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William Hague speech – live
Live coverage as the shadow foreign secretary makes a foreign policy speech at Royal United Services Institute
11.44am: William Hague is giving a big speech today. It’s on the “foreign policy framework of a new Conservative government” and Hague is delivering it at 1pm at the Royal United Services Institute in Whitehall. The Tories have already released some excerpts in advance and my colleague Nicholas Watt has already written a blog about what Hague’s speech means for the Foreign Office, while I’ve written a story covering some other aspects of what Hague will say.
But Hague is also promising to take questions. This will be his first major public outing since we learned last week that he had been kept in the dark about Lord Aschroft’s tax arrangements for nearly 10 years. Hague did not want to talk about this when he gave an interview to the Financial Times – beyond saying that Ashcroft never tried to influence party policy – but there’s a chance that we might have more luck today. We’ll find out soon.
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Lord Ashcroft’s place in the sun
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Chris Riddell on Lord Ashcroft’s living arrangements
Embarrassment for David Cameron over Tory hopefuls’ lobbying links
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Conservative drive to ‘clean up politics’ faces test over failure by several candidates to fully declare their work for lobby firms, says Nick Mathiason
David Cameron’s drive to clean up politics is facing an embarrassing public test after it emerged that a number of prospective Conservative MPs have failed fully to declare in their campaign literature that they work for lobby firms representing powerful business interests.
The revelation threatens to destabilise Tory hopefuls in the upcoming election as voters in constituencies where alleged “secret lobbyist candidates” are running will be the subject of a targeted online advertising blitz on Google and Facebook orchestrated by 38 Degrees, an innovative online campaign group.
Only last month, Cameron warned that lobbying “was the next big scandal waiting to happen”. But campaigners claim that while secret lobby links extend across all parties, the Conservatives are the worst offenders.
Last night, the Tories hit back saying they “are committed to shining the light of openness onto the lobbying world” and suggested Labour candidates’ links to lobby firms were far more extensive. But several Tory candidates seem to have kept back details of their work for lobbying firms, including:
■ Priti Patel, the Tory candidate for Witham, a new seat in Essex. On her website, Patel says she is a director of a company providing “business and communication strategy” advice but fails to clarify that she works for one of the world’s most powerful lobby firms, Weber Shandwick, personally advising Microsoft and bank lobby group, International Financial Services London.
■ Penny Mordaunt, the Conservative candidate for Labour-held Portsmouth North, who is a 15% shareholder in lobby firm Media Intelligence Partners, which boasts among its clients Sony, Orange, and DHL. Mordaunt is also listed as the firm’s director in Companies House. Mordaunt also worked for 10 months last year at leading public PR firm Hanover.
■ George Eustice, Cameron’s former press secretary, fighting the three-way marginal in Camborne and Redruth, Cornwall, has failed to disclose on his campaign site that he works for powerful Westminster lobby firm Portland, which acts for Google, Tesco and McDonald’s.
■ Prospective Labour MP Emma Reynolds on Friday hurriedly updated her biography on her campaign website to include details of her work for lobby outfit Cogitamus, which advises the biggest names in the construction industry on government relations.
The Observer is aware of a significant number of parliamentary candidates who will be unmasked in coming days as part of a co-ordinated campaign by Spinwatch and 38 Degrees aimed at introducing a statutory register of interests. This would force lobby firms and parliamentary candidates to clarify who they represent and work for.
David Babbs, 38 Degrees executive director, said: “The election is a chance to clean up parliament, which is why it’s time for all PPCs to come clean about their links to lobbying. 38 Degrees members are going to work together to make sure that those people who want to be our MPs promise to put their voters first, not their friends in big business. 38 Degrees is a 100,000-strong, people-powered movement, and during this election we plan to work together to cut through the spin and make sure politicians answer to us. We’ll be challenging PPCs on their lobbying links, and if they refuse to draw a line under their past business interests we’ll be raising money for ads in local papers to make sure local voters hear the facts.”
