An FTA with the EU

October 19th, 2015 at 9:00 am by David Farrar

The Herald reports:

The ink is barely dry on the TPP and New Zealand has the prospect of another giant free trade deal in the offing with the European Union taking the first steps towards an FTA with New Zealand.

It was announced early this morning that the EU Commission will seek to negotiate separate FTAs with both New Zealand and Australia as part of its trade strategy for the next four years.

The caveat is that talks will take in account “EU agricultural sensitivities.”

That’s great news.

It won’t be a gold standard one as the EU Common Agricultural Policy is too entrenched. But if we can make progress towards liberalisation, that would be excellent.

EU Trade Commissioner Cecilia Malmstrom told the New Zealand Herald after the release of the strategy that it made political and economic sense to hold talks with New Zealand.

“When I started this job [a year ago] I was a bit surprised that we have free trade agreements either concluded or ongoing with so many part of the world but not with New Zealand and Australia who are national allies, friends, partners in so many other issues.”

Talks were happening already to establish the level of ambition which would be announced soon.

Yep long overdue.

Agriculture in the EU is still heavily subsidised, with payments under the Common Agriculture Policy accounting for 40 per cent of the EU budget but the levels of subsidy are reducing over time.

Ridiculous. NZ is proof that the agricultural sector actually does better without subsidies.

Can the EU force countries to take refugees?

September 24th, 2015 at 11:21 am by David Farrar

Stuff reports:

The European Union approved a plan on Tuesday (Wednesday NZ Time) to share out 120,000 refugees across its 28 states, overriding vehement opposition from four ex-communist eastern nations.

Diplomats said interior ministers meeting in Brussels had voted to launch the scheme, backed by Germany and other big powers, in order to tackle the continent’s worst refugee crisis since World War Two.

The Czech minister tweeted that he had voted against, along with colleagues from Slovakia, Romania and Hungary, with Finland abstaining.

So being a member of the EU now means other countries decide your refugee quota for you.  What will they do if countries refuse?

At present most in the UK want to remain in the EU, but how the EU deals with this issue may change that.

Prague had earlier warned that any attempt to impose such a scheme would be unworkable and could end in “big ridicule” for governments and EU authorities.

“We will soon realise that the emperor has no clothes. Common sense lost today,” Czech Interior Minister Milan Chovanec tweeted after the vote.

Slovak Prime Minister Robert Fico said pushing through the quota system had “nonsensically” caused a deep rift over a highly sensitive issue and that, “as long as I am prime minister”, Slovakia would not implement a quota.

And worse:

“If we fail to find the right solution in the long term, the migrant crisis could truly threaten the existence of the European Union. But I am not a pessimist, I believe that we will find joint measures,” Slovenian Prime Minister Miro Cerar told Reuters in an interview.

The reason for the opposition:

Eastern states with no tradition of integrating large numbers of Muslims are anxious about the impact on their societies and keen to avoid any signal that might encourage even more desperate people to set sail across the Mediterranean for Europe.

This is the same issue Australia has had. If you don’t take a hard line, then you encourage hundreds of thousands more to set sail.

Countries should take refugees – but from the refugee camps through the UNHCR system. Encouraging people to set sail to Europe will only end badly.

Why Europe Failed

August 31st, 2015 at 7:00 am by David Farrar

Oliver Hartwich at the NZ Initiative has had an essay published on Why Europe Failed. The forward is by former Australian PM John Howard who notes:

Oliver Hartwich has written a compelling essay, Why Europe Failed. He lucidly identifies the essentially undemocratic character of much of the European project. Political elites, unaccountable to national electorates, impose decisions on tens of millions of people without any real fear of rebuke. Hartwich provides a sobering analysis of an ageing Europe, overburdened by the size of its welfare state.

Some quotes from the essay:

Contrast this with the only one statistic in which Europe leads the world by a mile: The EU’s 28 member states account for 54% of global spending on social welfare.

But that is almost a by the way. The key thing:

Europe’s problems are more fundamental. Its elitist structure of governance has locked its political institutions into paralysis. Its economic model of a mixed market economy is unable to keep up pace with more dynamic world regions. Its demographic changes will test the limits of its expanding welfare state. And all of this is happening against a background of increased security concerns on Europe’s borders with Africa, the Arab world, and Russia. Europe is being challenged on many fronts at once, and even this is an understatement. 

He looks at the European Parliament:

The first problem is the most basic one: Unlike national parliaments, the European Parliament does not have the right to initiate lawmaking procedures. This is not a triviality. Parliaments are often called legislatures because that is what they are there for: to legislate. The European Parliament can neither make laws on its own (it needs the European Commission, i.e. the executive branch of the EU, to do that), nor easily remove the executive (it needs a two-thirds majority). In effect, the European Parliament hardly deserves its name. It is a toothless parliament by the standards of most democratic nations. 

If you abolished it, would anyone notice?

Europe’s political and economic problems will soon be exacerbated by its ageing society. In a number of European countries, birth rates have been very low for several decades. The replacement fertility rate, that is, the fertility rate at which populations would remain constant over time, is 2.1. That means if women have, on average, 2.1 children over their lifetime, then every generation would be replaced by a new generation of the same size. The current average fertility rate for the EU, however, stands at just 1.58.  This means the next generation will be about a quarter smaller than the current generation. If the trend continues, this new generation will be succeeded by another generation that is another 25% smaller. 

