Issue 105:2017 05 18: Current Affairs – A Natural History (Neil Tidmarsh)

18 May 2017

Current Affairs – A Natural History

Politicians, policemen and other animals.

by Neil Tidmarsh

The world of politics and the world of nature don’t mix, by and large.  Human beings go about their business and animals go about theirs, normally quite separately.  There are exceptions, of course – there’s an obvious overlap where the ecology and the environment are concerned, and there’s always plenty of room for jokes about politicians and animals (that description of Dominique Strauss-Khan as a “rutting chimpanzee” cropped up again a few days ago in The Times); nevertheless, it was a surprise when rats, buffalo, wild boar and birds turned up in the newspapers this week with plenty to say about the way we humans treat each other.

First, the rats…

Last year, alcohol was banned in the Indian state of Bihar.  This attempt to combat one of the causes of crime, poverty and violence has naturally placed a heavy burden on the police; they’ve arrested nearly half a million offenders (who can expect up to ten years in jail) and confiscated many millions of bottles of booze.  Police stations quickly ran out of room and extra space had to be rented.  But then something strange happened; more than 900,000 litres of confiscated alcohol disappeared.

The officers guarding the alcohol were questioned at a meeting of state police last week and the mystery was solved; the police explained that thirsty rats had drunk the alcohol.  Of course.  The cunning rodents had somehow managed to get the caps off the bottles without bottle-openers, they said, and had gulped down the lot.  Strangely enough, their story wasn’t accepted by everybody (perhaps because the police hadn’t managed to arrest any of the guilty creatures?).  A member of the state government suggested that the alcohol had found its way onto the black market (fenced by the rats rather than drunk by them, perhaps?), while the head of the state police said that “with the rats running riot, policemen should now be subjected to random breathalyser tests to check whether they too have had a swig or two of the confiscated booty”.  In what was surely an unrelated incident, the president and a senior member of the Bihar Policemen’s Association were arrested last week, charged with consuming alcohol and disturbing the peace on police premises.

Next, the buffalo… Also in India, an angry mob raided a dairy farm in Uttar Pradesh and attacked five men they accused of butchering and skinning a cow.  Cows are sacred to Hindus, and it’s illegal to kill them.  The five men, who were beaten and arrested, insist that the slaughtered animal wasn’t a cow but a buffalo, which isn’t sacred or protected, and an examination of its remains is underway to establish the truth.

Whatever the examination finds, however, the story has two points to make about contemporary India.  First, this kind of ‘cow vigilantism’, which is now common, is seen by some as the reflection of a dark side of the otherwise enlightened government of Prime Minister Narendra Modi and his BJP party.  He is working hard to modernise the country (with education reforms, new technology initiatives, anti-corruption drives, toilets for all, etc) but his critics say that his Hindu nationalist party is encouraging hostility towards India’s Muslims (who of course are the real targets of cow-vigilantism, having no taboos about eating beef).  Second, it suggests that the caste system persists; the attackers were high-caste Hindus, the accused were Dalits, the lowest caste.

Meanwhile, in Canada, at Edmonton airport in Alberta, birds were highlighting the dangers of man’s increasing use of robotics.  No doubt hawks and falcons will soon be complaining alongside human beings that their jobs are about to stolen by robots – a drone which looks like a predator, with realistically-flapping wings, has been developed to scare birds away from the airport’s flight-paths, a job traditionally undertaken by trained birds of prey and their handlers.  It was developed by an engineer at a Dutch company after it was found that birds aren’t frightened by fixed-wing drones.  Humans and their governments are developing drones not just to scare birds, of course, but also – as is the way with all technology – to kill other human beings.  In the same week, Erdogan’s government in Turkey announced that its defence ministry has developed an entirely Turkish-made weaponised drone, the Bayraktar, as a first step towards the development of a Turkish defence industry which will make the country’s armed forces self-sufficient in materiel.

Real animals – rather than robotic, technically-created virtual animals – are striking back with a vengeance in Italy, where wild boar are invading Rome at the head of an animal army of rats, mice, snakes, crows and gulls.  Public services including the organised collection of rubbish have collapsed, and the Five Star Movement mayor Virginia Raggi has been unable to get them back on their feet since she was elected last year.  Mountains of refuse are growing in the streets, rotting in the heat and drawing all kinds of hungry animals into the centre of the eternal city to forage.  Wild boar are a common sight, rummaging in gardens or running down the street among the traffic, and two months ago a man was killed when a boar collided with his moped.  All of which seems to suggest that populists will make a pig’s ear of governing whenever they get a crack at it, a suggestion which appears to be borne out by the mess which President Trump seems to have got himself into with his own intelligence services and Russia.

Police corruption, religious discrimination and hatred, the dangers of new technology and the inefficiency of populist governments… But what, finally, are we to make of this week’s story about the encounter between a troop of wild boar and a British diplomat in Austria?  Leigh Turner, our man in Vienna, was taking a walk in the woods when he found himself confronted by half-a-dozen huge wild boar and their numerous offspring.  He beat a diplomatic retreat but one of the adults gave chase and Mr Turner took a tumble scrambling to safety over a woodpile and ended up with his hand in a splint and his arm in a sling.  A foretaste of Brexit negotiations, perhaps?

 

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Issue 105: 2017 05 18: The Templars and the Internet (John Watson)

18 May 2107

The Templars and the internet

The ghost of Jacques de Molay

By John Watson

The ghost of a dead man haunts the internet.  Whose can it be?  Some unfortunate innocent, wrongly traduced online and driven in his despair to an early grave?  No, of course there are such ghosts but this is not of their number.  Let’s try again.  What about somebody who became obsessed by cyberspace until he lost hold of reality and died, babbling in an institution.  No, common enough but still wrong.  The ghost I have in mind is quite different.  It is that of Jacques de Molay, last and 23rd Grand Master of the Knights Templar who, following years of torture, was burnt at the stake in 1314 on the orders of Philip IV of France.  How did it go so wrong?  One moment the Templars were a great international organisation, unbelievably rich, founders of a system of banking, brave, devout, prestigious, the ideal charity to contribute some money to if you wanted to be sure of paradise, hugely arrogant and self confident.  Then they were gone;  their enormous wealth had attracted the attention of the French king, himself one of their principal debtors.  No amount of prestige or principle could save them from the cupidity of the secular power.  They were just too rich.  Now let’s move forward 700 years and think about the Internet and social media.

Just recently there has been a change in the air.  Not so long ago the internet was virtually unpoliced, somewhere where information flowed freely without supervision by the authorities.  It was all very exciting.  For the first time the public could really see what was going on, both in their own country and in some of the hidden corners of the world.  For the first time the narrative came direct rather than being retailed by professional commentators.  Photographs from bystanders; posts direct from the oppressed; away with obfuscation and in with a brave new world of clarity and truth.  If the suppression of information is the essence of dictatorship, the world had gained a new force for freedom.  Free transfers of information gave the public new eyes.  When something occurred, they could look.  Lying would be a thing of the past.  Cyberspace would be the cathedral of truth, honesty, information and purity.