Tamasin Cave, from the Alliance for Lobbying Transparency, said: “The public is calling for – and deserves – a new type of politics, so it’s vital that prospective MPs are fully transparent about their links to lobbying. If they are helping powerful companies get privileged access to key politicians in the runup to the election, we have a right to know who they are lobbying for and which policies or contracts are being discussed. Covert lobbying harms public trust. Lobbying firms clearly hire these parliamentary hopefuls to both open the door to politics now and to secure a direct line to any future government. If you want to influence politics, it pays to employ political insiders.”
Eustice defended the lack of information about his work for Portland, saying his campaign website was intended to set out his beliefs. The one-time Cameron spin doctor also said there was a welter of publicity when he left Cameron to join Portland. In addition, he had been a tireless campaigner for more transparency in the public relations arena.
Mordaunt said her role at both Media Intelligence Partners and Hanover was centred on communications work rather than public affairs. She explicitly denied she was a lobbyist and said she supported the campaign for a statutory register of lobbying interests.
Patel did not comment on her links with Weber Shandwick. But the firm’s corporate communications and public affairs chairman, Jon McLeod, confirmed that Patel advised Microsoft and the International Financial Services London. He stated: “Weber Shandwick is clearly an agency with a political dimension. We would not be good at our job if we weren’t.” McLeod confirmed he was a vocal supporter of legislation to create a statutory register of lobby firms.
Last night, the Tories said they would introduce new rules to stop central government bodies using public money to hire lobbyists and “push for the lobbying industry to ensure greater transparency of their operations through self-regulation, and we would be prepared to legislate if this fails”.
Cave said: “As David Cameron said just last month, this isn’t a minor issue with minor consequences. It’s not just public policy that’s affected by lobbying – government contracts worth billions are potentially at stake. Cameron has spoken about the urgent need to shine the light of transparency on lobbying. But words alone won’t bring public scrutiny: we need new rules that force lobbyists to come clean about their activities.”
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Brown draws flak over role in handling military budget
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Cameron uses prime minister’s questions to challenge Brown over military funding claims made to the Chilcot inquiry
It was possibly the most supercharged prime minister’s questions of the year so far. At 12:09pm last Wednesday the ritual jousting turned toxic as David Cameron challenged Gordon Brown’s testimony at the Iraq inquiry days earlier.
Brown had told the Chilcot inquiry that he never refused urgent requests for more military funding. Cameron did not believe him, citing two former chiefs of the defence staff who had criticised the prime minister for offering the inquiry evidence that was “disingenuous” and “dissembling”.
Several Labour backbenchers could not hold their tongues. But, they roared, Lord Guthrie and Admiral Lord Boyce were “Tories”. The implication was damning; these men might once have been characters of honour whose duty was to serve the nation but now their criticism could be dismissed as readily as, well, Cameron’s.
It was a poisonous putdown. In their view, the opinions of two of the most powerful figures in modern military history had become corrupted to the extent they were no longer impartial.
Some blamed Sir Richard Dannatt, the former army chief, for politicising the military. After all, Dannatt’s consistent criticism of defence spending in Afghanistan had preceded reports that he would become a defence adviser to the Conservatives. Beyond the hullabaloo over political bias weighed against genuine concern over soldiers’ welfare, the debate boils down to whether Guthrie and Co have a point? Did Brown starve the military of funding when he was chancellor, leaving the forces short of vital equipment?
The answer may depend on whose side you are on. Guthrie and Boyd remain adamant that Brown mishandled the defence budget when chancellor and that his prudence meant, for instance, fewer troop-carrying helicopters in Afghanistan, one of the most vexing issues facing commanders in Helmand province. Their critique was bolstered by an inquest verdict hours before Wednesday’s Commons exchange. Four soldiers were unlawfully killed after troops were given “inadequate” training, according to Wiltshire coroner David Masters.