Breeding yourself out of existence.

The consequences of these demographic changes will be severe. It will be difficult for European nations to service their debt, let alone repay it, with both shrinking and ageing populations. There is only so much that increased productivity can do to compensate for a collapsing workforce. 

In other words, more countries may go the way of Greece – welfare commitments that their economy simply can’t provide.

Hartwich’s conclusion:

The standout reasons for Europe’s decline are its elitist political system and its inflated welfare state – and the interrelations between these two. Europe no longer rules the world. Nor can it hope to regain the dominant position it once enjoyed. Europe’s decline is entirely self-inflicted. It is a continent that first destroyed itself in two world wars. It then weakened itself by inflating the activities of the state while creating a bureaucratic, isolated, and elitist superstructure in the form of the EU. It also wrecked its monetary system by introducing a common currency that was never going to work and caused more problems than it ever solved.

In many ways, Europe is a case study in how not to conduct one’s economic and political affairs, which makes it all the more worthwhile to pay attention to European affairs so we do not repeat their mistakes here.

But don’t hold your breath. Short-term political gains through welfare spending is too tempting for politicians anywhere and too beguiling for voters.

Greece is only the first European country to effectively go bankrupt. It is unlikely to be the last.


Fiscal union for the Eurozone?

July 20th, 2015 at 4:00 pm by David Farrar

Stuff reports:

French President Francois Hollande has called for the creation of a eurozone government and for citizens to renew their faith in the European project, which has been weakened by the Greek crisis.

Reviving an idea originally put forward by former European Commission chief Jacques Delors, Mr Hollande proposed “a government of the eurozone [with] a specific budget as well as a parliament to ensure its democratic control”.

If you want to keep the monetary union of the Euro, then you need fiscal union also. Greece has shown you can’t have a country in monetary union that doesn’t follow the same basic fiscal policy as the rest of the union.

But I can’t see national governments giving up fiscal policy control.

EU wants a minimum tax rate!

June 5th, 2015 at 3:00 pm by David Farrar

The Telegraph reports:

It also emerged that they are also pushing plans to introduce a minimum corporation tax rate across the continent in a move that could result in higher taxes on British companies. …

On Wednesday, EU officials will discuss how to tackle tax avoidance and create a system of “fair, transparent and growth friendly” corporation taxation at an orientation debate in the College of Commissioners, a forum used to float ideas, ahead of an announcement in June.

The discussion will include plans to create a basic rate of corporation tax across Europe, reported Handelsblatt, the German business newspaper. The

“Germany and France and demanding a minimum threshold value; we are reacting to that,” one commission source told the newspaper.

A commission spokesman denied the reports. At 20 per cent, Britain has the lowest corporation tax rate in the G7, and among the lowest in western Europe.

How about a maximum tax rate instead of say 25%!

If the EU tries to bring in a minimum corporate tax rate, it would be very good for non EU members!

The EU was made in the UK?

January 30th, 2015 at 12:00 pm by David Farrar

Sir Michael Leigh writes:

Britain is in the grip of a prolonged political crisis concerning its own constitutional order and its membership in the European Union, exacerbated by acrimonious and misleading arguments over immigration. As in other European countries, a demagogic anti-EU, anti-immigration movement has driven the established parties into a defensive posture. The current prime minister, David Cameron, felt compelled to promise an “in/out” referendum on Britain’s EU membership if his Conservative Party returns to power after the May 2015 general election. As a further gesture to the populists, he is now hinting at advancing the date of this referendum.

But such efforts at appeasement have proved futile, provoking ever-increasing demands. At the same time, British leaders have upset natural allies within the EU and missed an opportunity to become the leading European voice advocating forward-looking policies such as completing the single market, strengthening Europe’s global competitiveness, and building an energy union. The government has also failed to explain to voters that the EU today bears strong signs of British design and as such serves Britain’s interests well. …

Margaret Thatcher joined forces with Commission president Jacques Delors in the late 1980s, in order to eliminate restrictions on the free circulation of goods, services, capital, and workers — the original goal of the common market. The Commissioner in charge at the time, Arthur Cockfield, as well as the then-Secretary-General, David Williamson, were both British. For decades, the single EU market has favored British exports of goods and services, especially financial services. Since 2010, the most senior EU official in charge of the single market and services has been British. Jonathan Hill, the Commissioner appointed in 2014 to regulate the single market, is also British. The Danish and Swedish Commissioners for competition policy and trade, who took office last November, support a liberal agenda in line with British thinking. Today, they are engaged in challenging negotiations with the United States for a Transatlantic Trade and Investment Partnership.

The EU is at its best when it liberalises trade and services, and allows Europe to be one economy. It is at its worse when it goes beyond the economic focus and is seen as interfering in domestic affairs of countries.

Germany backs EU and NZ free trade agreement

November 15th, 2014 at 9:00 am by David Farrar

The Herald reports:

German Chancellor Angela Merkel says she will back a New Zealand push for a free trade agreement with the European Union – words that will be music to Prime Minister John Key’s ears.

Speaking to media during her visit to Auckland today, Dr Merkel said Germany would champion New Zealand’s cause.

“I think we should also come out in favour of a free trade agreement between the EU and New Zealand. New Zealand has such agreements with China and other areas of the world.

“As a member of the European Union, Germany is very much championing, despite the great distance that separates us, to foster our trade relationships, to bring forward trade with the European Union.”

