The organised thieves

Whilst most UK media attention has been paid to the underclass and not so underclass of amoral parasites who turned on their fellow citizens, the most organised thieves of all - governments, have been trying to evade reality in Europe some more.

The sovereign debt crisis of Ireland was purely due to the foolish 100% guarantee of Irish banks given by the previous Irish government (trying to outdo the £85,000 limit in the UK) - it eliminated risk for banks, transferring it onto taxpayers.  It had a property bubble fueled by easy low interest credit in Euros, driven by the buoyant German economy, which bust.  Now Irish taxpayers are paying for bank guarantees made by politicians on their behalf.  Irish politicians promised to steal from taxpayers to support the profligacy of banks.

The sovereign debt crisis of Greece is pure state socialist profligacy.  A generation and a half of continuous budget deficits, fiddled accounts and lies about the national budgets, mass tax evasion, a welfare state that rewarded people for non-jobs and to retire in their 50s.  It was only extended when Greece joined the Euro, as budget deficits were "cheap" with low interest credit.  In addition, Greece was propped up by years of subsidies from the EU to its poorest members, of which Greece no longer largely qualifies since the accession of the former Soviet satellite states. Now Greek residents are learning to pay tax and learning that the socialist state has run out of cash.  Greek politicians promised to steal from future taxpayers to pay for the "jobs" and benefits of many of the current ones.

The sovereign debt crisis of Portugal is similar to Greece, without the fiddled accounts, with a bit less debt, but a smaller GDP to bear it.   Again a long period of cheap credit and Portugal enjoyed much EU largesse before the EU turned to funding infrastructure in the former communist bloc countries.  Portuguese politicians promised to steal from future taxpayers to pay for the lthe "jobs" and benefits of many of the current ones.

Spain's sovereign debt crisis has some parallels with Portugal, but was also exacerbated by a property bubble ala Ireland, where the economy was propped up by massive private borrowing for property, which went into construction.  Now Spain has a crisis of lower tax revenue and an overly generous state sector and welfare state.  Spanish politicians were hoping to keep stealing from future taxpayers and current property speculators and construction companies to pay for the the "jobs" and benefits of many of the current ones.

Italy's sovereign debt crisis is government led, as Italians have tended to be wary of credit, but Italian governments been profligate about buying votes with government jobs and social services.  Decades of short coalition governments that have favoured special interests now see Italy with sovereign debt of over 118% of GDP.  Italian governments have long promised to steal from future taxpayers to pay for the the "jobs" and benefits of many of the current ones.

Cyprus's sovereign debt crisis is less about government spending and more about fear of bailing out banks that loaned to the Greek government, and the slow in GDP due to losing half of its electricity generation capacity due to an explosion.  Cyprus's government has promised to steal from current and future taxpayers to pay for the profligacy of banks who loaned to another profligate government.

Belgium is small, but it too has sovereign debt of around 100% of GDP.   It too has had a generous welfare state, but has run more sedate budget deficits, although it saved itself from a crisis a decade ago by running surpluses for eight years, getting public debt below 100% of GDP.  It is now facing a similar crisis, but its overspending has been trimmed.  Still it too promised to steal from future taxpayers to pay for the job and benefits of current ones.

Now there is France.  It has public debt of over 80% of GDP, but has run budget deficits consistently for decades.  The trick has been to run deficits smaller than growth of GDP in some years, which has simply meant that the debt burden has been pushed out again and again.  Now it faces risks around its banks, which the French government is fully expected to bail out (large businesses in France often never really go bankrupt) banks that loaned to the profligate countries named above.

So the ban on short selling, is France's way of trying to stop the reality of the risk of French debt being devalued.  France can continue to borrow from the children and grandchildren of future taxpayers only if France's economy grows faster than the rate of borrowing.

You see governments throughout the Western world have been engaging in theft, on a grand scale, from future taxpayers.

Now as a libertarian I see all taxation as theft, because if private individuals or governments acted as government did, they would be treated as criminals.

However, even if you accept the absurd democratic-socialist model of government, that people vote for governments that institute taxes, and so somehow consent to it (essentially the majority impose their will on all), then this fails to apply to governments running budget deficits for current spending.

