurozone is built on political, over economic, sensibilities, fractured by pandemic compromise, with political and national interests as serious constraints to sustainability.

A cursory comparison of the above with the structure of the current EU/Eurozone will reveal that the current structure shows that it:

  • fails to satisfy democratic legitimacy;
  • is incapable of resolving the existing financial problems, and responds too slowly in any event;
  • does not meet the recognised basic parameters of a democracy;
  • does not meet the requirements a self-sufficient free market economy; and
  • is constrained by the vested self-interest of the political leaders of the member states.

Rather than start by debating ‘Start Again or Plod On’ I would suggest that we start with a blank sheet of paper and identify what the people see as a credible European integration by building a model of an equitable and sustainable United States of Europe. Having developed and agreed such a model we can then compare it to what we have today to determine if we can adapt what we have to what we need, or whether we adopt our new model and move into it, leaving any unnecessary baggage behind in the old model. The other option, which is certainly on the table, is to completely abandon European integration.

Please forget ‘what is’ today in your thinking as details such as what side of the road we drive on in different countries is irrelevant to the future of our children and grandchildren. At the risk of alienation the green lobby can we also ignore what could be in energy terms and just look at the resource base that already exist. Too many people in Europe are currently below the bread line, distressed, and hungry. This problem must be addressed as a priority over any new initiatives. Indeed one of my drivers for this exercise is to divert wasted money in the existing EU into growth generation to create jobs for the millions currently without income. Dignity and self-respect derive from self-sufficiency, not charity. Also let your mind have free rein when considering all of the components of a self-sufficient free market economy. I would suggest that there are countries that could be invited to the party to strengthen self-sufficiency.

The classic method of solving complex multifaceted problems is to:

  • Understand the problem, and subdivide into logical components for analysis
  • Analyse each component part – Create an ideal solution
  • Adapt the ideal solution as little as is needed to make it work

When considering the way forward could we concentrate on what we need in our model to create a sustainable, prosperous, and equitable future for all, rather than what we want. Many people want a Ferrari car, but they do not need it to live their life in peace and prosperity.

I would like to propose 2 templates to guide us through the process. The first is the creation of the United States of America in terms of some of the hard decisions and compromises that had to be made to ensure inclusion of everyone. As the creation of the USA had the benefit of no historic baggage to deal with I want to use Switzerland as a second template being a country which functions in 4 languages, has a 700 year history, not currently fully compliant as a democracy, and has an unconventional government structure. If anyone would like to propose any other template I am open to suggestions.

In order to make the process manageable I propose to load a series of blogs over time, each one addressing a separate pillar of democracy, e.g. structure of government, judiciary & legal system, taxation, etc and throw in other considerations such as common language, nationality, republic versus monarchy etc. to complete the whole picture.

This is a serious attempt to find answers to the problems that politicians seem unable to resolve. Having spent some 30 years addressing complex problems using lateral and progressive thinking I can attest to the methodology which, on first sight appears too simplistic, impossible and/or unrealistic – but they said this about Keynes at Bretton Woods – until they sat and really thought about his ideas. We still benefit from his thinking today. The fall of the Berlin Wall was an unthinkable piece of lateral thinking after too many years of political bluster. I believe that the collective thinking of people from all walks of life seriously interested in the future of Europe can contribute to solutions to the problems that face Europe. If you have friends or contacts that you feel would find this process of interest then get them involved as well. Think the unthinkable, and enjoy the process.

I will attempt, in no particular order, to start the first discussion blog in the next few days. If you click on the ‘Follow’ tag you will receive an email as each blog is posted.

Thank you for reading my blog, and I hope that you feel it worth the effort.

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