Is Putin really orchestrating the disintegration of Europe?

univestIs Putin really orchestrating the disintegration of Europe?

I have just finished reading a report on Bloomberg News titled ‘From Rape Claim to Brexit, Putin Machine Tears at Europe’s Seams’ by Arne Delfs and Henry Meyer citing incidents such as the ‘Lisa Affair’ in Germany as evidence that Putin is orchestrating the disintegration of Europe. This claim is worth a little exploration.

There is no doubt that the paranoia that is Putin sees a strong Europe as a direct threat to Russia, especially along its borders – Ukraine being a prime example. As Russia is not in a position to rapidly grow in spite of its energy reserves then his strategy must be to weaken his perceived enemy – classic Sun Tzu. We have also witnessed his desire to be seen as a major influence in the World with his intervention in Syria. So can he manipulate the disintegration of Europe?

The evidence presented in the Bloomberg report would suggest that he can, and indeed, is exploiting the weakness in the EU system. But is he a primary mover, or just having a little mischievous fun exploiting the clear fault lines in the EU model as retaliation for the embargo imposed on Russia for past mischief?

For anyone to exploit a large system such as the EU in this way there must be inherent weaknesses that can be exploited. We saw during the Ukraine crisis that the response by the West had to be tempered because of the overwhelming reliance on energy supplies from Russia by Germany (some 84% against the UK 4%). Why would a so-called major economy allow itself to engage in an energy policy which left them so vulnerable? Why should the West allow such an economy to influence its response?

What I have observed over many years is that every time a closed system tries to impose itself on other systems the oppressor fails, e.g. Germany on Europe, Russia on USSR. Even the Romans, during their expansionism, knew that that had to befriend the conquered and only impose changes regarding the needs of Rome in exchange for protection. They knew that they could not possibly hold the line of their empire if they tried to completely impose their will over the oppressed. Indeed, they used a philosophy that made it an honour to elevate the compliant to the status of a Roman citizen – probably the first peoples honours system.

Putin appears to be exploiting the clear divisions in the EU regarding the attempted imposition of the German way, albeit under the Brussels umbrella, on the other EU members. Of course, as with all such closed States, they believe that they have a successful model which they would like to share (impose) on others to allow them to indulge in the prosperity of their system. I have argued in previous blogs that there are inherently fatal flaws in the incestuous German closed system akin to Japan in the 1980’s and thus will ultimately fail. The nearest closed system to that of Germany within the EU is France albeit that the closed system in France consists of nationalised industries and banks – the topical example being EdF – and France is technically bankrupt.

But Germany has shown itself to be flawed, notably in its handling of the refugee crisis. Their double-edged sword of appearing to act with compassion as a cover for their desperate need for some one million skilled people to replace the erosion of its own workforce since 2012 through emigration to the likes of the UK, Switzerland, the USA, and Australia, has backfired. The Lisa Affair appears to be a ploy to further add to the woes of Angela Merkel as she loses popularity as the usually compliant German population now regularly take to the streets in defiance.

So, assuming Putin is playing games, should we be concerned? Politicians play games most of the time. Look at the upcoming intervention of the USA in the BREXIT debate. Is the USA really concerned about the UK, or their own influence in the EU for which they use the UK as their gateway? Would the USA ever consider surrendering any form of sovereignty to another nation to engage with it? I fully understand both the short-term geo-political and geo-economic consequences of a BREXIT – and it is not good. But everyone appears to be asking the UK to sacrifice itself for the sake of global stability. Why don’t these interlopers focus their concerns towards the mandarins in Brussels, and who could still save the day if vital EU reform is agreed? How many more times in history do the British people have to sacrifice themselves to save the World? If Putin wants to play games with Germany to accelerate realisation then so be it. If he is successful, the unintended consequences (on his part) might be the tonic that Europe so desperately needs.

BREXIT – What a difference a week makes

univestBREXIT – What a difference a week makes

The past week has yielded so many interesting events that I have shelved my scheduled blog to consider the potential impacts to the whole EU debate.

In no particular order let us start with the UK Budget speech given by George Osbourne last Wednesday. All sounded good with much bravado albeit two of his three fiscal rules were already in shatters. But the economy is growing so such rules are only political rhetoric. However, he used this platform to make a clear statement that the Office for Budget Responsibility (OBR) had provided evidence that UK exit from the EU would damage the UK economy in the short-term. This statement clearly aggrieved the OBR as, by tea time, they had completely refuted his representations as they only provided (conveniently selected?) views provided by third parties.

Then he expounded the view that we were all in this together as he slashed corporate taxes at the same time as slashing benefit payments (some £4 billion) to the most disadvantaged. Whereas there is no doubt that the welfare budget in the UK does need to be reined in, it cannot be achieved merely by setting arbitrary limits and crossing out figures on a spreadsheet with a complete disregard for social justice. Again, by the end of the week, these welfare cuts had diluted from hard cuts, to a discussion, to kicking into the long grass, to being scrapped with the very public resignation of the Work & Pensions Secretary, Iain Duncan Smith who gave an impassioned account of his position on the Sunday morning Andrew Marr show. Let us not forget that this happened to Osbourne in his last budget as well.

Also, during his budget speech, he confirmed that the continued refusal by the EU to relax VAT rules to allow tampons to be zero rated, the so-called tampon tax (some £500 million pa), would result in the taxes collected continuing to be distributed to various women-based charities. The following day David Cameron went to an EU Summit meeting in Brussels regarding the important refugee crisis. Apparently, during a coffee break, all 28 EU leaders agreed to relax the EU VAT rules. Clearly not planned. Has Europe realised that BREXIT is gaining support? How many more rabbits will be drawn from EU hats between now and 23rd June?

It was interesting to tour the Highlands of Scotland a few weeks before the Scottish Independence referendum to test my view that Scotland would be stronger in the Union, and thus the vote would be to stay part of the UK. Having purposely stayed in B&B and small privately owned hotels it was interesting to speak privately with the Scottish people about their thoughts. In those 8 days only one person clearly stated that they wanted independence. Much was offered by the UK Government in fear of the noise by those shouting ‘independence’. Had they copied my trip they would determine that no deals were necessary. Everyone else was keeping their thoughts to themselves because of what they were seeing in places like Glasgow where Alex Salmond’s equivalent of Hitler’s brown shirt nationalistic youth movement were intimidating those who openly wanted to remain with the UK. Come the day the silent majority, proud of their heritage within the UK, prevailed. I would therefore suggest that rabbits from the EU, at this late stage, will not work. Indeed, I think the canny Scots are likely to deal Nicola Sturgeon a blow in the EU referendum. Ouch, Nicola.

Then we have the third fiscal rule imposed upon himself regarding converting the current budget deficit into a surplus by the end of this parliament. The general view on this pronouncement is that he needs a major event, such as an exit from the EU, to provide a credible excuse for missing this target, as most surely will be the case. But not because of misguided ambition as a budget surplus should be the goal for fiscal prudence, but the target has to be reasonably achievable with a balanced approach. Ouch for political ambition.

And Peter Mandelson amused me by suggesting that if Maggie Thatcher was still in charge that she would vote to stay in. Having known her views, I’m sure that she found the surrender of so much UK sovereignty to the EU by Tony Blair in her final years as depressing, and would certainly have returned from negotiations with a credible reform deal before even thinking of such a stand to remain a member. It was also interesting that Mandelson had conveniently forgotten that he proposed we join the Euro. Beware of the so-called Prince of Darkness.