Brown, too, remains unmoved. He told Cameron that “every request” made by defence officials for “urgent operational requirements” was met. In fact, said the prime minister, £18bn had been invested in Afghanistan and Iraq on top of the military budget. In real terms, spending was up. The Tories, claimed the prime minister, cut it by 30% in the 1990s. But the truth, as so often, is somewhere in between.
Analysts point out that the MoD has a long-term core budget while the additional cost of fighting wars comes from the Treasury reserve. Many believe this dynamic fuelled disagreement between Brown and the military men.
However, the future for defence spending appears less ambiguous. Swingeing cuts are a certainty. Days before last week’s PMQ, the defence select committee bemoaned a £21bn funding gap for scheduled military projects. If they win the election, the Tories will have to preside over huge cuts in military spending. The question is, will Guthrie and Boyd sit quietly on the sidelines when that happens?
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Conservative defector condemns party’s ‘vile letter’ and hostility towards Europe
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MEP Edward McMillan-Scott accuses Tories of euro-scepticism and ‘double standards’ for expelling him while only suspending Lord Archer
The former leader of the Tories in Europe launches a scathing attack on David Cameron’s Conservatives today, accusing them of “visceral euroscepticism”, “twisted” thinking and bullying tactics that forced him out of the party.
Edward McMillan-Scott, who defected to the Liberal Democrats on Friday, has also accused the Tories of “extraordinary double standards” for expelling him permanently, having only suspended Lord Archer, who was sentenced to four years in prison for perjury in 2001.
Writing in today’s Observer, McMillan-Scott, who remains a vice-president of the European parliament, says the Tories unleashed a “campaign of vilification” against him after he claimed that Michal Kaminski, the Polish MEP who now leads their centre-right group in the EU, had an antisemitic, homophobic and racist track record.
A strong pro-European and member of the Tory party for 43 years, McMillan-Scott gives voice to years of frustration at the party’s hostile attitudes to the EU under present and past leaders, including William Hague.
In his outspoken attack on the party over its handling of his expulsion, McMillan-Scott says he has been smeared by Tory press officers who have tried to claim he is the one who holds antisemitic views.
He adds that they have distorted facts about his defection and claims that the party produced no documents to support its case when he appealed against expulsion. “I am not bitter, but they are twisted. It is not a nice party now,” he writes.
He accuses Cameron of tolerating eurosceptics who depart from the party line while persecuting him, a pro-European, for daring to express sincerely held doubts about the leadership credentials of a controversial fellow MEP.
“David Cameron shields his europhobes,” he writes. “No murmur was made when last weekend Lord Tebbit in effect encouraged Conservatives to vote Ukip in the general election against the Speaker, John Bercow. The dog whistle is really at a lower pitch: that Ukip supporters know that there is a real home for them, back in the Conservative party.”
Last night, speaking from the Liberal Democrat spring conference in Birmingham, McMillan-Scott said the party had shown “massive double standards” by expelling him while suspending Jeffrey Archer for five years.
When the Liberal Democrat leader, Nick Clegg, mentioned McMillan-Scott’s name at a rally on Friday night there was a huge roar from activists. Yesterday he was seated in the front row for a question-and-answer session, so Clegg could welcome him.
The row over McMillan-Scott blew up last year when he stood as vice-president of the European parliament against Kaminski, who was Hague’s choice. Following McMillan-Scott’s stand, Timothy Kirkhope, leader of the Conservative MEPs, withdrew the party whip.
On 15 September, without any prior notification, McMillan-Scott was expelled from the Conservative party after 25 years as an MEP, four years as leader of the MEPs and three years on the party’s board.
• Hague is also likely to come under fire if he declines an invitation to appear this Thursday before a parliamentary committee investigating the granting of a peerage to Lord Ashcroft .
The three Tory members of the public administration committee – David Burrowes, Ian Liddell-Grainger and Charles Walker – have already said that they will not attend the one-off meeting, at which confidential Cabinet Office records relating to the decision to grant Ashcroft a peerage in 2000 will be discussed.