She said she was impressed by New Zealand’s growth, saying it was because the country was open minded and encouraged free trade.

Mr Key said Germany was already a critical trade partner and two-trade was now larger than with the United Kingdom. However, there was scope to do more and he had spoken about NZ’s aspirations for a free trade agreement with the EU.

Interesting that Germany is now a bigger trading partner than the UK.

An FTA with the EU would be great as they are highly protectionist. But it would require consent of all EU countries and I can’t see France agreeing.

Two way trade with the EU is around $12 billion a year.

Herald on EU

June 6th, 2014 at 12:00 pm by David Farrar

The Herald editorial from Tuesday:

From time to time, national referendums have thrown a spanner in the European Union’s plans for closer ties between its members. But never has there been such a broad renunciation of that process as that delivered in the recent European Parliament elections. In an alarming number of the EU’s 28 member states, populist parties from the far right and far left triumphed over their mainstream opponents.

The impact was most notable in Britain, where the UK Independence Party topped the poll with 28 per cent of the vote, and France, where the anti-European National Front did likewise with 25 per cent support. Centrist pro-European parties will continue to be the dominant force in Brussels, but this is not an outcome that can be shrugged off.

It is clear that after 60 years, during which the EU and its forebears have, by and large, orchestrated peace and prosperity, many of its 500 million people have fallen out of love with the pan-Europe ideology.

They complain about the arrogance and expense of bureaucrats in Brussels who are intent on reducing the important of their national parliament. They regret replacing their national currencies with the euro, which, rather than making Europe more equal, has created instability. And those in the north decry an expansion that has saddled them with indebted nations in southern Europe. The EU has, says David Cameron, the British Prime Minister, become “too big, too bossy and too interfering”.

Especially the European courts over-riding national legislatures.

Others, however, believe the EU can be saved by reform.

The latter course can prevail if the European Parliament heeds the unmistakable lesson of this election and puts a brake on the drive towards ever closer union. It needs also to be less intrusive in the everyday affairs of its members. Equally, it must convince Europeans that it provides the framework to outperform other developed countries economically. The most convincing answer to the eurosceptics lies, as Germany’s Angela Merkel suggested, in “improving competitiveness on growth and creating jobs”. At some point, those countries using the euro must also embrace a more comprehensive fiscal union. If that is not done, a return to national currencies is the logical step.

You can’t have monetary union without fiscal union. Which is one reason Scotland won’t be able to keep the pound if they vote for independence – which is unlikely on the polls.

The economic tide is swinging in favour of the pro-Europeans. Much of the EU has been late to catch the global upswing, but even the weaker economies are starting to benefit. They will gain also from the tough measures taken over the past few years. Further, the conclusion of a successful free-trade pact with the United States would hammer home the message that union can deliver more wealth than individual endeavour.

A focus on free trade and freer economies is what the EU needs, not more regulations.

Oliver Hartwich also writes on the EU lack of democracy:

What is democracy? Well, usually democracy is when the people vote in an election and the winner then happens to form a government. It is as simple as that. And what is European Union democracy? It is when the people vote in an election and, regardless of the outcome, German chancellor Angela Merkel decides on the next president of the European Commission.

Oliver’s article is a fascinating analysis of the power games currently going on.

UKIP and French National Front storm European elections

May 26th, 2014 at 1:13 pm by David Farrar

The Guardian reports:

Nigel Farage unleashed his much promised political earthquake across British politics as Ukip easily topped the poll in the European elections, marking the first time in modern history that neither Labour nor theConservatives have won a British national election.

The Liberal Democrats have suffered a near total wipeout and are course to lose all but one of their 11 MEPs, placing serious pressure on Nick Clegg to justify his leadership of his party.

In a stunning warning to the established political parties, which lined up over the weekend to say they took the Ukip threat seriously, Farage’s party was expected to win about 28% of the national poll. This was a near doubling of the 16.5% it secured in the last European elections in 2009 when it came second to the Tories and took 13 seats. Just 20 years ago, in its first European parliamentary election, Ukip managed just 1% of the vote.

Labour predicted that, when all the final results were assembled, they would have polled 25.7%, with the Tories on 24.5 % and the Green partyin fourth place.

Farage said the result justified the description of an earthquake because “never before in the history of British politics has a party seen to be an insurgent party ever topped the polls in a national election”.

This makes the 2015 UK election very difficult to predict. UKIP take a lot of votes away from the Conservatives and this hurts them as they have FPP. But if they manage some sort of arrangement, then their combined vote will be higher than Labour, Greens and Lib Dems.

Ironically the UKIP may end up defeating the main thing they want – a referendum on Europe. If there is a change of Government, then there won’t be one.

Meanwhile in France:

France’s Front National won the election there with a projected 25% of the vote, while the governing socialists of President François Hollande collapsed to 14%, according to exit polls.

It is disturbing to see neo-Nazis getting elected in France, Germany, Austria, Greece etc.

Does UKIP doing well mean they will leave the EU?

April 30th, 2014 at 4:00 pm by David Farrar

Iain Martin writes at the Telegraph:

YouGov for The Sunday Times yesterday asked voters how they would vote in the event of a referendum on the UK’s membership of the EU. Despite the country being, according to Ukippers, on the brink of a revolution which will bring down the entire political Establishment and liberate Britain from the LibLabCon tyranny, the numbers suggest that Britain wants to stay in the EU.