Then I read a City Comment in the London Evening Standard by a journalist with the name of Anthony Hilton. Firstly, he was abusing a quote by a long deceased industrialist, Sir Arnold Hall, “What problem do we have which is so serious that (BREXIT) could possibly provide the answer”? Then he used comparators that demonstrated his armchair approach to journalism. For example, he states that the German economy can operate very well within the EU, so why can’t the UK? If he remotely understood the difference between the German and the UK economies he would understand the answer. Whereas the UK sits with the USA economy as an outsider, or open structure, the German economy is quite the opposite as an insider, or closed structure. Ownership of German companies is protected with incestuous patrimonial linkages between German banks and companies, with preferential proxy votes and cross-shareholdings. Foreign ownership of a German company is so rare that it is major news. An example of the vast difference this closed structure reveals can be illustrated by reference to the steel dumping by China. The incestuous linkages in Germany mean that steel users (car production construction, and other major engineering companies) can be compelled to buy from German steel manufacturers rather than buying cheaper steel being dumped by China. This is protectionism. Our open system cannot compel our companies to use British steel. So when our steel companies suffer the impact of dumping we can do nothing about it because it would require Government intervention – not allowed by the EU. And will Germany fully support an anti-dumping campaign against China – not likely as China is an important market for Germany exports. We should also remember that Germany makes the trade rules within the EU to favour Germany, as with the Euro fiscal policy.

He further cites Wolfgang Schäuble, the German Finance Minister, and one of the nationalistic dinosaurs standing in the way of the much needed radical EU reform, who stated at the recent BCC conference that, after BREXIT, any trade deal with the EU would be conditional on maintaining free movement, and continuation of some form of payment into Brussels. This is typical scaremonger nonsense. Do the USA, or even Canada suffer such impositions in their trade agreements? The German Foreign Minister was far more realistic. He endorsed the view that a free trade deal would be agreed within days of BREXIT irrespective of EU political views not least because the German Government would be bombarded by their major companies and banks because of the high level of exports to the UK, not to mention that imports from Germany to the UK are significantly larger than UK exports to Germany.

I could further dismantle his arguments, but would suggest that he listens to someone like Sir Peter Hargreaves, the co-founder of the very successful Hargreaves Lansdown investment manager, who has a real-world experience and suggest that not only would the UK be better off outside of the EU, but such a stimulus would re-energise the British people to take more pride in the UK, buy British, and put the ‘Great’ back into Britain. For certain the UK has problems in productivity, poor venture investment, and lack of manufacturing. Perhaps a refusal by the EU to provide goods will stimulate the UK to make their own – a boost to employment, and needed reduction in the balance of payments – all positive. We could also relabel our much heralded sparkling wine as Champagne (as do the Americans), retain our traditions of sausages, Cornish pasties, pork pies et al without meddling interference in the British way of life from Brussels.

My final observation for today is the visit by Obama to Cuba. The opportunity to re-engage with Cuba has been staring at Europe for some years, with the doors open to engage. Whilst visiting a few years ago on an exploratory trip ‘America’ still invoked hatred with the Cuban people because of the Bay of Pigs incident. The opportunities for European businesses was considerable, as was the opportunity to substantially re-establish original European businesses in sugar, and other agri-products, as well as new off-shore oil & gas finds. The inward looking nature of the EU has surrendered this opportunity to the USA who will now move in and, no doubt, ignore repatriation of former European assets. The British understand the importance of such opportunities because of their historic trans-global, outward view of the world, in stark contrast to the introspective view of the EU.

Let us hope that the coming weeks are somewhat quieter, and less damaging.

 

 

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.

Are we at a collision point between socialism and capitalism, and is the global energy business driving this collision?

univest

Are we at a collision point between socialism and capitalism, and is the global energy business driving this collision?

Two events have occurred over the past few weeks which appear to encapsulate an observation that I have been considering for some time, i.e. whether or not capitalism has moved to the extremes of greed, and socialism has no answer to counterbalance this behaviour. Politicians and the media would have you believe that banks are the ultimate in capitalist greed. Whereas I have serious reservations about the activities in certain banks, I feel that the major energy companies from oil & gas production through to energy generation consider their power above that of politicians at the highest level, and that of the major trade unions. If my observation bears credible scrutiny then who are the winners, and who are the losers.

The two events that I would like to use in this debate, because they encapsulate the major drivers in this debate, albeit not the only events of concern, are the Grangemouth Refinery & Petrochemical plant debacle in Scotland, and the UK Parliamentary Committee meeting with the major UK energy companies this past week.

Perhaps a little background on the energy footprint in the UK will assist readers not familiar with the situation here.

According to Ofgen, the energy regulator, the UK has installed capacity for electricity of some 73GW of conventional generation and 9GW of renewable with ACS peak demand expectations around 60GW. Uncertainty around government policy (UK and EU) and future prices continues to limit investment in conventional generation and no new plant is expected before 2016. In the UK it is  estimate that around 1GW of new gas plant will come online before the end of the decade and the installed capacity of wind power will possibly more than double over the same period albeit that this must surely now be in question. In any event, given the variability of wind speeds, they estimate that only 17% of this capacity can be counted as firm (i.e. always available) for security of supply purposes by 2018/19.

More than 2GW of LCPD opted-in plant have also closed or converted to biomass since October 2012, resulting in less pollutant plant but with significantly reduced capacity. Around 0.5GW of nuclear capacity is reaching the end of its technical life and is expected to close by 2014/15, though extensions now have to be considered. Around 2GW of CCGT plant should be retired by 2018/19 for the same reasons, but will this happen?

As installed capacity falls in the next few years, all else being equal, prices can be expected to rise and it is possible that this will lead plant, especially coal fired, that is currently mothballed to come back online to keep prices affordable.

According to National Grid, the expected drop in peak demand is mostly due to increased energy efficiency in the domestic sector and increased Demand-Side Response (DSR) insulation of buildings, etc. I consider this to be a convenient explanation politically where the truth may be more damning.

For completeness the interconnection capacity between the UK and mainland Europe and Ireland is currently 3.8GW. Assumptions about the likely direction and size of interconnector flows therefore have a significant impact on the calculation of the risks to the UK security of supply.

Ofgen expect that, in a situation of tight margins (please), ahead of mitigation actions being implemented, prices would rise resulting in higher interconnector flows into GB. However, GB is not the only European country expecting de-rated margins to fall in the next six winters. France, Ireland, Germany and Belgium are also facing security of supply challenges, and have very similar patterns of demand and supply availability.

As for gas, DECC reports suggest that gas consumption reached a record high in 2004 of 1,125 TWh. Since then, consumption has seen an overall decline, and in 2012 total gas consumption was 845.6 TWh, around 25% below its 2004 peak. These longer term trends are driven by commodity prices, energy efficiency and, for domestic use in particular, temperature. However domestic demand in 2012 was high, up almost 16 per cent on 2011, reflecting the colder, protracted winter, but gas demand for electricity generation fell by almost a third to 214 TWh largely as a result of coal replacing gas use due to high gas prices.

UK gas production peaked in 2000 and has since been declining. With declining production the UK has become increasingly reliant on gas imports to meet demand. Since 2000 net imports have steadily increased year on year, with the exception of 2011 which saw a 3 per cent decrease on the previous year’s level. The recent fall in imports can be attributed to the reduced gas demand from electricity generators, being replaced by coal.

Imports of Liquefied Natural Gas (LNG) through the two terminals at Milford Haven remain substantial, but their shares of total imports have dropped from 46% in 2011 to 27% in 2012. Demand for LNG on the global market remains strong but the UK has a diverse pipeline infrastructure (from Norway, the Netherland and Belgium) and the proportion delivered through each route will depend on global market conditions.

It is probably also worth noting that Europe, as a whole, has over capacity in crude oil refineries. The UK has 7 refineries. According to HIS Purvin & Getz Research Group the UK imports 47% of its diesel fuel, and 50% of its aviation fuel. However the UK has a 20% surplus of petrol which it exports.