Of course it hasn’t worked out quite like that.  Much of what sits on the Internet is false, some of it misleading statements made by ignorant people, some of it carefully designed lies calculated to give a false or distorted impression.  There too can be found pornography of the vilest sort and, even worse than that, material designed to promote terrorist outrages.  Malware sites hold people to ransom by “stealing” their information.

Looking down on this, like Jehovah in the clouds, sit the media companies, the hosts and providers of the system.  For a time they could afford to be detached.  After all they did not post the copy which sat on their servers any more than the Post Office writes the letters which it delivers.  If their facilities were abused, that was very regrettable, but it was hardly something for which they could be held responsible.  Those who post pornographic images or encourage terrorism should no doubt be punished, but why the technicians who did no more than host the sites on which posts could be placed?  Surely they should be left to make their honest profits in peace?

Attractive though this may be in theory, it founders on the rock of politics.  It is a function of government to place limits on what is permitted in its jurisdiction and the public expect it to do so.  No one is happy that the net should prove a haven for paedophiles and terrorists.  No one is happy that it should be used as a tool by those who wish to blackmail the National Health Service.  How then should our government, or indeed any others, counter these activities?  They cannot catch all the criminals involved and there are limits to the resources which they can deploy.  Their resources that is.  It would be so much more effective, and so very much cheaper, if they could use the resources of someone else, the Internet companies perhaps.

That, then, must be the chain.  Government forces Internet companies to control the web and the Internet companies meet the costs of doing so.  All that is needed from the government is some tough legislation and that comes reasonably cheap.  The difficulty for the media companies, of course, is not so much the amount of effort they will have to put in to satisfy the requirements of one state but the fact that different states are likely to have different requirements.  Publish something about the King of Thailand and the Thai authorities will move against you.  Publish something about Ruritania and your local executives go to jail.  As the rules lock into place there will be less and less space between them and the media companies will become more and more nervous about what can be placed on their networks. In effect the uncensored information game will be over.

Look for a moment at that the debate over encryption, where the British Government is insisting that the security services should have a window on encrypted messages.  The Internet companies say that that would take away the point and make secure business links impossible.  So what will happen?  Will someone suddenly think up a form of encryption to which the government can be provided with the key?  Or will institutions using encrypted links have to be licensed by the state?  Who knows?   Perhaps it will be something quite different but an answer there will have to be.

That a struggle should emerge over all this hardly comes as a surprise. We’ve been through the initial stage where the Internet flowed freely.  The next stage will be the imposition of heavy restrictions before a modus operandi emerges.  Bearing in mind that the weight of the technical talent is with the Internet providers, governments will need to take a slightly rough and ready line. Host an illegal encryption and you will pay a fine.  Do it often enough and your executives go to prison. That will test whether there is a technical solution through which everyone’s needs can be reconciled.  And as the fight goes on the media companies need to be careful.  In the end the national authorities always win. In the Middle Ages it did not do to be too rich. Nowadays it does not do to be a threat to the state.  If they are to survive the internet companies will need to heed the real concerns of the politicians and, remembering the fate of Jacques de Molay, not rely on innocence or prestige, or freedom of expression to try to bluster through.

 

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Issue 105:2017 05 18:Big Beasts (J.R.Thomas)

18 May 2017

Big Beasts

What will happen to the Lib Dems?

by J.R.Thomas

“Big Beasts return to Lib Dem Front Line” announced the press release.  Gosh.  Obviously not Gladstone or Asquith or even Rosebery, all of whom have the disadvantage, for the campaign trail, of being dead.  So who can they mean?

“The Liberal Democrats have announced a new General Election Campaign Team, with former ministers including Jo Swinson, Vince Cable, and Ed Davey all returning to the Lib Dem frontbench” they go on to say.  Cynics among you may note that this is a very broad use of the expression “frontbench”, as Sir Vincent Cable, Ms Jo Swinson and Sir Edward Davey are not actually members of either House of Parliament, though they are all hoping to be back in the Commons after June 8th.  Sir Vince probably stands the best chance of achieving that – he was a popular and exceptionally hard working MP for Twickenham, until in one of the shocks of the last election, he lost the seat to the Conservatives.  He had announced that he would not run again (he is 74), but cannot resist the opportunity, and in any case Mrs May had announced that she would not hold an election, so his broken promised is cancelled out by hers.  Whether he can win is not clear though; Twickenham was fervently for “Remain” in the Referendum last year, as is Vince, but polls suggest the seat is likely to stay Conservative, albeit very narrowly.

If the Lib Dems want to increase their Commons representation (eight), to get their numbers of MP’s up from a people carrier load to a bus load, they are going to have to win Twickenham and several adjoining seats, which although look like Tory heartlands but were, like Twickenham, strongly for “Remain”.  The party already has a foothold at Richmond Park, which they won in a by-election last year when Zac Goldsmith had a fit of principles and stood down over the Heathrow expansion approval.  Zac is as much a Leaver as Vince is a Remainer, but, although his constituents seemed to be solidly behind him on stopping the growth of Heathrow, they thought Europe more important than increasing aircraft movements and chucked him out. (He is standing again this time at Richmond.)

It is this victory last December that really is the basis of the whole Lib Dem campaign. The party has sunk from sight after the last election, damaged by being in coalition, damaged by that broken promise on student tuition fees, damaged by the low profile of its new leader, Mr…er…, no, don’t tell us, Mr…um.  Alright, it is Tim Farron, and he is by all accounts an amiable, intelligent, and amusing man, but he has failed to raise the profile of his party from the catastrophe of the 2015 election.  With only eight M.P.’s to choose from, and Nick Clegg ruling himself out of continuing in the job, there really wasn’t a lot to choose from, and one suspects that Farron would have preferred not to take the job, but did the decent thing.

So the strategy has to be to find causes and places where the Lib Dem message might sell well, and build on those.  As the party has one core and uniting belief that the other major parties are divided on, that Britain’s future should be in Europe and in long term political integration into a European state, the obvious thing is to make that the major cause in those seats that voted Remain.  Except that, as voters tend not to vote on single issues at General Elections, reverting instead to natural party loyalties, this may not be enough to overturn natural Conservative majorities in those targeted seats.  And it creates further complications in that another natural Lib Dem target is its traditional West Country heartland; but that area was strongly for Leave.  Also the demographics of the West Country have been suggesting a drift from Liberal tendencies to Conservative support; the radical elements seem to be declining (maybe moving to Twickenham in search of work?) and the reasonably well off retired are moving in.

And another flaw: the theory that south west London seats were all strongly Remain is not that well based.  Sutton and Cheam was a Leave majority; so was Carshalton – which is a Lib Dem seat, and Eastleigh – not London, but with a big young population a seat with Lib Dem characteristics.