But the event is now in danger of running into farce. Ashcroft, a “non-dom” who does not pay UK tax on his overseas earnings, is unlikely to appear in person and Hague, too, looks doubtful.
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Edward McMillan-Scott: Standing up to extremism in Europe cost me my place with Tories
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What the Conservatives say publicly about Europe is not what they really think, says the MEP for Yorkshire and the Humber
William Hague has been using positive words to describe the Conservative party’s future relations in government with our EU partners. I have been around the higher circles of the party for long enough to know that a visceral euroscepticism has been growing there since John Major’s day. I had a stand-up row with Hague when, while leader of the Tory MEPs, he tried to get me to back his “Never to the Euro” ticket.
It was chilling to hear the then party leader say to one very senior spokesman at an EU meeting some years ago: “We can say what we like here, but it will be different when we are in government.” I should have left then, instead of carrying on the pro-European fight from within.
David Cameron shields his europhobes. No murmur was made when last weekend Lord Tebbit in effect encouraged Conservatives to vote Ukip against the Speaker, John Bercow, in the general election. The dog whistle is really at a lower pitch: that Ukip supporters know that there is a real home for them, back in the Conservative party. Dan Hannan MEP plays the same game, even declaring that he had resigned his spokesmanship in Europe to campaign full-time for a referendum on EU in-or-out. No slapdown there, either; certainly no expulsion. But then he is a chum of Sam Cameron’s; they were at Marlborough College together.
My decision to join the Liberal Democrats this weekend was made easier by the vile letter the lawyers conducting my appeal against expulsion last year from the Conservative party received last weekend. They described it to me as “intemperate”, and advised me that, since the party refused to supply any documents about my expulsion, there was no hope of a fair final hearing next Thursday at Tory HQ. So I withdrew from the appeal and thereby resigned from the Conservative party I have served more or less faithfully for 43 years.
No doubt my successful stand for re-election last July as European parliament vice-president against the “official” candidate from Poland’s Law and Justice party, Michal Kaminski, put forward by Cameron’s controversial new group, caused him some discomfiture. But the campaign of vilification against me when I explained my reasons – that Kaminski had a recent antisemitic, homophobic and racist past – was so bizarre that it began to attract attention.
Indeed, Toby Helm in this newspaper was the most attentive. He had been present at the national commemoration in July 2001 of one of the most notorious massacres of the second world war in Nazi-occupied Poland. At Jedwabne in July 1941, more than 400 Jews were rounded up by their Polish neighbours and herded into a barn where they were burned.
At the time of the apology, Kaminski was the local MP and he made it his business to organise opposition to the commemoration. He denies this now, as he denies so much else of his easily discovered past, using the Nick Griffin defence: “If I said it then, I would not say it today.”
Last week Cameron was interviewed by the Jewish Chronicle and assured its readers that he would bear down hard on extremism in Britain. This sits uneasily with a man who propitiates it in Europe.
Conservative press officers hounded Labour over Damian McBride. The same pack have been repeatedly reported to me by journalists as using heavy tactics. One hapless Yorkshire Post journalist was called one week by six Tory boys demanding a right of reply for Kaminski. He coolly and properly said that, if he accepted that, he would also have to give space to Nick Griffin. The same team put it about that I was antisemitic because I once met Hamas – actually to tell them to stand for election. They are out again this weekend distorting the facts about my defection to the Lib Dems. I am not bitter, but they are twisted. It is not a nice party now.
A move to the Lib Dems is easier because I have known, liked and respected Nick Clegg for some years, whether as a key negotiator on trade while Sir Leon Brittan was EU commissioner or later as an MEP.
Most of my family are liberals and I am comfortable joining the Liberal family. From being a liberal Conservative I have become a conservative Liberal. And it is not a nasty party.