Now let us look at the politics. In March 2007, the European Council agreed to a common strategy for energy security and tackling climate change. An element of this was establishing a target of 20% of the EU’s energy to come from renewable sources. In 2009 a new Renewable Energy Directive was implemented on this basis and resulted in agreement of country “shares” of this target. For the UK, by 2020, 15% of final energy consumption – calculated on a net calorific basis, and with a cap on fuel used for air transport – should be accounted for by energy from renewable sources. There was much grandstanding by the politicians at the time, especially directed towards the USA, indicating that Europe was a good citizen of the world, and would be a leader in the climate change revolution, setting targets that many reasonably minded people thought optimistic. However there followed much uncertainty surrounding the implementation of this and and other market reforms thus having as much impact on plant investment and retirement decisions as the expectations of the impact of evolving energy prices. This uncertainty means energy companies suffer much frustration of their long-term strategy through muddled energy policy, or indeed the lack of any definitive energy policy by various governments.

On the other hand the USA refused to sign up to Kyoto and, other than a little dancing at the edges, ignored the grandstanding of Europe and other countries and allowed the market to determine the future. The USA gets many things wrong, especially much of its foreign policy, but when it comes to protecting its own market it invariably gets it right. Developing new technologies and techniques such as fracking, the USA is now energy independent, energy prices are around 20% less than Europe, and they can export enough cheap fuel to disturb the markets in Europe.

In the UK the previous Labour government blindly signed up to all of the EU energy initiatives, could not fund these initiatives through already excessive taxation, so the current leader of the Labour Party, then Energy Secretary, came up with stealth taxes in the form of environmental and social levies to be collected by the energy companies from the domestic consumer, currently £117 per household, to fund these initiatives making a number of people in the renewable energy market very rich without delivering any tangible value today, or tomorrow. We now have a coalition government where the predominant Conservative Party want to repeal these stealth taxes and no longer subsidise renewable initiatives from public money but find themselves frustrated by the minority Liberal Democratic Party who see some value (to them) of continuing to wave the environmental flag. In addition the Labour Party, who created these woes for the consumer now wants to go to the dark ages of socialism and freeze energy prices. Maybe a good soundbite for the uninformed, but ridiculous in the world of global energy markets.

So let us review the Grangemouth debacle. As I said refining capacity in Europe exceed demand. Furthermore cheaper energy supplies are being imported from the USA. The management of Grangemouth, owned by INEOS, (the refinery can process some 210,000 barrels of oil per day) claimed that they are losing some USD 8 million per month fuelled partly by US imports where USA refineries pay some USD 15 per barrel less than UK refineries. The management, knowing that they need to invest some £300 million in the plant, decided that they could no longer afford to run the plant with the then operating costs. They put a package of pay and pension reforms to the 800 or so workers. In essence the UNITE union, one of the largest remaining trade unions in the UK (Margaret Thatcher saw off most of the trade union power in the 1980’s) applied its usual socialist dinosaur approach threatening strike action. The refinery management refused to accept revised terms from, or to spend 3 months negotiating with UNITE (giving the Government 3 months to find an alternative buyer) so INEOS, who had already safely closed the plant facing the threat of a strike then announced that they were going to close it. Both the UK Prime Minister, David Cameron, and First Minister of Scotland, Alex Salmon, quickly came into play to rescue this situation. We can only speculate on what happened behind closed doors but the UNITE union completely caved in and announced that they would recommend acceptance of the INEOS terms for its members, and it was clear that INEOS had been offered some government deal towards the required investment in the plant.

What we saw during the Grangemouth debacle is an example of how commercial reality surpasses political and trade union power. It was suggested that the loss of this facility would have been devastating for the Scottish economy, and they complain about banks being too big to fail.

Then we look at the Parliamentary Select Committee interrogation of the ‘big 6’ energy companies bosses, having raised energy tariffs by some 10% average to domestic consumers against wholesale price increases of just some 1.8%. The only reasonable summary of this session is too much grandstanding by the political panel, and total indifference by the energy bosses suggesting that the high price of energy was down to the stealth taxes mentioned above. I understand that the UK domestic consumers pay the highest energy costs in the European Union. One interesting analysis on a news broadcast was that British Gas had increased their profit from £45 per customer just 5 years ago to £95 per customer today. Apparently they need these profits to satisfy investment returns for their shareholders.

So who are the winners, and who are the losers.

Winners

  • The capitalist (foreign) owners of Grangemouth
  • The capitalist owners of the major energy companies
  • The capitalist owners of the renewable energy companies who will be long gone with their accumulated wealth before the reality of this folly is known
  • It will be interesting to know who claims the victory of Grangemouth, especially with the up-coming Scottish Independence vote: David Cameron claiming a victory for a United Kingdom, or Alex Salmon who wants Scottish Independence.
  • The environmental lobby thanks to the short-sighted view of the Liberal Democrat coalition leader

Losers

  • The domestic consumer who has to bear the cost of the bailout of Grangemouth because of a dinosaur socialist union leader.
  • The domestic consumer who has to pay the cost of the increased energy tariffs, which could be indirectly attributed to the lack of energy policy by governments
  • The domestic consumer who has to bear the socialist imposed stealth taxes for renewable energy policies that are far too optimistic, expensive, and will prove to be a waste of resources. It should be noted that the socialist principal of payment according to what you earn was ignored thus betraying their core socialist vote.
  • The domestic consumer who has to pay for price increases to corporate energy users as they will pass their increases on to the consumer in the price of their goods/services.
  • The domestic consumer who will have to bear the cost of frantic, last minute efforts to maintain supply because of the lack of any firm energy policy.
  • It is claimed that reduction in demand is mostly due to the energy efficiency in the domestic consumer market. To some extent new technology and insulation will have an impact, but I fear that cost means that many domestic consumers cannot afford to heat their homes, and thus go cold. Thus the losers, again, are low income and pensioner domestic consumers – a direct reflection of capitalist greed.

I think that it was Socrates who observed that intelligent people discussed ideas, moderately intelligent people discussed events, and the vast majority, the uninformed, share gossip. Our largest selling newspapers, and to a degree some news channels, and political hype thrive on sensationalised gossip including important issues of energy policy – apocalyptic climate change gossip spread by brainwashed environmental campaigners sell more copies and buy more uninformed votes than mundane realities. There is a flaw in democracy if the noisy uninformed minority can unreasonably influence the uninformed, the impact of which is a substantial negative impact to the silent majority. It is an unquestionable fact that people united can make change happen. Therefore the people need to be properly and honestly informed.

Ironically all of this dithering means that the future is a return to non-other than the fuel which started the industrial revolution –Coal – because it is plentiful, and it is cheap, – look at Germany’s preferred fuel.

I would be very interested to hear how the above events in the UK would have played out in other countries, not least Germany and France.

References:

Ofgen Electricity Capacity Assessment Report 2013

Various DECC reports

HIS Purvin & Getz Research Group

Do the political problems in the USA over recent weeks indicate that democracy in the USA is flawed, and now, with self-sufficiency in energy, can they be trusted with the obligations of a global reserve currency?

univest

Do the political problems in the USA over recent weeks indicate that democracy in the USA is flawed, and now, with self-sufficiency in energy, can they be trusted with the obligations of a global reserve currency?

