Tuesday, 28 February 2012

THE FIRST WORLD WAR AT SEA..............a local connection

I read “Castles of Steel” by Robert K Massie recently.
This book gives a comprehensive account of the war at sea between Britain and Germany from 1914 to 1918.
The key naval battle of the war was fought at Jutland in late May and June of 1916. It was a stalemate. Britain suffered the more casualties, in ships and men. But the British fleet still dominated the North Sea after the battle, and a British naval   blockade of Germany continued as before. So in that sense, Jutland was a defeat for Germany.
Germany retaliated by submarine warfare, but that eventually provoked America so much that America entered the war on the British side.
For political and nationalistic reasons, Irish history teaching has underplayed Irish people’s sacrifice in the First World War. It will surprise many to know that more Irish people probably died in one naval battle at Jutland  in 1916,  than did  in the Easter Rebellion in Dublin a month earlier.
 From my own county of Meath alone , three people gave their lives at Jutland in June 1916.
 They were
     Michael Clarke from Ratoath, 
     Laurence Hamilton from Dean Hill, Navan ,and
     John Keappock from Claremont , Navan,  whose family I know particularly  well, and whose father was a member of Navan Urban Council at the time
The descriptions of naval tactics, in Robert Massie’s very readable book, are enlivened by excellent sketches of the characters of the leaders involved, particularly on the British side.
The First World War had been preceded by a naval arms race between Britain and Germany. The Kaiser had great admiration for the Royal Navy and wanted his navy to overtake it.
 In the pre World War One period, the world economy had become globalised and interlinked, much like it is today.  The Kaiser saw control of the seas, as vital to Germany becoming the ultimate arbiter of world affairs, in much the same way that control of space gives the United States strategic dominance today.
By the time the war broke out, Britain still had a bigger navy than Germany.   But Germany’s ships were better constructed, and German gunnery was more accurate.
 The relative range of guns, and the relative speed of ships, decided who won in a naval battle.  If an enemy ship could be kept within the range of your own guns, and you were fast enough to be able to stay out of range of his, you would win the day.
The Kaiser kept his navy in port for much of the war, because he did not want to put them at risk.  Germany had secure natural ports at Kiel and Wilhelmshaven, whereas the UK had no really secure ports, apart from Lough Swilly in Ireland , which was very remote from the  field of conflict.
 Britain used Scapa Flow in the Orkneys as its principal naval port, but it was quite vulnerable until  major defensive investments had been undertaken.

Saturday, 18 February 2012


We read that there is a severe outbreak of anti German feeling in Greece.Under the second EU/IMF bailout, Greece is being lent extra money  at interest rates  far below those at which it could borrow commercially, and in the meantime a portion of its existing debts are being written off. 
But  Germany is being blamed for the  unwillingness of the EU and the IMF  to sign off on this  second bailout , without , what some Greeks see as,  humiliatingly detailed assurances that
  • the money will be used properly ,
  • Greece will adopt specified policies to cut back state spending and raise taxes and that it will
  •  liberalise its economy, so that it can grow fast enough to be able to repay the extra money it is now to be lent.

The trouble is that Greece has a poor record in presenting honest accounts, and in implementing in practice, changes it has agreed to in principle. The extra assurances are being sought so that more good money is not poured down a black hole along with the debts that are now being partially written off.
Without this loan, Greece would default and it would leave the euro.
In fact, what Germany is really doing is defending the interests of savers, including Greek savers, from what would happen, if Greece defaulted and left the euro. If Greece left the euro, its banks would collapse, and Greeks would see their savings, whether   in the form of bank deposit accounts, life assurance policies, or claims on pension funds, disappear.

Some argue that “austerity” is a mistake, because the cuts in spending and tax increases dampen confidence so much that the economy stops growing. In the short term, this is true.  But those who criticise on that basis,  have no realistic alternatives to offer.
Where can Greece get the money on better terms than it is getting from the EU/IMF?  
There really is no Keynesian alternative for Greece.   The Greek economy is too elderly, too inward looking and too riddled with restrictive practices, to benefit from a Keynesian stimulus, even if someone could be found to finance it. Greece must modernise first. The EU/IMF programme gives it some breathing space (perhaps too little) in which to do that.
Keynesian economics might have been relevant in the  1930s, when the European  population was much younger and could respond to an economic stimulus.  Europeans today are much older, many are retired, and their priority is saving for their old age, rather than going out shopping in response to a boost in government spending. It is not going to get easier. The age dependency ratio in the EU in 2007 was  25%, by 2050 it will be 50% !   What people are looking for now, is stability.

 Greece faces an alternative of two forms of austerity
  • austerity through  planned  cuts and tax increases under the EU/IMF programme or
  • austerity through indiscriminate inflation, of the kind that would  occur, if Greece  left the euro and devalued.
One of Greece’s problems is that it finds it very difficult to reduce wages, which is one of the many things it needs to do if it is to make its exports more competitive. Wage setting is highly regulated in Greece. That is why some favour Greece leaving the euro and allowing devaluation and inflation to cut the real value of Greek wages, and thus  regain competitiveness.  Inflation is the politically easy way to impose wage cuts, but the effect on living standards is at least as bad as cutting the wage rate, and much harder to control.
 But the price of this inflation/devaluation option would be high.  If Greece left the euro, its banks would collapse and the savings of ordinary Greeks, who were patriotic enough to leave their money in Greek banks, would disappear.  Inflation is hard to keep in check once it starts, and Greece also lacks big export industries ready to boost exports quickly on the back of a devaluation.