Edward McMillan-Scott is MEP for Yorkshire and the Humber and continues to sit as an independent vice-president of the European parliament
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How many economists does it take to sign a letter?
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Confusion over recent round robins that economists have sent to newspapers has revived all the old jokes, but it’s no laughing matter
There has been a spate of round-robin letters from economists to the newspapers recently, superficially suggesting there are huge divides between practitioners of the dismal science, and giving non-economists a field day. Thus we have had a revival of the old joke about economists being laid end to end; and any day now we shall be asked once again how many economists it takes to change a light bulb.
The old jokes are the best, but they come in various guises. One version is that if all economists were laid end to end, they would still not reach a conclusion; another is that if all economists were laid end to end they would reach a conclusion. I prefer the latter, which I think is subtler, and (I believe) was coined by none other than George Bernard Shaw. As for the lightbulb joke, anyone who has recently had a house rewired will tell you that changing lightbulbs these days requires a PhD in electrical engineering, and is therefore not a laughing matter.
But now for the real joke. It turns out that the letter from 20 economists to another Sunday newspaper that started the furore was originally intended as a demonstration of how united the economics profession was on the question of deficits and cuts – ie a return to budgetary discipline was required in due course, but not yet; not until it was safe to act without risking turning what even the prime minister calls a “fragile recovery” into a full-blown depression.
Unfortunately the letter was dressed up as backing for “savage cuts soon”, and presented as endorsing the Tory position – or, at least, one of the Tory positions, because Messrs Cameron and Osborne have been going around the mulberry bush on this issue , blowing hot and cold, sometimes, it seems, depending on the outside temperature.
The result was that a letter intended to demonstrate “consensus” provoked a furious reaction from Keynes’s biographer Robert Skidelsky and others, who highlighted the danger of “instant cuts” when the economy is so fragile.
The episode has revived memories of the occasion on 13 March 1981 when 364 economists wrote to the Times attacking the monetarist policies of the time, and in particular Sir Geoffrey Howe’s apparently deflationary budgetary stance. Since then the 364 economists have been the butt of endless jokes from the Conservative Party (although not its Wet Wing) for “having got it wrong” because eventually there was a recovery. But what the economists did not know at the time of writing was that the government had secretly changed its policy, and decided on a strategy to get the exchange rate down, thereby encouraging an economic recovery. Even so, it was not much of a recovery, because unemployment went on rising until 1986.
In an article entitled “Economists and Policy Letters”, the veteran economist Max Steuer of the London School of Economics takes his colleagues to task for writing such letters, and for causing confusion by signing up to letters using wording with which they are not always happy, but which help them to make a point or “stand up and be counted.”
Given that the recent letters have been concerned with the budget deficit, what especially irks Max Steuer is that “it is apparent that very few of those signing any of the letters have done work on the issues of United Kingdom public debt. What we really want from economists is careful work on this matter. It has to be pretty rapid work to offer useful guidance on current policy. And really good work will not only do that, it will help in improving the general body of knowledge on national debt, work which will be applicable in other situations.”
Well, I am all in favour of good work on the national debt, but, with due respect to Steuer, I think those familiar with their Keynes can be allowed to attack the idea of savage and instant cuts in the deficit when the recovery is far from secure. And this is not, pace a senior BBC political commentator, a “micro” issue of timing or detail. It is a very important macro issue. One of the worst macro economic policy mistakes made since the second world war was when the Japanese introduced a sharp increase in consumption taxes in 1997, when their recovery was still fragile, and knocked that fragile recovery for six, thereby consolidating the deflationary situation which became known as the “lost decade”.
An example of an economist who signed the letter that was presented as favouring instant cuts, but who does not favour them himself, is Roger Bootle of Capital Economics. In his new book, The Trouble With Markets, Bootle notes: “Bearing in mind the fact that the public debt is owed to ourselves, I believe that the greatest threats to economic wellbeing arising from the size of the public debt are posed not by the debt itself, but rather by how we might react to it; that is, by excessive early tax rises, which could have the effect of prolonging the depression.”
