Tag Archives: British comedy

A bailout of Italy was avoidable. Once.

9 Nov

So. Farewell then, Mr Berlusconi. You were once the joke of the eurozone. You provided much hilarity on BBC One sketch shows (see above) and panel shows (see here and here after 1:10). You survived allegations of bribery, fraud, mafia collusion and under-age sex. But even you could not survive the markets. Ciao.

Now we move from farce to tragedy. A bailout of Italy looks all but inevitable. This is worrying for two reasons: first, there is not enough cash for a bailout. Italy is the 4th largest economy in Europe; it is the 8th largest in the world. The total needed could be more than €0.6 trillion, terrifying when the current EFSF lending capacity is €0.44 trillion. Second, there is a good risk of sovereign default. It is unknown whether this will cause financial meltdown, but it could do.

It is curious, because Italian finances are not the worst in the world. Italy runs a low budget deficit; in fact, it is currently running a primary budget surplus (ie before interest payments).

What then has caused such recent terror? One answer: borrowing costs. Italian borrowing costs have reached 7.5% at the time of writing. Paying off Italian debt under such rates is unsustainable. What caused them to hit such highs? Panic. Self-perpetuating panic, I would argue. Once investors become convinced that default is likely, they demand higher and higher repayment rates. Seeing rates ever rising, seeing Italy splashed all over the front pages: this only increases the panic. So rates rise even further.

News reporters have not helped over the past week. 7%, they have said over and over again, is the rate at which Portugal, Ireland and Greece were bailed out. This is true. But is it worth repeating? Is it worth reporting, 6% is very near the figure when Greece was bailed out? Is it worth saying, at 5%, investors fear rates could rise into Greek-style territories? If we keep repeating this figure – 7%, 7%, 7% – I wonder whether or not we imbue it with some talismanic quality. For Italy is not Greece. It has different levels of debt, different inflation rates, growth levels, deficit levels; so the figure-of-no-return could well differ from 7%. Yet by convincing ourselves that it is 7%, we also convince the markets – the strange world where thinking it makes it so.

I suppose media panic is inevitable. Market panic is not. In fact, market panic could have been stopped long ago: by boldness. The European Central Bank (ECB) could have stepped forward and guaranteed to buy limitless Italian bonds. Buying bonds would act to reduce interest rates. Italian borrowing costs would fall. It would also have the side-effect of convincing markets default is unlikely. Investors would demand lower rates of return. This option looked possible in August, when the ECB vowed to “actively” buy Italian and Spanish debt. On Thursday, however, the new ECB head Mario Draghi called bond purchase plans “temporary” and “limited”.

Why the timidity? First, the ECB is not legally mandated to directly support governments. Second, dissenting voices – particularly German-sounding ones – would grow louder. These opponents fear a looser monetary policy would tempt Mediterranean governments not to sort out their budgets. There is also a deep-seated German fear of inflation, after the hyperinflation of the 1920s.

These concerns aren’t reasonable . There would still be pressure on Southern euro-zone members to sort out public finances. Legal mandates should be tossed into the wind at a time of near-financial collapse. When the prize is to lower Italian borrowing costs, so that Italy can pay back its debts and avoid a bailout, fears even of 5% “hyperinflation” are unfounded. A looser monetary policy would make exchange rates of struggling Europe more competitive. Even if printing money led to inflation, it would be welcome: inflation erodes away debt.

The reason for the inaction of the central bank can be spelled out in one word: Germany. Germany has all the power in Europe and it hates the idea of a looser monetary policy. Germany is an large exporting market bewitched by budgetary discipline. Printing money would make its exports less competitive, reward countries for profligacy and cause run-away inflation: everything Germany hates. Yet this could be the only way to avoid an Italian bailout.

I leave the last word to heroic Tory grandee, Sir Peter Tapsell:

Chancellor Merkel knows very well that it was not inflation but high unemployment which, in my lifetime, brought down the Weimar republic, and [it] will do the same for the European Union.



Memo to Yanks: China could make you the #6 top nation. Here are 4 good reasons to celebrate!

