Cameron's almighty gamble

After the party comes the hangover. Only it’s not been a party. More to the point, it was a car crash with the fatality of Britain’s role in Europe and the post mortem is in full swing in the British press. Of course, I am talking about David Cameron’s decision to veto the Merkel-Sarkozy plan for fiscal union, something that would have led to a new European Treaty. 

There has been plenty of navel gazing in the media, mainly about whether or not Cameron’s move will damage Britain. What received less attention is the question why on earth he did it in the first place. Yet the question about his motifs is an important one. Cameron himself points out that he had to protect the City of London and its financial services from a financial tax that would have come with the treaty. Louise Cooper agrees with Cameron in the Guardian today (you can read her piece HERE). 

Yet two questions remain. First, does Cameron’s veto mean that the city is now safer than it would have been with a new treaty? And, second, was this the only reason Cameron reached for the nuclear button? 

The first claim is questionable. The rest of Europe will now come together to design new rules and regulations for financial transactions which will affect London one way or another. Remember that any future rules will apply to all banks that are based in one of the treaty member states, hence to all but Britain. Politically, protecting British banks from sensible regulations which are being applied across Europe sounds tricky to me, to say the least. Is Cameron really going to block a financial transaction tax repeatedly over the next years that has broad popular support in Britain? This does not sound like a plausible strategy for which the voters will richly reward him in 2015. 

The second question however goes to the heart of the relationship between domestic and foreign policy for Cameron’s government. If his veto will not safeguard the City from future regulations, the question arises why he used it in the first place? Critics may point to a previous decision on European affairs that was less than surefooted: his withdrawal from the Conservative party bloc in the European parliament. Some may say Cameron simply does not care much about Europe. A more likely explanation however may be that his policy is mainly determined by preventing Europe to tear his party apart. 

After all, his veto stopped a new treaty for which he would have needed to campaign in a referendum; the new treaty ‘referendum lock’ would have been triggered by any new treaty. Seen from this perspective, Cameron’s veto looks more like a desperate attempt to prevent a referendum on Europe which may have jeopardised the unity of his party. By exercising his veto he may have saved Britain an early exit from the EU, at the cost of marginalising it. 

Time will tell if this almighty gamble will come off. Some of his Eurosceptic backbenchers are already calling for re-negotiating Britain’s relationship with Europe. Some political scientists call it the law of unintended consequences in politics: you aim to do one thing yet get another. Cameron may find it just as difficult to extricate himself from this iron law in politics as any of his predecessors in Number 10. 

If a victory, then only a pyrrhic one

So David Cameron got his victory and so did the Eurosceptics in his party. While they are undoubtedly busy celebrating, Labour only managed some pipsqueaks from the sidelines. And the Liberal Democrats are practicing public loyalty to their coalition partner by exercising a stony silence on Europe. 

But this is a serious issue and we should not leave it to the Eurosceptics. If you believe the UK papers, the Euro is bagged and tagged. Yet, they are wrong. The Euro will survive because the political spirit that sustains it, European solidarity, cannot and will not go away. 

As the Eurozone countries are struggling to find the right mechanism to address the economic imbalances between them, the spectre of a Euro breakup was raising its ugly head, but it was never a plausible scenario for anyone who knows what Europe feels like on the continent. That is something many Brits forget. Europe is a feeling as much as it is a political project. And there is no politician in the Eurozone who can ultimately wrest herself free from the main thrust of the European spirit: mutual solidarity and closer integration. 

To maintain that the Euro would survive was a questionable account as long as the economic crisis made it difficult for Merkel and others to dish out enormous sums to countries like Greece, Italy, Ireland and Spain. But pay they will. And that is why the gradual but steady distancing of Britain from the European integration project amounts to nothing less than the biggest foreign policy mistake of the last decades. As Europe finds a solution to the Eurocrisis and embarks on closer integration, it will strive to reform and strengthen substantially the European institutions that can deliver fiscal oversight, the European Commission and the European Parliament. 

