MUNICH 1938

Diplomatic negotiations can only lead to a durable peace, if the negotiators have a genuine wish to leave the other side with something worthwhile. Hitler had no such intention at Munich, but Chamberlain did not see that. 

“Munich 1938, Appeasement and World War II”, by David Faber, describes the negotiations that led to the dismemberment of Czechoslovakia in 1938.

It is true that Czechoslovakia was an “unstable unit”, created by the Versailles Treaty, by which 7.5 million Czechs held political sway over 3.5million Sudeten Germans, 2.5million Slovaks, 0.5million Hungarians, and 80,000 Poles.  The supposed principle of “national self determination” was bound to be difficult to apply in such a setting.

As the crisis developed in 1938,  and Hitler’s demands escalated, a number of things became clear. The French were not really willing to stand by their military guarantee to Czechoslovakia, unless forcefully backed up by the British. The British were tepid and unsure, and cultivated the illusion that Hitler was someone they could do business with.

The Czechs were prepared, as the pressure from their “friends” mounted, to concede almost any demand of their German speaking population, but the concessions would never be enough, because Hitler was determined to visibly humiliate the Czechs.

Even before Chamberlain met Hitler at Bad Godesburg, and later at Munich, the Czechs had already agreed that the Sudetenland could effectively secede from Czechoslovakia. The arguments between Chamberlain and Hitler were about timing. 

It is interesting to observe that Czechoslovakia’s immediate neighbours, including Poland which would itself  fall victim to Hitler itself in 1939, were happy to cooperate with him in the dismemberment of Czechoslovakia.

In these circumstances, the French and the British did not have a strong logistical basis for any military defence of the Czechs. And they were in the same weak position when they eventually went to war over Poland in 1939.

In retrospect, it seems that Chamberlains biggest mistake was in February 1938, when he fobbed off an initiative by President Roosevelt to involve himself directly in the Central European situation.

As later transpired, it was only when US industrial power was deployed, along with the vast manpower resources of the Soviet Union, that Germany could be defeated.

Chamberlain was under the illusion that Hitler could be contained by British and French Empires acting on their own. Now it is easy to see  that he was wrong, but not so easy at the time.

He was also unable to see that he was not just dealing with a “normal” dictator in Adolf Hitler, but with a pathological gambler, to whom the conventional rules of human behaviour did not apply. 

WHAT DOES BRITAIN WANT FROM AN EU RENEGOTIATION, AND WHAT TERMS WOULD IT GET IF IT LEFT?

I took part recently in London in an exercise organised by the think tank, Open Europe. 

It first examined the issues that might arise in a possible renegotiation of the United Kingdom’s terms of membership of the European Union. 

It then went on to look at the terms the UK might get if, in a referendum on the results of such a renegotiation, voters in the UK had decided to withdraw from the EU. 

At the moment, these eventualities are only likely to arise if the Conservative Party gets an overall majority in Parliament. This could happen after the 2015 General Election, and, if not then, after some subsequent General Election, unless or until the Conservative Party changes its policy.  So this will be a live issue for many years to come.

The issue could also be precipitated if the EU itself has to revise its Treaties. A Treaty revision would require the consent of the UK. Any UK government will be under pressure to use that Treaty negotiation to press the UK’s renegotiation agenda. This is partly why many EU leaders are unwilling to attempt any further Treaty change. Thus internal UK politics could become a paralysing force in the politics of the entire European Union.

The only place in the EU where the issues that might arise from a UK renegotiation or withdrawal are being debated at all is in the UK itself. That debate is narrowly focussed on UK concerns, and takes little account of the effect on the 27 other member states of the EU, including Ireland, of the various UK renegotiation/withdrawal scenarios.

Other EU leaders have taken a vow of silence on the internal UK debate, even though it is one in which their own electorates have a vital interest. Understandably, they do not want to aggravate UK public opinion, which might claim to resent “foreign” intervention in what would be construed, inaccurately, as a purely “domestic” UK matter. 

The downside of this approach is that UK public and media opinion may develop unrealistic expectations of the terms it could achieve in a renegotiation, leading to disappointment, and a consequent increase in support for outright withdrawal.  In fact, EU countries are already so integrated with one another, that what the UK is likely to ask for, is a domestic issue for all members. 