But there has to be a strategy, and given the lack of a protest vote – Tories who are fed up with a Tory government but would never vote Labour have carried many a by-election for the Lib Dem party in the past – focussing on the Brexit issue is probably the best one.

And the Lib Dems do have a slight secret weapon.  Actually, it is not secret at all but it is amazing how the other big parties fail to use it.  Work very hard at a constituency level.  Select the candidates early, try and dominate the local news, make many waves about local issues (even if nothing to do with Parliament), and try to get as many local councillors elected as possible.  Oh, and as many stickers and flags and placards as possible.  Any visiting alien, almost anywhere in the country, would assume the Lib Dems to be the dominant part of government by the amount of orange in front gardens and hedgerows.  That dedication to hard work on the ground can win seats, especially where the sitting MP, of either party, is not well organised.

Mrs May, even if she is not a calculating sort of politician (she says), must have reflected that the advantage of surprise is often a winning one.  In this instance, it means that the opposition parties had not raised money for such an early campaign – or done much about selecting candidates in some seats.  Labour to some extent can rely on the unions to stump up financially and, like the Conservatives, usually has candidates in place, or certainly available and approved, but the Lib Dems are still struggling under the costs of the 2015 engagement.  They have struggled to get money and personnel in place and at the moment it is showing.

The principal focus of the Lib Dem campaign so far has been Brexit, but most of the rest is not obviously aimed at winning easy votes.  The Lib Dems will put extra tax on alcohol and on tobacco, and will put a penny on the income tax to help the NHS.  They rather worryingly say that if the housing industry cannot provide the housing required, then the Lib Dems will.  Not, apparently by armies of orange volunteers with picks and shovels, but by creating a public lending bank to fund the 300,000 houses needed and encouraging local authorities and housing associations to build more houses for low income families.  They do not explain how this will be achieved at local planning levels where the Lib Dems are usually the lead objectors to housing development.  Proportional Representation voting in all elections remains a party policy, although it was defeated 68% to 32% in the 2011 referendum.  They want a fairer tax system and the benefits system to be more generous – to those who deserve it – so at least that sounds like a vote winner, if a Treasury buster.

The truth is that this is probably not the time for the Lib Dems.  Their reputation was damaged by the realities of participating in government, they have no easy popular cause to fight, they lack charismatic leadership, and they have been caught on the wrong foot by timing.  They may win some of those carefully targeted seats where they are putting much work in at local level, but equally they may lose some.  Indeed it is not too difficult to see them once again reduced to a taxi load of M.P.’s as in the 1960’s.  But there are three weeks to run yet; maybe the Big Beasts will capture the public imagination, or perhaps, as sometimes happens, unexpected events will conspire to change everything.  That’s probably their best hope this time.

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Issue 105:2017 05 18:Macron’s discombobulation of the French political landscape(Richard Pooley).

18 May 2017

Macron’s discombobulation of the French political landscape.

By Richard Pooley

photo Robin Boag

Discombobulate has always been one of my favourite words.  Like its French equivalent bouleverser it is onomatopoeic: you can hear the world turning upside down.  And the election of Emmanuel Macron to the French presidency has certainly bouleversé le paysage politique français.  The past ten days have reminded me of the same period after the 2010 UK general election when British politicians suddenly had to work out how to put together a coalition government.  Nobody was quite sure what to do or say.  And the British people seemed equally puzzled.  Should they pat themselves on the back for unwittingly giving birth to this strange but rather attractive beast?  Or should they do what they could to strangle it as soon as possible?  In the end it lived for five years.

The French have an even odder beast to deal with: the creation overnight of a new political party – La République en marche – which Macron hopes will win enough seats in June’s parliamentary elections to enable him to galvanise France’s economy and reform her political system over the next five years.  No sooner had he become President-elect on 7 May than he removed himself as head of En Marche!, the political movement he launched in his home town of Amiens thirteen months ago.  And the name changed too.  Out went the exclamation mark, in came the republic.  So new is the name that nobody seems quite sure whether the e and/or the m should be capitalised.  And neither the media nor the pollsters have settled on a single acronym.  Is it LEM or REM?  I’m sticking with REM.

The big story of last week was the naming of 428 REM candidates for the parliamentary elections.  A few months ago Macron told his supporters that he was looking for people from outside the political establishment who would be interested in becoming députés in the National Assembly (the same as British MPs in the House of Commons).  He said that he wanted at least half of the candidates of what is now REM to come from “civil society”, i.e. anybody but a politician.  Half must be women.  Nobody with a criminal record would be accepted.  They would have to sign up to his reform programme and drop any previous party allegiance.  Macron made it clear that he was not discriminating against politicians; he wanted (and got) applications from mayors, departmental and regional politicians, and existing National Assembly députés.  However, there was one stipulation which appears not to have been explicit and may have been added only recently: any député who had served more than three five-year terms would be barred from standing under the REM banner.  As we shall see, Macron may come to regret this proviso.

Nearly 20,000 people applied to become an REM candidate before 7 May and the Secretary-General of REM, Richard Ferrand, admitted last week that c.v.’s are continuing to land on his desk.  Some 1,700 people were short-listed and interviewed, nearly all over the phone.  These were whittled down to the named 428, leaving 149 seats still to have a candidate allocated to them.  Macron has kept his promises: 52% are non-politicians and 214 are women.  The average age is 46.  Among the candidates from “civil society” are a glamorous woman ex-bullfighter from the Camargue, a brilliant mathematician and a top police commander.  24 existing Socialist députés are on the list but not a single one from the centre-right Republican Party. Yet.

Within hours of the list being published on Thursday 11 May, journalists were reporting mistakes in it.  One person had a criminal record (his name was instantly removed).  Several, including the multi-millionaire owner of Toulon rugby club, denied that they had offered themselves as candidates.  Cue snorts of derision from Left and Right, especially right-wing Republicans.  I listened to Richard Ferrand being interviewed the next morning by one of France’s most well-known presenters.  Ferrand was so honest that one could hear the presenter’s astonishment.  When asked why there were some erreurs in the list, Ferrand replied: “Yes, there are fourteen mistakes in our list” and explained why they had occurred.  When repeatedly asked who Macron would choose as his Prime Minister, Ferrand replied: “No, I can’t tell you who Mr Macron will choose… No, I really don’t know who it will be.  I don’t want to know because if I did, I would have to lie to you and say I don’t know.”  The presenter then asked why there were still 149 missing names and why the only députés on the list were Socialist.  He was probably hoping to embarrass Ferrand into giving a vague, defensive reply.  Everyone knows Macron is desperate to tempt enough existing Republican députés to join REM so as to rebut the charge of Marine Le Pen during the campaign that he represents a continuation of Francois Hollande’s failed Socialist Government.  But Ferrand was happy to admit Macron’s predicament: “We haven’t the full number because we are waiting to see if there is anybody from the Right who meets our criteria.”  Presenters and listeners are not used to such candid answers from politicians.  And the French appear to like Macron’s attempt to have many of them represented in the National Assembly by non-politicians; a poll on the same day as Ferrand’s interview showed that 76% of those questioned thought positively about REM’s list of 428.