Asked how they would vote in an in/out referendum, 40 per cent said they would vote to stay in, 37 per cent said out, 18 per cent don’t know and 5 per cent would stay at home watching Cash in the Attic. Obviously a lot to play for, with as you might expect, a large number of don’t knows. Still, the inners are in front, despite all the recent excitement related to the European elections.

And look at the result when a second question was asked.

“Imagine the British government under David Cameron renegotiated our relationship with Europe and said that Britain’s interests were now protected, and David Cameron recommended that Britain remain a member of the European Union on the new terms. How would you then vote in a referendum on the issue?”

In such circumstances, 50 per cent say they would vote to stay in, 26 per cent to leave, 18 per cent don’t know and 5 per cent would stay at home watching the repeats of Location, Location, Location which (I’m told) follow Cash in the Attic.

So it could go either way if no renegotiation, but will stay in if there is one.

A caveat applies, of course. Perhaps Cameron would not get a renegotiation, with other major EU countries perhaps being incapable of seeing that unless there is a major shift in how the EU is structured one of its key members (the UK) could decide to try something else instead. 

It takes only one other country to block it, but if they do so then they will be responsible for the likely departure of the UK.

What I think we will see is a two-tier EU. One bloc being committed to full integration, and another to a less binding set of rules.

Before the hardliners from among the Ukip hordes – increasingly almost as intolerant of dissent as hardline Scottish nationalists, I note – denounce me as a traitor to my country, I want to make it clear that I am a moderate Eurosceptic who cherishes European culture but thinks the EU as currently constituted is bloated and bossy. In the event of a referendum I am persuadable, based on the arguments laid out by the inners and the outers, although like many people, I particularly hate being shouted at by golf club bar bores. I’m perfectly prepared to accept that the UK could have a successful and bright future trading as either an associate member of the EU or completely outside it with free trade agreements, if the outers explain, calmly, how the numerous obstacles might be overcome.

I have a similar view.

Will NZs boom be affected by the Transatlantic Trade and Investment Partnership?

March 28th, 2014 at 2:00 pm by David Farrar

Sir Michael Leigh blogs at the German Marshall Fund:

New Zealand is enjoying an export-led boom. At 3.1 percent, it boasts the highest GDP growth rate of any developed country. Reconstruction after the devastating 2012 Christchurch earthquake has provided an additional boost. Prime Minister John Key of the National Party is expected to win a third term of office in September, an achievement paralleled only by German Chancellor Angela Merkel in the period following the global financial crisis.

National is at 79% on iPredict to still be in Government after the election. This is exceptionally high. In 2011, I don’t think they were ever above 61%.

Much of New Zealand’s growth is fueled by trade with China, which has displaced Australia as the country’s largest export market. New Zealand’s exports to China rose by a spectacular 45 percent in 2013. Milk powder and other dairy products were by far the largest export items but meat and forest products also made major inroads into the Chinese market. Four factors explain the phenomenal growth figures: the implementation of the 2008 free trade agreement between China and New Zealand, Beijing’s first such agreement with an OECD country; rising demand for quality food products from China’s growing middle class, which is set to double within a decade; the high quality and competitive pricing of New Zealand’s agricultural products; and the proactive export strategy of Fonterra, the dairy giant owned by 13,000 New Zealand dairy farmers.

The FTA was Labour’s greatest gift to NZ. It’s appalling that Greens and NZ First opposed it. But one has to also credit Fonterra for their export strategy. An FTA provided an opportunity only.

Observers here worry about the country drifting into a dairy-fuelled version of the Dutch disease, with insufficient economic diversification, inflation, and a property bubble. To counter this, New Zealand’s agricultural production is moving up the value scale. The country’s eight universities are teaming up with industry to foster innovation. New Zealand increasingly exports know-how, technology, and services, linked to investment projects. Still, agriculture remains the mainstay of the economy.

It is not a choice of high tech or agriculture. We need to do both.

The Transatlantic Trade and Investment Partnership (TTIP), now being negotiated by the United States and the European Union, excites curiosity and concern. New Zealanders share Europe’s apprehensions about its possible implications for food security and about the need to maintain high health, safety, and environmental standards. They are also concerned about the bilateral nature of the agreement and the apparent absence of provisions for accession by third parties.

New Zealand is one of only six WTO members that do not have current or expected preferential trade deals with the EU. The abolition of transatlantic tariffs on food exports could put New Zealand at a further competitive disadvantage. There are high tariff peaks for dairy and meat products in the EU and United States which would still apply to New Zealand exports.

This is why the best outcome would be to conclude the Doha round and have a multilateral agreement to reduce tariffs. Without that we run the risk of bilateral and plurilateral trade agreements disadvantaging New Zealand in a relative sense.

More fundamentally, New Zealanders recognize TTIP’s potential for strengthening the rules-based international trading system, in which they have a strong interest. After the failure of the Doha Development Agenda, there may never again be another comprehensive round of global trade liberalization, despite the modest breakthrough in Bali last year. New Zealand would then have to rely on bilateral agreements such as its FTA with China, or the agreement under negotiation with Russia.

It is hard to see the Doha round ever being completed.

Kiwis are under no illusion concerning these countries’ commitments to intellectual property protection, health and safety standards, or judicial independence. New Zealand suspended trade negotiations with Vladimir Putin’s cherished Customs Union after Russia’s forceful annexation of Crimea. This and tensions in the South China Sea are reminders that Moscow and Beijing may not always be reliable partners. TPP and TTIP would effectively set global standards which could be adopted by countries around the world and codified by the WTO.