The UK needs to take account of opinion in other EU states. The consent of a majority of the other EU states will be needed if

+  a renegotiation is to be concluded to the satisfaction of the UK, or+  if the UK is to withdraw from the EU, a majority among the other EU states would also be needed to agree the  terms of a new EU relationship with the UK, to allow, for example,  continuing privileged access for the UK to the EU Single Market (for example for financial services).

Neither of these can be taken for granted. 

The first question the UK should ask itself is whether it is in the national interest of the UK that the EU itself remains a viable and confident institution, which can make decisions with reasonable speed, after the various scenarios have been played out.  

The precedent of an EU member state getting preferential terms, because of a threat withdrawal from the EU, could corrode mutual confidence among the remaining 27 members.   One has the sense that some in the UK do not care about this, others have not thought about it, and some others would actually be happy if the whole process tore the EU apart.  

My own sense is that, whether it is a member itself or not, the UK has a vested interest in the EU remaining effective. An effective EU keeps Europe at peace, and of creates a single open market that is good for British trade.  Britain would not sell as much in a Europe that had reverted to 27 different markets with 27 different currencies. An EU that could not make decisions because it was paralysed by fear about who might be next to follow the UK out the door, would not be good for Britain.

Furthermore some of the likely UK proposals  in a renegotiation would undermine the effectiveness and stability of the EU in an even more direct way.

One such proposal is a so called “Red Card”, whereby a minority of National parliaments could veto an EU law, even though that law

+ had already been passed by majority in both the Council of Ministers, where all states, including the UK, would have had a vote, and
+ has been passed by a majority in the European Parliament, where all states including the UK have directly elected MEPs. 

This idea of a Red Card  has won support from the British Foreign Secretary and even from some in the Labour Party.

The Fresh Start Group of 100 Conservative MPs has gone further, and said that an unspecified group of national parliaments should be able to repeal existing EU laws, bypassing the European Parliament and the EUs existing decision making structures.

This “Red Card” would paralyse EU decision making, in ways that might not suit the UK itself. It could also be used by others to block the very measures that the UK itself wants, like the liberalisation of the Services market in the EU.

A provision whereby shifting majorities among national parliaments could by pass the EU’s democratic decision making procedures, and unilaterally repeal settled EU laws and agreements, would undermine the stability of the EU Single market. It would become an instrument for reopening  long settled compromises on which the EU Single market is based, and making them subject populist pressures on an ongoing basis.

Both of these proposals would require a Treaty change, because the role of national parliaments in the EU process is defined in a Protocol to the existing Treaties, and a Protocol has the same legal status as an article in the Treaties themselves. To change the Protocol in question, every one of the 28 member states and the European Parliament would have to agree. 

Another likely UK demand would be to opt out of having the European Court of Justice as the final adjudicator on disputes concerning the meaning of EU agreements on the fight against crime. The UK is likely to demand that these issues be adjudicated instead in national courts, which could mean 28 different interpretations, and many new loopholes through which well advised criminals could evade justice.

If the UK electorate is not satisfied with the terms offered to keep the UK in the EU, and votes that the UK should withdraw from the EU, a new negotiation would start. The purpose of this would be to decide on the terms on which the UK, outside the EU, would have access to the EU for its people, goods, and services. This second negotiation would have to be concluded within two years.

It would be conducted under article 50 of the EU Treaty, which requires a qualified majority in the European Council and a majority in the European Parliament to agree the terms to be granted to a country withdrawing from the EU. It is likely that such terms would include a continuing financial contribution to the EU budget, in return for UK access to the EU single market.

In the event no agreement being reached within the two year deadline, the UK would be out of the EU, and automatically subject to restrictions and tariffs on its exports to EU countries of goods and services. Customs posts would have to be reintroduced on the border in Ireland and at cross channel ports.

Furthermore, if the UK, then outside the EU, wanted to restrict immigration from the EU, it would have to introduce passport controls on the Irish border, a measure that would undermine the work done to promote peace and reconciliation.