The brinkmanship demonstrated over recent weeks between the Executive, House of Representatives and the Senate reveals a total disregard for how a few ultra-right wing politicians can cause great concern in the international markets. I argued in my blog, EU/Eurozone – Start Again or Plod On – A New Government, that having the upper and lower houses in a democratic system both elected, especially at different times in the economic and political cycle, can result in stagnation of the governmental process.  This has to be a flaw in the democratic system, especially when just a few people can hold the World economy to ransom. The USA has shown time and time again that, in any global issue, their own interests are most certainly the top priority. Albeit that, if my calculations are correct, this stand-off stagnation has occurred 18 times during the past 30 years does this fact make the global uncertainty created any more palatable? As USA debt reaches levels that are unassailable in terms of any hope of repayment is it time to seriously look at this problem?

The debate that I think is needed is related to the introspective nature of the USA, as provider of the global reserve currency. Only some 15% of USA citizens have passports, very little is taught in their schools regarding the World at large, they are taught that America is the best place in the World, they are the biggest and the best at everything (they have a World Series in a sport that is only played in the USA), and very few can indicate on a map of the World where major countries are located, let alone cities. Indeed I took my teenage daughter to the USA some years ago where she was told that a nominal relief in Boston was the largest relief in the World, and when we walked past the CBS building in New York there was a screen proclaiming ‘America, the oldest surviving democracy in the World’. Is such a culture to be trusted with the broader obligations of the holder of the global reserve currency?

Up until recently one of the fears within the political circles of the USA was their increasing dependence of the greater World for strategic resources such as oil & gas. This did provide a more tempered approach to how they dealt with international issues. However they have now become energy self-sufficient so will this change attitude to international issues as they recede into their natural state of introspection?

The other side of the debate is what is the alternative? Forget the Euro or Renminbi replacing the USD as the global reserve currency as neither is remotely qualified to assume this role. However it was not so long ago that the USD, and thus the World economy, was linked to the Gold Standard, and this was removed overnight; driven by the UK. Can we devise an alternative that can both commands the level of confidence required by the World markets to be acceptable, and disconnected from the introspective political wrangling that artificially impacts it credibility, and thus stability.

I am reminded of structures in the past such as a basket of currencies, e.g. Special Drawing Rights (SDR’s) but these can be unduly influenced by stronger participants, albeit more dampened than the impact of the USD as a sole reserve currency.

My thoughts are that there is a lateral solution out there, and long overdue. I also suggest that recent events make a solution to this problem ever more urgent as I do not see the USA reforming its political system to prevent the stagnation we have seen over recent weeks.

ENERGY – What does the future hold?

univest

ENERGY – What does the future hold?

There is much debate today about energy, whether it be renewables versus fossil fuels, nuclear, or the Armageddon view that by 2020 the lights will go out. I find these debates emotionally charged, and far from any form of reality.

Having been invited to express my views on the future for energy as someone engaged in energy in one form or another all of my working life I would like to expand these arguments and attempt to present a more sober and objective view of the energy requirements of the future, and how mankind, in its perpetual thirst for discovery, will most certainly overcome, and indeed it will be our contempt of the forces of ‘mother earth’ that are likely to prove the more formidable than anything that the consumptive excesses of mankind can create. So let me move away from the typical discussion about energy and take a more controversial, or as someone remarked, a ‘Clarkson approach’ to the future of energy.

Let us start with a short trip back into the 18th century to the start of the industrial revolution. Prior to this time wood had been the main source of energy in Britain, used for fuel in homes and small industries. But as the population grew, so did the demand for timber. As forests were cut down, wood had to be carried further to reach the towns. It was bulky and difficult to transport and therefore expensive.

Coal was the fuel which kick-started the Industrial Revolution – and Britain was very fortunate to have plenty that could be easily mined. Coal is a much more potent form of power, providing up to three times more energy than wood. Political, economic and intellectual conditions would all contribute, but at the heart of the industrial revolution was our use of this new and abundant energy source. Throw in the thoughts of Isaac Newton for good measure and we have the transformation to make the world in which we live today. Indeed coal is still in use today, some 250 years later, and there are still vast reserves throughout the world.

Since then we have developed oil and gas as energy sources, and yet again, and contrary to the view of the doomsayers, there are still substantial reserves of both. Experts in the USA are now stating that fracking for oil and gas in the USA will make the USA self-sufficient for at least another 100 years, and energy prices in the USA are already reduced by some 20%. It would appear that fracking will realise substantial supplies of oil & gas in the United Kingdom and many other countries.

So what are the issues that will determine the energy requirements of the future?

  • The impact of the continued use of fossil fuels
  • The development of renewable/clean energy generation
  • The (increasing) demand for energy
  • The Malthusian controversy (population increase)
  • New technologies

We are told that carbon emissions resulting from the use of fossil fuels are causing global warming and/or adverse climate change. As a nuclear physicist by training at the Atomic Energy Authority at Harwell, and working on such projects as fission control in fuel element tubes in nuclear reactors, flow dynamics of oil and gas throw pipelines in different climatic conditions, and nuclear geophysics techniques for the in-field analysis of boreholes in the search for minerals, oil and gas I am used to public outcry at new technologies – my first University degree course had to be renamed Physical Electronics to avoid the onslaught from Michael Foot and his ‘Ban the Bomb’ movement.

One project that I was aware of in those days, and still persists in the shadows, is the attempts by scientists to alter our weather. We are all aware of the use of cloud seeding by the Russians in the Communist era to prevent rain on their May Day parades, and even by the Chinese during the 2008 Olympics. The story is far bigger. The first such experiments were an attempt to change the fierce weather patterns in the Bay of Biscay because of the continued loss of shipping – indeed I vaguely remember that Lloyds of London may have been a sponsor. Later the computer simulations moved to a reliable irrigation of sub-Sahara – the common view of recent heavy snowfall in Riyadh, Saudi Arabia is that it is not the result of climate change from greenhouse gasses. Then we have the urgent desire in Australia to irrigate the mineral rich outback of Australia so that these massive reserves can be exploited – could this explain the recent severe flooding in regions of Australia.

The earth’s climate has been significantly affected by the planet’s magnetic field that could challenge the notion that human emissions are responsible for global warming. “Our results show a strong correlation between the strength of the earth’s magnetic field and the amount of precipitation in the tropics,” claim the two Danish geophysicists behind the study, Mads Faurschou Knudsen and his colleague Peter Riisager of the geology department at Aarhus University in western Denmark.

Actually changing weather conditions is well within the power of man as this involves disturbing the earth’s magnetic field in the depths of the oceans where weather patterns are determined. However the vast array of variables in the equations have to be reduced to a manageable level of primary, secondary and tertiary impact, discounting the lesser impact variables, as decided by man, to facilitate ‘solutions’ that should work – or maybe not. All of this experimentation is undertaken with good intention, but……………..

Then we have the problem of the ‘eminent’ climate change scientific community, and one particular group who I refuse to give them editorial credit because of their celebrity over fact status, who wrote a critically acclaimed book in 1999 stating that the earth’s contribution (volcanic activity, etc.) was only around 1% of current greenhouse gas emissions, and have since had to revise this significant upwards over 3 subsequent revisions, and I now hear that there has been a gross miscalculation of deep sea geothermal activity contribution plus the release of once frozen methane gases from the ocean bed (as was witnessed during the recent BP disaster in the Gulf of Mexico). I often wonder if the climate change scientific community are aware of the experiments described above, or even alive to the reality of the impacts due to the natural progression of ‘mother earth’.