The result will be that Britain will fail to have a seat at the table to influence the direction of future European integration. Thatcher’s legacy, to nail the Tory colours to the mast of a trading and tariff zone, will come to haunt Cameron. Europe will go the other way, towards fuller integration and Cameron will be hostage to the veto he so courageously wielded yesterday. The uncertainty of Britain’s position in the emerging Europe of the future will mean that business and the people of Britain will suffer in the long run. Cameron may celebrate today, but his victory will turn out to be a pyrrhic one. 

Why Nadine Dorries worries me

I am worried. And I am worried about something that I never thought I would be in my lifetime. I worry that the life I have built up here in the UK rests on precarious foundations. Let me explain. I am German. I have moved to the UK in 1996 and, by all accounts, settled here successfully. I work at a university, joined a political party and will stand for council elections in May next year. That's not a bad achievement in terms of integration I think. 

However, listening to Nadine Dorries on Newsnight yesterday (you can watch her exchanges with Sir Malcolm Rifkin HERE 9:30mins into the programme) I am not so sure anymore that I made the right choice. Her comments made me feel very insecure indeed. And I never thought I would ask myself the question: do I, as a German, have a future in the UK? 

All of this of course is a result of the Eurozone crisis and the moves by France and Germany to forge a closer union. I always believed (Euro or no Euro) that closer co-operation would happen. Europe was designed to contain some parliamentary and legal components which meant that nation states gave up some of their sovereignty. Don't get me wrong: I always recognised that there are huge problems with this transfer of powers to the European Union in some areas, not least the fact that there is still no elected government of Europe but only a motley crew of bureaucrats and clapped-out national politicians who decide what we eat, consume, trade and produce. 

Yet, I was never in doubt that the way to address these problems was to engage with others in the European Union and find a way forward. Yet, if it was up to Nadine Dorries, all bets are off. As the countries in the Eurozone will grow closer together, Britain may move away from European institutions. Yet it was these institutions that, by and large, have protected my legal status in the UK. It is because of Europe that I am being treated exactly the same as any British citizen when I apply for a mortgage or a job in this country. 

I could become a civil servant in Leeds, draw a local government pension and, incidentally, if I decided to move to Germany again at the end of my working life, I could transfer my pension pot to Germany without any hitch. It is this ease with which we are moving around in Europe that is remarkable, though often unnoticed. This wouldn't be the case anymore if Britain takes a step away from Europe, adopting a position more akin to, say, Switzerland. Arranging health care, pension arrangement and applying for work visa can be a nightmare for anybody from Switzerland or any other non-EU country living in the UK. 

In a way what I am saying I think is that I never really felt like a foreigner here. Living as a German in Cardiff or Leeds felt more like being in a different part of your home country where people somehow happen to speak a language different to your own. If Nadine Dorries and the Eurosceptic wing of the Conservatives have her way, this feeling may not last. Moving away from Europe and its institutions will create uncertainty in the minds of people like me. My position, and incidentally the position of tens of thousands of expatriates living in Spain, Portugal or Italy, will become precarious. That is why I am worried.  

Why the Eurozone crisis may bring about a more democratic Europe

While everyone talks about the Eurocrisis and the economic woes of some countries in the Eurozone, the need to forge a closer fiscal union between Eurocountries may in fact bring about some much desired movement in another area as well: Europe's democratic deficit. 

Over the last decades, the democratic deficit has mainly been a topic for academics and disgruntled Eurosceptics. Yet the problem is real and has always had the potential to undermine the entire European project. As Europe grew closer together and transferred some powers to Brussels, it was never quite clear how to ensure that Brussels' bureaucrats were held to account for what they did. A result of this has been that auditors have refused to sign off the books of the European Commission for the last 13 years. This may sound like an obscure argument but it goes to the heart of budgetary responsibility and democracy. 

In effect, the European Commission has been spending taxpayers money (contributions from European nation-states) without having to say HOW it spent it. Since the European parliament is at best a 'quasselbude' (a place to chatter), the European Commission has also not been held accountable by the elected politicians we sent to Brussels. 