DEATH OF FORMER COUNCILLOR MARY SYLVER

I wish to pay tribute to the life of public service of Mary Sylver, of Piercetown, Dunboyne, who served for many years as a Fine Gael member of Meath County Council, representing the then Dunshaughlin Electoral Area, which encompassed all of South East Meath, including Ratoath and Ashbourne.

Mary was a woman of resolute convictions.  She had firm views of political issues, but argued for them in a considerate and moderate way. 

She had a vision for the development of her locality, and was, I believe, the first public representative of any party to make the case for the reopening of the rail service to Dunboyne, which now is in place, and provides a platform for the economic development of Dunboyne, linking it to the financial and technological hub in Dublin.

She was married to the late Michael Sylver, a prominent greyhound trainer.

She had wide cultural interests, was accomplished in flower arrangement, and worked for people with disabilities, after her retirement from politics.

She will be remembered locally a particularly kind neighbour, who cared for people who had troubles, and called in to see people who might be isolated in any way. I was proud to count her among my closest friends and allies during my political career.

Tribute by former Taoiseach,  John Bruton

WORLD TRADE DEAL IN BALI IS A BIG BOOST TO CONFIDENCE

Globalisation has meant that, no matter where we live in the world, we are liable to be affected by what happens very far away.

An environmental disaster, a financial panic, or a disease outbreak, in one part of the world can quickly affect people on the other side of the globe. No country, no matter how big, prosperous, or well armed is really an island any more.

The world, and its problems, were easier to manage (perhaps unfairly), when a small number of countries had to give their consent to any global agreement or rule.

This was especially the case during the century when most of the world’s surface was controlled by a few colonial empires.

It remained the case, when most of the major international organisations were founded, in the aftermath of the Second World War. Indeed that War, and a desire to ensure it was not repeated, forced nations to go beyond national sovereignty, and find new institutions to allow joint actions on a global scale.  Initially these institutions worked  easily enough because a cartel of big countries, the ones with permanent seats and vetoes on the UN Security Council, could both set, and decide, the issues on the agenda.

That world has gone.

The number of countries enjoying legal sovereign status has increased dramatically, so unanimous agreements are harder to achieve, The number who can  say “no”, on questions to which everyone else is (however reluctantly) is saying “yes”, has increased out of recognition.

Meanwhile, economic power, and thus the ability to pay for military power, is shifting. 

The world may soon have several policemen, with conflicting mandates, rather than a single (American) policeman.

China is testing the old order in the East China Sea at the moment.  This new multi polar order may seem fairer, but it will not make the world safer. 

At times, it seems as if it had become impossible to agree anything on a global scale. 

The bleakest moment was when the Climate Change talks collapsed in Copenhagen. The invasion of Iraq was another such dispiriting moment.

Now, with little notice, signs of hope have  appeared.

An interim deal with Iran on its nuclear programme has been agreed, although Israel (which officially has no nuclear capacity but actually in the only nuclear weapons power in the Middle East) is not happy.

And then, out of the blue it seemed to many, a world trade deal was concluded, by the 160 member WTO, in Bali last weekend!

During my time as EU Ambassador in Washington, I saw the draining away of hope that a world trade deal would ever happen. This was soul destroying, because the WTO seemed until then to be the only global organisation which really worked, and whose  disciplines were uncomplainingly incorporated by nations into their domestic law.

Now a deal has been put together  in Bali which will reduce the cost of trade by  10% to 15 %, by simplifying and standardising custom procedures. Limits will be placed on export subsidies.

The WTO disputes resolution procedures (a sort of World Trade court) will see their credibility restored by this breakthrough, because the organisation behind them, has shown it can actually make decisions, after all. That was a good week end’s work.

This will also help restore business confidence more generally , in ways that will have little to do with the ostensible content of the the deal in Bali.

BIG POTENTIAL FOR FINANCIAL SERVICES GROWTH IN THE MIDDLE EAST

I was a keynote speaker at the Middle East Banking Forum in Dubai this week, the first such event organised  by the UAE Banking federation. The forum was addressed by the Governor of the Central Bank, Sultan As Suawaidi.