Whilst I am prepared to accept that man is playing a part in so-called global warming I consider it disingenuous to ‘mother earth’ to think that mankind has control of their destiny on this planet. For example lurking beneath Yellowstone National Park in the USA is a massive underground reservoir of magma, capped by the park’s famous caldera, a huge reservoir of superhot liquid rock and poison which could blow at any time. USGS geologist Jake Lowenstern, scientist-in-charge of the Yellowstone Volcano Observatory, suggests that most damage would come from “cold ash” and pumice borne on the wind, and considers it “disasterous” when enough ash rains down that it creates a layer of 10cm or more on the ground poisoning land and waterways – and this would happen in a radius of 500 miles or so. The gasses released would have a global effect on temperatures. “Any big eruption causes a cooling of the atmosphere, especially with that much ash” claims Lowenstern. In 1812 the Mount Tambora super volcano eruption in Indonesia lowered global temperatures, and a caldera-forming eruption in Yellowstone Park would be bigger, so climate change would almost certainly follow, albeit would possibly only last for a few years.

The so-called Thera eruption of Santorini in the Aegean Sea, circa 1630 BC, left a large caldera surrounded by volcanic ash deposits tens of metres deep (compare depth of ash with the above view of Lowerstern) and may have led indirectly to the collapse of the Minoan civilization on the island of Crete, 110 km (68 mi) to the south, as a result of a gigantic tsunami. A popular theory holds that the Thera eruption was such a devastating event felt thousands of miles away that is the source of the legend of the demise of Atlantis. Plato quotes Critias’ account of the legend, as told to Solon by one of the Egyptian priests:

 “Now in this island of Atlantis there was a great and wonderful empire which had rule over the whole island and several others, and over parts of the continent . . . But, there occurred violent earthquakes and floods, and in a single day and night of misfortune. . . the island of Atlantis . . .disappeared in the depths of the sea.”

The effect on the climate of the Northern hemisphere of the Thera eruption is being detected in tree rings as far north as the UK. Although the eruption of Santorini is recognized as one of the most explosive volcanic eruptions in historic times, the event is only a single eruption in a continuum of eruptive activity associated with subduction. The island group exhibits on-going seismic activity, and both fumaroles and hydrothermal springs are common features around these islands. It seems clear that we can expect another eruption, and we cannot rule out the possibility of another catastrophic eruption reminiscent of ~1630 BC.

Do the Earth’s volcanoes emit more CO2 than human activities? Probably not, but when a large eruption occurs the results are instant and devastating. The ecologists are speaking of a 2oC rise in temperature by 2100 from man-made global warming, but a major eruption can reduce the earth’s temperature by this much in a few weeks.

Another aspect of greenhouse gas emissions I feel worthy of note is the current debate about all automotive vehicles being compelled to use headlights during the day. If we take an average light wattage of 180 watts per car, with an average population of 4 million cars on the road throughout the day the consumption is equivalent to 720MW – a fairly large power station. Where does this energy come from – the car’s engine (burning fossil fuels). I have occasion to make trips to Switzerland and Italy by car. My preferred travel time is through the night, but returns are typically through the day. My fuel consumption increase through the night versus the day has been measured on a number of occasions and ranges between 5% – 8% of additional fuel to travel through the night. This is the additional energy requirement to power my lights. So this proposed policy not only will increase consumed fuel costs by between 5% – 8%, it also creates additional CO2 emissions equivalent to a large power station burning fossil fuels. Truly a contradictory policy.

Thus I have a cynical view of the man-made greenhouse gas/climate change argument. Indeed had I written this essay some 10,500 years ago I would have been sitting on some 30m of ice which has been melting ever since, mainly as a result of natural climate change.

Of course we must not forget the Malthusian controversy, especially if we reach the estimated planet population of some 10 billion people by 2050. Ironically I do not see this as an energy problem as far greater impacts will be the need for potable water, and the devastation to the animal kingdom.

What of future demands for energy? Propaganda suggests that energy demand will triple by 2050. I have attempted to rationalise where this multiple comes from. 20 years ago we had 100w incandescent lamps to provide lighting. This was replaced by 50w halogen lamps. Today the equivalent is an 8w LED. Think of the old cathode ray tube TV sets consuming around 400w now replaced with 60w LED TVs. When computers were first used in commercial applications in the 1970’s they required many kiloWatts to run them. Today you can have the same computer power using milliwatts of power. Thus the trend is far more function for significantly less power.

Of course there are people whose consumption of energy can only be described as blatant excess, but behaviour change is not possible with these people so ‘save energy’ propaganda or taxation will not achieve anything with such people. I know people from the most ignorant to very intelligent, but all having the common denominator of financially comfortable, and to whom there is no price/elasticity for energy. If you tripled the cost they may moan for 10 minutes, and then continue as before. But their consumption is a microcosm against total energy requirement.

What annoys me is that, in pursuit of political favour from noisy eco-voters, our politicians have allowed energy companies to extract essentially a duty from all people for so-called ‘new energy’ development. The payment of this duty includes the people struggling to pay for the energy they actually need to support their families. Instead of the Government using a more reasonable proportional taxation process they cause unnecessary hardship to many to win votes by satisfying the eco-lobby and claiming that they are not raising taxes.

So what of the future? We see a major political push in the development of so-called renewables such as wind power and solar with people seriously believing that these can be anything more than secondary or more likely tertiary energy sources. In 2012 I was asked to analyse 4 such projects for financing purposes; in the USA a 100MW solar thermal, a 60MW vertical axis wind, and a biomass still in development, and in Italy a 18MW biomass plant that had already been built, but was now for sale.

In the case of the 100MW solar thermal proposal operating cost was $56 per MWh including State ‘green’ grants, with then base load off-takes around $72 per MWh (they expected to achieve a PPA at $98 per MWh). Fracking results bought base load off-takes below $50 so no possibility of finance.

The vertical axis turbine project was interesting because it offered substantial advantages over conventional propeller-style wind turbines.  Functionality, ease of maintenance and operation, lack of electronic interference, no ground resonance, a more acceptable profile, capable of tolerating a wider range of wind speeds, quieter in operation than propeller-style turbines, and no bird or bat kills in over 12 years of turbine operations. But again this project relied on State ‘green’ grants to make it commercially viable (I am reliably informed that there are no Federal grants for ‘green’ energy in the USA). Again fracking results caused cessation of the State grants.

The biomass plant relied on an energy conversion process that had only been proven on a small scale in a university laboratory thus needed technology transfer finance. However it was clear that this technique relied on so many cost variables that no-one was interested to engage. It is also worth mentioning that I came across a number of bankrupt ethanol plants during this process.

I was invited to analyse the biomass plant in Italy as due diligence just as the investor was about to purchase it. It was already working having received grants from both the EU and the local Municipality. However the operator had taken all of the capital value out of the project, including the carbon credits, and was trying to unload the project on some unsuspecting pension fund at around an 8% yield – but only achievable if the energy subsidies on the feed-in tariffs from the Government were maintained – very unlikely. The owner realised that there was no commercial future for this plant, especially if energy prices stagnated, or reduced. The investor walked away as a result of my analysis.

I have yet to examine any such projects that are commercially viable without subsidies. The exception is waste to energy plants which, if the dioxins and heavy metal issues are properly addressed, can be a very effective use of waste.

Obviously there are a number of other fuels and technologies in the process of research and development, and I am aware of at least one energy source that has been suppressed because it provided direct competition to the majors in that it would be a cheaper fuel than petrol or diesel. This is a fuel developed by the Germans during the war, but they could not stabilise it. A group of scientists found the notes relating to this fuel in a bunker and developed a way to stabilise it such that they could use it in a conventional car engine. The waste product is water, so completely clean, and can be produced in most countries. Unfortunately all 3 of the scientist mysteriously died within 3 months of each other.