Two-thirds also thought Manuel Valls, prime minister in Hollande’s government and Macron’s old boss, had not been treated badly by the new President.  Valls, having failed to become the Socialist Party’s presidential candidate, gave his support to Macron. But he did not join En Marche! nor actively campaign for him.  On Tuesday last week he said that the Socialist Party was “dead” and that he would be part of “the presidential majority”.  He seemed to think that REM would automatically accept him as one of their candidates.  But they didn’t.  As Ferrand explained, Valls had served more than three terms as a député.  However, out of respect to an ex-prime minister, REM would not put up a candidate against him in his seat south of Paris.  Valls is furious at what he regards as his humiliating treatment by Macron.  He has made no secret in interviews and articles since that Macron now has a powerful enemy among his natural supporters.

And the other politicians?  Les poulets sans têtes comes to mind.  Marine Le Pen shut up for a whole week.  Her niece, Marion Maréchal-Le Pen, one of the National Front’s two existing députés and the darling of the hardliners in the FN, has resigned from all her political posts in order to spend more time with her two-year old daughter.  Her grandfather, Jean-Marie Le Pen, has accused her of “desertion from the front line.”   Nicolas Dupont-Aignan, formerly a right-wing Republican, who set up his own party to stand in the first round (where he got a creditable 5%) and formed a united front with Marine Le Pen in the second, has swiftly uncoupled himself from the FN.  The presidential candidates of what used to be France’s two main political parties, Socialist Benoît Hamon and Republican François Fillon have disappeared from view.  The Socialist Party is leaderless and facing extinction.  Many existing Republican députés are rallying behind François Baroin, hoping that Nicolas Sarkozy’s ex Economy Minister can persuade their colleagues not to jump ship and join REM.  Baroin is one of the few established politicians to have gained from the presidential election campaign (see two of my recent articles). The other winner is Jean-Luc Mélenchon, the ex-Socialist Government minister and Marxist founder of La France insoumise (France unbowed).  He took first place in two departments in the first round, including bucolic Dordogne (imagine Ken Livingstone winning the hearts and minds of those dwelling in the Cotswolds).  15% of French voters are expected to vote for FI.  Mind you, Mélenchon got into trouble last week.  He has parachuted himself into Marseilles where he intends to stand in what has always been a safe Socialist seat.  He said the Socialist Party was “in the soup” but used the word “bouillabaisse”, assuming this was a traditional Marseillaise dish.  The Socialist incumbent mocked him for not knowing that bouillabaisse is a “dish for tourists”.

And if French politicians were not already bouleversés, imagine how they must have felt on Friday when our very own ex-wunderkind, Tony Blair, dispensed “friendly advice” to Macron in an article in Le Monde.

Macron kept everyone waiting until Monday afternoon before announcing who his prime minister would be.  He chose Edouard Philippe, a Socialist when young but for a long time the right-hand man of Alain Juppé, the Republican mayor of Bordeaux and ex-prime minister.   Indeed it was Philippe who helped Juppé set up the UMP, the forerunner of the Republican Party. He’s 46, exactly the average age of the REM 428.  And he’s the perfect choice. Macron has chosen him despite some pretty waspish comments about him made by Philippe only a couple of months ago.  He is proof that Macron has the behind-the-scenes support of Juppé, still a much-admired politician.  And it is a blow to Baroin who only last week dismissed the idea that Philippe become prime minister as unthinkable.   REM has until this Thursday evening to announce their remaining candidates.  How many existing Republican députés will be among them or will they have to make do with more farmers, businesspeople and professionals?  If I were Macron, I wouldn’t be too worried. I think many French are rather enjoying the praise they are receiving from around the world for choosing to discombobulate their political class.

I have to add a coda to this article.  Shaw Sheet has a small scoop for you. My wife and I were having an aperitif with some neighbours two days after Macron won.  One of them lives in Paris but was born and raised in our village and still has a family home here. She is head of the English department at Sciences Po and was Macron’s English teacher when he was there.  I praised her for doing such a good job; his English is excellent. She revealed her secret.  She had told him to read the Economist magazine for the quality of its English.  He did so and became obsessed with Tony Blair, at the time doing his best to discombobulate the political landscape of Britain.  I’ll next see Isabelle in August, when she is down from Paris for the summer holidays.  I must remember to ask her whether she taught Macron the English synonym for bouleverser.

 

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Issue 105:2017 05 18:Housing stalemate (Frank O’Nomics)

18 May 2017

Housing Stalemate

Property transactions are becoming rare events.

by Frank O’Nomics

Are house sellers starting to get desperate?  We have not yet got to the stage of BOGOF (buy one get one free), but some developers have been offering iPads in return for early deposits, together with free cars on completion – as well as agreeing to cover the cost of stamp duty.  Others have been offering furniture to the value of £20,000, John Lewis vouchers and travel cards.  Cynics might be inclined to suggest that they are doing everything except reduce the asking price, which would risk uncovering the true nature of the market.  One seller in Blackheath started selling raffle tickets at £5 each online for a chance to “win” his 5 bedroom house – the raffle was stopped on the basis that a lottery has to be run for a good cause (if they had made it a competition requiring some knowledge, skill or judgment they might have got away with it). There are also signs of desperation in the auction market – where last week 3 new builds had an estimate of £1.4m, compared to a £1.8m price tag when on an agent’s books.

Just what is going on? At the time of year when they are supposed to be at their busiest, estate agents and surveyors are reporting stagnant demand from buyers and a lack of instructions from sellers.  This situation has been building for some time and a report from the Royal Institution of Chartered Surveyors last week showed the 14th consecutive month where their members reported an overall fall in the number of properties being put on the market. The number of buyer inquiries was also down, not having shown any meaningful growth since November.  Countrywide, the largest network of residential agents has reported a 29% fall in like-for like sales and Cluttons, an estate agent in business since 1765, has succumbed to what appears to be a rescue takeover (although their problems are exacerbated by their pension deficit).  In trying to decide what all this means for the price of property it is worth looking at the factors causing the continual slowdown in activity..

There seem to be two distinct drivers behind the malaise.  First, increases in taxes on property transactions have had a pronounced impact.  While the shift in the weight of stamp duty to make it a more progressive tax, so that purchasers of cheaper properties faced a lower rate, was intended to make it easier for people to get on the housing ladder, the impact has been to arrest transactions at the top of the chain as those buying properties for over £937,500 face an increase in total stamp duty.  Further, much of the turnover at the cheaper end had previously been from the buy-to-let sector and the additional 3% tax that these buyers face, together with a steady reduction in the tax relief on their mortgages, has taken away much of the motivation to buy.  Put simply, both ends of the chain have been undermined.  Secondly, there appears to have been a marked change in people’s confidence about their economic circumstances. Selling a house to buy a more expensive one is a major financial commitment and, if you are not confident about sustaining or increasing your income, it is not a step you are likely to want to take.  Inflation is starting to have an impact on disposable income and fears of an economic slowdown, given the uncertainty over Brexit, are not going to go away for some time.

