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This would seem to have the advantage that you can still move round the eurozone and pay for your holidays in one currency while at the same time allowing national governments to run their own – appropriate, tailor made – economic policies. It would also seem, however, to have the rather substantial disadvantage is that it significantly resembles all those proposals for scrip money which were current in Argentina just before the final crash. It would also – depending on the details – seem to fall foul of what is known in the trade as Gresham’s Law: ie bad money will always and inevitably drive out good.

I propose in my book an idea that has considerable circulation within the City and which was at one point on the Treasury agenda in Britain. That is changing the euro, not destroying it, but changing its operating mechanism from being the sole currency in a single economic area to a parallel currency that finds its market value in competition to reissued national currencies. It does two things: first of all I believe that it is technically credible and sensible because it allows the currencies to adjust against one another on a daily basis. It eliminates the life of the major shock that the euro could still face once it becomes apparent that a currency that was designed for a political goal, that is to be a step towards a closer economic and political union has been organised for a country that will never exist.

Now what is interesting about this proposal isn’t the details, but the way it refelcts the fact that such ideas (that the euro isn’t working) are now becoming common currency among thinking economists. As Mathew Lynn points out

You can pick holes in the plan. Whether you really need to resurrect the Belgian franc from the history books is debatable. Spain and Portugal might want to get by with one currency, for example, as might Belgium, the Netherlands and Luxembourg.

There are only three ways forward. One is to struggle on with a permanently sluggish economy. Another is to wait for a financial crisis, or a bad-tempered exit (probably by Italy). The third is to preserve what is good about the euro, while repairing the parts that don’t work.

Wolfgang Munchau, who certainly isn’t associated with this proposal in any way shape or form, also has a piece in the FT today, and he does correctly identify the twin poles which make the balanced conduct of eurozone monetary policy virtually impossible: Germany’s growth crisis and the Spanish housing bubble:

The European Central Bank no longer keeps us guessing about the timing of its interest rate decisions. Jean-Claude Trichet, its president, last week gave a strong hint that the ECB’s governing board will raise the short-term interest rate on Thursday. The ECB has also encouraged markets to expect at least one further rate rise later this year.

But what then? In deciding the future course of monetary policy, European central bankers are confronted with two interesting questions: what to make of the German economic recovery, and whether to prick the housing bubble that has built up in some parts of the eurozone. As far as I can tell there is no broad consensus within the ECB’s governing council on either issue yet.

Listening to John Gillingham it isn’t clear to me that his agenda is exactly the same one the Open Europe group have. Gillingham’s view seems to be summarised in this exract:

The EU does some things well. For example by acting as a trade negotiator for all member states. Secondly by enforcing competition laws within the community which is essential to prevent a lapse into protectionism. To be able to enforce common rules and standards, not micro manage, and we saw a very destructive failure in this case with Botstein’s attempts to develop a financial services action plan.

What will make the EU work is demonstrating over a long period of time say, ten years, the superiority of an open to a closed system. It will take that kind of thing to bring about change.

This does seem to be a valid point of view. Certainly we cannot abolish our national identities by pure fiat, their dismantling needs to be a process, and a comparatively long one. The big divide is between those who see the need to proceed with the demoltion works, and those who don’t. But even assuming that at some stage there was a consensus that they have to go we have to start somewhere, so why not now?. The real hot potatoe, and it gives us a connundrum that Gilllingham is obviously trying to address is ‘what to do with the euro in the meantime’?

The Open Europe collective, on the oether hand, seem more than happy to accept what we have, a Europe of Peoples. They seem to rule out the longer term project ‘tout court’. I myself question this whole ‘inviolability of peoples’ assumption, its adequacy and its validity in a globalised and rapidly changing world. Open Europe are however basically right in drawing the conclusion that a Europe based on nation state nationalism is incompatable with the euro. But once we arrive at this recognition there would seem to be two main alternatives which open up: abolish the nationalism, or abolish the euro. The choice gentle readers is yours. (Incidentally this recent thread and this one are highly relevant to interpreting what I am trying to say in this post. In particular since Gllingham is arguing explicitly for a weakening of the Commission, and I am arguing for its re-inforcement).