If the ecologists can win the argument then nuclear, (and hydro where possible), are the only existing sources of reliable base load clean energy. But why have we not built the reactors that we so desperately need? The anti-nuclear lobby have jumped on the Fukushima Daiichi nuclear power plant disaster as an argument to delay the development of new generation reactors. This argument is invalid because the Japanese Government was informed by the IAEA over 10 years ago that these reactors should be de-commissioned. The Japanese economy was in dire straits so the various politicians, since the warning, criminally gambled with the lives of many through wanton negligence. Even when the tsunami triggered the incident they failed to raise the alarm in the international community to seek help that could have avoided many of the problems that subsequently occurred. Don’t blame the reactors, look to the politicians who abused the technology constraints. Those reactors worked well for years fuelling the Japanese economy. Until we have new reactors fossil fuels will reign, regardless of the environmental lobby.

The real future is in fusion. The international nuclear fusion project – known as ‘Iter’, meaning “the way” in Latin – is designed to demonstrate a new kind of nuclear reactor capable of producing unlimited supplies of cheap, clean, safe and sustainable electricity from atomic fusion. The claims are that if Iter demonstrates that it is possible to build commercially-viable fusion reactors then it could become the experiment that saves the world in a century threatened by climate change and an estimated three-fold increase in global energy demand. Of course this statement assumes much in terms of global warming and demand, but there is no doubt that this technology, once perfected, will open completely new horizons in wholesale clean energy generation.

On a final note I consider it an insult to the intelligence of our successors that people of today think that future generations will not find solutions to the problems that we face, or think we face. I appreciate that the loud retort will be ‘sustainability’ but the progress of mankind over the past 100 years has seen incredible exponential advances, and this will continue. Who is to say that some brilliant chemist will not find a digester to extract the CO2 out of the atmosphere if this proves to be a real problem. But let us first check that it is mankind who are causing the real problems, or is ‘mother nature’ relentlessly progressing through her life, and we just have to adapt.

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

Image

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? – Taxation

Image

EU/Eurozone – Start Again or Plod On?

Taxation

Taxation is the instrument of State that provides the income to service the functions of government. It can also be used to incentivise investment, to change behaviour, and to redistribute wealth.

Within the EU today each nation state has its own tax regime plus a tax to fund the various organs of government of the EU – notionally VAT.

The disparity of tax regimes and the effectiveness of collection throughout the EU is almost a north/south divide. The Mediterranean nation states have proven poor at tax collection much through corruption and black economies, and thus their current dilemma. The more Northern nation states have reasonably good collection and little or no corruption.

Years of attractive stimulus for businesses by providing complex tax incentives are now coming home to roost. The desperate need by governments for new sources of tax revenues has unleashed wrath on major corporations who are certainly exploiting the available tax incentives albeit, by and large, they are not contravening statute. However politicians are suggesting that these businesses have a moral duty to pay more tax, thus whipping up the flames of anger among the electorate, and working with other governments to do the same in order to close the door on these businesses relocating – a coup. It will be interesting to see how these corporates respond to this approach as they have a right to think it a breach of faith. Not that I support their position as I have seen smaller, developing states essentially raped by corporates forcing their terms onto inexperienced struggling governments just trying to bring some wealth creation to their country. Furthermore I have already mentioned in a previous essay that corporates have a moral duty to the welfare of their staff and immediate environment – something that has substantially diminished as a result of globalisation, but needs to be reintroduced.

I think it justified within a discussion about the EU to include the converse of taxation in the form of nation state subsidies from the EU government. The most contentious of these is the Common Agricultural Policy (CAP) a mechanism created to normalise competition in farming output whilst markets adjusted, but which has not yet gone away. Indeed the CAP still accounts for some 50% of the EU budget. The French appear to use the substantive revenues they receive under CAP to put off the fateful day of much needed social reform in France. It is easier for the French government to plead with the EU Commission to keep this subsidy than it is to break the stranglehold grip over social policy of the trade unions in France. This has been a thorn in the side of EU integration for too many years. A unified tax system throughout Europe, applied equally to all, could address this problem without any reasonable objections from any trade union movement.

If we refer back to our corporate structure described in ‘EU/Eurozone – Start Again of Plod On – A New Government’ it is easy to see that tax revenues yield the income streams that provides for the State to function. A nation state, just as with a corporate, has a Balance Sheet showing all State assets and Liabilities, an income statement showing all tax receipts and the costs government and the social state, and a cash flow statement showing tax receipts versus expenditure on a timeline indicating when the government coffers will be short of funds to meet its commitments (and thus the need to visit with the Central Bank to cover any shortfall), and when it will be in surplus. The theory is that good government will result in balanced books, something Margaret Thatcher was forever reminding her colleagues in the House of Parliament when they wanted yet more money for some social crusade, and something Tony Blair just ignored in favour of expensive social engineering intended to buy popularity and the votes of the people. Thus the infamous note left by Labour MP, Liam Bryne, former Chief Secretary to the Treasury at the time of the general election in 2010 which stated ‘Dear Chief Secretary, I’m afraid that there is no money. Kind Regards and Good Luck’ – a very different situation to the one Labour inherited when they came to power.

What about the rest of Europe? We know that Germany has probably the most austere tax regime, albeit that the Scandinavian countries make take exception to this statement. The most lax at tax collection is probably Greece where, by all accounts, tax officials are readily corrupted, and the ruling elite are part of the problem. As far back as ancient Greece Aristotle knew that no freedom is limitless. The negative aspect of too much freedom of economy was an issue already recognised by the ancient Greeks, and proves to be one of major reasons for the current huge crisis in Greece today. As in ancient Greece it is still typical that very rich people think that is very natural not to pay taxes, and not even to have a conscience about it.

Clearly entrepreneurs and wealth creation are at the heart of any free market economy and must be encouraged and rewarded. Furthermore it is arrogant of politicians in general to think that they can outsmart the clever greedy people. However a united political system in the form of a simple and unified tax structure applied throughout our United States of Europe could close many of the gates to ensure that excessive freedom is not available.

In our United States of Europe the whole tax system would have to be overhauled in the name of equality for all. Thus what might a centralised tax system look like so that it is seen to be balanced between rich and poor states?

Within a framework of subsidiarity the central government would need funds, and each member state would also need centrally allocated funds to operate State policies. Furthermore each member state could raise taxes specific to the requirements of each state, with the consent of the people of the member state. There are a multitude of cultures within Europe having different requirements in the name of well-being and quality of life. These should not be stifled by an overbearing central government, and thus allow the state assemblies to respond to such requirements through a democratic process of state taxation.

Thus we would need State taxation in the form of corporation tax, income tax, investment income tax, duties, levies, etc. The rate of taxation on these sources would need to be the same for everyone, and collection would be controlled by a central government revenue agency. For example all employed people would have income tax and national insurance (for healthcare and pensions) deducted monthly at source thus providing central government with a constant stream of income, easy to collect, and overcoming the existing difficulties presented to citizens in some nation states who are paid their salary gross of deductions and then have to find funds to pay their taxes at the end of the tax year. Income tax thresholds, i.e. the minimum salary to attract any income tax, should be set at a liveable level (thus optimising the tax collection body to a cost effective level), and national insurance contribution up to this level should only include a pension provision – healthcare should be free for the poorest.

VAT could be transformed into a tax to allow for redistribution of wealth to poorer sectors. For example VAT, being a capitalist tax and applied to purchase power (consumption), should have its bounds set such that the essentials of life should not attract VAT. This means that most food, anything to do with rearing children, books, newspapers, etc would be exempt from VAT. Indeed VAT could be seen as a luxury tax and thus only paid by people who had enough disposable funds to afford the items. This means that poorer people would pay little VAT as a percentage of their disposable income, and richer people would pay substantially more. These funds could be used to improve the environment of the poorer people, and help poorer member states to raise the standards of living for its citizen by providing necessary infrastructure to encourage wealth creation.