There are additional worries for house builders who, as a sector, have done very well from the help to buy scheme.  This initiative, launched in 2013, has seen £5.5bn pumped into new builds, but is due to run out in 2021.  That sounds a long way off, but builders will have to begin considering the possibility of having to offer discounts to compensate for a lack of state assistance.

Those who still contend that house prices have further to rise will argue that cheap money continues to encourage buying, and this month HSBC offered its lowest ever 5 year mortgage, at just 1.69%;, and when Atom offered a 1.29% rate they had to close the offer quickly after being inundated with applications.  Further, there does seem to be a reversal of the North-South divide – at least as far as the Midlands, where developments such as the HS2 railway hub and the government’s £392m investment in the “Midlands Engine” has meant that sales are still at record levels, with reports of some properties going to sealed bids.  Nevertheless, there is a danger of a ripple effect from London and, overall, UK mortgage approvals are already at a 6-month low.  Further, the rental market is signalling further weakness to come.  Rents in London have fallen for the first time in eight years.

It is still not clear whether the lack of sellers will more than compensate for a decline in buying interest and hence keep house prices high.  However, the pace of job creation is slowing and, at 7.6 times the average salary (which is over twice the multiple of 20 years ago), current prices are extremely high; especially when one factors in other household debt being close to ‘maxed out’. Perhaps we can look forward to yet more innovative measures to shift stock, and maybe even (finally) a buyer’s market.

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Issue 104:2017 05 11:Congratulations, new President M. Now stop World War III.(Neil Tidmarsh)

11 May 2017

Congratulations, new President M.  Now stop World War III.

President Moon, that is, not President Macron.

by Neil Tidmarsh

The shadow of apocalyptic confrontation falls across the Korean peninsula.

The North Korean leader Kim Jong-un refuses to abandon his nuclear weapons programme, in defiance of the UN.  He boasts that his intercontinental ballistic missiles could now nuke US cities on the far side of the globe, while his more conventional artillery – already deployed en masse along the frontier – could obliterate South Korea in seconds.  His half-brother – a critic and possible rival – is murdered under mysterious circumstances in an airport in Malaysia.  Two American academics are arrested on vague charges in Pyongyang.  South Korean and US intelligence agents are accused of arming a North Korean lumberjack with a radioactive, biochemical ‘nano poison’ for an assassination attempt on Kim Jong-un.

President Trump declares that the previous administration’s ‘strategic patience’ towards North Korea is over, and that the US is now prepared to use military force if Pyongyang continues to develop its nuclear arsenal.  He sends a US naval armada to the Korean peninsula, and intensifies joint military exercises with South Korea and Japan in the region.  US forces in South Korea hurriedly begin to install the anti-missile defence system THAAD much earlier than planned.

Even China, North Korea’s sole ally, appears to be hardening its attitude towards its protégé.  Following the meeting between President Xi and President Trump at Mar-A-Largo, there are signs that China is enforcing anti-nuclear sanctions – embargoing the export of oil to North Korea, cutting imports of North Korean coal and tightening border controls.  This week Pyongyang criticised China as “a big power chauvinist” undermining the “dignity, interests and sovereignty” of North Korea.

But what of South Korea itself, the country under immediate threat from Kim Jong-un’s rogue state?

South Korea has been paralysed politically for the last six months, while this crisis has been developing.  It’s been suffering from its own internal crisis; a corruption scandal that began with accusations against the president’s friend and spiritual guru, then spread to the country’s elite corporations and engulfed the president herself.  Two months ago she was impeached and removed from office, and she is now in prison awaiting trial.

But presidential elections, due in seven months time, were brought forward and this week the people of South Korea elected a new president, the left-leaning centrist Moon Jae-in.  The incarceration of his predecessor means that he will be sworn in immediately rather than waiting for the usual two-month transition period, so he will have to hit the ground running to play his part in the unfolding drama. He will have other crises on his hands – domestically, there’s widespread populist disgust with the country’s political and business elites which have been rocked by one corruption scandal after another (President Park was the first president to be impeached, but more or less every past president has been prosecuted once out of office) and huge disillusionment with the massive industrial conglomerates (known as chaebols) such as Samsung which dominate the economy.  Being his country’s first left-leaning president for eight years, his solutions for this include creating hundreds of thousands of public-sector jobs, subsidising small companies and entrepreneurs, and loosening the chaebols’ stranglehold on the economy.  But now that the country at last has a president to speak for it on the international stage, it is his opinions on foreign policy which are attracting the most attention.  Washington might not find them very reassuring.

President Moon Jae-in is eager to re-engage with North Korea, to return to Seoul’s “sunshine policy” of conciliation with Pyongyang which was dropped ten years ago; he wants to re-open the Kaesong Industrial Zone, a joint North/South project in North Korea which was one of the fruits of that policy but which South Korea cancelled last year in protest against Pyongyang’s growing aggression.  He has said in the past that he would be willing to say ‘no’ to the USA: he would oppose any US unilateral action against North Korea; he would seek to take command of his armed-forces in time of war back from US; and he wants a review of the hastily-deployed anti-missile defence system, THAAD, which he has never supported.

Does this suggest that a US/South Korean breach is imminent, further destabilising an already dangerously unstable situation?

Not necessarily, if some of President Trump’s recent apparently casual and light-hearted comments are to be taken seriously.  This week he surprised the world by talking sympathetically and almost admiringly about Kim Jong-un’s troubled rise to power, describing him as “a pretty smart cookie” whom he’d “be honoured to meet”.  Such comments suggest that the White House recognises that Kim Jong-un’s stubbornness and aggression are rooted in the fear that the world is planning to overthrow him, that he will cling to his nuclear weapons and seek to develop them as long as he feels threatened.  Trump’s previous rhetoric has suggested that overthrowing Kim Jong-un might be the best way to halt North Korea’s nuclear weapons programme; but perhaps he is now exploring the possibility that the best way to persuade him to abandon that programme is to reassure him that no one is seeking to overthrow him, and that the world might be willing to treat him with respect.

That would certainly meet with China’s approval.  China might find its protégé exasperating, but it opposes regime-change in North Korea.  The last thing it wants is a united Korea – democratic, westernised and garrisoned by US forces – right on its border.  China opposes the THAAD anti-missile defence system even more strongly than does South Korea’s new president, suspecting that the system’s radars will be able to reach well inside its own territory, giving the USA a powerful spying tool.  But even the USA may not be that keen on THAAD – there are questions about its effectiveness, and about its cost.  Last week saw an undignified spat about who will pay for it: President Trump suggested that Seoul should pay for it, which infuriated Seoul; then the national security adviser General McMaster reassured his South Korean counterpart that Seoul wouldn’t have to pay for it, which infuriated President Trump.