Bootle also has soothing words for those who, despite the way the financial sector brought the economy to its knees (and caused the deficit “crisis”), are worried that the British economy will somehow “lose out” from a contraction of that financial sector.
“A good deal of what has gone on in financial markets has been positively harmful,” he writes (and he has observed those markets at very close quarters over the years). “The release of resources from the financial sector and their re-employment elsewhere will bring no net loss and may even bring a net gain.”
This, as he says, requires an end to the recession and the re-employment of those resources. Meanwhile, I should add, if what we are witnessing now is a “recovery”, then we need a recovery from that recovery.
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Lib Dems refuse to support Tory spending cuts
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Nick Clegg describes George Osborne’s plans to slash budgets as ‘economic masochism’
The Liberal Democrats have distanced themselves from the Conservatives by warning they would not support plans to cut public spending too early in the next parliament.
The party’s leader, Nick Clegg, said early deep cuts would be “economic masochism”. It came as the Lib Dem treasury spokesman, Vince Cable, hit out at the Tories’ economic plans. In his speech at the party’s spring conference in Birmingham, Cable accused the Conservatives of engaging in a “phoney war over cuts” that would affect millions of lives. He also hit out at George Osborne, the shadow chancellor.
Cable said the Tories were trying to present their economic team as “‘Slasher’ Osborne and the Hard Men”. But, he added, they appeared to have taken cuts straight after the election off the table – at least for now. “Or at least that’s what I think they said. I’d love to attempt a critique of the Tories’ budget plans, but I have no idea what they are. I think the present line on the budget is: ‘Trust us and we’ll tell you after the election’,” he told cheering delegates.
He added: “People are desperate to see the back of this Labour government. But they don’t want the same old Tories. And make no mistake they are exactly the same.”
He also claimed that David Cameron’s party and its “cronies” were trying to create financial panic to frighten people into voting for them. “Playing fast and loose with the financial stability of this country for political gain – destabilising the markets – is dangerous, irresponsible and wrong,” said Cable.
He did not limit his criticism to the Conservatives. Cable, having famously compared Gordon Brown to Mr Bean, this time made delegates laugh when he said the prime minister sounded like the Chelsea footballer Ashley Cole, pleading: “Give me another chance.”
The Lib Dems had identified £15bn worth of reductions in public spending that would cut the deficit, he said. The party has come under an increasing level of scrutiny as the polls narrow. Observers are watching for any signs to suggest whether the Lib Dems would be prepared to make a pact with Labour or the Conservatives in the event of a hung parliament. That is the scenario suggested by two polls released today.
YouGov research for the Sunday Times finds that the Tories’ lead has narrowed from five points to four over the past week. An ICM poll for the Sunday Telegraph places Cameron’s party seven points ahead – not enough for a majority. The same research suggests that the Lib Dems have strengthened their position and are now on 21 points.
Clegg will discuss a hung parliament when he addresses MPs today. “People often ask me what the Liberal Democrats will do after the general election. Some days I read we’re planning a deal with Labour, some days that we’re planning a deal with the Conservatives, other days that we’ll refuse to talk to anyone at all,” he is reported as planning to say.
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Pressure on Tories to name mystery MP who sabotaged anti-poverty bill
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Campaigners demand David Cameron names member who killed bill protecting developing world from vulture fund bankers
Pressure is growing on David Cameron to identify the mystery Tory MP who deliberately scuppered a landmark anti-poverty bill that could have stopped “vulture” bankers profiteering from the developing world’s debt burdens.
Debt campaigners have reacted in fury and disbelief to the killing of the bill and Labour MP Sally Keeble, one of the bill’s backers, has accused the Conservatives of “duplicity” by pretending to back the legislation and then sabotaging it at the last minute.
