Britannia Radio

The papers today seem in a state of nervous breakdown calling for action but not agreeing what action.  They want the parties to tell them the scale of the problem. Where have they been ?  Cameron-Osborne have spelt it out clearly and even Brown has been forced to come a bit cleaner. 

In the Sunday Telegraph  Robert Skidelsky - a respected figure - produces an somewhat incoherent appraisal which leaps from one new facet - ‘output gap’ - which he says is being ignored and then having built that up goes off for the rest of his article to talk about other things entirely.  He comes down on the side of continuing fiscal stimulus without giving the slightest attention to asking who will continue lending us money to do that?   I decided that his article was too muddled to post.   

So I leave the economists apart from a perceptive look at the prospects for the long awaited and greatly over-hyped G20, starting at the end of the week.  

The S.Telegraph leader is by-and-large sound but it ignores the realities in favour of playing to the gallery.  HOW can an opposition say where and in what magnitude its cuts will fall when it is denied the figures to make such a calculation.  (For example, Labour has made a whole range of long-term contracts with such bodies as IT consultants over ID cards, NHS computer systems etc.  To cancel various defence projects would attrract penalty cvlauses of unknown size)  Precise details will not be set in stone until the books can be opened and inspected.  

Ranging around the rest of the media today is depressing.  None of them seems to have any clear idea of where they stand.There are of course reports of the LibDem conference which seems itself low-key.   The Sunday Times says that the schools secretary Ed Balls has jumped the gun for Labour saying he plans a £2 billion cut in his schools budget , cutting staff and freezing pay.  Mmmm?  He obviously realises he’ll be unlikely to have to implement it!

The Mail on Sunday says that Adam Bouton, Sky News political editor (and married to Mr Blair's former Downing Street 'gatekeeper' Anji Hunter) has written a book whose main theme is that “Tony Blair and Peter Mandelson have given up hope of Gordon Brown winning the General Election and believe he may throw in the towel to avoid humiliation by David Cameron, it was revealed last night. . . . . A well-placed source said: 'Peter genuinely thought he could turn things round for Gordon but it is proving to be much harder than he imagined. Tony was deeply sceptical about Gordon taking over all along and thinks he is a disaster“

” 

Not a good day for the ‘meejah’ 

Christina

SUNDAY TELEGRAPH 20.9.09

1. Why G20 is likely to be a damp squib

With world leaders descending on Pittsburgh this week, what are the chances of progress?

 

By James Quinn

As cavalcade after cavalcade of black limousines clog the streets of central Pittsburgh on Thursday evening, passers-by and frustrated commuters might be forgiven for wondering what all the fuss is about.

With President Barack Obama waiting to greet the world's leaders over dinner at the Phipps Conservatory, the spectacular glass dome set in the city's Schenley Park, the limousines' passengers will use the time spent in traffic jams to consider the likely outcome of the next 24 hours.

 

After months of anticipation following the last G20 meeting in London in April, there has been much debate as to how the world's leading 20 industrialised nations – plus international bodies such as the International Monetary Fund and the European Union – will prevent the credit crisis and the deep recession that has followed from reoccurring.

From blanket bans on bonuses to increasing capital requirements for banks, come Thursday evening, the time for grandstanding will be over and the time for diplomacy on a grand scale will have arrived.

Many believe that time has long since passed.

"Back in November, and in April, that's when they seemed to be panicked into action," Ruth Lea, economic adviser to Arbuthnot Banking Group, says of the previous two G20 summits, the first of which was held in Washington. "Now things have settled down, and most economies appear to be coming out of recession, I think the enthusiasm for reform has petered out. The mood is over for major reform."

It is a view shared by Michael Wainwright, financial services partner at Eversheds in London. Wainwright believes that ahead of the London summit "everyone was very scared about the future of the financial system." Five months on, and it is "extremely difficult for [ordinary] people to engage with what's going on."

To add to the problem, Wainwright points out that the G20 "from a legal point of view is a very odd organisation. It doesn't have any constitutional powers, it's just entirely based on the status of the people that turn up."

As a result, any outcomes will be entirely reliant on member countries carrying them out. "The only worthwhile action is going to be internationally co-ordinated," Wainwright says. He fears a lack of concrete action could lead to regulatory arbitrage - a situation where companies move to countries with lighter restrictions - or protectionism.

However, Wainwright is optimistic of some progress, hoping above all for an agreement on tightening banks' capital standards.

Such a measure, combined with a commitment to enhanced global regulation and a reaffirmation of the need for co-ordinated fiscal stimulus, are the most likely outcomes of the diplomatic jamboree. Some of the more outlandish measures that have been proposed, such as a curb on bonuses, as suggested for by some EU leaders, seem increasingly unlikely.

"There's a lot more support on the European side for this," says Tom Higgins, chief economist at asset manager Payden and Rygel.