I believe this part of the world has many opportunities for people with good financial knowledge.

A number of interesting points came up at the Forum

Only 20% of the overall population and 12% of women have bank accounts so there is great scope for expansion. Globally only 11% of Muslims have a bank account. Having a bank account enables people to use their money more efficiently, and is a way of escaping poverty.

Banking is growing in other parts of the world ,while it is contracting in Europe.

Of the top 1000 banks in the world in 1990, 444 were in Europe and 58 in the Middle East. Now, in 2013, only 283 European banks are in the top 1000, and 92 are in the Middle East. 257 of the top 1000 banks are now in Asia as against only 104 in 1990.

CAN WE LEARN FROM ISLAMIC BANKING ? ......  QUESTIONS ABOUT RATING AGENCIES

Islamic banking is growing at 13% per year (from a very low base) whereas conventional banking is growing at 4%. It takes a more patient approach to seeking a return on its investment, which insulates it from some of the recent errors of the Western banking model.

The role of Rating Agencies was strongly questioned.

Although they are relied upon to provide totally objective information, and are key players in deciding who can borrow and at what rates, Rating Agencies failed to see the crisis coming in US and European Banks.

One participant suggested that it was wrong that Rating Agencies seek to make a profit on their work because this creates a potential for conflicts of interest, and that they should operate on a non profit basis. A representative of a rating agency replied that the IMF is a non profit organisation and it did not foresee the crisis either!

THE FUTURE OF BANKING

I said that the banking industry worldwide needs to




1. innovate to provide the timely, accessible and secure banking
service that a young, mobile and discerning customers base needs.(There are a lot of young people in the Middle East so this will be a particular challenge there)




2. strike the right balance between face to face contact with
customers, and electronic speed and convenience (many customers still value a personal relationship with their bank and their needs should not be neglected in the rush to automate) 

and


3.  develop systems to provide finance for small and medium sized
business on the basis of good and reliable information about
creditworthiness.  Big companies may have no trouble getting credit for bad investments,  while small companies may not get finance for good ones.

JFK’s VISIT CONFIRMED A TURNING POINT IN IRELAND’S TRAJECTORY

I was fifteen years of age when President Kennedy visited Ireland in 1963. 

To understand the impact of President Kennedy, one has to understand that the Ireland of 1960 was a very different place, even to the Ireland of 1970. 

In 1960, the pall of nineteenth century disappointment still hung over the country.

There was still a strong sense, at that time, that we might not be able to make it as a successful nation, at least in an economic sense.

Having gained our independence in 1921, we had failed to achieve the economic potential that many assumed independence would automatically bring, just because the British had been removed. 

This economic underachievement was due to the physical damage done by warfare between 1916 and 1923, to protectionist economic and social policies between 1932 and 1956, and to the difficulties any small island economy faced, in the era before cheap air travel, containerisation, and information technology. 

Other European countries had simply overtaken us.

Then Irish politicians, like Gerard  Sweetman and Sean Lemass, had already begun to change tack, well before the Kennedy election. Protectionism was dropped, foreign investment and exports were encouraged, island status became less of a handicap, and the economy stated to grow. 

And then, as if to confirm and symbolise the more hopeful and outward looking atmosphere, one of “our own”, a man of Irish Catholic heritage became President of the United States. Not only that, he came in person to visit our country. 

The fact that a person of an Irish Catholic background could be elected President of the United States, and could present such a modern and suave image to the world, made everyone of the same religious and national background feel that they too should reassess their own potential, that they too could achieve great things, and that the stereotypes, to which we were subject for so long, need no longer constrain us.

The effect of all this was, of course, magnified by television. President Kennedy’s elegance, oratory and charm would have not have had a fraction of the impact it had, if it had happened in 1953, before television was widespread. He was probably the most televisual President ever, and he was able to use the medium to beam hope and confidence into every Irish home.

MUST THE COST OF HEALTHCARE GO ON RISING INEXORABLY?

The cost of health service is going to rise a great deal in coming years.

This is due to the ageing of the population and to the cost of medical treatments at the end of people’s lives.

Rising incomes in society also lead to higher expectations of health services and higher pay costs within the health service. 

