THE CASE FOR JEAN CLAUDE JUNCKER

It is difficult to understand why David Cameron has decided to expend so much of the UK’s limited political capital in the EU on a bid to stop Jean Claude Juncker becoming President of the European Commission. The timing of his campaign, at this late stage when in the European Parliament  elections are over, is disastrous. 

All the major political parties represented in the European Parliament selected their proposed lead candidates for President of the Commission,  ahead of that election, on the supposition that the lead candidate selected by the party that subsequently won the largest number of seats in the Parliament, would be the one who would be supported for President of the Commission. 

The Heads of almost all EU Governments participated in the selection process of their European party’s candidate. For example, Angela Merkel took part in the selection of Juncker as the EPP candidate at the EPP Convention in Dublin a few months ago.  

If the Heads of Government, who are almost all the leaders of their national parties, had wanted to stop thisprocess, they could have done so......several months ago.  They did not do so. It is too late now. 

They let the campaign go ahead on the basis that the lead candidate was to be the preferred nominee for President of the Commission. They allowed TV debates between the lead candidates to take place, on the assumption that each were the candidates for Commission President.

Personally, I would have preferred if the President was selected by a direct vote of the European people, rather than by this convoluted and indirect method. This would have been better for the independence of the Commission, from both the Parliament and Heads of Government.   But that battle was lost long ago.

I fought for direct election in the Convention, but got no support from any major figure except George Papandreou, then Greek Foreign Minister. Although they constantly complain that the EU is “undemocratic”, no British representative gave direct election any support in the Convention.

David Cameron should remember that this is the third time that a British Government has tried, in a very personalised way, to veto candidates for President of the Commission, the late Jean Luc Dehaene and Guy Verhofstadt were both victims of previous British vetoes, simply because they were people of strong pro European conviction. 

David Cameron’s foolish confrontational tactics will be less successful this time, because now the issue will be decided by qualified majority rather than unanimity, and a veto by a single country is no longer possible.

Cameron says he want to keep Britain in the EU, but his tactics are so divisive that, if he wins it will be at the price of huge ill will in Europe, or if he loses,  it will be at the price of increased anti EU sentiment in his own party and in British society more widely. Either way, he is serving neither his own, his party’s, or his country’s interests.

IRISH BANKING ENQUIRY......WHAT DOES IT NEED TO FIND OUT?......WILL THE RIGHT QUESTIONS BE ASKED?

The terms of reference of the proposed Oireachtas Enquiry into Ireland’s banking crisis have not been fixed yet. 

So it is timely to debate what they should be.

The Taoiseach Enda Kenny said on 14 May

“It will be for the new Oireachtas committee, once established, to submit proposals to hold an inquiry, including draft terms of reference for the Committee on Procedures and Privileges to consider and recommend for approval by the Houses of the Oireachtas. To be effective, the inquiry should have very clear terms of reference.”

WHAT WE KNOW ALREADY

In the same debate, the Tanaiste, Eamon Gilmore said
“We all know at this point that the crisis had its origins in an unsustainable property bubble that was fuelled by inappropriate tax incentives. There were several moments when this could have been reined in but it was not. We also know the property bubble was pumped up and driven by bad lending decisions in banks. In effect, what came into being was a toxic triangle between politics, property development and banking. We need to know why this developed as it did and why it was not stopped.”

WHY DID A CRISIS BECOME A DISASTER?

The Tanaiste continued
“ We also need to know why the problem became a crisis and why a crisis became a disaster. We need to know more about how and when the problems in the banking system were first identified and what was done about them.”
I agree that we do need to know why “a crisis became a disaster”, as he puts it. 

HOW CAN WE PREVENT IT HAPPENING AGAIN?

But it is even more important to find out how the crisis might have been prevented from developing in the first place.

 What were the measures that could have been taken to prevent the property bubble?

 Would these measures have been politically feasible, at the time, and if not, why not?

TWO SIGNS THAT WERE IGNORED.....THE RATE OF HOUSE PRICE INCREASE AND THE BALANCE OF PAYMENTS

I believe that two obvious sign that a crisis was leading to a disaster were studiously ignored.
One was the fact that house prices were rising far faster than either the rate of increase in incomes or the rate of inflation in other prices, and meanwhile people were getting 100% mortgages. And once that process ended, and house prices were only rising at a rate below that of incomes, borrowers, who had been given 100% mortgages, were immediately heading towards negative equity. That made a “soft landing” inherently unlikely. Why did no one see that?
The other was the huge deficit that developed on the Irish balance of payments. The country was spending more abroad than it was earning abroad. That could only be reversed by (an inherently unlikely) dramatic increase in exports, or by a cut back in imports. The latter could only be engineered by a recession of some kind. It was plain to see that such a recession would render the 100% mortgages unsustainable. Why did no one do the basic arithmetic to work that out.
Both dilemmas were plain to see. But no one saw them. Why?

NYBERG’S VIEW OF THE OIREACHTAS ENQUIRY

Professor Nyberg, former Director General of the Finnish Department of Finance who carried out an Enquiry already into this subject for the Government, has expressed scepticism as to whether this further Oireachtas enquiry will discover anything new, that was not included in his own report or the report by Patrick Honohan.