For when governments borrow, they are borrowing from future taxpayers.  Whilst many are current taxpayers, in 10-15-20 years time, some of those will be dead, and most current children will be taxpayers, and some as yet unborn ones will be.   None of them voted to pay the taxes to pay the debts of people who wanted unfunded pensions, who wanted subsidised businesses, who wanted unfunded healthcare.

It is intergenerational theft, and it can most easily be seen in the PAYGO pensions and health care systems in place in the USA, UK and yes, New Zealand.  Ponzi schemes that pay people on current pensions and health users (most of whom are elderly) out of the taxes of currently trading businesses and individuals.  By no stretch of the imagine are the benefits these people are getting paid for by them, for their taxes paid for the last lot, and there aren't enough new taxpayers to pay for this insecure intergenerational mandatory deal that statist politicians bribed people with.

So whilst there is righteous anger and disgust at the actions of looters, vandals and others who have demonstrated they are little more than parasites and destructive to humanity and life, there also should be anger at the political classes, who have continued to peddle their borrow and hope mentality, with their regular advance auction of stolen goods, so they get power.

It is true whether the party concerned is called Republican, Democrat, Labour, Conservative, Liberal Democrat, National, Greens or Maori Party.   All are guilty, all gain power and seek to borrow from people who don't have a vote, who have no choice but to pay for what current politicians want to spend money on.

The Tea Party in the US has, in part, represented resistance to this profligacy, and whilst it has attracted a colourful range of characters, it has also attracted approbium and abuse for wanting to end this mortgaging of childrens' futures.  In the UK, only think tanks and lobby groups represent that attitude, and in New Zealand perhaps only now ACT, and of course Libertarianz.

Don't believe me?  Simply ask your next politician why your children and grandchildren should be forced to pay back debts so that people who currently live off the state, get benefits from the state or get their businesses supported by the state, don't have to pay for it themselves?

Don't believe the EU agitprop - the Euro crisis is not over

For all of the hype yesterday from the politically (not democratically) appointed European Council President, and the cheers and handshakes from Presidents Merkel and Sarkozy, you might think there is reason to breathe a sigh of relief.  The use of the term "Marshall Plan" to describe what has been done is so wildly far from the mark that it continues to confirm my view of how malignant the European Union, Commission and Council actually are.  It is an institution as addicted to lies as any politician could be.    The big driver for Merkel and Sarkozy can be seen on this graph on the BBC news website.  Both French and German banks and governments are by far Greece's biggest creditors.

The immediate reaction to the announcements was the usual lemming like attitude of the currency and sharemarkets as many suddenly had confidence where there was no confidence before.  Some of that will be the attempt to make some short term returns from the bubble of optimism, for that is all it would be.  All the Eurozone leaders have done is buy some time, by pilfering the bank accounts, wallets and purses of their children and grandchildren - fiscal child abusers like so many politicians.  

As I predicted yesterday, a bailout solution will involve a form of fiscal union.  It was confirmed that details of how Eurozone countries will integrate tax and spending policies will be forthcoming.  Nothing has been said as to whether taxpayers in Eurozone countries will be asked whether such a fundamental constitutional shift will be put to referenda, for that is not in the style of the European Union.  It wont let democracy or public opinion get in the way of "the project".  Even the Guardian admits it is the "democratic deficit".  

Yet that isn't my biggest concern, for whilst it is easy to assert that if asked, it is unlikely European voters would see sovereignty transferred wholesale to Brussels, it is more fundamental that it is quite simply immoral for people in one country to be forced to bail out the fiscal profligacy of those in another. 

The plan is as follows:

- A tranch of Greek public debt will be transferred to the European Financial Stability Facility, effectively "EUising" the debt, with the maturity extended to about double the current average period.  The interest rate will also be cut to 3.5%.  In short, Greek debt is being transferred to primarily German, but also Austrian, Dutch and French taxpayers.

- Greece will "temporarily default" as private lenders will be effectively blackmailed into accepting a 20% writedown on the loans.  In effect the loans will be transferred to the European Financial Stability Facility (EFSF), with extended maturity periods and lower levels of interest.  Greece will effectively be unable to borrow from private lenders in the foreseeable future.  Private lenders will take a hit of around 13.5 billion Euro as a result, but will contribute up to nearly 50 billion overall.