Former U.S. Secretary of State Hillary Clinton described TTIP as the economic equivalent of NATO. For all their geographic isolation and growing economic integration with Australia, Asia, and the Pacific, New Zealanders feel they belong to the West and would broadly welcome TTIP as reinforcing values they share with Europe and the United States.

I’ve not paid too much attention to TTIP (as opposed to TPP), but maybe it could be the base for a NZ-EU agreement of our own one day?

A NZ-EU free trade pact?

March 26th, 2014 at 6:10 am by David Farrar

Stuff reports:

New Zealand and the European Union are to pursue a free trade pact – but don’t expect any action until at least 2015.

Prime Minister John Key made the announcement in The Hague after meeting European Commission president Jose Manuel Barroso and European Council president Herman Van Rompuy. He described it as “quite an important” meeting

Two-way trade between New Zealand and the 28 members of the EU totals $16 billion a year.

Key said the EU has, for the first time, agreed to consider a free trade agreement.

But he admitted an ambitious EU-US trade deal, as well as a pact with Canada, will take priority for the Europeans. 

The EU is highly protectionist so a free trade pact would be a very good thing.

However as indicated, not likely to happen anytime soon. However an agreement for one to be considered is a worthwhile start.

EU myth busting

June 30th, 2013 at 10:42 am by David Farrar

The EU has set up a myth busting page, which is a very good idea. While I think the EU has some fundamental flaws (lack of democracy, involved in two many areas) it is fair to say they get blamed for some stuff unfairly. So far they have blogged:

  •  EU laws do not prevent churches from taking steps to deal with bat infestations
  • The EU does not “blacklist” beaches: EU laws do not prevent anyone from swimming anywhere, but who wants to swim in poo?
  • Lack of UK action not EU rules responsible for UK Jam manufacturer being in a sticky situation

European views on Europe

May 16th, 2013 at 9:00 am by David Farrar



This table is from Stats Chat.

So every country thinks Germans are the most trustworthy, except the Greece who think they are!

For least trustworthy, the British choose the French (fair enough), three countries choose Greece, Italy chooses itself (which is hilarious but perceptive) and Greece and Poland choose Germany. Maybe due to invasions but how do Poles say Germany is both most and least?

France and Germany are the only two countries chosen for most arrogant (also fair enough) while interestingly citizens of each country choose themselves as most compassionate – which suggest we see compassion locally.


The Euro killing Europe?

March 27th, 2013 at 2:00 pm by David Farrar

Daniel Altman at Foreign Policy writes:

In 1999, the traditionally hard currencies of Europe’s north merged with the softer currencies of the south to form a new money that was somehow supposed to be stronger than any of the ones it replaced. Under the stewardship of the European Central Bank (ECB) in Frankfurt, the euro was meant to — and did — become a reserve currency to rival the dollar. Though the supposedly prudent northern countries didn’t always keep their budget deficits under control, they still managed to survive the worst of the global economic downturn. By contrast, the profligacy of the south, together with its flawed banking systems, has created a hotbed of crises that stretch 2,300 miles from Lisbon to Nicosia.

These crises would have been a lot shorter if the countries involved — Greece, Portugal, Spain, now Cyprus, soon Slovenia, and perhaps Italy for a second time — had possessed their own currencies. But all of them use the euro, so their monetary policy is set in Frankfurt at the ECB. Instead of devaluing their currencies in order to spur exports and ease the repayment of debts, all of these countries have had to undergo some combination of fiscal austerity, deflation, and, most notably in Cyprus’s case, loss of assets.

The lesson is you can’t have monetary union without fiscal union. Monetary policy and fiscal policy need to work together.

The interesting thing is the impact on political stability as well. They have a table showing how Parliaments in southern Europe have become more fragmented and extreme, which threatens Europe as a whole to a degree. They use the  Herfindahl Index to calculate the fragmentation.

The NZ Parliament Herfindahl Index is currently 0.34.

The Euro problem

March 11th, 2013 at 12:00 pm by David Farrar

Brian Carney at the WSJ reports:

Seventeen years ago, Bernard Connolly foretold the misery that awaited the European Union. Given that he was an instrumental figure in the EU bureaucracy and publicly expressed his doubts in a book called “The Rotten Heart of Europe,” he was promptly fired. Mr. Connolly takes no pleasure now in having seen his prediction come true.

The solutions:

Two immediate solutions present themselves, Mr. Connolly says, neither appetizing. Either Germany pays “something like 10% of German GDP a year, every year, forever” to the crisis-hit countries to keep them in the euro. Or the economy gets so bad in Greece or Spain or elsewhere that voters finally say, ” ‘Well, we’ll chuck the whole lot of you out.’ Now, that’s not a very pleasant prospect.” He’s thinking specifically, in the chuck-’em-out scenario, about the rise of neo-fascists like the Golden Dawn faction in Greece.

The other “solution” is they leave the Eurozone.

Yet unemployment is close to 27% in Spain and Greece. The euro-zone economy shrank ever-faster throughout 2012. And—most important in Mr. Connolly’s view—the economic fundamentals in France are getting worse. This week France announced it would miss its deficit-reduction target for the year because of dimming growth prospects.