It is true that current EU policies are favouring savers over borrowers.    This is so because the ECB, unlike the US Federal Reserve and the Bank of England, is not willing to engage in “quantitative easing” ,printing money indiscriminately, to revive the economy temporarily.
ECB refuses to print euros without limit, and refuses to use them to buy Greek bonds without conditions. It refuses to do so because that would lead to inflation, and to a devaluation of euro. The more euros that are printed the less the euro will be worth.  That, of course, might suit borrowers, because the euros they would using to pay back their debts at the end of their loan, would then be worth less,  than the euros they borrowed in the first place.
But that approach would be bad for savers, who would see the purchasing power of their savings disappear.
The real political divide in our societies today, is not between Greeks and Germans, or between the profligate Mediterranean nations and the thrifty northerners.
It is between savers, who do not want their savings devalued or confiscated, and borrowers, who would like to be allowed to pay back less than they owe.


But if borrowers pay back less than they owe, someone somewhere else has to take the hit.
If  borrowers are helped by having  their debts being  written off, or having  their debts  are  devalued by inflation, someone else will lose.
Who would lose? 
  1. The losers would include taxpayers, who now own  many of the banks, and who would  see the value of those banks go down
  2. Other losers would be pension funds and insurance companies who own bank shares, and the people who rely on these pension funds and insurance companies to pay their pensions, or insure them against risk.
  3. Yet other losers would be   the people who have deposits in banks, who would see the value of those deposits reduced by inflation, and who could even lose those deposits if the bank collapsed. 
The challenge we face is that of devising an economic policy that acknowledges that there are ”ordinary” decent  people on both sides of this divide.

We also need to acknowledge that no one will be willing to lend any European Governments money any more unless they face up to realities about the cost of ageing societies that will  grow steadily everywhere over the next twenty years.
Greeks bashing Germans, or all of us bashing bankers, may give emotional satisfaction, but it will not pay our bills.
We need to think things through , rather than emote. We  need to strike a balance between debt relief, and protecting the savings we need to prepare ourselves for  a time when, instead of four,  there   will only two people at work,   for every one  that is  one too old to work

Monday, 13 February 2012


I was in Madrid last week to address a meeting organised on behalf of the Community of Madrid.
The government of the Madrid region  is headed by one of the leading figures in Spanish politics, Esperanza Aguirre. The theme of the conference was Innovation.
Also speaking was Alvaro Uribe, the clear sighted and brave former President of Colombia,  who defeated the  terrorist threat to his country and gave it the  opportunity to grow again.


Both former President Uribe and I spoke about the preconditions for economic growth which include
+ order and security
+ the rule of law
+ easy procedures for setting up a new business
+ labour market rules that do not make it  unduly  risky for an employer to add to his workforce in tough times in the hope of getting new business
+ an educational system that encourages engagement with other countries, and competence in  mathematics and science
I said  that “innovation” is, first and foremost, a state of mind.
Even if one invests heavily in technology, but does not have a constant willingness to try to new ways of doing things, one will not innovate and  succeed economically.
The planned economies failed, not because they did not invest enough, but because their bureaucratic procedures failed to encourage an innovative state of mind.


Like Ireland, Spain faces a huge unemployment problem. The youth unemployment level in Spain is  48%. This is higher than Greece, where the rate is 47%. In Estonia the rate is 32%, in Portugal 30%, and in Ireland it is 28%.
In Austria and the Netherlands, youth unemployment is only 8%, and in Germany it is 9%.
This  explains why the latter group of countries have a totally different attitude to the European economic crisis.


In Ireland’s case, unemployment is twice as high among males as among females.  This is so nowhere else in Europe, and is a phenomenon that is being totally ignored.
This disproportionate level of male unemployment, is at least as important a topic  in gender discrimination as the proportion of women on boards of directors.


In Spain, as in Ireland, efforts are being made by the new Government of Mariano Rajoy, to open up the labour market to young people.
Spanish Employers are reluctant to take on extra employees, in the hope of winning extra business, because existing Spanish law tells them they must keep the extra employees on,  whether they retain the extra business or not. 
Spain has a very rigid and heavily regulated labour market. Wage rates are set centrally, and must be paid regardless of the condition of the firm. The cost of making a person redundant is very high too. These rules were made in the  1940s, in accordance with corporatist thinking,  by General Franco, and were not changed when Spain became a democracy.
 Ironically, the big defenders today of Franco’s legacy in labour law today are left wing  trade unions. Similarly rigid wage setting mechanisms, that discourage the creation of new jobs in tough times, exist in a limited number of trades in Ireland too, and in other European countries but nowhere is the system as rigid as that in Spain.

Tuesday, 7 February 2012


I chaired a meeting of the European Sports Platform in Brussels last week.
Doping in sport was one of the topics we covered. Top athletes are all subject to regular, without notice, dope tests which carry severe penalties. They are subject to strict liability, so that if a trace of a banned substance is found the penalties are automatic. Concern has arisen that nutritional supplements could contain trace elements of banned supplement which an athlete might take in complete ignorance. The possibility of EU action to deal with this problem, especially as regards sales over the internet from one country to another, was raised. This topic will be very topical during this Olympic year
We also discussed the Murphy judgement of the European Court of Justice  which concerned the use of decoders from one EU country  to  pick up broadcasts from another EU country at a lesser fee than might be charged  at home. While the Court said such decoders were acceptable for private use, it was not acceptable to use them to broadcast of games in a public house.  This issue has  implications for the funding of sport, because  sports organisations  depend for a large part of their income on broadcasting revenues.
We also had a presentation on the work of the European Deaf Sports Federation. People with hearing difficulties, who rely on sign language for communication,  have special difficulties in team sports and the  Federation, founded as far back as 1924, is doing good work to overcome  these difficulties.