The essential requirement of the system of taxation within our United States of Europe is that it is seen as unified and fair to all people thus preventing unnecessary competition between member states, and to prevent artificial migration of people. For example, the extreme application of subsidiarity in Switzerland has provided a bizarre situation where people will move just a few streets in the same city for the sole purpose of achieving lower taxation in a different municipal system, but still work in, and enjoy the benefits of the higher tax municipality within that same city. This level of subsidiarity could be compared with tribalism and thus is very undesirable, and should be avoided.

Thank you for your continued interest in this European venture.

This blog is part of a series of blogs called ‘EU/Eurozone – Start Again or Plod On?’ and which examine the framework for a truly United States of Europe, and what would be needed to achieve it. Look at the archive index to find other blogs in this series.

I hope that you found this blog interesting, and will give it the Like It ‘thumbs up’ below, and/or become a follower so that you receive notice of further essays in this series.

You can also use the share options below to share your interest in this blog with others you know.

These blogs are intended to provoke thought and ideas so I look forward to any comments about the content. Just move to the beginning of the blog, click on ‘Comments’ and you can record your views, or ask questions.

EU/Eurozone – Start Again or Plod On – A Social State

Image

EU/Eurozone – Start Again or Plod On – A Social State

As part of economic liberty there is a need to ensure for a minimum of material security for the people. When someone without resources is hungry, sick, or freezing, freedom is not their first priority. Thus the need for a constitutional principle of a Social State in our modern and relevant democratic United States of Europe. Although I am not advocating a welfare state, as such, I am concerned that the nation states, either by themselves, or through international organisations, are continually unwilling, or unable to regulate the gap between the excessively rich, and the poor. Everyone should have the right to care and assistance in the case of inability of self-care, i.e. the care and means which are indispensable for the maintenance of human dignity. This is the extreme of the social state and there should be no need for debate regarding such provisions, albeit there are nation states within the EU that have no such provisions.

However the dimensions of a social state are far wider, e.g. in which the government undertakes the chief responsibility for providing for the social and economic security of its population, usually through unemployment insurance, old-age pensions, and other social-security measures. Provisions also include healthcare and education. But how do our nation states within the EU fair against some of the pillars of social justice?

It is not possible to analyse the existing structures of all the nation states in a blog, but our news reports show that there is widespread disparity, so I would like to examine what would be needed in our United States of Europe for the dominant issues, being healthcare and pensions.

Healthcare

The current EU/Eurozone member states have a variety of healthcare systems ranging from the UK NHS which provides healthcare free at source to everyone, to systems that are partially funded, or require health insurance in one form or another. Whilst the UK NHS is praised throughout the world recent years have demonstrated that such an all-inclusive welfare provision can become an excessive burden to the State finances. This is blamed primarily on an increasingly aged population. However the truth may be elsewhere as drug companies seek to ever increase their revenues in the name of more advanced research, and medical advances provide ever more complex treatment possibilities to keep people alive who would otherwise die from their ailment.

There have been some well recorded cases of people looking for assisted suicide without recourse to their assistance. I am of the firm belief that the people of Europe should have the right of self-determination regarding the termination of their life when all hope is lost in self-sufficiency. I am confident that I would not want my dignity and self-respect as a human being removed by some sanctimonious idea that I have no right to determine my own end. Thus a counterbalance should be included to enable people the right of assisted suicide without the need, time, energy and cost of high court consent. Any law can be abused but the rights of the majority should take precedence in this situation in order to preserve the rights of individuals. The resulting economic advantage both in State pension and healthcare cost is likely to be significant, and better spent on people who do want to live.

However this is only a small part of the problem. The health of a nation is a fundamental part of the nation’s GDP. Therefore the choice is realistic National Insurance contributions by all people and companies that adequately cover the provision of healthcare, or limit the type of healthcare that is free at the point of delivery.

My belief is that healthcare for children from conception to end of school age, and for people beyond State pension age should be free at the point of delivery in order to ensure reasonable health, and equality for all. But what happens throughout working age?

The health of the workforce of a nation is fundamental to maximise GDP per capita. So does the State ensure that medical treatment is available free at the point of delivery to maximise the contribution of the workforce, or does the state rely on the sensibility of people to save for sickness eventualities? Does the State take part payment for potential sickness through taxation and seek any excess over agreed limits should treatment exceed such limits from the person requiring treatment?

The next consideration is whether or not providing healthcare to all free at the point of delivery encourages abuse of the system and thus increase the burden of cost to the State? The lifestyle of many people today could be considered as self-abuse, so should such people be penalised as a means to encourage a change in behaviour?

My thought go back to a discussion with the then Health Minister in China in 2004 when I was trying to convince him that providing necessary free drugs to workers with AIDS, and thus keeping them productive, was beneficial to the economy. At that time the GDP per capita was around $3,600. The drugs needed would cost around $600 per year. Average wages were just $265 per month, or $3,180 p.a. thus putting the drugs out of reach of the worker. Assuming that the worker had a wife and one child of school age the inability of the father to earn would push all 3 members of the family into poverty (no social welfare), and the child would likely have no schooling. This would have a current negative impact on GDP per capita, and a detrimental impact on the future for the child, a potential future GDP generator. My argument was that, by the Government providing the drugs the GDP per capita of the worker reduced to $3,000, but at least it was positive, and it would improve the future GDP per capita of the child if healthy and having had an education.

Many drugs are not cheap, and are out of reach of many workers in Europe. Therefore the economic benefit of healthcare free at point of delivery for all is compelling. The focus of government is to ensure that the delivery of healthcare is managed in a cost effective way, and that any social behaviour issues are robustly addressed. One positive is the economies of scale of a United States of Europe negotiating with the pharmaceutical companies on the price of drugs.

Pension Provisions

In a modern democracy there has to be an assumption that everyone contributes to society whether working, mothers who stay at home to rear the next generation, carers, jobless who work with charities or teach soccer at the local youth club, etc. Under our baseline premise of a Social State principle the disadvantaged and the unfortunate losers will qualify for financial assistance in any event. Today, in the UK, people of pensionable age might not qualify for a state pension but they will receive a similar sum of money through various welfare support packages. It is unquestionable that the UK welfare system is overly complicated, and thus difficult to ensure that the correct level of support is given, where needed.

My view is that every able-bodied person (disabled will require a different structure) should have a basis state pension when they reach pensionable age (say 65 years old) – enough to subside. If people chose to continue to work past this age they would still receive their State pension (see ‘EU/Eurozone – Start Again or Plod On – Intro’ in this series). People who enjoy gainful employment for a number of years (say 30 years, which allows women to take time out to have children) should receive an incremental state pension to reflect a recognised contribution, having had deductions from their salary to cover this additional payment. This additional pension will allow a better lifestyle, and is geared around the concept that if you do not work in gainful employment then the state will only support you to a minimum level. Anyone who makes additional pension provision for themselves will still receive whatever State pension they have earned. The State pension would be exempt from taxation, nor be included in income for tax purposes. Tax would, however, be payable on income, including investment income, above the standard tax-free income thresholds to capture tax revenues from wealthier pensioners.

By instituting both of these provisions into every member state of our United States of Europe we would greatly satisfy a fundamental pillar of democracy, being ‘equality for all’, and prevent unnecessary economic and health migration across member states.

Thank you for your continued interest in this European venture.

This blog is part of a series of blogs called ‘EU/Eurozone – Start Again or Plod On?’ and which examine the framework for a truly United States of Europe, and what would be needed to achieve it. Look at the archive index to find other blogs in this series.

I hope that you found this blog interesting, and will give it the Like It ‘thumbs up’ below, and/or become a follower so that you receive notice of further essays in this series.