It’s one thing to bail out Greece or Ireland, Mr. Connolly says, but “if the Germans at some point think, ‘We’re going to have to bail out France, and on an ongoing, perpetual basis,’ will they do it? I don’t know. But that’s the question that has to be answered.”

Italy isn’t too flash either.

Which brings us back to the politics of the euro crisis. At some point, the people in the affected countries presumably will call a halt to the pain and sweep in a government willing to think the impossible—leaving the euro, for example.

To avoid that, Germany could well agree to pay for a transfer union, either believing that the transfers needn’t be permanent, or hoping they’d be less expensive than a euro break up. But, Mr. Connolly warns, once a mechanism is in place to transfer money from Germany to the current-account deficit countries, it’s only a matter of time before Germany is faced with the question of adding France to its list of dependents—something even Berlin may not be willing or able to afford.

I suspect Germany’s limit may come before even that.

Great Boris quotes

March 6th, 2013 at 4:00 pm by David Farrar

The Telegraph reports:

Rules to limit the rewards would drive well-paid financiers out of the City and harm the economy, Mr Johnson said, insisting that the plans were doomed to failure.

“This is possibly the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman Empire,” Mr Johnson said.

The last Roman ruler to persecute Christians, Diocletian brought stability to the empire after the chaotic third century. In 301AD, he passed his edict on prices, an unsuccessful attempt to stop inflation by imposing maximum prices on common goods.

I like a politician that knows his history.

The mayor’s comments put pressure on David Cameron to water down the new EU bonus rules, agreed provisionally in Brussels this week.

Under them, annual bonuses will not be allowed to exceed a banker’s salary, starting next year. Bonuses of twice annual salary will be allowed if shareholders approve them.

Oh, why stop there. Let’s also pass a law saying account executives can’t have commission in excess of their base salary.

Supporters of the cap say it will discourage bankers from pursuing the sort of high-risk deals that helped cause the financial crisis. Opponents point out that hedge funds, private equity companies and other financial firms are unaffected.

Mr Johnson said the rules would only harm Europe.

“Brussels cannot control the global market for banking talent. Brussels cannot set pay for bankers around the world,” he said.

“The most this measure can hope to achieve is a boost for Zurich and Singapore and New York at the expense of a struggling EU.” Mr Johnson added: “People will wonder why we stay in the EU if it persists in such transparently self-defeating policies.”

Well there will be a referendum in 2016, if the Conservatives win re-election.

European Unemployment

March 5th, 2013 at 4:00 pm by David Farrar

The NY Times reports:

Unemployment in the 17-nation euro zone climbed to 11.9 percent in January from 11.8 percent the previous month, according to Eurostat, the statistical office of the European Union.

For the 27 nations of the Union, the jobless rate in January stood at 10.8 percent, up from 10.7 percent in December. All of the figures were seasonally adjusted.

Even though the EU is not that major a trading partner for us anymore, their woes will impact us. If Europeans are unemployed they are not spending money on imported goods from China. If the Chinese economy doesn’t grow as quickly as previously that impacts us both directly and via Australia.

The official stats say:

Compared with a year ago, the unemployment rate increased in nineteen Member States, fell in seven and
remained stable in Denmark. The largest decreases were observed in Estonia (11.1% to 9.9% between
December 2011 and December 2012), Latvia (15.5% to 14.4% between the fourth quarters of 2011 and 2012),
Romania (7.4% to 6.6%) and the United Kingdom (8.3% to 7.7% between November 2011 and November 2012).
The highest increases were registered in Greece (20.8% to 27.0% between November 2011 and November 2012),
Cyprus (9.9% to 14.7%), Portugal (14.7% to 17.6%) and Spain (23.6% to 26.2%).

The NZ unemployment rate is 6.9%. Too high, but better than most of Europe.


Cameron calls for UK referendum on EU membership

January 24th, 2013 at 4:00 pm by David Farrar

The Telegraph reports:

In a landmark speech, the Prime Minister said it is “time for the British people to have their say” amid growing public discontent with the power of Brussels.

Mr Cameron pledged an in-out referendum in the first half of the next parliament as democratic consent for membership is currently “wafter thin”.

“It is time to settle this European question in British politics,” he said. “I say to the British people: this will be your decision.”

Long overdue. It is cunning to time it for 2017, as it puts the acid on Labour and the Lib Dems. If they don’t commit to a referendum, they’ll suffer at the ballot box. People want to have a say – even if it is a vote to stay. Ed Miliband has said he won’t support a poll. I think he may come to regret that decision.

His decision to hold a poll was greeted with relief and praise from a wide range of Conservative MPs, but the reception across the Channel has already proved hostile.

A French minister branded the promise of a referendum “dangerous” and a former senior German politician described the possibility of Britain’s exit as a “veritable disaster”.

It would be, for the EU. That is why the EU has to reform. It is an undemocratic institution with almost all power with appointed Commissioners. It needs to focus more on free trade and economic prosperity, rather than regulating so many aspects of European life. If it does not agree to changes, then I think the UK will vote to leave.

The Prime Minister promised that he will personally fight for Britain to stay in the EU, after re-negotiating a better deal and clawing back some powers from Brussels.

He also went further than calling simply for the UK to have a new relationship with the EU. Setting out a wider vision for reform, he made a pitch to other leaders for a more “flexible, adaptable and open” relationship between all members, not just Britain.

“Far from unravelling the EU, this will in fact bind its members more closely because such flexible, willing cooperation is a much stronger glue than compulsion from the centre,” he said.