It seems that South Korea may well have found its voice at just the right time in this developing crisis, and might just have found the right things to say.

 

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Issue 104: 2017 05 11: Pledges and Promises (John Watson)

11 May 2017

Pledges And Promises

The fun will shortly begin.

By John Watson

“Sweet lovers” may love the spring, but the public’s enthusiasm for general election campaigns is rather more muted.  And yet they have something in common.  In spring, as the buds burst open, we see the renewal of much with which we are familiar returned to us in a newly refreshed form.  We all know what the tulips look like but that does not take away from the pleasure of seeing them again.  General election manifestos are rather similar.  We have all seen pledges, red lines and targets before, it is just that now they are to emerge afresh in new colours, brighter, bolder, more plausible.

The next few days will see the publication of the new manifestos, each resplendent with a picture of the party leader on the front (well, I suppose they will, although Labour are rather unpredictable about that sort of thing at the moment), each full of pledges, targets, red lines, promises, served (at least in the case of the Liberal Democrats) with a spicing of hypothecation.  No doubt there will be surprises and it would be folly to predict policies before the documents emerge.  However, as you sit in your favourite armchair, coffee and brandy at the right hand, manifestos at the left, looking forward to a fascinating evening’s reading, there are one or two points which need to be borne in mind.

Parties which do not expect to come to power can be far freer in their promises than the serious contenders.  They can never be accused of breaking a pledge because they will never have the chance to do so.  The viability of their proposals is not likely to be tested either.  They may promise to put up the minimum wage on the grounds that that will attract a particular segment of the electorate without worrying about the effect on, say, the funding of care for the elderly.  Of course it all goes pear-shaped if unexpectedly they do get power, and a rash pledge to abolish university fees (something which the realities of coalition government made impracticable) was one of the main reasons for the decline in the Liberal Democrat vote in 2015.  If only they had simply said that they were against University fees and would work to keep them down as far as possible.

The odd thing about this election is that everyone seems to expect the Conservatives to win.  They may turn out to be wrong about that, of course, but, whether they are or not, it is only the Conservatives who will be drawing up a manifesto in the expectation that they will have to keep the pledges they make.  Bearing in mind that pledges restrict freedom of movement and that that is essential to government in these uncertain times, they will give as few as possible.

We have already seen some movement in this area.  Their 2015 manifesto contained a pledge not to increase income tax or national insurance.  That pledge came back to bite the Chancellor at the last budget when he wished to conform the national insurance contributions of the self-employed to those paid by employed earners.  The pledge is unlikely to be repeated, not merely because Mrs May will want maximum flexibility but also because it is unnecessary.  The electorate know that the Tories don’t like raising direct taxes so there is no need for them to make promises on the point.  A few references to themselves as the party of low taxation will probably hack it.

Contrast the position of Labour where shadow chancellor, John McDonnell, has already given a pledge to restrict income tax increases to the wealthiest 5% of the population because a public perception that the party would raise taxes to fund social expenditure would otherwise lose it votes.  Perhaps though the Lib Dems stance in this area is the most distinctive with a promise of 1 penny on income tax in order to fund the NHS.  Confirmation that income will be spent in a particular way is normally undesirable because circumstances change and it may be needed elsewhere.  Presumably, however, the Lib Dems have taken the view either that they are unlikely to be elected anyway (they should be careful here – remember the pledge on student fees) or that the NHS is such a bottomless pit that is inconceivable that additional expenditure will not absorb the money raised.  Again, that is probably right but it would only take big advances in robotics for NHS expenditure to drop quite considerably.

Then, of course, there is the triple lock on the state pension, introduced by the Conservatives as a way of anchoring its vote among the elderly.  In recent years the locks on inflation and earnings have been uncontentious but then neither measure has grown substantially.  Suppose that we move into a heavily inflationary environment or that earnings, which have been left behind, catch up suddenly.  Does the Chancellor really want a tail to the problem in the form of automatically increasing pensions?  Perhaps he would put up pensions or perhaps he would not, but that is surely something to be considered in the circumstances which rule at the time.

The automatic increase of 2½% was, of course, badly needed in 2010 when pensioner poverty was a worry.  The must come a time, however, when it is seen to have achieved its object and to have become a simple bribe to the grey voter.  Is that now or later?  Who then will promise to maintain the triple lock?  The Liberal Democrats, for a start, but they may well feel that their pledge is unlikely to be called in practice.  Whether the government matches their promise will be an interesting test of confidence.  Does it believe that the pensioners will trust it to treat them fairly or will they only support it if they have cast iron guarantees?

To judge from her tight-lipped approach, one would have thought that the Prime Minister would resist making commitments.  Probably she will, but one area may prove an exception.  If press reports are to believed, the target of 100,000 net immigration is likely to be retained despite the Conservatives’ failure to deliver it in the past, in years when Mrs May was Home Secretary.  There is of course a difference between a pledge and a target in that the former constrains options while the latter merely sets a measure for future performance.  If this target is in the Conservative manifesto it will be very interesting indeed to see how it is worded.

Off goes the roundabout – pledges, promises, red lines and their equivalents, streaming in the wind.  It is a pattern which we are well used to.  The difference this time is that it is only the Conservatives who currently believe that their pledges may be called and that the current popularity of the Prime Minister means that they can include fewer than usual.  In view of the flexibility they will need in negotiating with the EU, they should keep them to a minimum.

 

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issue 104:2017 05 11:On the Hill, Off the Rails (J.R.Thomas)

11 May 2017

On the Hill, Off the Rails

The administration takes shape.

By J.R.Thomas

American Bald Eagle in front of flag looking fierce

We have had a complaint.  Probably a spoof but when it has that seal on it, and that eagle, and is signed (by a machine running low on ink, but still,) “Donald”, we have to take it seriously.  POTUS says that politics is a serious business and nobody told him what hard work it would be.  The least we can do is not ignore him.

True, Sir.

We have a little thing going on in the UK, but the way things are, the affairs of Uncle Sam should not be forgotten, especially as the news items which hit the media from the US are maybe not entirely representative of events.  Which is, in short summary, that the Trump machine seems to be in gear and starting to make progress (forward, we should maybe add).  Indeed, we think that Mr Trump’s next book, to follow on from “The Art of the Deal” should be “The Art of the Compromise”.  Mr Trump has started to find a way to strike deals with the Republican Party in Congress.  Not the Democrat Party – we know Donald is the Republican President but you might not have thought it over the last few months as he and the Republicans disagreed about almost everything and his initiatives were blocked on the Hill.  But now things are moving – the threatened cessation of funding which would have closed down the Federal government was averted, the White House agreeing that the current spending bill would not contain money for the Mexican border wall, and also that the planned changes in the Obama introduced health care funding insurance would be delayed.  But the funding proposal did include a big increase in military spending and some protection for health benefits for retired miners, which was one of Mr Trump’s election promises, though one without much detail attached.