The overall effect is complete impunity for budgetary decisions by the European Commission and Brussels' bureaucrats. This is no small feat in the history of democracy. The European Commission must be the first quango in history that can spend taxpayers money without ever being held to account. 

This may all change now. Why? Pretty much everyone is agreed that the Eurocrisis needs closer fiscal co-operation. Part of that co-operation is supervision of fiscal rectitude in countries that run a deficit and require a bailout such as Greece, Italy, Ireland, Spain and Portugal. 

The obvious choice would be to select those to monitor budgetary responsibility of bailed out countries who pay the bill: the Germans or the IMF. Yet, this is politically impossible. No Italian or Irish government would permit German civil servants to scrutinise the national budget. It would also raise some serious questions about the accountability of those governments to their own electorate. 

The proposal that is emerging instead is that the European Commission or a newly created body in Brussels will take up this task. This brings us back to the democratic deficit. Any monitoring of national budgets in Brussels will require robust democratic legitimacy. So as European leaders muddle through the economic crisis and try to devise a reliable mechanism for budgetary discipline and independent supervision, we may just see some significant progress on creating more democratic European institutions as well. Let's keep fingers crossed, for our sake and for the sake of Europe. 

Why Michael Howard is wrong about Germany

Last night, I had the privilege to attend an event of the Welsh Conservative Party which invited the former leader of the party Michael Howard to Cardiff. Howard gave a brief but thoughtful speech in which he outlined the bleak economic future for Britain. The comments that made me listen up especially however were those when he implored the German government to take responsibility for the Euro. Paraphrasing slightly, he said Germany had benefitted enormously from the Eurozone but now it was time for the Germans to step up to the plate. 

I am always a bit puzzled by these sort of remarks that imply that German leaders have been acting irresponsibly so far. It strikes me as an odd claim to make, not least because the German government is actually a coalition government between the Christian Democrats (Conservatives) and the Free Liberals (Free market liberal party), and just approved an austerity budget which has already shown some good results. Public debt is down and with a bit of luck (the German government found another 55 billion pounds stashed away in the vaults of one of the banks it nationalised in 2008), public finances are very sound indeed. 

But what really puzzles me is when people say that Germans now need to underwrite the debt of the other Eurozone countries. Why should they? Is that something we in the UK would volunteer to do? Let's take this step by step. First, Germany has benefitted from exporting into other Eurozone countries not because of the Euro per se, but because it reformed its employment regulations under Gerhard Schroeder's government, and has introduced the necessary changes to its pension system and public services during the boom times. 

Another factor which contributes to the current competitiveness of German products is wage constraint that has been negotiated between companies and unions in 2008 at the height of the financial crisis. It is  because all Germans agreed to contribute to bearing the burden of the economic crisis together that is now paying off in increased competitiveness. These decisions were not easy and they often incurred high political costs from all political parties and sacrifices from ordinary people. Therefore, to lambast Germans for being irresponsible is a bit rich, to say the least. 

But criticising German leaders for irresponsibility is also a peculiar strategy for British politicians given that, I am convinced, no British leader would countenance the transfer of billions of pounds from the British taxpayer to the the Italian, Greek or Spanish coffers. Think about it for a moment. All you have to do is to put yourself into the shoes of Germans being asked to provide hard earned taxpayers money to prop up profligate governments which have been on a spending spree for the last decade and refused to implement the changes to their public services that are required to remain competitive in the Eurozone. 

Why should somebody working 40 hours at an Aldi till in Berlin or Hamburg pay for a Greek pensioner who retired at 50 and takes home a monthly pension she could only dream of? 

I am absolutely convinced that there will be a solution to the crisis of the Eurozone (which in fact is a debt crisis, not a currency crisis). As part of this solution, Germany will do what it takes to, which may include to approve of the ECB to buy up Italian, French or Spanish bonds. And I am also certain that, at least in part, Germans will pay for the mistakes of other countries. Their notion of European solidarity will move them eventually to bail out much of the Eurozone. But I think it is only fair to insist on some solid guarantees before you part with your hard earned cash. Michael Howard should know that. He would expect nothing less from a British government if things were the other way round. 

The only way is up?

