Monday 27 August 2012 Sunday 26 August 2012 Sunday 26 August 2012 Sunday 26 August 2012
Eurocrash: the Bundesbank fights back
However, Spiegel describes Bundesbank chief Jens Weidmann as going on a "collision course" with the ECB. Buying government bonds is dangerous, a burden on taxpayers and would lead to new problems, he says, then declaring in a direct attack on Draghi's empire: "central bank financing can be addictive like a drug".
Further digging into the ECB, Weidmann criticises its plans to launch a new programme of purchasing government bonds. "Such a policy is for me too close to public finance by printing", he warns, then declaring: "In democracies, parliaments should decide on such an extensive pooling of risks, not central banks".
If you buy the Euro-banks' government bonds of individual countries, "the papers end up in the balance sheet of the Eurosystem", Weidmann explains. "Ultimately, the money has to be found by the taxpayers of all other countries". The basic problems are not solved in this way, he concludes.
Defending his "aggressive communication policy", Weidmann states that, "If monetary policy allows itself to become a comprehensive political problem solver, its real goal risks moving further and further into the background". Therefore, he says, the ECB should not "guarantee keeping member states in the eurozone at any price".
In a plea for openness, he says that, "We central bankers are currently acting in a border region, and have to interact on more fundamental issues. Therefore, we must also be prepared to explain the convictions that we hold in the Council to the public", adding: "The Governing Council is not the Politburo".
And despite the focus on Weidmann, Handelsblatt reminds us that he is not alone. A recent edition ofWelt had former ECB chief economist Jürgen Stark arguing that the funding planned by the ECB would be "a clear breach of European law".
Currently, Weidmann is also supported by CSU General Secretary Alexander Dobrindt, who in Bild am Sonntag controversially branded Draghi's plans for the euro as "highly dangerous", calling the ECB president the "forger of Europe".
Dobrindt, incidentally, thinks Greece would be better off out of the eurozone, following which, he says, "we need a Marshall Plan for the economic reconstruction of the country".
Now, even Merkel has been dragged into the dispute, having been asked in a television interview for the ARD "report from Berlin" programme to comment on Weidmann's words. She praised Weidmann for speaking out about his doubts and said she saw strong Bundesbank influence within the ECB as positive. although she was reported as taking care not to voice any support for his criticism of Draghi's policies.
What makes the attacks on the ECB all so very strange, though, is that, effectively, Draghi hasalready given up. He has signalled that he intends to wait until after the Karlsruhe ruling on 12 September before launching any initiatives.
Despite that, Spiegel is still telling us that the ECB governing council will, at its meeting on 6 September, decide to look at bond purchases. I guess we already know the outcome. But, whatever is decided, this controversy is very far from over.
COMMENT THREAD
Richard North 27/08/2012 Eurocrash: preparing the ground
Declaring overall the EU a success, it has for "political reasons", the paper says, taken on "a little too soon" too many economically weak states, with undeveloped democracies. This has not led to convergence. Rather, differences within the EU have widened.
It is this, according to the paper, that has created the problem. EU enlargement has promoted "partial paralysis". The idea, it goes on to say, that "we could just pick up a single currency … and promote political integration" is justifiable in the light of the economic success story of Europe. "It has nevertheless proved to be false".
This with the ground prepared, having offered a most extraordinary version of events, it tells us that "life is much more comfortable in Europe". While the debt crisis causes "anxiety", Europe has shown that it can overcome such upheavals.
It has become almost a cliché, the paper declares, but the EU has actually become stronger in difficult times. This too should give pause to all those who swear today, in the light of the debt crisis, that it will lead to the disintegration of Europe, or even the end of the euro.
Interestingly – and possibly a harbinger of arguments to be rolled out in the future – the paper argues that monetary union "would actually provide a kind of economic government", with the constant need for legitimacy that could not be met by the national parliaments.
We could be seeing here the case made that, depriving national parliaments of their powersincreases legitmacy for, as the paper says, otherwise in the euro countries almost every week there are parliamentary debates and votes on important issues of monetary, financial and tax policy.
Nevertheless, Süddeutsche Zeitung does concede that any changes can only be implemented by all 27 EU members but, given that the "colleagues" managed to railroad through the Lisbon treaty, this is not necessarily an insuperable problem.
They have several years to prepare their script, ready again to roll-over the compliant peoples of Europe.
COMMENT THREAD
Richard North 26/08/2012 Eurocrash: Merkel's treaty plans take shape
Actually, that's not quite true. She was calling for "more Europe" in early June and, after the interim report of the Future Group came out openly at the end of that month supporting the idea of a United States of Europe, giving more power to Brussels.
Now, Merkel is beginning to set out a "concrete shape" to the plan and it looks as if she is going for the full Monti. She want the European Council in December to decide on setting up a convention with the task of "preparing a new legal basis for the EU". This will extend the fiscal pact to a full political union.