What is more surprising about this is that in the end the negotiations to get the appropriation bill through were surprisingly good tempered with Mr Trump and the Republicans making peace, and in the House both sides professing to be happy with what they had achieved – and both claiming to be the winners.

Not that that lasted long.  On 4th May the Republicans got through the House their “roll-back” bill, the first stage of cutting Obamacare benefits.  This stage is a trim – trimming benefits, cutting (fairly lightly) the number of beneficiaries, and pruning some coverage for those who came into the programme with pre-existing conditions.  The Republicans were pleased with getting into law so early a key plank of their (and the President’s) electoral platform; the Democrats, every single House member voting against the bill, said that the effect of this would hit the electorate just as the 2018 midterm elections come into view and would ensure some major Republican losses, sufficient to get the House back in Democrat control. so they might be said to be happy too.  The bill has to go to the Senate now and there is no doubt that although the fine detail will be further negotiated there, it will almost certainly pass.

So a much happier GOP, one that is at last looking as though it won the November 2016 elections.  But there is some nervousness; the mid-term elections will be along soon and nobody really knows how the electorate views politics just at this time.  The voters always seem to resist a party controlling all three branches of the decision making process for long, and that is not the least reason why some Republican House members with large numbers of healthcare beneficiaries among their constituents are concerned that it is not good politics to remove real benefits once handed out.

But back to the wall, or perhaps, The Wall.  The Donald is not giving up on The Wall.  It was a key plank of his manifesto and probably swung him enough votes in some of those rust belt states to get him into the Oval Office.  He has tweeted that the wall will be built – or at least extended, as, of course, about a quarter of it already exists. And his spokesmen and recently the President himself have confirmed to the press that it will be built during his first term (note that bit, folks) and that somehow Mexico will be paying for it (note that as well).  But for the time being the President accepts that The Wall will initially be funded by the US tax payer.

Tax is perhaps next on the agenda.  The Donald wants to get both corporate and personal rates down, perhaps more so corporate so that he can encourage US businesses to build their expansion, and jobs, in the States.  He has talked of tax breaks for companies that repatriate their assets to the US and various incentives to hire American workers.  These measures will presumably be coupled with some tax easing for individuals – helping business pay less tax may be good for the economy in the long run, but is not that popular among voters; couple it with some easing for private tax payers, especially for the low paid, and it can be taken to Congress where the Democrats will have some difficulty opposing it, and the Republicans will really have something to cheer.

All the signs are that the Trump Administration is learning these sleights of presentation fast.  Donald promised to set American business free from over regulation and too many controls.  That has hardly been mentioned since his election and off the record briefings say this is not a top priority.  Letting Wall Street bankers loose is not what the American public is hollering for just at the moment, though the White House, the most business orientated probably for a century or so, would no doubt like it done.  But here comes the new subtlety: don’t do this directly but make sure that the regulators, who have a lot of free rein in these areas,  are replaced by less intrusive persons who interpret the rules with a more pro-business eye. This is already happening; the latest Presidential appointments at the Federal Reserve and the SEC (the banking regulator) are clearly business friendly – the latest is the new head of the SEC, Jay Clayton, who was approved by the Senate last week, and is already making waves.

Donald does not ride trains, nor does he see why anybody else would, at least long distance.  He proposes that Amtrak, the state owned operator of long distance passenger trains, have its federal funding removed.  All railroads in the US gave up long distance passenger trains long ago.  Amtrak was set up in the early 1970’s to continue running passenger services over the private freight carriers, carrying those who don’t like flying, tourists, or those with lots of time on their hands.  Unfortunately there aren’t enough of any of them and it is heavily loss making.  It has been shrinking for a long time but now it looks as if the whole problem will be transferred to the states through which the trains roll – or to the passengers – which means it will mostly shutdown.

The Democrats don’t like any of this, but there is not much they can do about it until and unless they win a stronger position on the Hill.  And Mr Trump and his team are rapidly becoming more subtle in their approach to political life.  The bombing of the chemical stores in Syria has gone down well with the public, as did that careful targeted bombing in Afghanistan, and as does the carrot and stick approach to North Korea; the offer to meet Mr Kim was a masterstroke, but so is the quiet persuasion of China that they must do something about their noisy neighbour.

What nobody was expecting was a politically astute President Trump; maybe this will be as far as it will go, but the Republicans are looking cheerful – and the Democrats are just beginning to wonder if they may be up against President Trump for a second term in November 2020.

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Isue 104: 2017 05 11:Sell in May and go away (Frank O’Nomics)

11 May 2017

Sell in May and go away

Or should we just put some “Vix” in our investment chest?

by Frank O’Nomics

The old stock market saying: “sell in May and go away, come back again on St. Ledger day”, has long been taken as a recommendation to avoid poorly performing markets over the summer.  The real idea may well have been to stop worrying about shares and enjoy the summer season (the Lord’s test, Ascot, Wimbledon etc.), but overvalued markets and a background of uncertainty could give some strong business rationale to the adage this year. The danger of an increase in volatility, which as measured by the Vix “fear index” is remarkably low, and a large mystery buyer of derivative contracts linked to this index (dubbed “50 cent” as this is the level he has been paying) has been positioning himself to profit from a financial meltdown.  Is he right or just guilty of adopting the rapper 50 cents’ approach of “get rich or die trying”?

Empirical evidence would appear to support the idea of selling in May.  Since 1966, the FTSE All-Share index has lost 0.6% on average from May Day to the end of October, and there have been 11 occasions when the fall has been in excess of 10%.  For the UK, the Budget is out of the way and investors become wary of the lack of liquidity available in the summer months.  This year there is more to worry about.  The UK election may be a forgone conclusion, but Brexit negotiations certainly are not, and, from an international point of view, the Trump rally has dangerously inflated the 9-year bull run in US shares.  In the UK, the wealth producing effects of a long period of cheap money are showing signs of waning: property prices saw their first quarterly fall since 2012, and consumer spending looks very tired given the extent to which personal borrowing has grown. The simple question is: where is the engine of growth for developed markets?

Perhaps the best question to ask is, “how would a 10% fall in asset prices impact my personal circumstances”? For those close to retirement the justification for becoming more cautious is likely to be somewhat greater.  Others will not find an easy answer, particularly when faced with the difficulty of what to do with the cash realised by selling.  Holding cash is very expensive when inflation is running at over 2% and bank deposits pay next to nothing.  Bonds produce similarly low returns unless you go for riskier corporate bonds, which would effectively negate any bearish view that you were trying to express.  The big worry about selling is not finding an opportunity to get back into a UK equity market that, while overvalued, pays you 3.5% in dividend income.  While you may miss some dramatic falls, last year’s almost momentary response to the Brexit vote showed just how supportive the huge amounts of cash generated by quantitative easing really is. The bigger danger remains that you could also miss some sharp rises, and to quote John Maynard Keynes; “markets can stay irrational for longer than you can stay solvent” (a phrase seemingly prompted by his needing to be bailed out of some currency positions).

