From A Greek Debt Crisis To A Eurozone Structural One?

When we look back five years from now, will we see this week as marking a turning point in the short, but far from uneventful, ten year history of Europe’s common currency? Certainly recent comments by the deputy governor of the People’s Bank of China have made evident what was already implicit: the dependence of EU sovereign debt on sentiment in global markets, especially in Asia and the Americas. Simon Derrick, chief currency strategist at Bank of New York Mellon even went so far as to say the trauma of recent days might well signal the point that we stop talking about a “Greek debt crisis” and start talking about a “Eurozone structural crisis” . And while Herman Van Rompuy, president of the European Council, was telling us on the one hand that the eurozone will never let Greece fail, Jane Foley, research director at busied herself explaining, on the other, that any involvement of the International Monetary Fund in helping Greece to stabilise its fiscal position only heightens the risk that the country might one day end up leaving the eurozone. So just where are we at this point? Continue reading

Why Not Unravel The IMF Too While We’re At It?

If you’re really good at making a pigs ear of things, why not join the EU? Of course, this is not meant as a piece of solid advice, rather it is a cry of frustration at being impotently forced to watch so many things done so badly, each in turn, and one after the other. Southern Europe’s problem is essentially a competitiveness problem, and not a fiscal one, and if many states have been having growing difficulty with their negative fiscal balances, this is a symptom of the problem, and not its cause. Even in the worst of cases – countries like Greece and Portugal – the rising recourse to fiscal outlays has been a response to lack of “healthy” growth, and the root cause of this continuing difficulty in generating real growth has been the underlying lack of competitiveness, and the inability to export your way out of trouble once the burden of debt starts to rise, so simply pruning the fiscal side isn’t going to cure the problem, and by now that simple point should be obvious, I would have thought. Continue reading

Sunday SDR, Chapter 6 – Key Strategic Questions

And we’re there! Chapter 6 – Key Questions for the future SDR – attempts to sum up the Green Paper and set some deliverable goals for the full SDR process.

There are six key questions, which also get their own comments threads here; again, one of the salient features is how little there is about the relationship with the US and also that none of the comments seem to find this at all surprising. Not so long ago, suggesting any cooperation with Europe except for the strictest possible interpretation of NATO would reliably get you an avalanche of Tories accusing you of undermining the special relationship. Now, not so much.

It is likely that the American commitment to the NATO Alliance will wane in the next 10 – 20 years…The prospect here, indeed possibly the only prospect, is of closer ties with our European partners through development of the Common Security and Defence Policy….It is obvious that the continual paring down of national capability will end in a Euroforce. Whether this is perchance or by design is a moot point. I think the time has come to stop resisting this and start positively embracing it

The six strategic questions are as follows:

* Given that domestic security cannot be separated from international security, where should we set the balance between focusing on our territory and region and engaging threats at a distance?
* What approach should we take if we employ the Armed Forces to address threats at distance?
* What contribution should the Armed Forces make in ensuring security and contributing to resilience within the UK?
* How could we more effectively employ the Armed Forces in support of wider efforts to prevent conflict and strengthen international stability?
* Do our current international defence and security relationships require rebalancing in the longer term?
* Should we further integrate our forces with those of key allies and partners?

There’s also this one:

* To what extent and in what areas should we continue to refocus our current efforts on Afghanistan?

The rest is basically a summary, but it’s interesting that a couple of specific policies make it through to the final cut:

Options for enhancing our cyber capabilities and structures to ensure we can defend, and take steps, against adversaries when necessary; and where we might increase our contribution to allied space capabilities or invest in our own national capabilities.

More for reference than anything else, here are the official military planning assumptions, and a list of operations since the 1998 SDR.

Sunday SDR, Chapter 5: People, Equipment, and Structures

So we’ve had the grand tour d’horizon; we’ve had the self criticism; we’ve had the very rapid skip over the nuclear issue; we’ve had a careful balance of general-purpose capability and counterinsurgent language. Now for some hardcore bureaucracy. It’s Chapter 5 of the SDR Green Paper – People, Equipment, and Structures.

This kicks off with the MOD’s personnel problems. As in essentially any organisation of the last 15 years or so, there’s an invocation of having to learn new skills many times in your career, etc, etc. There’s going to be a “whole force concept” review of how the MOD manages its people. There are warm words about looking after our veterans being a moral value. And then there’s this:

The provision of accommodation, for example, is a potential disincentive to home ownership and may not represent the best investment we can make in helping families and personnel deal with the demands of Service life.