The Nyberg report runs to 172 pages and is available at the website bankinginquiry.gov.ie
 Nyberg believes Ireland and the rest of Europe haven’t learned from the lessons of the past. 
He says
“What is being done on the supervisory and regulatory fronts in Europe partly assume that the authorities will always be there preventing or handling a crisis, and we did see, not many years ago, that this is not true. 
“So the question is: why will it be true next time? But that question is not being asked anywhere yet” he says.

THE VALUE OF AN ENQUIRY BY POLITICIANS......
IT CAN EXAMINE THE POLITICAL PROCESS

The potential value of the Oireachtas Enquiry is that it is being carried out by politicians, not by technical experts. 

Politicians can ask themselves the hard political questions, like

1.) Would it have been politically feasible in 2002 or 2003 to prevent the property bubble, by doing things like restricting mortgage tax relief or banning 100% mortgages? How would that have been received by the employment intensive construction industry? How would measures to slow price increases have been received by recent house purchasers?

2.) Would it have been politically feasible in the 2002 to 2006 period to close the balance of payment deficit by fiscal policy, in other words, by running large budget surpluses and thereby deliberately taking money out of the economy? To what degree would the balance of payment have to be out of line, for such  corrective measures to be taken and how might they be explained politically?

3.)  How would the measures that might have been taken to slow down house price increases, or to close the balance of payments deficit, have been received by the electorate? Would they have understood the need for them? If not, how could that be changed?

4.)  If the same conditions were to recur in future, (say in 2030),  and with the benefit of hindsight we now have of the 2002 to 2006 crisis, would it be any easier then to get political support to  take the difficult steps necessary to prevent  the bubble? If not, what changes do we need to make in our political system to ensure that we become less bubble prone?
These are really hard questions that are beyond Nyberg’s competence, but they are not beyond the competence of the elected representatives on the Oireachtas Enquiry.

That is the potential value of the Oireachtas Enquiry.

THE YOUNGEST PRIME MINISTER - HOW DID HE DO IT?

Before taking office as the present Foreign Secretary in the Coalition Government in the UK, but after he had ceased to be Leader of the Opposition, William Hague wrote a major biography of a Prime Minister of an earlier era, William Pitt the Younger. It was first published by Harper Collins in 2004.

Pitt, whose father had been Prime Minister before him, became Prime Minister in 1784 at the age of 25 and held that office almost continuously until his early death in 1806. 

How did Pitt manage to become Prime Minister at the age of 25, something that would hardly happen today despite all the emphasis on the supposed youthfulness of our popular culture?

At the time, a person could only become Prime Minister if he had been nominated by the King (George the Third), and the King was determined that the other viable candidate for the job, Charles Fox not get the job.

Pitt had the advantage of being the son of a former Prime Minister, and was already a member of the small aristocratic circle who formed the “electorate”  a potential Prime Ministers had to satisfy in those days. These were all people who knew Pitt personally and did not have to rely for their information about a person’s suitability for office on sound bites, as an electorate must do today.

Politicians generally were younger in those days, many the sons of people who had to vacate their seats in the House of Commons on taking their father’s seat in the House of Lords. 

Pitt had spent much of his childhood honing his oratorical skills and observing his father’s work as Prime Minister, so he was better prepared for the job that his years might suggest.

William Hague’s biography of Pitt is thorough and well written, running to almost 600 pages.

It brings out the extent to which mastering the House of Commons by the power of oratory was crucial in those days.

Equally important was keeping on good terms with the King, and it was the King’s visceral antipathy to Pitt’s rival Fox, that sustained the King’s confidence in Pitt over such a long period. 

Interestingly, the King’s heir, the Prince of Wales, was a strong ally of Fox and if he had came to the throne earlier, Pitt would have lost office quickly.

Pitt also had to make many compromises to keep the King’s confidence.

He was a supporter of allowing Catholics to sit the House of Commons ( so called Catholic Emancipation), the reform of Parliament to broaden the franchise, and the abolition  of slavery . But the King was not in favour of any of these things. So Pitt accomplished none of them during his long period in office. 

His liberalising instinct were also tempered by the forces released by the French Revolution, which threatened to overthrow the entire propertied order throughout Europe.

Pitt was the Prime Minister responsible for pushing through the Union of the Irish and British Parliaments in 1800. 

He had recognised early on that British trade and shipping policies were artificially depressing the Irish economy to benefit British interests and tried in the 1780’s to remedy this by promoting free trade between the two islands. This was frustrated because of opposition from commercial interests in England.  He promoted Union between the two islands partly to get over this. 

He had also hoped that Catholic Emancipation could be more easily conceded in a UK context, where Protestants would not be so likely to be outnumbered, as they would have been in a separate Irish Parliament.  But, after the Act of Union, he failed to promote Catholic Emancipation because of the opposition of the King. He resigned in protest over this but was soon back in office and dropped the matter thereafter. 

Pitt never married, and worked prodigiously hard all his life. He had to do so because he combined the present day offices of Prime Minister and Finance Minister, as well as doing the energy sapping work of mastering a highly indisciplined parliamentary majority. 

His main recreation was consuming copious amounts of port, which contributed to his early death from what was probably an ulcer.