You can also use the share options below to share your interest in this blog with others you know.

These blogs are intended to provoke thought and ideas so I look forward to any comments about the content. Just move to the beginning of the blog, click on ‘Comments’ and you can record your views, or ask questions.

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

EU Flag

EU/Eurozone – Start Again or Plod On?

Common Judiciary

The Judiciary of a nation state is the organ of government that should provide oversight of the legislative and executive (government), and is a comprehensive and integrated structure able to delivery stable legal security according to the laws of the State.

In this blog we will quickly propose an outline legal framework for a common democratic legal system for our United States of Europe that will provide a secure legal structure for all people.

The judicial structure is the system of courts that interprets and applies the law in the name of the nation state. The judiciary should have the power to change laws through the process of judicial review. Courts with judicial review power may annul the laws and rules of the state when it finds them incompatible with a higher norm, such as primary legislation, the provisions of the constitution, or international law. Judges constitute a critical force for interpretation and implementation of a constitution, thus de facto in common law countries creating the body of constitutional law. Thus the judiciary needs to be fully independent of the legislative and executive, and the judges be conferred on merit, not election.

The judiciary usually consists, at its head, a court of final appeal called the ‘Supreme Court’ or ‘Constitutional Court’, together with various levels of lower courts.

Under the doctrine of the separation of powers, the judiciary does not make law, which is the responsibility of the legislative, or enforce law, which is the responsibility of the executive, but rather interprets law and applies it to the facts of each case.

This organ of the state is responsible to provide equal justice for all under law, including human rights and fundamental freedoms.

The judiciary also provides the mechanism for the resolution of civil disputes, and a criminal justice system.

So much for a democratic judicial system definition but the complexity of the various legal structures currently used throughout the EU nation states is mind-boggling. We have Common Law, structures based on Napoleonic Code, Civil Law, Basic law, etc. In the USA there is Federal Law as the legal foundation, and then there is State Law superimposed upon it. The overall legal platform is based on English Common Law which was adopted from the English Legal System. However the USA has subsequently over-complicated this system in their overly litigious society, and we should avoid this. As an example an identical contract drafted under US Law (50 pages), English Law (5 pages), and Swiss Law (3 pages). Any consideration of a legal system needs to learn lessons of the past and to keep it simple and relevant.

For business to effectively operate throughout our United States of Europe there must be a common legal platform. The complexity of the current EU multi-legal systems adds a cost burden to business which ultimately reflects in the price of product or service to the consumer – the people of Europe. But what system to adopt?

My argument for the above structure starts with a global perspective. Our United States of Europe will most certainly want to engage in business with the wider world. If we look at trade in oil & gas, commodities, manufactured trade, international securities, all of these have standard legal packages throughout the world which also provide trusted international arbitration. These legal structures have all been derived and evolved out of English Law, are drafted in the English language, and jurisdiction will be either/and/or English Law and US Law. These systems were devised to create a common and safe platform for international trade, are widely used, and banks prefer these tried and tested structures for their involvement in transactions.

Thus I propose that the legal structure as regards business, commerce, and finance be English Law. As the foundation of the English legal system is Common Law then our Legal System for the United States of Europe would be based on Common law, also known as case law or precedent, and is law developed by judges through decisions of courts and similar tribunals. One third of the world’s population (approximately 2.3 billion people) live in common law jurisdictions or in systems mixed with civil law, and thus this proposed system would be compatible with many major trading partners in the world, including the USA and India.

However I would not propose total adoption of the English Legal system as I would see our new model as a golden opportunity to significantly revise some of the historic anomalies in the process of English Law, not least the removal of the barrister/solicitor structure which adds significant cost to the process of law. Another example would be the abolition of much of our Family Division law and replace it with something more akin to the structure in the German legal system, and the German inquisitorial process (Civil Law) in the lower courts would also be more relevant and cost effective, and thus ensure that remedy in law is available to all. Common law courts tend to use an adversarial system, in which two sides present their cases to a neutral judge. In contrast civil law systems use an inquisitorial system process, where an examining magistrate serves two roles by developing the evidence and arguments for one and the other side during the investigation phase, and which could be heard as litigant in person without fear of being overawed by an opposing lawyer.

I have actually experienced the confusion of examination under an unfamiliar legal system in a language unknown to me as a witness in a case in the Austrian Courts where protocol dictates that the case should be heard in Austrian-German. The proceedings were conducted under civil law and thus the judge was the primary examiner. After about one hour (of a 5 hour examination of my evidence) the Judge, who obviously was fluent in English, was becoming increasingly frustrated with the translator of my testimony which was frequently being corrected by the lawyers to both the claimant and the defendant. Having determined that all of the key people spoke English the judge dismissed the translator, and the hearing was continued in English. This judge was clear in his objective to get to the truth of the matter, and was not about to allow out-dated protocols to compromise his objective.

In Switzerland it is now common to hear cases in English, and which was initiated by cases involving international trade.

A key requirement of any modern democratic system is the rights afforded under habeas corpus. A writ of habeas corpus is a writ (legal action) that requires a person under arrest to be brought before a judge or into court. The principle of habeas corpus ensures that a prisoner can be released from unlawful detention—that is, detention lacking sufficient cause or evidence. The remedy can be sought by the prisoner or by another person coming to the prisoner’s aid. This right originated in the English legal system, and is now available in many nations. It has historically been an important legal instrument safeguarding individual freedom against arbitrary state action. The jurist Albert Venn Dicey wrote that the British Habeas Corpus Acts “declare no principle and define no rights, but they are for practical purposes worth a hundred constitutional articles guaranteeing individual liberty”. There are nation states within the EU, and new members under this model who do not use habeas corpus, and thus my reference to its fundamental role in the United States of Europe.

Habeas corpus essentially means that you are innocent until you are proven guilty. There are some exceptions to this, e.g. consumer banking law where a customer who has a dispute with a financial institution can, in equity, reverse this situation in that the bank will be assumed in the wrong unless the bank can prove itself in the right. An ordinary consumer cannot be expected to contest a bank having vast resources with which to frustrate a consumer claim. It could be argued that this removal of habeas corpus should be applied to all service sector corporates, especially energy and mobile phone providers. In this age of automaton account management mistakes are common putting the consumer under much stress and distress dealing with intransigent corporate customer services who believe that their computers are always right. It would be more equitable if the corporate was required to prove that the data in their computers is legitimate.

Thus my proposal for the judiciary of the United States of Europe would be:

  • An independent constitutional judiciary based on merit, not election
  • A European Supreme Court where the judges comprise the senior judge of each of the nation states. The President of the Supreme Court would be determined by election by the Supreme Court judges on a 2 year re-election
  • A legal system based on  English Common Law with appropriate elements of Civil Law
  • Modernised court processes including removal of barrister/solicitor protocol, and introduction of the inquisitorial system in the lower courts
  • Member states to have their own courts subordinated to the Supreme Court
  • Member states to have own assemblies able to enact State law, by-laws, and ordinances consistent with constitutional law
  • Intrinsic rights to all under habeas corpus, albeit with the specific exclusion of terrorists
  • Service sector corporates to have no right to habeas corpus in consumer disputes

Thank you for your continued interest in this European venture.

This blog is part of a series of blogs called ‘EU/Eurozone – Start Again or Plod On?’ and which examine the framework for a truly United States of Europe, and what would be needed to achieve it. Look at the archive index to find other blogs in this series.

I hope that you found this blog interesting, and will give it the ‘thumbs up’ below. You can also use the share options below to share your interest in this blog with others you know.

These blogs are intended to provoke thought and ideas so I look forward to any comments about the content. Just move to the beginning of the blog, click on ‘Comments’ and you can record your views, or ask questions.