I would have thought the disincentive to home ownership would be the wages, and the, well, demands of Service life. (How many mortgage lenders are cool with the idea that the signatory may get shot at any moment?) Seriously. What the fuck? Apparently they’re looking at “alternative models for accommodation”, which might be good if it involved killing off the Annington Homes money pit, but it doesn’t sound like it.

On equipment, the general theme of a renewed interest in industrial policy is there, although the section is very general indeed, in fact vague. Tellingly, the issue of operational sovereignty – which has flared up all over again with regard to the F-35 – is raised:

We will have to revalidate our overall approach to:
* Operational Sovereignty. Our Armed Forces rely on assured overseas sources for some important equipment and support but there are cases where specific industrial capability must be located in the UK for operational reasons

There’s also a nod to arms exporters, presumably to pass the document through the bits of the MOD involved with DESO and friends.

On organisational issues, the chapter contains a bit more meat; it appears a major re-apprisal of the MOD’s structure and business processes is coming, although the drafters warn that the costs of constant reorganisation have been a very serious problem.

Change must be considered carefully in the light of the risks associated with reorganisation highlighted in the Haddon- Cave Report. The future Review will offer an opportunity to re-examine the model and to determine whether and how we might be able to improve on it.

Haddon-Cave is the report on the Nimrod XV230 crash in 2006, which demonstrated that the Nimrod fleet was essentially unairworthy in its entirety and that the engineering and management systems intended to guarantee the safety and effectiveness of the MOD’s aircraft. A major issue it identified was the impact of constant organisational change – something of a theme throughout the public sector in the Blair era.

The chapter finishes with a ritual call for greater efficiency. There’s also this worrying statement, in the light of the bizarre property-booster bit:

the scope for further rationalisation of the defence estate;

Not again…

In short, if Chapter 3 was impressive, Chapter 5 is poor – with the exception of the reference to Haddon-Cave, it’s mostly either made up of truisms or else simply too vague to mean anything at all. And what on earth is this stuff about property? Notably, the comments home in on it at once; it’s also noticeable that by Chapter 5, the trolls have landed.

Sunday SDR, Chapter 4: Partnership

Next slide, please. At last, we’re there – Chapter 4 of the SDR Green Paper tackles the classic question of alignment with the EU, NATO, and the special relationships. And it’s a highly post-American document.

Our current relationships are mutually reinforcing. NATO remains the cornerstone of our security. However, as Europeans, we must take greater responsibility for our security together. Stronger European defence co-operation offers many opportunities, not least in the wider role defence should play in resolving conflict and building peace. The UK will greatly improve its influence if we and our European partners speak and act in concert. A robust EU role in crisis management will strengthen NATO. Playing a leading role at the heart of Europe will strengthen our relationship with the US.

This is the strongest pro-European official statement on defence for quite some time, I think. You’ll observe that any contradiction between the EU and the special relationship is denied, but it’s also true that there’s not very much about the US here at all. In that sense, this is a radical statement.

The Review will need to determine where there is scope to increase the effectiveness of those relationships in delivering our security or to rebalance our investments across the organisations. In particular:
* how we can strengthen European nations’ contribution to global security, including through more effectively aligning resources and priorities;
* how we can further improve cooperation between NATO and the EU;
* how we increase equitable burdensharing within NATO and the EU, particularly with respect to operational deployments;
* whether there is scope for increased role specialisation or capability-pooling within NATO and the EU in order to create a more coherent and capable output;

These are the cliché questions, of course – why won’t Germany let their helicopters fly at night, does Europe really need quite so many conscripts, does Austria having a dozen Eurofighter really contribute to anything much. There is truth to them, although perhaps less than there would be if the US Marines didn’t impose their own national caveats on the US Army. It’s in their nature that they will only be settled by long and imperfect negotiation, and if the UK wants them settled, it will probably have to signal that it’s serious about European cooperation.

* whether we should increase our investment in UN peacekeeping, and in particular our contribution of forces to UN operations;
* where we could offer further assistance in strengthening the strategy and planning functions for UN operations at headquarters level; how we continue to streamline and improve the cost-effectiveness of each organisation; and

This suggests a possible use for the exportable surplus of generals identified in comments here.