Advances in medical technology make better treatments available, but these treatments are often costlier than the (less effective) treatments they replace.

POLICY CHOICES MAKE A DIFFERENCE

But there are choices that can be made.

For example, on certain assumptions, a McKinsey study suggested that the cost of the health service in Ireland in 2040 could range between 10% of GDP and 18%, depending on policy choices.

In the UK the range is between 11% and 14% of its GDP, and the range in the US is between 24% and 26%.

SO DO OUR OWN DECISIONS ON USING THE SERVICE

What can be done to contain costs?

I saw a report of a British NHS report on Accident and Emergency visits which suggested

+ one million of the 5.2 million annual visits to A and E were avoidable+40% of patients who visit A and E are discharged needing no treatment at all+ 50% of Ambulance call outs could be managed at the scene without going to hospital+ 20% of GP consultations could be dealt with by self care or a visit to a pharmacy

These statistics suggest that there is plenty of room to encourage people to learn more about looking after their own health. The challenge is to devise policies that incentivise this in a responsible way.

ANONYMOUS ”SENIOR SOURCE”’S VIEWS ON IRISH BAILOUT EXIT DESERVE DEBATE

One of the reasons Ireland, notwithstanding its budget deficit, will soon be able to borrow at bearable interest rates in commercial markets, is that it has met all the deficit reduction targets it had agreed with the EU/ECB/IMF troika.

All parties who have held office in Government since the programme was agreed deserve great credit for that.

Against that background, one or two statements, buried in the middle of a long article entitled 

 “No Margin for Error”,

in the “Sunday Times” on 10th November, on Ireland’s exit from the troika’s loan programme, ought to be discussed more widely.

On the question of whether fiscal discipline would be maintained, after the troika were no longer visiting every three months, the Sunday Times claimed

“One senior Labour source said he expected the government to immediately ease back on austerity once the troika left town”.

The “Sunday Times” went on

“” There are all those new EU oversight rules, but there is already a general sense that they will not be taken too seriously” said the Labour source.”

”The government will be taking the foot off the pedal as soon as we are out of the bailout. I think there will be tax cuts, maybe even a reversal of some of the unpopular budget cuts“, the source continued, according to the Sunday Times.

This senior source seems to assume that the reason Ireland had to impose austerity was because of instructions by the troika.

He or she also seems to think that commercial lenders, on whom the country will be relying future, will be much less worried about whether the government is meeting its budgetary targets, than the Troika would have been. 

My understanding is that austerity came about, not because of instructions from anybody, but because Ireland was unable to borrow in commercial markets because the gap between its spending and its revenue was just too big in 2010.

That was not “imposed” by the troika, but by an Irish government’s own earlier spending decisions, decisions that could no longer be financed by commercial borrowing. 

To meet day to day outgoings, there had to be seen to be a plan to close that gap between spending and revenue , troika or no troika, if the state were to continue borrowing for those outgoings......from ANYBODY. 

Given that commercial lenders, or purchasers of future Irish government bonds, will want their money back with interest, just as much as the troika will, is hard to see them taking a more relaxed view of budget targets than the IMF would in similar circumstances, especially as commercial loans/bonds will be subordinate to the existing IMF loans.

I am also surprised to hear that a senior source believes that the new EU rules will not be taken “ too seriously”.  I had not come across that view before, until I read it in the “Sunday Times”!

These rules have only recently been approved, after long debate, by the European Parliament and apply to all euro area states. My sense is that they were necessary to persuade EU states, with good credit ratings, to lend money or provide back stops to  EU states with poorer credit ratings. 

These rules are also based on EU Treaties, which the Irish people themselves approved in referenda ..... the Maastricht Treaty, and  the Fiscal Compact Treaty. 

The Fiscal Compact Treaty explicitly commits Irish governments to continued reduction in deficits, until we achieve a structurally balanced budget. We are not there yet.

The Maastricht Treaty commits the state to a deficit of no more than 3% of GDP, and a debt/GDP ratio of 60%.  Ireland exceeds both numbers substantially, indeed by more than almost any other EU state does at the moment. 