- New EU bonds (debt) will be issued with a AAA rating.  In effect, Germany will be borrowing on behalf of Greece.  German taxpayers will be forced to use their hard work and savings to prop up the profligate and spendthrift Greeks.

- The EFSF will have new powers allowing it to buy sovereign debt from countries held by private creditors and cutting the interest rates on that debt.  In short, German taxpayers subsidising lenders to profligate countries. 

Greek public debt will be cut by 12% of GDP, albeit from the current level of 140%.   This should make it easier to service.  The overall value is 159 billion Euro.  However, it doesn't deal with the fundamental problem.

Greece is still overspending, on a rampant scale.

If Greece cannot cut its state sector back and radically reform its economy, it wont meet the deficit reduction targets that have been conditional for this and the previous bailout.  All this is doing is buying time.   It was made clear that Greece is a "special case".  There is no capacity to do the same for any other of the countries known as the PIIGS (Italy being added to Ireland recently).  Although it was noted that Spain and Italy have both committed to major austerity programmes to cut their deficits, which may just save them from a similar crisis.

Moreover, the Eurozone countries have agreed to "legally binding national fiscal frameworks" by the end of 2012.  That means surrendering sovereignty over tax and spending policy to the EU.

What's next?

If Greece's announced austerity measures are actually implemented, it may well be the end, but it has failed to do enough to date.  Greece needs to drastically cut and eliminate its budget deficit in the next two to three years so that it need not borrow anymore - for it is about to default, and will be unable to do more than is provided for.  This really is the last chance, unless other Eurozone governments are willing to rob from their children and grandchildren some more.

If Greece fails to cut its deficit there may well be another bailout, but with the French Presidential elections in April 2012, and German Federal Parliamentary elections in September 2013, Sarkozy and Merkel will be keen to avoid being seen to sell their people out to the Greeks.

Ireland, Portugal, Spain and Italy are also on the horizon.  All have announced austerity plans, but of those Portugal looks the weakest.  The thing to watch is whether in the next tranch of borrowing (which all of these countries must do), is whether there is enough confidence in the markets to allow it, and at what interest rate.  This bailout will raise confidence somewhat, but for the likes of Spain and Italy, few will be convinced that the Eurozone countries could afford to duplicate the Greek deal.  Their budget deficits will need to be dramatically slashed in the next two years to avoid risk of default.

However, watch blood to be spilt in forthcoming months over fiscal policy.   Central to Ireland's economic fundamentals has been a low corporate tax policy, which has encouraged many firms to locate there in preference to the UK and other Eurozone countries.  If the forthcoming "fiscal framework" does away with this, then Ireland will face a choice of abandoning this tax policy - in order to remain in the Eurozone, or doing away with the Euro.  Ireland's debts are due to it foolishly promising to provide 100% guarantees for bank deposits and then bailing out banks that lent into its overheated property sector.  It is NOT due to rampant domestic overspending.  

Further out, Belgium and France face big fiscal bubbles.  France's public debt as a proportion of GDP is 84%, Belgium's is around 100%.  Governments all over the world are having to face up to reality that they can't overspend forever.

However, for now attention will shift to the United States, where the most limp wristed efforts at addressing rampant overspending are now being presented as a "solution".   As the Cato Institute says, the so called "Gang of Six" plan is lousy.  A detailed assessment is here, and while it does see some tax reform, it also increases taxes by US$1 trillion, does nothing to address the looming Medicare/Medicaid overspending and "cuts" by reducing the rate of increased spending to below the rate of estimated economic growth and doesn't see a balanced budget in the foreseeable future.   Obama likes it, which speaks volumes.  Cato has a far more ambitious, but still quite cautious plan here, which would balance the budget by 2021, without any tax increases.   It reduces government spending from 24% to 18% of GDP, to match tax revenues which will be at that level.  Don't expect Republicans to spend much time supporting that, for they are almost as bad as Democrats in their addiction to fiscal child abuse.