Higgins believes that the support for such a measure is waning – particularly from those countries such as the US and the UK where financial services contribute significantly to their economies.

"It feels good to complain about corporate bonuses," admits Professor David DeJong, who chairs the department of economics at the University of Pittsburgh, located in the heart of the former steel-town.

"But the reality is that it's very tough to dictate across boundaries; it's tough enough for a government to dictate within its own country."

Of course, one of the problems of the G20 is that in spite of a general consensus that something must be done, there are 20 sets of opinions on the best way forward.

Another issue high on the agenda will be world trade, particularly in light of the US's recent decision to place a 35pc tariff on all tyres imported from China.

"We don't want to see that kind of behaviour at the current time," says Higgins, who brands it "counterproductive" in terms of economic recovery.

However, Higgins does not believe there will be any firm commitment to return to the negotiating table at the World Trade Organisation – to reconvene the Doha round, which began in November 2001 and stalled in July 2008 – as long as "questions about [the] sustainability" of the recovery remain.

Another key factor influencing the summit's outcome is where the various leaders are in their own political life-cycles. President Obama, with a strong mandate just nine months into a four-year term, is more likely to be cautious and not rush any major decisions.

But for Gordon Brown, with up to nine months left in the parliamentary term and a strong opposition at his heels, the need to be seen to have some form of populist outcome is key. The same is true of Chancellor Angela Merkel of Germany, where the federal election will be held two days after the summit ends.

In the end, the outcome is likely to be what one senior source close to the negotiations called a "watered down" version of all the countries' hopes and intentions.

"It really is likely to be a damp squib I'm afraid, because the moment has gone," says Lea.

2.  (Leading Article) Tell us the truth about the depth of our debt crisis

Both Labour and the Conservatives need to face up to the disastrous state of the public finances

 

The numbers are horrendous: today, the national debt stands at £804.4 billion, equivalent to more than £25,000 for every family in Britain. Interest payments are expected to increase by more than 11 per cent every year; by 2013-14, they will amount to £63.7 billion, or more than we now spend on defence and transport put together. [That’s a cool £1,000 for every person alive in Britain which has to be paid, like it or not, out of taxes each year till the debt has gone.  How many in your household ? -cs]  

The size of the black hole in the public finances is a consequence of the Government's belief that increased spending by the state is always good. Too late, Gordon Brown has woken up to the fact that uncontrolled spending leads to uncontrolled debt – and uncontrolled debt has the capacity to destroy the whole economy, just as it destroyed the investment bank Lehman Brothers a year ago. Indeed, the Prime Minister's approach has been alarmingly close to that of Dick Fuld, Lehman's discredited CEO, who kept increasing his company's debts until they reached the point where lenders simply refused to extend further credit. Something similar could easily happen to Britain. 

If foreign investors lose confidence in our ability to repay our colossal debts, we will go bust. There will be no way out of the downward spiral of rocketing interest rates, rising unemployment, and a contracting economy. Such a crisis, if it happens, will make the present one look positively kind.

 

If there is one thing more depressing than that dismal scenario, it is the Prime Minister's attempts to mislead the electorate about its implications for Britain's public finances. First, he insisted that Labour would continue to increase spending. Last week, he was forced into a humiliating retreat, admitting at the TUC Conference that the seriousness of the economic situation would force cuts in spending. 

Now we learn that the shortfall in tax receipts will be so great that the Tories claim that it can only be remedied by raising income tax by £14.8 billion, or 3p in the pound.  [Not true!  They said that Labour proposes to do that and they have the figures to prove it.  The Tory solution, clearly expressed is for large - not cosmetic - cuts in spending to bear the brunt -cs]

The decision to hide the scale of the problem from the public suggests that Mr Brown believes that we cannot be allowed to know the full facts about our national finance – for if we did, we might decide not to vote Labour. The Government, however, insists that it never concealed the size of the shortfall from the electorate. It cites obscure official documents where the numbers have been published in tables. But the reality is that neither the Prime Minister nor the Chancellor has ever indicated to the public what they must have known: that the sheer scale of the funding gap makes tax rises inevitable.

There is one silver lining. The scale of the spending over the past decade means that there is much that can be cut without loss. Yet ministers seem unable to grasp the gravity of the situation: instead of forcefully insisting that all grandiose new projects are postponed or abandoned, they quibble over whether to jettison ID cards, and even manage to oversee an expansion in the number of people on the public payroll. Such is the scale of the deficit that even the most drastic cuts may indeed have to be matched by tax rises, though we pray they are temporary. But we are owed some clarity. If the Government will not be straight with us, the Conservatives must explain which taxes they will raise, and what elements of state spending they will cut, to ensure that Britain remains solvent. The public is entitled to honesty on this most serious of issues.