* how we most effectively generate influence within coalitions and with our key partners

I would argue that an ally whose support is not totally certain has far more influence than one that will go-along-to-get-along with anything…and I suspect that so would the SDR drafters.

Beyond Europe and North America, the Review should consider the merits of formalising our long-standing bilateral relationships and where new and expanded partnerships could bring mutual advantage and reinforce global and regional security. For example, regional security organisations such as the Association of Southeast Asian Nations and the African Union are already playing an important role in ensuring international stability and there is scope to further improve links between these organisations and the EU and NATO. In the recent economic crisis, the G20 emerged as critical to coordinating the response of the international community. Some argue that we must similarly expand the international security architecture to better include emerging powers.

I’m not sure if there’s much in this, but it’s encouraging that the drafting process isn’t focusing just on Europe and the Atlantic.

The “partnership” theme is also used to discuss working with civilian organisations, and the problems of building the reconstruction element of a counter-insurgency strategy. Although the word isn’t used, there’s quite a bit of the language – if Chapter 3 had a Gian Gentile-like concern for general-purpose capability and adaptability, Chapter 4 at least sounds more like Abu Muqawama.

We have made major strides forward with what is called the Comprehensive Approach – a unified approach to defence, diplomacy and development. There has been progressive improvement, driven particularly by our experiences in the Balkans, Iraq and Afghanistan. In Afghanistan, since early 2008 we have doubled the number of deployed civilian experts and we now have an integrated structure, headed jointly by a UK senior civilian representative and the UK Commander Task Force Helmand, and focused on the rapid delivery of stabilisation effect in an insecure environment, alongside military operations.

The Stabilisation Unit – jointly owned and staffed by DFID, FCO and MOD – has improved the UK’s ability to plan, deploy and direct activities in fragile and failing states, including countries emerging from conflict. In particular, it has established a new Civilian Stabilisation Group with over 800 deployable external experts and over 200 civil servants with the right skills and experience to help countries recover from conflict….

Only local people will determine whether, in the long-term, a country or region will establish self-sustaining stability. They have a right to be consulted on the path that they will take towards that stability. Ultimately, they will lead and own this path. Their knowledge and understanding will also enhance the prospects of our success.

Sunday SDR, Chapter 3: Adaptability and Influence

Well, it’s going to be more like “All SDR, All the Time”, as I’ve just noticed that MOD is planning to close the consultation in two weeks. Here goes.

Well, Chapter 3 is in my mind the most impressive bit of the SDR Green Paper so far. It basically sets out the notion that, although the military have as usual succeeded in adapting to the conditions in the field and generally cracking on, the broader defence establishment – the MOD policy-making process, the defence procurement system, the intelligence services, the defence industries – have not done anywhere near as well in coping with constantly changing priorities.

The point is made that although the MOD succeeded, eventually, in turning around a fearsome number of Urgent Operational Requirements very quickly to support the Army in Afghanistan, the very need to issue so many UORs demonstrates that the main equipment programme was dysfunctional. Further, the defence establishment is put on notice that it will have to save money in order to fix the core equipment programme.

As far as answers go, the chapter suggests that there is a need to institutionalise the practice of having regular defence reviews, rather than holding them as and when the Treasury insists, and that this should be set down in an Act of Parliament. Further, they want to alter the strategic planning process – after Iraq, who could possibly object? – in order to “increase the ability of Ministers to direct change”, but also to “increase the authority of the Chief of Joint Operations”.

There’s obviously some tension between these goals – one increases the power of ministers, one the power of the officer corps and specifically the operational command structure rather than the Defence Staff. There’s a fine political balance here; if the intention is to boost both Northwood and the ministers, the corollary is less power for the Defence Staff and the civil servants.

Of course, the key to the politics here is procurement, because that’s where the money is and because technology eventually becomes policy. Chapter 3 suggests the following changes:

* generating more adaptable forces. Many of our forces are already operating outside their primary roles. We need to strengthen this trend towards taking on multiple roles;
* prioritising our investment in capabilities with wide utility, which are likely to be effective in a range of scenarios and against a range of threats. These would include, for example, support helicopters;

To put it another way, especially if there’s not much money around, the MOD can’t afford to indulge in hyper-specialised gear. Instead, equipment has to be general-purpose, in order to fit in with a strategy of trying to stay agile in the environment “characterised by uncertainty” laid out in Chapter 1. The helicopter example is nicely uncontroversial, but it probably won’t have gone unnoticed that it also fits the carriers.