Campaigners are now calling on the leader of the opposition to clarify his view of the bill and asking whether the MP concerned will be identified. The international development secretary, Douglas Alexander, has sent a letter to Cameron demanding an explanation.
The frustration has been compounded by the secrecy surrounding the events in the House of Commons last night. During the reading, three Tory MPs were seen to huddle together on the benches before one shouted the word “object!”, which under parliamentary procedure effectively stopped the bill passing.
Three Conservatives were in the chamber – Christopher Chope, Andrew Robathan and Simon Burns – but none have admitted intervening. The Tory treasury spokesman David Gauke, who was on the committee which debated the bill, insisted the Conservatives had wanted to see the bill go through and that the MPs, two of whom are Tory whips, did not have the support of the frontbench. He said he did not know which one had made the objection. “We have our suspicions,” he said. “It is a pity. Our view was let’s go with the bill but that was not to be. Everyone recognises that this was a rushed process.”
But Keeble said that there had been plenty of time to debate the bill, both for two hours in the chamber and at committee stage. “All concerns that had been raised had been dealt with and the bill had been watered down already as a compromise to the Conservatives,” she said.
“It’s blatantly obvious that this was duplicitous behaviour by the Conservatives whose commitment to international development is deeply suspect. The three men went into a huddle and then no one can see who actually objects. It’s disgraceful behaviour.”
Nick Dearden, director of Jubilee Debt Campaign, said: “It is an outrage that one MP has taken it upon himself to effectively kill a bill which has the support of the vast majority of the House. His move will mean many of the poorest countries in the world will continue suffering at the hands of reckless and unethical investors.
“This action has destroyed the hopes of many people across the developing world that we might put an end to the appalling practice of vulture funds.”
Vulture funds buy up the debts of poor countries, often at a fraction of their face value, and pursue them through the international courts, in many instances despite agreements by other creditors to give the country debt relief.
Campaigners wanted the legislation to apply retrospectively, because it could help countries such as Liberia, which lost a £13m case in London against two vulture funds late last year. Liberian president Ellen Johnson Sirleaf has urged parliament to pass the new law. The scuppering came a day after former Tanzanian President Benjamin William Mkapa backed the bill, saying: “I hope the international community joins hands to put an end to these deplorable activities of the vulture funds.” The bill also has the support of Archbishop Desmond Tutu.
Andrew Gwynne MP, who proposed the bill, said: “It is staggering the Conservatives are still unwilling to support even the most basic legislation to help reduce third world debt.”
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The wisdom of recycling trade surpluses | George Irvin
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Look to Keynes for a way to rebalance the world economy – force surplus countries to spend money in deficit countries
How is the global economy to be rebalanced? Is there a distinction worth making between Chinese and German mercantilism? One can argue that China’s astonishing growth has sucked in other countries’ imports while lifting millions out of poverty. But growth continues to be export-led, and the Central Bank of China has accumulated the world’s largest stash of dollar-denominated assets. Germany runs an even larger current account surplus, but much of it is recycled into buying companies in the US and elsewhere.
Is exchange rate adjustment the answer? While the US Congress seems to believe so, a large revaluation would in practice serve nobody’s interests. Chinese export-driven growth rate would slow, and Americans would find themselves poorer in real terms having to buy dearer goods at Wal-Mart.
In the EU, things are slightly different because the euro has appreciated strongly against the dollar. But appreciation has had only had a marginal effect on Germany’s surplus; Germans have accepted slower wage growth as a price worth paying for the prize of being the world’s leading exporter. By any measure, exchange rate adjustment – even allowing for lags – seems to have done little to rebalance the world economy.
The financial crisis has complicated matters, with fiscal deficits growing alarmingly. The German response to resulting downward pressure on the euro has been to insist that all countries should balance the books like Germany. But as Martin Wolf correctly observes: “Germany is in a trap of its own devising. It wants its neighbours to be as like itself as possible. They cannot be, because its deficient domestic demand cannot be universalised”.