There has been plenty of debate in the media about the economic woes of the country. Commentators warn us that living standards will continue to fall for the foreseeable future and that families struggle to make ends meet. Wages have already come down, and, more significantly, the British economy has actually shrunk since 2008 and, by 2015, is likely to be smaller than in the year 2007 by 14%. This is indeed unprecedented and means that the long upward move of Western economies has finally come to an end. 

I have described the challenges for the British economy and society as a perfect storm in a previous posting and said that what makes the present situation so explosive is that several factors are coming together: a mis-adjusted educational system that is poorly linked with training and workplace skill development; the shift of the manufacturing sector to China and other developing countries with low wages; the slow but steady rise in production costs in China for those goods that we imported since the late 1990s and that had previously ensured low prices for us, fomenting a consumer boom financed by personal and national debt that is now coming to an end. 

An interesting aspect of our recent travails however would be what historians make of it. There is little as yet in terms of a unifying narrative emerging from historical studies, but I did come across something truly amazing recently. Listen to this: 

‘The institutions [of the West] were designed and modified to meet the needs of a booming society. If this [is] true, then the whole modern age would appear to be an abnormal one. By its very nature a boom is a temporal thing, something out of the ordinary run of life, an abnormal state of affairs which is destined to end when the forces that caused it cease to operate. Though this truth is obvious, people do not bear it in mind, even in the briefest periods of unusual prosperity. They act as if the ‘good times’ are permanent, as if the abnormal activity is the normal thing. It seems that their whole psychology is quickly affected, leading them to extravagances they would not ordinarily think of indulging. In short, ideas and institutions begin to form themselves around the boom conditions; the boom itself begins to make history, institutions, ideas, to form a culture complex.’ 

This was written by Walter Prescott Webb in 1951 in his seminal study: The Great Frontier. His argument was that the West (loosely defined as West European and North American societies) had enjoyed a four hundred years boom because of the unprecedented injection of resources through the opening up landmass in America (North and South) and its subsequent colonisation. 

I do not know whether or not he is right. What I do know however is that his words are eerily resonant of the conditions we are experiencing at the moment. Perhaps we are standing at a similar junction in history when we in the UK have to learn to live with less while the people in other countries and continents are catching up. As Webb reminds us: we should never assume that the only way is up. 

Not fit for the future

In 2008, Mervyn King, the governor of the Bank of England, warned that the UK is about to enter a ‘time of decreasing living standards’. The last figures from the Office for Budget Responsibility seem to reveal the staggering extent of the disaster that is unfolding in front of our eyes: stagnating wages, missed inflation targets and high youth unemployment. Given that there are few signals in the UK and Eurozone economies indicating imminent growth, this is as close to a perfect storm as it can get. 

There are however economies in Europe that still enjoy healthy growth rates. The German economy is one of them. Having reformed the employment regulations under the Social Democrat Gerhard Schroeder, and retaining a functioning apprenticeship system which brings companies and educational institutions together, Germany has been well placed to weather the storm. In fact, it did even better than that. It enjoyed unprecedented growth rates and its unemployment figures are down again this month. So what’s wrong with the UK? 

The public debate focusses much on pay differentials between CEOs and employees in the FTSE 500 companies, a dysfunctional banking sector failing to lend to businesses and whether or not the deficit should be reduced in four or eight years. These may all be important topics for politicians slugging it out in the ring of public opinion. However, the underlying factors for growth in the long term may be found elsewhere. The deficit will come down sooner or later, regardless of whether Labour or the Conservatives’s plan will prevail. 

What is less clear is whether Britain will be ready for business once growth returns. To be ready it must tackle the deep inefficiencies that obstruct this economy from being competitive. What are those inefficiencies? There have been two large trends in the last two decades which allowed Britain to enjoy boom years but may now come haunt her. First, manufacturing has relocated to China and other developing countries ensuring that British people could consume goods at record low prices. 