The full speech is here.

The EU wins the Nobel Peace Prize

October 13th, 2012 at 10:00 am by David Farrar

The timing of this is even more strange than Obama winning it.  Don’t get me wrong – the EU has been a good success at stopping wars in Europe.  Mind you, I think WWII was the bigger factor.

But why give it to the EU now, in the middle of their economic meltdown? It looks like a sick joke, or a sympathy award.

Pour on more petrol

September 30th, 2012 at 2:45 pm by David Farrar

The Herald reports:

Almost daily, Europe faces questions on whether its once-vaunted single currency can survive, and anti-European Union rumblings echo in capitals where governments are cutting spending in exchange for a bailout from Brussels or to satisfy its scrutiny of the national deficit.

The European Union is in the thick of its deepest crisis – and at its core is whether the EU’s design, based on shifts of power from sovereign states to the centre, is fatally flawed.

Yet even in the midst of this turbulent debate, a powerful bloc is saying the answer to Europe’s problem is not less integration, but more.

Last week, 11 out of the 27 EU nations appealed to save the guttering flame of federalism.

“In many parts of Europe, nationalism and populism are on the rise, while the feeling of solidarity and sense of belonging in Europe are dwindling,” the so-called Future of Europe Group said. “We have to take action to restore confidence in our joint project.”

The eight-page blueprint issued in Warsaw calls for closer economic and monetary governance across the EU, including a single supervisory body for banks and closer inspection by Brussels of national budgets and economic strategies.

Now bear in mind that those in Brussels with the power are unelected – they are appointed by Governments. So what is being proposed is to give the unelected officials power over national budgets!

More decisions in the Council of Ministers, the highest political authority in the EU, would be made by majority vote, thus preventing a single country or minor bloc from torpedoing European laws.

This would mean individual countries could be forced by a other countries into submitting to them. The day that happens, expect the EU to shrink dramatically.

“The eurozone crisis demonstrated with lethal force that Europe’s existing instruments of government are just not good enough to give the eurozone the speed of decision-making needed to weather the latest financial storm,” Klau said.

The problem is too much integration. The Euro integrated currency is a disaster.

One ambitious recommendation is for citizens to directly elect the president of the European Commission, the powerful executive, which oversees a budget of €147 billion ($229 billion) and enforces EU laws. He or she would also appoint his or her own team of commissioners.

That would be an improvement, but smaller states will be reluctant to sign up. The US model works because the Senate specifically is designed to protect smaller states. Same in Australia.

Spain gets closer to the brink

July 25th, 2012 at 12:00 pm by David Farrar

The Daily Telegraph reports:

The yields on closely-watched two-year debt surged by 78 basis points to a modern-era high of 6.42pc, leaving it unclear how long the country can continue funding itself. Italy’s two-year yields vaulted to 4.6pc.

“We can’t keep going like this for another 15 days,” said Prof Miguel Angel Bernal from Madrid’s Institute of Market Studies. “The European Central Bank has to bring out its heavy artillery.”

Andrew Roberts, credit chief at Royal Bank of Scotland, said the dramatic spike in short-term borrowing costs marked a key inflexion point in the crisis, replicating the pattern seen in Greece, Ireland and Portugal as they lost access to market finance. “We are fast approaching the endgame,” he said.

A collapse for Spain would be huge. For Italy, the consequences beyond belief.

El Confidencial said the Rajoy team was thinking of “putting on the table” a possible withdrawal from the euro, a dramatic escalation in the game of brinkmanship between the eurozone’s Latin bloc and German-led creditor core.

“We would have our own currency again and restore competitiveness. It would have some disastrous consequences at first, but we would regain control over our own policies and we would escape from the crisis sooner,” a government source reportedly said.

I think they should leave the Euro. It is clear you can not have monetary union without fiscal union – or at least hard fiscal barriers all keep within.

Gary Jenkins from Swordfish said the EU may be able to “rustle up” just enough money to finance an EU-IMF Troika rescue for Spain – probably around €400bn – but Italy is too big to handle.

The existing EU bail-out fund (EFSF) is down to about €160bn after covering the needs of Greece, Ireland, Portugal, Cyprus and the Spanish banks. The new permanent fund (ESM) will have €500bn, but is facing a challenge in the German constitutional court. It is far from clear whether these funds can raise large sums on the open market at viable cost.

Mr Jenkins said the fire must be contained before it reached the next big country, either by massive ECB intervention or full fiscal union. Germany is still blocking both. “The battle for Spain is already lost. The battle for Italy has begun,” he said.

If this happens, we will not be immune. Forget surplus in 2014/15 – in fact our big challenge may just be to avoid a structural deficit.

The Eurocalypse Now debate

May 30th, 2012 at 10:00 am by David Farrar

Thanks to the NZ Initiative I was able to attend the Eurocalypse debate at the Auckland War Memorial Museum last week. Cam Browne was also there and has blogged on it. The pro-EU speaker commented that given the timing of the debate (new Greek elections just called), that he felt like someone preaching contraception to the College of Cardinals :-)

I won’t cover the debate in full, but it was a good example of the NZ Initiative can contribute to public policy discussions in New Zealand. There was one statement by MEP Dan Hannan which resonated with me.