1 Nov

This is supposed to be the Asian century. Just as the 20th century saw the rise of American power, just as the 19th century saw the British Empire paint the world red, so this century will see Asian countries grow in global stature. As the wealth of the East rises, so will its might – in international, military, perhaps even cultural terms. Just as the British taught the world footie, rugger and cricket, Dickens, Wilde and Shakespeare, just as the USA spread its love of fast food, films and blue jeans, so may we soon feel the influence of Oriental culture.

Niall Ferguson is the most prominent figure to proclaim the Decline of the West. It is a sinking feeling which has gripped much of the commentariat. When I recently discussed the matter with a friend, I found – to my amazement – that she was thinking of moving to China. She had visited on a cultural exchange, and she loved the bright lights, the language, the mise-en-scène. After further questioning, she said that the West was going down the swanee anyway: the EU and US are doomed to either financial collapse or inevitable decline; British prospects aren’t too sunny either. China, she thought, was the future.

Not so very long ago, young people across the globe would dream of starting a new life in America. It is damning that some are starting to think the other way.

I could say that the Chinese future is far from certain: that there is an instability which lies in the union of despotic state and bulky populace; once growth dips, living standards drop or recession bites, there will be a large unhappy population, minds a-buzz with the thoughts of that Arab Spring. I will not go down that route. I write this post not to do down Eastern prospects, but to raise Western spirits. It’s not all that bleak. As they say in Latin, Niall Desperandum! Niall should not despair!

This is a memo to America. We Brits have been number one before, so trust us: being number six isn’t that bad. Here are four good reasons why Americans shouldn’t worry:

1.) Relative GDP isn’t everything.  China may be getting richer relative to the US, but this doesn’t mean that the USA won’t get any richer. The British experience is a good example. Our GDP rankings may have fallen in the past century, but the average Brit is substantially wealthier. Many of us possess our own homes, cars, TVs; we go on more holidays, live longer and aren’t consigned to the same degree of poverty. American dominance has made us no worse off. In fact, due to the brilliance of American innovation, it has probably made us better off.

2.) Your politicians might actually fix stuff at home.  The British Empire acted as a silken red blindfold. Victorian politicians talked grandly of how they could civilise every corner of the globe. What they failed to see was the barbarity at home. As that great Liberal Winston Churchill put it, “For my own part, I see little glory in an Empire which can rule the waves and is unable to flush its sewers.” After the Second World War, the war that crippled Britannia financially, politicians cast India aside and made a concerted effort to better a Brit’s lot. A fight against ignorance, destitution, idleness, squalor and sickness began. The fight hasn’t stopped since. Perhaps when America is forced to turn inwards, similar miracles will happen.

3.) You get a better sense of humour.  At the height of the British Empire, George Orwell said, “Every white man’s life in the East was one long struggle not to be laughed at.” At the dawn of modern Britain, every man’s life became one long struggle not to laugh. Humour boomed, with the rise of satire, sketch shows and sitcoms. Comedy has never been so ubiquitous. This may be down to the new technologies of radio, TV and YouTube. But humour has also taken a different tone: sardonic, dark, self-deprecating. Every sitcom hero – from Hancock to Blackadder, from Rigsby to Partridge, from Basil Fawlty to Victor Meldrew – is a half-despairing man who is in some way fundamentally trapped. They still follow this pattern: think of the heroes of Peep Show, The Inbetweeners, The Thick of It, The Office. Sod the chirpy tits off Friends and beckon in the far richer comedy of human misery! Perhaps America is already there. Curb Your Enthusiasm and The Daily Show could be the first tottering steps into a world of post-imperial gloom…

4.) Everyone will no longer hate you.  This is phrased unfairly, but the sentiment is true. The world hates a bully who wages ceaseless war to prove its might. The hubris of Britannia caused a lot of resentment (and still does, as recent wars show). When one’s national stereotype changes to bumbling twit, one becomes a lot harder to hate.

In all, we have less power and more glory. Modern Britain is a sort of King Lear. We have been cast off our throne, forced to wander in the bleak wilderness of impotence, with no-one to accompany us but a Fool. We have lost everything, but at least we can laugh about it.