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So to rejoin the main them, what do we say to India or to China, or relatively poor Latin American countries like Colombia and Bolivia – open your markets to us we say, the competition will do you good (read Suhit’s last post). As well as being inefficient, we also seem to be hypocrites. But hold on a minute, isn’t there are bit more here? Just who exactly are these foreign competitors that we all seem so worried about? Well these days the foreigners who bother us most normally seem to be other Europeans. In fact, at the end of the day the Mittal/Arcelor affair is all about two European based global companies. Now come a bit nearer home, to the cases of the banking and electricity sectors like Poland’s Pekao, or Italy’s Eni and Enel, or Spain’s Endesa
or France’s Danone (or just about anything else for that matter according to the proposed new law). The rivals from which we are so in need of protection are in fact our main Eupoean competitors.

Two questions are raised here: what exactly does ‘foreign’ mean in an EU context, and what kind of benefits can consumers expect to see from all the protection that is being lavished?

Let’s start by looking at one or two specific cases begining, perhaps with Spain, and Jose Luis Rodriguez Zapatero. According to reports Zapatero (who regular readers will know I have defended more or less uncritically of late) is trying to reassure the EU that he has no intention of using his golden share:

Prime Minister Jose Luis Rodriguez Zapatero told reporters at the Senate that the government will respect market rules, but will also seek to protect Spain’s national interest.

“Markets are very important but for this government the citizens are more important,” said Zapatero, who told the head of E.On AG in a meeting Tuesday that he is strongly opposed to its 29.1 billion euro ($34.72 billion) offer for Endesa.

Possibly precisely because it is not clear what he can have meant by citizens being more important than markets in the context in question, Brussels have more or less given him a formal warning:

The European Commission warned Madrid on Wednesday not to use illegal protectionist means to try to block Eon’s takeover bid for Endesa, the Spanish utility.

The warnings came as the German power group prepared to take its case for the €29.1bn ($34.6bn) offer on the road to shareholders, and as other utilities considered joining in the race. Brussels’ intervention was sparked by remarks from the Spanish government’s chief spokesman that Madrid would “do everything in our power to ensure Spain’s energy companies remain Spanish”.

Also since we are all in the EU, and in this sense are all Europeans, I simply cannot understand what this means anymore:

“I understand that Germany wants to have a strong global energy company, but so does Spain,” Zapatero said..

But what is the problem with saying: we want to have strong European energy companies? Full stop. I’ll tell you what is wrong with not saying it: 12 EU countries share a common currency. In theory they are no longer countries for all significant economic purposes, although in reality, of course, they continue to be so.

The Italian case doesn’t seem to be very different:

The threat of creeping protectionism across Europe deepened on Wednesday when Italy raised the prospect of toughening Italian takeover laws in retaliation against France’s efforts to deter foreign bidders from acquiring French companies.

Giulio Tremonti, finance minister, said Italy was among the most “market-oriented” countries in the European Union and disliked protectionism, but it could not ignore France’s firm line on hostile takeover bids.

Poland is in hot water too:

The European Commission on Tuesday threatened to bring proceedings against Poland’s attempt to block Pekao SA and BPH merger, the two banks in which Italian bank UniCredito has stakes.

“I asked the legal services to examine the possibility of launching proceedings on the issue,” he said, adding that EC decision can be expected soon. .

The Bitter Pill To Swallow

Obviously the decision which has really set this train in motion was taken in France earlier this week:

France is preparing to push European Union takeover rules to their limits again by giving companies the right to use so-called poison pill defences to rebuff hostile takeover bids – even if they come from companies unable to use similar strategies.

The new rules allow companies subjected to a hostile bid, or expecting a possible raid, to issue warrants convertible into shares at a discounted price to existing shareholders, making any offer more expensive and encouraging friendly talks.