In macroeconomics, the basic savings identity says that the sum of the private sector surplus (of savings over spending) and of government’s fiscal deficit must equal the current account (or external) balance. Thus, if a country is in approximate external balance, but an external shock like the credit crisis leads to a sudden increase in the private sector surplus, this must be mirrored by a similar increase in the fiscal deficit. In plain English, as the private sector pays off its debts by spending less, this is reflected by an increase in public sector spending.
There are only two ways out: the first is getting the private sector to start spending again and the second is for net exports to expand rapidly. The problem with the first solution is that, by definition, private consumption falls in a credit crunch; in consequence, business confidence falls dragging down private investment.
The problem with the second solution is slightly more complex and involves what philosophers call the “fallacy of composition“. While one country may be able to boost its exports, all countries taken together cannot. Because my exports are your imports, everyone trying to boost their exports simultaneously by means of, say, currency devaluation leads to a 1930s style “beggar my neighbour” result. This is broadly the logical flaw of those who argue that Britain was fortunate in not joining the euro and retaining its own currency.
What of the weaker members of a currency union, eg Greece and the “Club Med” countries? The German solution, currently dressed up as a debate about the merits of a European Monetary Fund (EMF), is for all countries to adhere to strict fiscal discipline and slash the public deficit. The EMF in its present guise is simply another version of the EU stability and growth pact. This “solution” only works through cutting the real wage and driving down national income to such a degree that the private sector surplus falls and imports contract drastically – ie though expenditure cutting rather than expenditure switching. The rub is of course that were a number of eurozone countries forced to adjust in this way, Germany’s current account surplus would contract.
Is there another answer? John Maynard Keynes proposed a perfectly sensible solution at Bretton Woods in 1944, namely, forcing surplus countries to spend their extra money in deficit countries, thus both their private spending and export capacity. The “Keynes solution” as is has been dubbed by the US economist Paul Davidson, was unfortunately vetoed by the Americans. In fairness, one must add that America rechannelled part of its surplus at the time into the Marshall Plan, thus enabling Europe to grow and to overcome its deficit.
Under such a scheme applied to the eurozone, the EMF would use the German euro surplus to create new sources of income and jobs in the Club Med countries, thus raising their ability to buy future German exports. In the absence of an EMF, a new eurozone economic structure which provided it with a Federal Treasury could capture such surpluses and direct them towards an ‘extended’ solidarity fund.
Too idealistic? Not at all. Just as Keynes and Marshall recognised that the failure to reflate Europe after the war might be catastrophic for the west as a whole, so Germany should draw the same lesson today – just as China now seems to be recognising that the new mercantilism leads nowhere. Recycling trade surpluses is a win-win game. Alternatively, insisting on budgetary balance will almost certainly lead to prolonged recession with high social costs.
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Climate change adverts draw mild rebuke from advertising watchdog
about 5 months ago - No comments
Leaked adjudication largely clears government over campaign that some thought ’scary, inaccurate and too political’
Read the full text of the ASA adjudication
The advertising watchdog has mildly rebuked the government over the phrasing of a claim in two advertisements on the danger of climate change, while dismissing the rest of the complaints against the controversial television and newspaper campaign.
The campaign, run by the Department of Environment and Climate Change last winter, brought in 939 complaints. Various groups said the adverts were political, too scary, and factually misleading.
The vast majority of these complaints have now been dismissed by the authority.
The Advertising Standards Authority’s only criticism was that a claim that “flooding, heat waves and storms will become more frequent and intense” should have be phrased more tentatively.
The environment secretary, Ed Miliband, said the authority had “comprehensively vindicated” the accuracy of the department’s TV advert and had rebuffed those who attempted to use the advertising standards process to question the reality of man-made climate change.
“Science tells us it is more than 90% likely there will be more extreme weather events if we don’t act.
“In any future campaign, as requested by the ASA, we will make clear the nature of this prediction.”
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