As long as it has to pay any interest rate, a government, which borrows money, will find itself repaying MORE than it has borrowed.

Repaying loans will require a future government to set aside money that it will have to raise from taxpayers, refuse to spend it on services , and instead  pay it to government bondholders. 

That might not be a problem if the economy is growing rapidly, but who can guarantee that, ten years ahead?

I doubt if the anonymous “source” can give any such a guarantee!

A BATTLE FOR MEMORY.....NAPOLEON VS WELLINGTON

I read “Napoleon and Wellington “ by Andrew Roberts recently.

Roberts wrote an excellent biography of Lord Salisbury, the nineteenth century British Conservative Prime Minister , which I really enjoyed.

This book on Napoleon and Wellington is not quite as good.

It gives an outline of their respective military careers. Wellington and Napoleon only faced one another in battle once, at Waterloo. It is arguable that this battle was not as decisive as  it was presented as being, because France’s military strength had been sapped to a fatal degree long before , in the disastrous invasion of Russia, at Leipzig, and in constant warfare elsewhere.

Even if Wellington and Blucher had been defeated at Waterloo, and Napoleon had taken Brussels, he would not have destroyed their armies. And a vast coalition, including the Russians and the Austrians, was making ready to join the British and the Prussians against Napoleon. He would probably have met his Waterloo somewhere else, later in the year.

This book is less concerned with telling the story of these two fascinating careers, as it is with how the two, who never met, wrote about one another afterwards. This becomes a little tedious at times.

Napoleon, who wrongly blamed Wellington for the choice the most isolated island in the world for his exile, was increasingly critical of Wellington’s abilities as a soldier, and he demonstrated deep animosity when left money  in his will to a man called Cantillon, who had attempted to assassinate Wellington.

Wellington collected Napoleonic memorabilia, and took up with several of Napoleon’s former mistresses,  but  he was privately disparaging of Napoleon’s generalship, especially after he had learned of the contents of Napoleons will!

ARE WE MISSING SOMETHING?

GLOBALISATION  IS NOT SOMETHING THAT IS DONE TO US.....IT REFLECTS OUR CHOICES

Ireland’s new Minister for European Affairs, Paschal Donohoe TD, gave an interesting speech last week.

He made the point that globalisation, of which many people complain, is not something “done to us, but is a consequence of the human desire to communicate, share, and exchange”.

He is right. 

He could have added that humans also want lots of variety, and choice in their lives, sometimes to an excessive degree, and that this drives globalisation forward as people go to the ends of the earth to find elusive “highs” in their lives.

He went on to say that the European Union gives us an opportunity to “positively mediate the consequences of globalisation”. He is right here too. A small country on its own, like Ireland, could have little impact on global trends, but the EU, as a block, can make a difference.

Globalisation has been facilitated by the internet, skype, containerisation, cheap air fares, and plentiful energy sources.

All these took investment to generate, and would not have happened, if people did not want them or were unwilling to pay for them. These technologies cannot be “uninvented” now. So Globalisation cannot be reversed. It is here to stay.

HOW SHOULD WE COPE WITH THE CONSEQUENCES OF GLOBALISATION?

But all this variety, all this communication, and all this exchange, does not necessarily make us happier. 

In fact, the more choices we have to make, the more discontented we can often become. This is especially so, if we feel we have to make these choices to keep up with neighbours or others with whom we feel we must compare ourselves.

Choices are hard to make. They require an effort. They involve saying No, as well as Yes. And the more choices you have, the more are the things you have to say No to. The more options you have, the more regrets you may have about the choice you could not make. The more choices we have the more we expect of life, and of ourselves.

“The Paradox of Choice”, by Barry Schwartz, had the sub title “How the culture of Abundance robs us of satisfaction”.

People are shopping more now, but enjoying it less.

Increased choice may actually contribute to the recent epidemic of clinical depression. 

Depression has tripled in the last two generations, despite all the treatments now available, that were not there 60 years ago. 

The culture of” more choice” undermines institutions, like churches. Because choice is the priority, people do not want to regard religious teachings as commandments, about which they have no choice, but as suggestions about which they themselves are the ultimate arbiters.

