Thursday, March 21, 2013

Eurocrash: the irrelevance of the budget

Cyprus palms.jpg

I am not sure whether it is a reflection of the times, or indicative of he way I feel about British politics, that the budget speech – once a great event in the British political calendar – almost completely passed me by.

Part of that is simply a measure of George Osborne. I have never been able to take him seriously as a chancellor and, on the basis of his current performance, my cynicism is perfectly justified. He never looked as if he was going to get a grip on the economy and, with debt spiralling out of control, there is no indication that he ever will. 

The other part rests with a position of the United Kingdom, discordant and fractured, as a satrapy of the European Union, where so much of our fate depends not upon the actions of our own politicians, but on events elsewhere. Currently, the situation in Cyprus has potentially a greater impact on our wellbeing than the mouthings of the vacuous Osbone. 

The very event of the budget, however – and this one in particular - highlights the failings of our system of government, and its inherent lack of democracy. 

Here we have a coalition government, for which no one voted and which holds office without an electoral mandate. It is represented by an appointed chancellor who on the day stood up to tell me (and my fellow citizens) what I would pay his government by way of taxes and other charges, irrespective of whether I approve, or can even afford to pay. 

This is many things, but it is not democracy. It does not even bear any semblance to democracy, and will not until the people of Britain – like the people of Cyprus – stand in the streets with "no" painted on the palms of their hands, and mean it. 

But then, when the people in this instance, do take a stand, the bully-boys move in. With an impasse over the so-called "rescue" (others call it theft), the European Central Bank is telling Nicosia it has until Monday to agree a bailout with the EU and IMF. 

Failing that, it will cut off funding from the "Emergency Liquidity Assistance" (ELA), an ultimatum which, if enforced, could see the island's banks driven into bankruptcy, crashing the local economy and causing untold misery. 

For the ordinary citizens of Cyprus – and the many thousands of British and other expats – this must be both confusing and alarming. Events seem to be spiralling out of control and they are the flotsam cast on the beach by the storm. 

In fact, though, they are more powerful than they think. Already, they have stopped one attempt at grand larceny, and while the big brave ECB might be throwing its weight about from the comfort of its air conditioned offices in Frankfurt, it knows full well that if Cyprus goes down, the shock waves will reverberate around the world, causing untold damage to the EU's single currency. Much of the bully-boy tactic, therefore, is bluff. 

Something of that comes over in the latest piece from Reuters, which talks of eurozone officials acknowledging that they are "in a mess" over Cyprus, and discussed imposing capital controls to insulate the region from a possible collapse of the Cypriot economy. 

That, in itself, would be a colossal admission of failure. It would breach one of the core principle of the EU treaties – the free movement of capital. Whatever the hurt to the people of Cyprus, the damage to the eurozone would be far greater. Which external investors are going to leave their money in peripheral euro countries, when there is a risk of having their funds frozen? 

And, while the markets appeared sanguine about the collapse of the Cypriot economy – which, after all, is only worth about €17 billion a year – they will be less happy about the prospect of capital flight from Italy and Spain. That is where the real risk lies. 

No sooner, therefore, did we get the blood-curdling threats from the ECB, then Spiegel announced a new deal in the making. More details come from Die Zeit. The political parties, it seems, have agreed on the formation of a fund to rescue the island from bankruptcy. This is a "solidarity fund", comprising a pooling of assets from pension funds and the Church, with the idea of the levy discarded completely - or maybe just applying to larger (€100,000-plus) accounts. 

On this basis, the people have prevailed, from which there are important lessons. Firstly, our rulers cannot be trusted to properly manage their respective economies and, secondly, when push comes to shove, the people have to take to the streets to put them in their place. Thirdly, when they do, the politicians cave in. 

In Britain, we are very far from sorting out our own, but anyone who believes that the economy here is any better managed than it was in Cyprus is really not of this world. So, where Cyprus leads, we will undoubtedly be following. If nothing else, arithmetic is on our side. There are more of us than there are of them.