This came at a price for domestic manufacturing though and it will be difficult to reverse the trend. Looking at China and labour wages there, things are moving fast: Chinese labour is becoming more expensive yet this may not mean that British labour is becoming more competitive. British wages are still much higher than Chinese wages. So, in the long run, what would get Britain back into the picture is not cheap labour but skilled labour. This leads to the second large trend in modern economies, the disappearance of low skilled jobs.

On the face of it, German manufacturing cannot compete with Chinese production facilities either. Yet, they have managed to retain their manufacturing capacity by fostering highly skilled labour forces through workplace apprenticeships paid for by companies and colleges. German educators call it the dual system of education: two weeks in a company, two weeks in college. At the end of the training, most apprentices are integrated into the workplace and familiar with work routines in a given company, a critical advantage for gaining a job. 

In Britain nothing of this sort has happened. The Blair government pushed hard to increase university attendance to 50%. Although it failed to achieve this number, the consequence was a highly educated student body with low levels of practical skills. Thanks to the expansion of university education under Blair, colleges and university put on thousands of nonsense degrees which failed to provide practical training, and led nowhere near a job. British students, with the exception of some professions, are overeducated if judged by their degrees, but have little work experience or employable skills. 

Britain may enter very choppy waters over the next years, but if it wants to re-emerge as a competitive manufacturing centre at the other end, it needs to radically reform its educational sector and the way in which companies train young people. The chasm between the educational system and companies must be bridged. Otherwise the government’s aspirations to be open for business will not ring true for thousands of young people for decades to come. 

Polly Toynbee in overdrive

Polly Toynbee is back! Presumably she just couldn't bear the bad news arriving at her posh Italian villa from the shores of these green islands and so she had to cut her holiday short to write a piece that is riddled with class war terminology.

(You can read it HERE: http://www.guardian.co.uk/commentisfree/2011/nov/29/osborne-class-war-autumn-statement)

While she clearly pleased many of her supporters on the Guardian website with her comments, the Labour Party will lose in the long term if it thinks this immoderate language serves it well. The reason why Labour should tread carefully is simple. Osborne's autumn statement set out a series of factors that makes it impossible to eliminate the budget deficit by the next election. Toynbee is furious that this means more pain for everyone. Yet, what she fails to mention is that the government's plans to balance the books are now almost identical to the one by Labour. In fact, borrowing will be even higher now than under the Darling Plan, given the difficult economic circumstances for the next couple of years.

In essence, Toynbee therefore already got what she wanted: higher borrowing which will be spent on infrastructure projects up and down the country. So, why does she think this is class warfare when it is exactly what she called for only weeks ago?

The conclusion can only be that as Labour's plans to revive the economy and the government's budget are getting more similar, Labour is running out of the ability to portray itself as radically different from the coalition. Hence the shrill sounds from Ed Balls and Toynbee. Toynbee thinks there is only one way to go now: further to the left. For the moment, Darling's plan is still Labour policy. We will see over the next couple of weeks if the Ed Miliband and his shadow chancellor stay in the middle of the road.

Individual versus collective responsibilities in health

The British Medical Association has recently proposed to ban smoking in cars. The reasoning behind this proposal is that toxic fumes reach a higher concentration in cars than anywhere else because of the confined space. This may harm children who might travel in the same car.

There has been plenty of debate on this subject since and I will add another sound of outrage or anger. Instead I would like to mention a curious anomaly that often seems to be overlooked in public health debates.

Our health system is tax funded and it is often argued that this injects an element of mutual solidarity or social responsibility into society. In effect, we fund the outcomes of other people's actions that may lead to situations where they either harm themselves or others. Still, there is widespread consensus that this is part of a minimal reciprocal commitment to strangers with whom we live together in this country.

What is interesting to note however is that the main thrust of harm prevention programmes targets activities that are rooted not in social responsibility, but individual responsibility. Public health prevention aims to reduce risky behaviour of individuals, not of societies as a whole. In other words, the impetus of prevention is rooted in an acknowledgement that conduct emerges from individual decisions, which in turn may only be curbed through individual behavioural change.

Where does this lead the reciprocal commitment that is manifested in the foundations of our health system? Does this mean there is a clash of moral principles that animate preventive programmes and those that lie at the heart of our health care system?