Hannan said that the reason the UK (and other countries) went into the EU was the promise of prosperity. No country wants to surrender political sovereignty, unless there are benefits for them in doing so. The trade-off for surrendering power to the EU, was that they were forming a prosperous and powerful trading bloc. Europe would rival the United States as an economic super-power.

Two issues have undermined those benefits. One is the declining power of the EU in the global economy, as Asia especially grows. Growth in the EU is fairly minimal in the older member countries (but quite strong in the new economies). Already the EU has shrunk to just under 30% of the global economy. By 2050, it will be just 15% they project.

Worth noting the original EEC cost only 0.03% of European GDP. The EU now costs 1%, or 30 times that.

Now also put on top of that the Euro crisis, as weak economies threaten even the healthier EU economies. It becomes apparent that the rationale of greater economic prosperity in return for surrendering political sovereignty has disappeared.  Hannan asked if either major party in the UK would propose joining the EU today, if it were not already a member. He says there is no chance at all.

So Hannan advocates that the UK leave the EU, but like Switzerland and Norway sign free trade agreements with the EU, so you get the benefits without the loss of control. Hannan said he thought a referendum on the UK staying in the EU was inevitable, but conceded to the other speaker that it is quite possible the UK would vote to remain, as the two main parties would both campaign to stay in there.

So it was an interesting debate, which I hope we will see more of. Also worth highlighting a profile and interview in the Listener of Initiative Executive Director Oliver Hartwich. Some extracts:

“Thank God for the porn industry,” he wrote in a newspaper column two years ago. “The seemingly questionable industry does not care about morality, but is nevertheless a constant source of innovation and social improvement.” The column lauded the industry for the development of 3D films, predicting the technology – if not the content – could be used by schools to make geography and chemistry lessons much more interesting. “With some justification, sexual needs could be called the mother of the web’s invention. Without streaming videos of screaming porn stars, bandwidth would not have been added so fast to the global net,” he suggested.

Oliver is not the only person to have noted the Internet porn industry has had a considerable part in the development of the Internet.

Since the end of the gold standard in the US in 1971 – which required the US dollar to be backed by a fi xed amount of gold – money has had no intrinsic value. Hartwich believes we need to again anchor the monetary system to a commodity – although not necessarily gold, and maybe a mixture of commodities. He’s not a lone voice on this. In 2010, World Bank president Robert Zoellick called for a return to the gold standard, saying the world needed a more co-operative monetary system and should “consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values”.

Hartwich’s friend and colleague Detlev Schlichter, author of Paper Money Collapse, says the financial crisis is not an accident of capitalism but the “unavoidable consequence of the political decision to abandon a gold standard and to adopt in 1971 a system of unrestricted fiat money creation”. Hartwich believes New Zealand and Australia should consider moving their currencies to some “new system of commodity banking”, although he hasn’t got a recipe for how that could be done.

A return to the gold standard is far from the orthodox view. Would be quite interesting to hear maybe Oliver and the Reserve Bank Governor debate whether we should return to commodity based currencies. I’m personally not convinced, but have never heard anyone except the anti-monetarist lunatics of Social Credit advocate this. It would be good to hear a more rational debate.

Although international leaders promoting stimulus packages often say they are following the path of British economist John Maynard Keynes, Hartwich claims they often misrepresent his actual writings. “Keynes never said you can spend and spend and spend.” In the 1920s, Keynes even said that government should make up no more than 25% of the economy. “That would make him a neoliberal by some standards today,” Hartwich chuckles.

A good reminder.

Hartwich is obviously well to the right of centre, yet he is not an aggressive tax cutter. He agrees there is a relationship between economic growth and levels of taxation, but he derides last decade’s Bush tax cuts in the US as “fiscally irresponsible” and does not believe governments should go into deficit to fund them.

I agree. Spending has to be under control to cut taxes.

Asked about his top priorities for New Zealand, he names education and housing policy. He also wants to examine social issues such as mental health. He worked for 15 months in a mental health institution as a young man “because I didn’t want to join the army”, and was moved by the experience.

Glad to see education on the list.

Eurocalypse Now with Daniel Hannan

May 24th, 2012 at 1:37 pm by David Farrar

I’m up in Auckland for the Eurocalypse Now debate tonight with high profile British MEP Daniel Hannan. It is likely to be a very lively debate about the future of Europe, the Euro and the EU. There are still a few places left, and it is free to attend. Starts 5.30 pm at the Auckland War Memorial Museum. You can register to attend at

Eurocalypse Now?

May 18th, 2012 at 7:00 am by David Farrar

This should be a superb debate and discussion in Auckland.

Eurocalypse Now?

a discussion with

Daniel Hannan, Member of the European Parliament


H E Francis Etienne, French Ambassador to New Zealand

chaired by

Dr Oliver Hartwich, Executive Director, The New Zealand Initiative

Can the Euro crisis get any worse?

With a pro-growth Socialist president firmly installed in France, Greece in political gridlock, soaring unemployment and a deepening banking crisis in Spain, and Angela Merkel’s pro-austerity Christian Democrats suffering a crushing defeat in the big German state of North-Rhine Westphalia, are we finally approaching the end game for the European Union?

Join Dr Oliver Hartwich, executive director of The New Zealand Initiative, for a moderated discussion with firebrand anti-EU Member of the European Parliament and Youtube sensation Daniel Hannan and French Ambassador to New Zealand and EU cheerleader His Excellency Francis Etienne.

I so wish I could attend. If you wish to attend, you need to register at this page.