And in real news today

The Greek government continues to try to borrow, yesterday its two year government bond rates were priced an at annual interest rate of just over 39%.

Great investment? No. It's the swansong before the funeral march.  Anyone lending the Greek government demanding such rates sees it as having a high risk of default.  A default that will reverberate loudest in Dublin, Lisbon, Madrid and Rome, but will buffet Brussels, Paris, Amsterdam, Vienna, Helsinki, Luxembourg, Nicosia, Valetta, Bratislava, Tallinn, Ljubljana and of course, Berlin directly.  However, the echos will go throughout Europe and be heard globally, for it will be the beginning of the end of the Euro as we know it. 

If journalism wasn't full of solipsistic onanists obsessed with News International, then there would be more than a smattering of well written articles hidden in papers about all of this. 

EU politicians are caught between two unpleasant facts:

1.  Politicians in the "south" of the EU have spent the past generation largely bribing voters with other people's money lent to them at preferential rates.  The other people have started giving up lending it, and the politicians haven't the courage or moral fibre to admit that the state largesse of recent years must end or that taxpayers will have to pay a lot more to get it.  The people in those countries are unwilling to accept either, and blame the lenders for the largesse, not the people they elected who borrowed it on their behalf.

2. Politicians in the "north" of the EU are concerned that if governments in the "south" default, it will be their lenders that lose out.  The banks, insurance companies, pension funds, private investors and businesses who saw lending to profligate socialist politicians in the south as being a "secure investment", risk losing billions.   However, voters and taxpayers in the "north" don't care.  They haven't elected politicians who have been quite so profligate in spending money that they had to borrow, and haven't had lifestyles and living standards substantively propped up by such blatant socialism as retirement ages in the 50.  They don't want to bail out the "south" nor do they care that investors in their countries will swallow the cost of it, as long as it doesn't affect their savings (it shouldn't) or their pensions (it might).

Politicians of the "south" have nothing left to offer, they are almost universally a disgrace, and their philosophy and attitude (and that of their predecessors) has produced a false golden age for their countries.

Politicians of the "north" want to bailout the governments of the south, to avoid bailing out the banks and investors who lent to them, but know that voters in their countries are not amused.   What they want is to control the spending and tax policies of the countries of the "south" in exchange for bailing them out - for otherwise, how can they be brought under control to behave better?

So Germany and France will seek to bring all Eurozone countries under central fiscal policy control, in other words, it wont be up to the Parliaments in Athens, Lisbon, Madrid, Rome, etc. as to levels of tax, or levels of spending, it will be up to either the one in Brussels/Strasbourg, or something new.   

Call it the Commonwealth of Eurozone States, or the United States of Europe, or the European Soviet Socialist Republics, or the Union of Eurozone States, but it will be a wholesale surrender of state sovereignty to a super-state.

Will the people of the countries of the "south" tolerate this?  They will be told they have no choice, it is either that or they are expelled from the Eurozone (which does not mean they cannot use Euros, but does mean they would have no role in formulating monetary policy). Ireland, in particular, will baulk at surrendering its highly competitive low company tax rate, which politicians in Paris and Vienna have been keen to attack, among others.

The bigger issue is not only will the countries of the "south" baulk at this, but also will others not in crisis.  Estonia, Slovakia and Slovenia may all wonder why they left the yoke of centrally planned economies to have joined a new ones.  Estonians and Slovaks will not want to have swapped control from Moscow (and for Slovenes, from Belgrade) for control from Brussels.  I suspect the Dutch too will be fed up.  France and Germany, and their virtual satellites Belgium and Austria, will happily go along with it as they will have the power in any central fiscal union.

Ultimately, it can only go one of three ways:

- A Eurozone bailout that creates a new fiscal union among Eurozone members, extracating sovereignty from national capitals to the EU and having to implement tax and spending policies in line with France and Germany;

- A Eurozone default, resulting in countries exiting the Eurozone, with dire consequences for their national banking systems, their creditors and needing to implement austerity policies on a grand scale because of the complete inability to borrow;

- Agreement to a massive austerity programme by the Greek government that cuts the budget deficit suddenly and dramatically, reducing the pressure on creditors.

All in all, the countries of the "south" face severe spending cuts and probable tax increases no matter how it goes.  