The over estimation of the value of choice may also have something to do with the increased divorce rate, because, as Schwartz puts it, “establishing and maintaining meaningful social relations requires a willingness to be bound and constrained by them.” But constraints are exactly what the ideology of choice rejects!

EUROPE NEEDS A RENEWED VALUE SYSTEM, IF IT IS TO MEDIATE GLOBALISATION

“Studies have estimated that losses have twice the psychological impact as equivalent gains” says Schwartz. In other words, people hate losing 100 euro, a lot more than they like winning 100 euro. This may explain why people in modern well off societies are so anxious, and why, in the face of recent economic losses, many are regressing to old dead end ideas, like nationalism, class warfare, and xenophobia.

Happiness is, at last being measured by economists, as well as the Gross Domestic Product

It seems that once a society’s per capita wealth crosses a threshold from poverty to adequate subsistence, further increases in national wealth have little effect on happiness. You may find as many happy people in Poland as in Japan, even though the average Japanese is much richer than the average Pole

This should make us stop and think.

Economic growth is a good thing, but it has physical limits, as we are discovering with climate change and pollution. Economic growth also has psychological limits, in the sense that some forms of growth increase anxiety by offering people a bewildering array of choices that they do not feel competent to make. Markets only work well if people are informed enough, and have the time and mental energy, to make wise choices.

Laws and government subsidies will never be enough. Societies need a strong value system, if they are to be happy. These values must put human respect, ahead of material things, and put human relations ahead of maximising choice.  The science of economics is only beginning to recognise this. 

If the European Union is to positively mediate the consequences of globalisation, it must ask itself whether the values of more choice, and more material abundance, imported from economics, are sufficient to build a good society. I believe they are not, but I do not have the sense that that a discussion of alternative and better European values is  yet taking place.

EU CAN HELP, BUT STATES MUST TAKE PRIMARY RESPONSIBILITY FOR THEIR OWN REFORMS

The EU Summit last week discussed the digital economy, a youth guarantee, apprenticeships, and the European Semester. During the Semester, each EU state will have an input to the policies of each of the other states. Hopefully, they will learn from one another. 

But it would be a mistake to think that the main ingredients of a solution to the economic problems of the countries of the euro zone will be found at European level, because the problems did not, in the main, arise at European level. 

Although they had the same currency, some countries did much better than others did.

Between 2008 and 2013, the growth in the euro zone ranged from plus 6% growth in Slovakia, to minus 6% in Greece.

Some countries (Bulgaria, Sweden and Germany) grew faster than the United States, between 2008 and 2013, while most of the other EU countries saw their economies contract.

It is good that, at EU level, we will now, through the European Semester, have detailed peer review of one another’s growth policies, including market liberalisation, taxation and public spending.

But it would be a great pity if this encouraged national governments to delegate strategic thinking, about how to maximise the growth of their own economies, to the European Union.

Growth promoting reforms, whether these reforms be 

+ of professional restrictions,+ of slow and costly courts systems+ of welfare systems that penalise work, + of educational systems that leave too many 15 year olds unable to read properly,+  or of public sector wage and pension policies that are unaffordable,

will all differ from country to country, and can only be made on a country by country basis. The EU cannot do that job for national governments. They must do it themselves.

EUROPE MUST TAKE RESPONSIBILITY FOR THE EURO ZONE BANKING SYSTEM

The EU has some things it must do.

It must set up a single banking system for the euro zone.

Given that most money takes the form of bank credit of some kind, it makes no sense to have a single currency without a single banking system.

It makes no sense either that, at the moment, a badly run, and possibly insolvent, bank in a well run country can borrow much more cheaply, than can a well run and  solvent bank in a country, whose public finances are in a mess.

These things can only be put right by EU action.

Nor is it right that European arrangements to deal with banking and currency problems should be held hostage to the decision of the constitutional court of one country (Germany).

NEXT GENERATION WILL BE LESS ABLE TO REPAY THIS GENERATION’S DEBTS, THAN THIS GENERATION IS TO MAKE SAVINGS

I find the arguments against “austerity”, in countries that whose governments are spending more than they are collecting, to be lacking in rigorous thought.