This leaves us with the Vix trade idea.  If markets are likely to become more volatile (from a current 10 year low), it may be sensible to buy some “insurance” against a significant sell-off.  Unfortunately that is a concept that most investors struggle with.  Insuring your house may be an irritating expense given that claims are relatively rare – it is just something that has to be done given that the alternative (being left without a home) is unthinkable.  However, insuring your investment portfolio against steep losses is a different prospect and, of the $120m recently spent on buying protection via Vix index options, £88m of the trade has expired worthless. Further, given that this involves trading derivatives, it means trading in a market that few understand.

The least risky approach to taking a cautious view is either to buy some of the more defensive funds that invest in low volatility stocks which tend to underperform a rising market but hold up much better in a market correction, or to consider absolute return funds. This latter group has seen a great deal of demand in recent years, given their approach of wanting to deliver a stable positive return in excess of inflation and interest rates, rather than just to outperform an index (only losing 5% when the market falls 10% is often little comfort). Both of these approaches are different to those of fund managers who are aggressively bearish – a stance which has proved particularly expensive for the likes of Crispin Odey who late last year talked of risks of an 80% fall in UK equities but who has underperformed his peers by around 15% over the last year.

Selling in May would seem to have two things going for it. The first is the opportunity to concentrate on matters other than markets, and the second is to get into a position to exploit a potential buying opportunity.  However, the Barclays Equity Gilt study, which looks at data going back to 1899, tells us that equities have outperformed cash in three-quarters of any five-year period (the key being to reinvest any income) and so rather than buying a “fear index” we should probably being mindful of a notional FOMO, or “fear of missing out’” index.

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Issue 103: 2017 05 04: EU to win in France? (John Watson)

04 May 2017

EU To Win In France?

Nemesis in numbers.

By John Watson

Whew!  The sigh of relief can be heard from Finland to Spain.  It is going to be all right after all.  M Macron is still well ahead in the polls and it would take a political earthquake to bring Le Pen to power.  The EU has escaped a Frexit.  For the time being, at least, France will remain at its heart.

But even as the junketing gets underway in Brussels, even as the Commission serves champagne and canapés to its relieved staff, a spectre stalks the feast and chills the hearts of those who exercise authority in the corridors of power.  Is it the ghost of one of the great revolutionaries of the past, Robespierre, perhaps, or Cromwell, or Lenin?  No, it is something far more ruthless than even they ever were.  It is the rules of mathematics.

The key to whether the EU can remain intact can be found in any decent library if you locate the right shelf.  Walk past the biographies of the great international statesman, past Talleyrand, past Machiavelli, past Castlereagh.  Walk on past the shelves devoted to the great empire builders and breakers of the past.  Then enter the room devoted to literature and stop when you come to Tom Stoppard.  It is in his play “Rosencrantz and Guildenstern are dead” that the important clue is to be found.

Those familiar with the play will recall that it begins with the tossing of a coin and 156 consecutive “heads”.  Of course each time the coin is tossed, the odds of it coming up heads again are evens but the chance of 156 consecutive heads is vanishingly small.  Now let’s apply the same logic to the stability of the EU.

Currently the bookmakers are giving about 13/2 on Marine Le Pen and about 1/8 on Emmanuel Macron.  That puts the likelihood of a Macron victory at a little under 90%, pretty good you might think in the uncertain world of politics.  No doubt it will all go just fine on the day, and the chances of Germany (where both parties are led by committed Europeans) electing a pro EU Chancellor must be higher still – a whisker off 100%, perhaps.  But then, as the cycle of domestic elections turns and one by one the other 25 members of the EU go to the polls, some less certain prospects will come to the top.  What about Greece and Italy, racked by a euro exchange rate which suppresses their economies?  What about Hungary with its reluctance to comply with EU educational and asylum policies?  What about other countries where the popular mood is to defy the application of European law?  There must be at least a small risk of things going wrong, of parties hostile to continued EU membership being elected.

Let us suppose, for the sake of illustration, that the risk of any particular election producing a government committed to exit is 5%.  What then is the likelihood of getting all the way round the 27 nation electoral cycle without an upset?  Actually, the mathematics isn’t very difficult.  If the chance of surviving once is 95%, the chance of surviving twice must be 95% x 95%.  The odds on three consecutive survivals are 95% x 95% x 95% or 86% and, as the repetitions build up, the odds of survival drop.  The chance of surviving 27 times consecutively is around 25%.

Well, one in four are not impossible odds if you are feeling lucky, but it may be rather worse than that. Suppose that you go round the electoral cycle twice, then the chances of surviving unscathed drop to 6%.  Suppose that 95% is too optimistic and that it should be 90%.  Then the chance of getting round the cycle once drops to 6% and the chance of getting round twice is less than 0.5%.

The mathematics may be speculative but the lesson is obvious.  If each domestic election carries a risk of exit then exits are going to happen.  The only way to avoid that is to stop offering the choice.

Most political unions operate without the various parts being given any opportunity to leave.  American states cannot leave the USA.  That possibility died in the bloodshed of the Civil War.  Germany and Italy are each amalgamations of smaller states, forged by Bismarck and Garibaldi, by exploiting military force and a common culture.  India has been forged into a single country quite successfully.  Pakistan, much less so.  Why should the EU not become one of those states whose citizens are content for democracy to be exercised at a federal level?

At one stage, perhaps, it could have worked.  Originally the various communities which ultimately morphed into the EU had only six members: France, Germany, Italy, Luxembourg, Belgium and the Netherlands.  If at that stage a powerful democratic system had been introduced with power vested in a government elected on a community-wide franchise, then a new state might have been created, albeit one which would have expanded much more slowly than did the EU.  Still, it never happened.  Domestic politicians remained jealous of their mandates and ultimate power was never surrendered to the centre. Perhaps it never could have been, but in any case it is too late now and for all the talk of deepening the Union, it is highly unlikely that the electorates of the member states will prove willing to endorse a merger of sovereignty, or the mechanisms for transferring wealth that would be needed to support that. The choice will remain and with the choice the danger.

The road to irrevocable merger being closed for the time being, the EU is left with the prospect of countries leaving over the years.  Clearly it wouldn’t make sense to make enemies of them all and yet it is important that membership should be seen to carry advantages.  Some sort of relationship is required and it needs to be carefully designed.  Will the EU allow nations to participate on an à la carte basis? – you can sell financial services provided that you adhere to EU financial standards?  Your nationals can remain here provided that ours can remain in your country on the same basis?  You can see our military intelligence if we can see yours?  Perhaps so: perhaps not.  However, as the EU negotiators wrestle with these problems over the next months they will need to keep in mind that, although they may be negotiating with the UK, they are setting a route down which others will inevitably follow.

 

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