* creating greater flexibility between Regular and Reserve Forces to ensure access to a wider range of skills and a larger personnel pool;

The MOD has been trying to do this ever since the last SDR decided that the Territorial Army was too big and needed cutting; after Kosovo, when an unexpectedly large mobilisation was needed, they changed course, but despite using the reserves heavily in Iraq and Afghanistan, they continued cutting the headline numbers until very recently. The reserves were also given a homeland security/anti-terrorism role, being asked to provide a battalion-sized Civil Contingency Reaction Force for each regional brigade. Experience of actual civil contingencies, like the 2007 floods, led this to be abandoned as the civil authorities found they didn’t have any need for a CCRF but did badly need almost every other specialisation.

* developing a greater understanding of the appropriate balance between technological edge and larger numbers of platforms;

This was a Hoon-to-Reid era trope – although the services wouldn’t get as many (tanks/ships/aircraft/whatever), high technology would make up the difference and therefore the costs of Iraq could be absorbed.

* relying on being able to reconstitute military capabilities, to enable us to access a full range of balanced capabilities with appropriate warning time without having to maintain those capabilities at all times.

To put it another way, if it’s possible to re-create certain specialities quickly, we don’t need to have them permanently on hand. This requires a different view of the industrial base – does this suggest that we need to pay more attention to keeping the industries involved in the UK?

Further, the procurement system is asked to:

# increasing our use of mature technologies when setting requirements. This would reduce the risk that research and development could lead to delays and cost increases in the programme;

# increasing our use of spiral or modular development, in which we build a capability to meet our current requirements but with the capacity to upgrade that capability by adding functions or technologies as they become mature or new threats emerge.

The Adaptability section checks out by admitting that the MOD struggled to understand what was happening through the 2000s, that it lacked understanding of the countries it operated in, and that it failed to make use of expertise available in other government departments, in academia, and in other institutions. They propose more openness and suggest “empowering the Concepts and Doctrine Centre”, their in-house thinktank. Unfortunately, this lacks credibility – at the same time as this statement was issued, the MOD is in the process of shutting down its Research and Assessments Branch, whose job this is, as the MOD’s favourite blog points out.

As far as influence goes, the chapter suggests that the military should be doing more advising, defence diplomacy, and the like, and also tackles the nuclear question very briefly. Essentially, it simply says that we need to make decisions now about Trident so as not to commit to disarmament by accident – this is a far more controversial statement than the SDR makes it sound, and it gives the strong impression that simply nobody wants to discuss it. It’s a let-down at the end of what is otherwise a very sensible document.

Long before you even got close to those scary ratios

James Galbraith:

For ordinary people, public budget deficits, despite their bad reputation, are much better than private loans. Deficits put money in private pockets. Private households get more cash. They own that cash free and clear, and they can spend it as they like. If they wish, they can also convert it into interest-earning government bonds or they can repay their debts. This is called an increase in “net financial wealth.” Ordinary people benefit, but there is nothing in it for banks. And this, in the simplest terms, explains the deficit phobia of Wall Street, the corporate media and the right-wing economists. Bankers don’t like budget deficits because they compete with bank loans as a source of growth. … All of this should be painfully obvious, but it is deeply obscure. It is obscure because legions of Wall Streeters–led notably in our time by Peter Peterson and his front man, former comptroller general David Walker, and including the Robert Rubin wing of the Democratic Party and numerous “bipartisan” enterprises like the Concord Coalition and the Committee for a Responsible Federal Budget–have labored mightily to confuse the issues.

Money is not my thing. Is he right?

Why We Don’t Want To Have The “Instruments of Torture” Used in Spain

We may not want the instruments of torture, but if the Spanish government doesn’t do something to change course and restore growth to the economy, they will be applied. This post is just to draw the attention of anyone who might be interested to my new blog on the Spanish newspaper Expansión (in Spanish). The latest post is about why it would be better for Spain’s political parties to get together and take the decisions themselves, rather than wait for the European Monetary Fund to wheel out Herr Schäuble’s “Instruments of Torture”.

I also deal with the arguments the Spanish government presents about growth, and foreshadow today’s ruling by the EU Commission that the forecasts for 2011 and 2012 are way too optimistic.