For countries outside the Eurozone, the biggest concern is managing the fallout from whatever happens, for it is likely to hurt.  As Allister Heath in City AM today says:

Osborne and his advisers ought to be working day and night on contingency plans in case the Eurozone collapses or the US defaults, not worrying about ex-tabloid journalists.

The British government should be ensuring it has no part in any bailout of the Eurozone, that it may be willing to re-accommodate Ireland seeking to abandon the Euro, in favour of the currency of its largest trading partner (if it so chooses) and to lead an effort to restructure and reform the European Union into a looser customs union, with a smaller central role, without grand vanity projects, without grandiose corporate welfare systems, without interference in national economic or social policies beyond basic rules on non-discrimination and freedom of trade and movement of citizens.  If some EU Member States want more control, let them have it, keep Britain out of it.  If the EU project is about to splinter, then let the UK lead efforts to recraft it into something worth salvaging, a basic treaty that keeps borders down and markets open, but does not demand that countries embark on grand unifying projects of statism.

In the meantime, can people simply remember that the Liberal Democrats, Tony Blair, the BBC and the Independent were all wrong on all of this?  (and yes, Gordon Brown was right, along with William Hague, Margaret Thatcher, Nigel Farage, the Daily Telegraph and the Daily Mail were right).

What should be the main story

While the news media in the UK in particular continues to engage in a solipsistic frenzy over News International and the phone hacking allegations, a far more serious and far bigger issue is looming - make or break time for the Euro and the European Union.

Those who damned News International should take note, because it is the BBC that for many years treated Euroscepticism, those who wanted the UK to retain the Pound Sterling and those who disliked the European Union as crusty old fashioned nationalists, who hadn't stopped fighting the war and had bemoaned the loss of empire.  It was seen as a fringe activity by the BBC and ITN, as well as the serious leftwing newspapers such as the Guardian and the Independent.  

The problem being that it didn't distinguish between the racist, protectionist, far-left opponents to the European Union (see in the trade union movement and in the fascist BNP) and the free-market liberal opponents, who saw it as a project to create a federal super state that would enshrine a fortress Europe with generous welfare state, high taxes and high state involvement in the economy as a whole.

The broad consensus of the political classes for some decades has been to support the European project.  There was always something for everyone.  Those on the left loved enshrining trans-national regulations, floors on some taxes (e.g. fuel tax), the social charter and obligations on Member States to supply welfare, healthcare, education and housing to EU citizens across the board.  The EU forever expanded its remit on regulation and spending, with grandiose projects for infrastructure, or in duplicating the US GPS system at multi-billion Euro cost.  The EU became the negotiating body on international agreements on climate change and trade, and it generated a growing bureaucracy, with new directorates and functions to ensure consistency across Member States.  Most of all, it presided over a generous centralised economic welfare state, by facilitating massive transfers of money to poorer Member States, but also sustaining the grossly destructive and inefficient Common Agricultural Policy which primarily benefited France, Spain and Italy.

The right tolerated the EU because it did break down barriers to trade in goods, services and movements of people among Member States.  It also mandated some liberalisation in trade in different sectors, such as aviation, telecommunications and energy.   Most of all, the argument that it was better to be "in" the EU to help set the rules and be part of a trading bloc with a GDP as large as the US, sounded credible.

However, what it all hid was the fundamentally socialist nature of the project in seeking to create a federal European superstate.  The way this has all com to pass has been the abject failure of those countries that joined the Euro to manage the inevitable tensions when a single currency is across multiple economies with differing fiscal policies.

Greece, Ireland, Spain, Portugal and Italy have all "enjoyed" vast amounts of low interest rate credit for public and private sector investors (Greece had the state overspend, Ireland had private investors overspend on property).  It has all proven to be ultimately unsustainable.  You cannot keep borrowing to pay for consumption now in the hope you can borrow more in the future.  This has been the model adopted by all of those countries, and also those which do not currently have much focus, such as Belgium and France (both of which have been rabid overspenders for decades as well).

The risk is that one of the countries will default, which is unexpected by their creditors because banks always assume countries can tax their people to pay back debts with greater certainty than companies can persuade customers to buy their goods and services.  It has proven wrong.