Well, I mentioned consumers before, since consumers might, if anything, benefit from increasing competition, but there seems to be little of this here. Rather it is a question of protecting vested corporate interests and national state ones. The consumer only exists here as an afterthought.

Now all of this would be either good or bad, according to your point of view, except for one small detail, we have the eurosystem, and already it could hardly be said to be working optimally. When the French referendum was held last summer I made the point that what was really being voted on was in fact the future of the euro, since the continuity of the euro is predicated on a continuing process of political union (at least in the case the 12 participating states).

I think the French ‘no’ was the first major red alert signal that strong centripetal forces had stated to go to work, this week’s revival of petty nation state nationalism is the second. The attitude towards the freedom of movement of our fellow European citizens in the new accession states might be a third:

Service Workers: Stay Home

National interests can still trump good sense, as the demise of an EU initiative to liberalize trade in services shows

Many European Parliament members were mortified last year when voters in France and the Netherlands deep-sixed a European Union Constitution long sought by the region’s political leadership. But now the Parliament has done something that could hurt Europe even more…….

Productivity growth in Europe’s service sector has averaged well below 1% in recent years, vs. 3% in the U.S. Burdensome regulation is a big part of the problem, Mettler and other business advocates say. Sadly, the Lisbon agenda’s goal of making Europe “the most competitive and dynamic knowledge-based economy in the world” by 2010 seems more elusive than ever.

Business Week talks about national interests ‘trumping good sense’, I would go even further, national interests are in danger of wrecking the euro (even more than it is wrecked already that is). For the eurosystem to survive those member states who participate will have to denationalise themselves (not their state owned companies. please note, but the countries themselves) completely. This was always an implicit part of the euro deal. In the real world there are no free lunches remember. Did anyone seriously think that a small group of countries would simply enjoy very low interest rates – as a kind of ‘freebee’ – and that would be it?

The price to pay for the euro is to be paid in the heart, it means the end to the old petty forms of patriotism. Well we have to start somewhere, so instead of worrying about whether the Catalan statute imperills the unity of Spain, lets go down the other road: lets get rid of Belgium. Then lets get rid of France, Germany, Spain, Italy etc. Europeans aren’t ready for this many will say (in fact they just did in the referendum). Well then they aren’t ready for the euro I say. This is my whole point of view. The labour mobility issue is a side problem. We have a national champions mobility issue to address first. What we need isn’t just labour mobility it is mobility tout court (mental mobility, flexibilisation, not just of labour markets but of everything, especially of feelings which need to go up an abstraction notch). We are living in the past, not in the future. If we continue to stay there the future will come looking for us soon enough, of that we can be sure.

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Mittal himself is based in London and he has headquartered his company in Rotterdam. Arcelor is a Europe based global company – it is registered in Luxembourg and was created in 2001 by a merger of the Spanish Aceralia, the French Usinor and the Luxembourg based company Arbed. So what has happened? Well here is a summary from Daniel Gross on Slate in his aptly titled article Indian Steel and Egyptian Cell Phones.

The good folks in the West are generally happy to sell real estate to nouveau riche Arabs and Asians. After all, cash-flush foreigners generally pay top dollar. In 2004, Lakshmi Mittal, the acquisitive Indian steel baron, dished out $128 million for a residence in London. (And few of the bienpensant clucked when Mittal rented out Versailles for his daughter’s wedding.) There’s no clash of cultures and civilizations when it comes to real estate. Would you like to buy Pebble Beach? How about Rockefeller Center?