If a state is spending more than it is taking in by taxes, to borrow more today is simply to decide to pass the “austerity” on to a later generation, and to do so with interest!

As a result of compound interest, a future generation will have to repay a lot MORE that the present generation will have borrowed.

But the next generation will be far LESS able than are to meet our bills, that this one is.

This is because, 35 years from now, there will be two Europeans at work, for every European who is retired ,whereas today there are four Europeans of working age for every European who is retired. 

Thus the future burden, of debts taken on today, will have to borne out of the earnings of a smaller number of working people than are at work today. And those working people will also have to provide for a larger number of retired people, than this generation has to cater for. I wonder what the anti austerity protesters think of that! 

SERVING MORE PEOPLE, AND SPENDING LESS...A BIG ACHIEVEMENT

SERVING MORE PEOPLE, AND SPENDING LESS...A BIG ACHIEVEMENT

There were some interesting points made in the commentary on last weeks Irish budget proposals for 2014.

Minister Brendan Howlin drew attention to some of the push factors that are driving spending levels upwards.... Since 2008,

+  the numbers in schools and universities have risen by 8%,+  the number  of medical card holders(entitled to free healthcare on income grounds) has risen by 40% and+  the  number of people of pensionable age has risen  by 13.5%

Meanwhile, the number employed in the public service has fallen by 10% and the size of the public service pay bill has fallen by 17%. So there are fewer people who have to do more. This is a considerable managerial achievement for which all Ministers can take a lot of credit.

JOB NUMBERS INCREASING

Minister Michael Noonan drew attention to another very positive development, the fact that there is now a net increase in jobs in the Irish economy of 3000 per month.

On public spending, Michael Noonan said there will be a ceiling on public expenditure of

+   51.5 billion  euros in 2015, and
+   51.9 billion in 2016.

Given the ongoing, demand led, upward pressures on spending, referred to by Minister Howlin, these caps will require policy changes in future budgets.

Michael Noonan said Ireland would still have a budget deficit of 4.8% of GDP in 2014, which he intends to reduce to 2.9% of GDP by 2015.

MOST OF THE DEBT CAUSED BY DEFICITS, NOT BANK RECAPITALISATION

As Pat Leahy put it in the Sunday Business Post, the Irish state is spending 13 billion euros more than it raises in taxes this year, and its debt is scheduled to reach 205 billion next year. He says that only 60 of the 205 billion is due to  bank recapitalisation, the rest is due to  simply spending more than revenue on an ongoing basis.

This is a fact that those who say they are against “austerity” fail to deal with. What would they/we use for money if they/we spent more? Who would provide it, and on what terms? 

FISCAL COMPACT WILL STILL APPLY AFTER BAILOUT EXIT

The Department of Finance’s own figures see the debt reaching 211.6 billion euros by 2018, when the Fiscal Compact will come into force.

From 2018 on, we will be obliged to move towards a structural deficit of no more than 0.5% of GDP (as against out structural deficit of 5% in 2013).

My own sense is that the burden of interest on our over 200 billion euro debt is going to get higher, rather than lower. Global interest rates will eventually rise. So we need to reduce the debt, and remove factors that push spending upwards.

Against that background, it might have been better to use the 200 million euro proceeds of the sale of the National Lottery to reduce the national debt.

Free GP care is to be made available for all children under the age of 5. This will benefit only the 60% of families, whose incomes are above the medical card income limit. The under 5 year old children of medical card holders get free GP care already.

This is a step towards free GP care for everybody, which again would only give something new to those whose incomes are above medical card limits. Unless free GP care proves to have no net cost because it saves on hospital treatment, it will add a new, long term, challenge to the many unfunded, and demand led, spending challenges Irish Governments already will have to meet, based on the combination of demographic trends with existing policies on health, pensions etc.,( along the lines mentioned by Brendan Howlin in his speech).

As noted in an earlier post on this site, these 2014 draft budget proposals will be subject to peer review by the other Governments of the EU, before their final adoption at the end of the year. So also will be the budget proposals of every other EU government.....large or small, and whether in a bail out or not.