Spiegel does note, however, that many member countries reject the idea "vehemently" and, even if the Future Group ten were in general accord, Ireland is in opposition because it does not want to risk a referendum. Even compliant Poland is dubious because it sees little chance of agreement among the 27 EU members.
One has to recall, though, the Asmussen view, where the EU splits into a politically integrated core comprising the rump eurozone, with an outer ring of states, including the United Kingdom.
This, most likely, is the shape of the new European Union, with discussions to make it happen starting in earnest next year. It is one that can readily accommodate Greece on the periphery - which can be bought off with a new "Marshall Plan" - and eventually Spain and Ireland. Italy, as a member of the original Six, would remain in the core group.
Such a scenario is not without its challenge for the UK, which would see itself "relegated" to peripheral status. It would be unable to meet the entry requirement to the core, which would demand that all members were part of the single currency.
Most likely, this would be seen as advantageous to the likes of Cameron. It would defuse the pressure to leave the EU, as the new status would undoubtedly be sold as membership of a "trading agreement plus" – following the appearance of a renegotiation. That would satisfy the ambitions of the Tory europlastics, without actually making a clean break.
Any such arrangement would almost certainly require a British referendum. But, since a convention might take two years (or more), and the treaty negotiations another year, that gets Cameron past the general election with the "Europe" issue parked, and the "outers" completely marginalised.
Whether the Merkel plan has any chance of fruition is anyone's guess, and much will depend on the German people themselves, who will also have to be consulted. But it is a stratagem that can accommodate the loss of some members from the eurozone without fatally damaging the EU.
Most of all, it buys time and that, all along, had been the strategy of the "colleagues", which to date has worked remarkable well. With so many predicting the demise of the euro (not least this blog), the construct has confounded its critics with its resilience.
On past form, therefore, one can surmise that those hoping for a quick resolution are going to be seriously disappointed. We are in for the long haul.
COMMENT THREAD
Richard North 26/08/2012 Booker: Gummer and a dodgy barrage
Anyone harbouring ideas to the contrary would soon be disabused by Booker's column this week, which records an extraordinary picture of the state of our public life that has come to light in recent days.
At the centre of the picture is David Cameron, who last month nominated Lord Deben (formerly John Gummer) as the new chairman of the influential and supposedly "independent" Committee on Climate Change, set up to advise government on energy policy under the Climate Change Act.
This is despite the fact that Gummer's array of environmental business interests includes chairmanship of Forewind Ltd, a consortium of four energy firms planning the world's largest, and most heavily subsidised, offshore wind farm in the North Sea.
Gummer's "suitability" will be assessed on 4 September, when he is interviewed by the Commons select committee on energy and climate change. This is chaired by Tim Yeo MP, a junior environment minister under Gummer when he was environment secretary in the 1990s.
Cameron has also lately taken a very active interest in a new £30 billion project for a tidal barrage across the Severn estuary, which he discussed at Downing Street last month with the former Labour Cabinet minister Peter Hain, acting on behalf of a consortium organised by a tiny Welsh company, Corlan Hafren – of which Gummer was until very recently a director.
Attention has lately been drawn to the declared business interests of both Gummer and Yeo – who last year earned more than £200,000, on top of his MP's salary of £80,000, working for companies mostly involved in "green" energy schemes.
The apparent exception was his role as "environmental adviser" to Eurotunnel, by whom he was paid up to £1,000 an hour. But Eurotunnel, it turns out, is planning to run a £220 million "interconnector" power cable through its service tunnel, to provide back-up from French nuclear power stations for the times when our wind turbines don't supply any power.
Turbines – of the type that earn Cameron's father-in-law, Sir Reginald Sheffield, £1,000 a day on his Lincolnshire estate – are so unreliable that they could never hope to meet our EU obligation to source nearly a third of our electricity from "renewables" within seven years.
That is ten times more than wind power generates at present. Hence Cameron's sudden interest in a new Severn barrage scheme (though the idea was rejected by the Coalition in 2010 as being far too expensive) and his talks with the peculiar little company Corlan Hafren.
The barrage, incidentally, we are told could supply "five percent" of our electricity needs by 2022 with a new version of the barrage, funded by more than £30 billion from "Kuwait, Qatar and other sovereign wealth funds".
Until last week, Companies House showed Gummer as a director of the company, which has registered assets of only £91. Listed among its shareholders, the largest of whom is a formerly bankrupt Welsh property entrepreneur, is another company, holding a sixth of the shares, with the imposing name of Sancroft International.
Thanks to diligent researches by readers of Bishop Hill, it emerges that the six shareholders of Sancroft, an environmental consultancy which also acts as a vehicle for the earnings of Gummer, are Gummer himself, his wife and their four children, one of whom, Ben Gummer, is a Tory MP.