But when the purchase involves a corporation that produces an essential industrial product, that we-are-the-world comity disappears. Since January, when Mittal announced a hostile bid for Luxembourg-based steel company Arcelor, the French and Luxembourgians (Luxembourgeoisie?) have reacted harshly. On Jan. 29, Arcelor’s board rejected Mittal’s offer as unacceptable in every way. Arcelor’s Runyonesque CEO, Guy Dolle, has sniffed that his steel is “perfume” while Mittal’s product is like “eau de cologne.” Thierry Breton, France’s finance minister, fretted over the potential clash of civilizations that would ensue if Mittal were to emerge victorious. (Never mind that Mittal’s company has its headquarters in Rotterdam, is owned by a man whose primary residence is in London, and has steel-making operations in the United States and Germany—but not in India.) In response, India’s minister of commerce and industry, Kamal Nath, flung back: “This is an era of globalization, cross-border investment and liberalization, not one in which investors are judged by the color of their skin.” Touché!

That is the crux of the story. The European side seems to be worried about job losses whilst never actually providing any substantial reasoning to back up why this will happen when Mittal has promised the contrary. Curiously, even though Mittal himself does not have a single investment in India, he has been receiving a lot of support from inside India, from the press, India Inc and the government.

The reasons why this is happening are not hard to find, you only have to look at the comments made by Arcelor’s chief Guy Dolle who talks about a ‘company of Indians’, ‘monkey money’ and how Arcelor is perfume and Mittal Steel is Eau De Cologne.

On a European-based list I participate in, one of the posters made the following point.

The hostile bid by Mittal for Arcelor, the big European steel conglomerate, has set a lot of feathers ruffling over in Europe.we will be doing a piece on this trying to put it in the context of globalisation and the changing balance of global economic power though Mittal is strictly speaking a Dutch company, in fact everyone here perceives it as Indian.

As this poster rightly mentioned the Mittal debate is about globalization and the balance of power. If Western companies want to enter India and China, want to outsource their manufacturing and services to these countries, and generally talk about the greatness and goodness of globalization and open markets then they should start getting ready for the process to also run the other way round.

I believe this whole issue comes down to the belief, in this case on the part of many Europeans, that third world countries and their people in general are just not capable. After all, if they were, they would be rich, now would’nt they?

This is a valid question if based on the misplaced assumption that poor countries have incapable people. It is related to the idea that poor people are somehow less able than rich people. I think that this is a gross oversimplification of the process of economic development. The development of economies is a complex social phenomenon, and it cannot simply be reduced to any one event or any particular component.

Poor countries and poor people both are immensely capable. The reason for the lack of economic development and wealth is a systemic issue and not an individual one. If that was not true, then it would be hard to explain the progress enjoyed by the millions of Indian and Chinese people currently living in the US, the UK and to some extent in the Middle East, Africa and Australia.

Thomas Friedman says ‘The World is Flat’ however, he may need to mention that apart from being flat it is also equipped with a playing pitch which runs in two directions. Globalization makes it easy for emerging countries to invest in the more developed countries. The poor and emerging countries of Asia are already supporting the huge budget deficit being generated by the US.

The strange thing in this case however is that this is one European company bidding for another european company. So what really could the problem be, apart, that is, from the colour of the bidder?

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However I must admit not everyone sees it this way:

Jose Mourinho has branded Lionel Messi a master of the dramatic arts after the Argentinian teenager claimed centre-stage in the latest chapter in Chelsea and Barcelona’s bitter Champions League rivalry.

That sounds to me, if you will pardon the expression, a bit like sour grapes. I would rather agree with the appraisal of the AFP journalist who says:

Messi, whose diminutive stature and intuitive application of outstanding technique have invited comparisons with his compatriot Diego Maradona, was the inspiration behind a 2-1 first leg win that makes the Catalan club strong favourites to advance to the last eight.

So well done there. But perhaps a few more words are in order, words like, Ronaldinho Gaúcho, or Samuel Eto’o. But then perhaps, and just to try to show that I am not simply your ordinary common-o-garden biggot, why not other names, Diego Forlan, for instance, or Juan Román Riquelme (I am what they call here a Riquelmista, but then Román was too big for Barça, he needed his own team, just to himself). Or more words, like Juninho Pernambucano (the assasin, for the lethal nature of his free kicks, not for his phsical prowess), or those other words, Thierry Henry who this week showed Ronaldinho that ‘anything you can do I can do better’ when he introdced himself to the ‘grandesa’ of the Bernabeu in his own unique way (and in the process probably upped his future Barça sign-up fee by a couple of zeros).