According to the Commission, the Spanish government forecast that it will be able to slash its budget deficit to 3 per cent of GDP in 2013 from 11.4 per cent last year is based on excessively optimistic growth forecasts for growth of 1.8 per cent next year, 2.9 per cent in 2012 and 3.1 per cent in 2013.

The Commission also pointed to the slow pace of public sector bank restructuring in Spain. It said Spain should take action to improve the long-term sustainability of its public finances, notably by means of a pensions system reform (a point I have addressed separately in this post).

The Stability Programme update of Spain reflects that the current crisis is severely affecting its public finances, with an estimated deficit of 11.4% of GDP for 2009 and a rapidly-rising government debt ratio. The Spanish update aims at sizeable continued fiscal consolidation from 2010 on, with a view to gradually reducing the government deficit to 3% of GDP by 2013 in line with the Council recommendation of 2 December 2009. However, the favourable macroeconomic assumptions after 2010 may imply a lower contribution of economic growth to fiscal consolidation than envisaged and the adjustment path after 2010 would still need to be backed up with measures. Public debt, which stood at below 40% of GDP in 2008, is expected to grow to 55% of GDP in 2009 and swell further to 74% of GDP by 2013. Based on this assessment, the invitations to Spain refer to the specification of the budgetary strategy to correct the excessive deficit and reduce debt, improvements to long-term sustainability and the old-age pension scheme, the fiscal framework and the quality of public finances.

¿Pacto Nacional o herramientas de tortura?

Una de las cosas más curiosas que he observado últimamente mirando la televisión, es que mientras ha habido muchos comentarios relacionados a propósito de poner en marcha un Fondo Monetario Europeo, parece que nadie ha sentido la necesidad de explicar cuáles serán los primeros clientes de esta entidad, ni mucho menos se ha atrevido a nombrar el país que tiene muchos números de encabezar la lista de invitados a la fiesta: el Reino de España.

Semejante lapsos ya lo voy a corregir yo, en este espacio. Es evidente que el nombre de Grecia está en la mente de todos, pero el de España no queda demasiado atrás, ni tiene razones de sentir ningún tipo de envidia por el tratamiento especial que Grecia está recibiendo en estos momentos.
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Was there something you needed from me before ten?

The American NPR web site has a nice story about what happens when a company / organisation’s management stops caring about when employees come to work. And what happens is that employees not only get better lives, they up their output; at least, this seems to be the case for the organisation featured.

Coincidentally, the Guardian today carried piece about John Lewis; a large UK retail partnership. At John Lewis, as you’ll know, every employee gets a meaningful share of profit, and they do turn a profit. I remember similar pieces in the 90s about Cisco Systems, where lots of the staff (all?) have shares. Cisco are still doing pretty well, as far as I can see.

I’m going to go out on a (not very long) limb here, and say that if there’s a go-getting future in – ah – our future, it’s going to involve an increase in this sort of stuff. What it ain’t gonna be made of is this:

… challenges aren’t faced by Britain in isolation. Across the globe other nations are adapting to massive change. They are responding to the democratisation of knowledge through new technology, the increasing mobility of capital and labour, the entry of billions into the world economy, the liberating power of scientific breakthroughs, rapid improvements in education and the collapse of social rigidities which inhibited growth, opportunity and innovation.

Because that’s empty talk. If you’re going to say there’s change coming, you owe it to us to say what kind of change. From where to where is capital and labour going to move? Which social rigidities are going to collapse?

To help us fill in the blanks the way that we’re supposed to, Gove gives us, yet again, the theme of New Labour turning back into Old Labour; observe that they are “in bed” with the unions (again); there are strikes (again). Implicitly, various horrors will come to pass: perhaps you’ll miss your flight; perhaps there’ll be power cuts. And worse than that, owing to unionisation, British companies are going to fail. Relentless global competition (the white heat of it?) means only one thing: no jobs. And so on, with a scattering of “deep red”, “dinosaurs” and “class war”.

This is, um, a scratched record. Or a Stockhausen tape loop, perhaps.

Anyway, since we’ve been challenged to think of change and progress, may I just say that I don’t think it’ll work this time around. Frankly, the people who pick up faithfully on this message are getting on a bit.

Update: Justin notes (his reporting is a bit more accurate than mine) that what Gove thinks New Labour is “in bed” with is “the past”. They’ve been “recaptured” by “the spirit of Seventies socialist nostalgia”, apparently.