All of this, you might expect, should focus further attention on the proposed Severn barrage itself, a vast concrete wall stretching eleven miles across the Bristol Channel from Somerset to south Wales, possibly incorporating a motorway and a railway, and also a thousand turbines.
And, to perpetuate the misinformation so often generated by renewable energy schemes, we are told that this monster construct would have the "capacity" to generate "6.5 gigawatts" of electricity.
But what is often not understood about tidal barrages – and deliberately concealed by some of its advocates - is that, like wind turbines, they only generate power intermittently, according to the tides. So the actual output of a Severn barrage, as confirmed in 2007 by Jonathan Porritt's Sustainable Development Commission, would only be 22 percent of its capacity.
In other words, the barrage's contribution to the grid would average out at only 1.43 gigawatts, which is roughly the same as the power produced, much more consistently, by one large gas-fired power station. That would cost only £1 billion to build.
Alternatively, a single nuclear power station, such as that proposed for Hinkley Point further down the estuary, could produce the same amount for a fraction of the same capital investment and with only minimal fuel costs. The barrage would thus be a ludicrously expensive way to produce a relatively small amount of electricity.
So, firstly, why has the idea of wasting so much money suddenly so seized Cameron that he has asked Oliver Letwin to liaise with Corlan Hafren in pushing the scheme, which we are told would be piloted through the Commons by Hain?
The answer seems to be that the man masquerading as our prime minister is now uncomfortably aware that he hasn't a hope of meeting that EU renewables target with wind turbines (and Brussels does not count nuclear power as "renewable").
Furthermore, what would be the biggest infrastructure project in our history might temporarily create, it is claimed, "30,000 jobs". What Cameron probably doesn't understand, because his advisers might not have told him, is just how small a contribution the scheme would make to our EU target.
What makes this even odder, however, is that the government could contemplate handing such a mammoth project to a company which is currently showing only £91 in its accounts, representing the contributions of its various shareholders.
The answer to this puzzle must lie in the central involvement in the company of Gummer who, in 2007, was commissioned by Cameron to produce a report for the Conservative Party entitled Blueprint for a Green Economy. Sancroft's current managing director is Adrian Gahan, formerly Cameron's adviser on energy and climate change policy, who played a key part behind the scenes in pushing the Climate Change Act through parliament.
There were signs last week that Gummer was anxious to distance himself from the controversy building up around his involvement with Corlan Hafren. He told The Guardian that he had not been a director since June, although this detail was only lodged with Companies House last Monday.
Returning to the question of Gummer taking over the Climate Change Committee, Booker asks whether it is really acceptable that in ten days' time the confirmation of his chairmanship of the most influential body guiding government policy on energy and climate change should be in the hands of a committee of MPs chaired by Tim Yeo?
This means that these two men at the centre of shaping our energy future are both involved financially with an industry which stands to make billions from what is, potentially, one of the most dangerous wrong turns in our country's history.
This, the Severn barrage, would not only be a grotesque waste of money, but would have a devastating affect on the ecology of the lower Severn estuary, damaging inter alia the tidal flats where huge numbers of wading birds feed. This has provoked opposition from an array of environmental lobby groups, including the RSPB, Greenpeace and Friends of the Earth, who claim that it would be illegal under the EU's Habitats Directive.
The new scheme, it is claimed by Corlan Hafren, would get round this by leaving more of the mudflats exposed, making it possible for us to claim to Brussels that we were providing the birds with "compensation" habitat for that which was lost.
The last time this trick was played, on a much smaller scale, was when a Cardiff Bay barrage was proposed in the 1990s. The government then got its way with Brussels by promising "compensation" feeding grounds further up the coast, by allowing the sea to flood a large area of the Gwent Levels, which had been reclaimed from it since Roman times.
The environment minister who negotiated this device for getting round the EU law was none other than John Selwyn Gummer. But it would be much harder to convince the EU that a barrage right across the estuary – putting an end, among much else, to the Severn Bore – was not in serious breach of the Habitats Directive.
How ironic it would be, then – says Booker - if a monster project conceived only to meet our obligations under one EU directive – since Article 5(2) of the Renewables Directive was originally drafted, on Britain's insistence, specifically to permit a Severn barrage, though it is now more generally worded – was found to be illegal under another EU directive.
For this and other reasons, Booker very much doubts that Gummer's pie-in-the-sky scheme will ever go ahead. But Gummer can always console himself financially with his earnings from that monster wind farm in the North Sea. It should provide enough for a chairman of the Committee on Climate Change to retire on quite comfortably.
COMMENT THREAD
Richard North 26/08/2012
Monday, 27 August 2012
Headlined in Spiegel yesterday, repeated in most German newspapers – even Bild - and spilling over into Reuters and the British press, is a further instalment of the ongoing battle between theBundesbank and the ECB. But this is only the latest round in the war of words that some believe hadalready been won by the ECB.
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