So now, as well as being breathless, I also find myself to be wordless, apart, perhaps for one last final gasp:

Visca el Barça!

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Germany is one. Austria, though, is not. David Irving’s speaking in Austria would have been a political act of the first order and one of considerable consequence. This is because – well – Austrian politics is very different to German politics. In what other European country could you have to hastily pass a law of dubious constitutionality to keep a man from becoming speaker of Parliament who publicly accuses the survivors of the anti-Nazi resistance of being “murderers of their comrades”? Or be unable to enforce a supreme court decision to erect bilingual roadsigns for 38 entire years for fear of violent resistance? Or have to tolerate a citizen-initiated referendum petition against “foreigners,” or put up with an obscene twit like Reinhold Gaugg, who having campaigned against “privileges”, after telling his party colleagues that they must be NAZIs (for “Neu, Attraktiv, Zielstrebig und Ideenreich” – New, Attractive, Goal-Oriented and Rich in Ideas), got his chums to appoint him as a director of the public pension system on a special contract that made him unsackable.

When Gaugg finally ran into trouble (criminal trouble), he sued vice-chancellor and right-hand woman of Jörg Haider, Susanne Riess-Passer, for the payoff promised him in the contract. Party friend and federal senator John Gudenus returned from a career in the army to start a party-run private police force in his constituency before having to give it up after an embarrassing conviction for drunken driving. That didn’t stop him from polluting the air with various imbecile remarks (a favourite: regarding the Holocaust, “I believe what I am officially ordered to believe”) until he finished himself off by declaring that there were no gas chambers in the Third Reich. Only in Poland, he later relativised. Sadly for him, Auschwitz-Birkenau lay inside Germany at the time (like he cared). Helene Partik-Pable distinguished herself by explaining to parliament that babies instinctively flinch from a black silhouette (well, they do from any large silhouette overhead, including – say – Helene’s lily white hand). Peter Westenthaler (who changed his name from the Carinthian-Slovene Hojac for career reasons) accused the Green MP Peter Pilz of being a “terrorist”. Pilz replied that “all that’s missing is ‘Sieg heil!’” and Westenthaler accused him of neo-Nazism.

Ewald Stadler, appointed by the far Right as one of three People’s Attorneys (Volksanwälte), advised Austrians to “practice a new treatment of contemporary history, as Horst Mahler has done”. Horst Mahler is better known as a convicted Baader-Meinhof terrorist who swung over in jail from the far Left to the far Right, where he now runs a weird entity called the Deutschen Kolleg, “the thinktank of the Germanic empire” according to its website. Mahler’s strangeness is that unlike the various pseudo-left or pseudo-postmodern routes to the Right, he has gone from being a nouveau-marxist to being a pre-Nazi, blood and soil fascist (he refers to Austrians as “mountain-Germans”). Claus Nordbruch, an ex-Foreign Legionnaire (he says) who is banned from Germany and lives in South Africa (from where he spouts gun-crazed fantasies about shooting black people) was welcomed by far-right students in Vienna without fuss – except from me, in the demonstration outside.

Is there anywhere else in Europe where anything at all like this would be tolerated for ten minutes consecutively? Certainly, it meant that as a student there I could go on a demo every week and a good political row every night. But seriously. It’s a testament to the stability of the state that all this absurd and occasionally vicious stuff can have gone on without achieving anything substantial, although one may reasonably wonder whether there was a connection between it and the amount of 1970s and 80s terrorist activity against Jewish targets in Vienna. You can see why, firstly, Irving was in Austria despite being persona non grata, and secondly why the Viennese court wanted to send him down.

But what is it with Austria?

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