Liberal democracy has meant that voters vote for the goodies that politicians promise them, most giving little attention for how it will be paid for.   The effect of a single vote is tiny, and no voter is accountable for such stupidity as voting for a politician who will creat future bankruptcy.   The politician him or herself is not accountable.   The worst that can ever happen is to lose an election, leaving potentially billions in debt for taxpayers (not politicians) to pay off.  The politician can retire in comfort, and even with some fanfare, as most voters and journalists wont dare blame them for years of profligacy and waste.

So the inevitable is now reached.  Politicians can either support many cutbacks or tax increases, inflicting "pain" on voters, or give up, and the country defaults.  The problem for this, is that it put the country effectively under the control of creditors, and in these cases, the IMF to provide emergency finance.  The IMF then dictates a programme of austerity and privatisation.

Of course, the Eurozone countries don't want this to happen, so they are likely to offer their own taxpayers up as sacrificial lambs to pay for a bailout, in exchange for what is, in effect, the implementation of EU wide fiscal control.  That means that Brussels, not the national capital, will decided on Euro member spending and tax, it fundamentally changes the constitutional relationship between the state and its people, and the EU.

I doubt that people in Greece, Ireland, Portugal, Spain or Italy want the EU to decided on government spending and tax - which will herald the departure of any country facing default from the Eurozone.   However, I also doubt that the people of Germany, France Austria or the Netherlands (to list Eurozone countries that will effectively fund a bailout) will support their taxes being used to prop up feckless socialist inclined Mediterranean countries.  

So the choice becomes simple:

-  Remain in the Eurozone and have your government fiscal policy centrally determined (removing a core part of state sovereignty); or

-  Leave the Eurozone, recreate the junk fiat currencies of the past and inflate/devalue ones way out of debt (whilst facing massive capital flight and loss of confidence).

Neither option is going to be popular, but they are the inevitable consequences of decades of profligacy and the distortions of cheap credit through the Euro.

The only other alternative is for those who lent money to take a hit, a big hit.  That means banks, insurance companies and pension funds.  In essence, a punishment for thinking that lending to governments is a sure thing, when there was never any record of those governments running budget surpluses to pay down debt.  Even if that does happen, it wont be enough.  Quite simply, the EU and its bureaucratic incarnation, the EC, have been willfully blind and fundamentally incompetent in their gross evasion of reality.  It continues with calls for increased budgets at a time when all Member States are struggling.  The EC, the EU Parliament and those who maintain this facade are utterly contemptible.  I've never been more satisfied in my vote for UKIP.

Allister Heath at wrote today's editorial at City AM on this very subject, and concludes:

There is nothing that will make a total EU takeover acceptable to Greeks and others, which is why they will soon want to quit the EU – and the German public will be deeply angry as it finally realises that everything it was ever told about the euro has turned out to be a lie. It will soon want out too. The EU has always worked on the basis that every crisis is good because it invariably provides an excuse to centralise powers. But the present nightmare could prove to be a bridge too far and herald the beginning of the end for the entire project. Fun and games are about to start.

Greek crisis is taste of things to come

So says City AM editor, Allister Heath in his latest column.

You see Greece is ultimately going to default. The alternative is for the hard-working taxpayers of Germany, France and other wealthy Eurozone countries (and possibly non-Eurozone) to be ransacked by their own politicians to prop up the profligacy of the Greek public aided and abetted by the politicians they voted for over decades.

Heath says:

The real problem is that the Greek public doesn’t really want to change and simply doesn’t accept economic reality – and that the EU has been too slow to learn the lessons of the crisis of 2008. One poll found that 47 per cent of Greeks reject the austerity plan and want new elections – and just 35 per cent back the measures. The Greek public is in denial: it doesn’t want to start living within its means – and yet ordinary hard-pressed taxpayers in other countries are being called upon to stave off Greece’s total collapse. There is no justice in that.

A default would be right, because not only are the Greek public unwilling to balance their budget, but the financial institutions who loaned money to the Greek government to continue its unsustainable way banked on Greece being bailed out.  That bet should fail.  The banks (mostly Greek, German and French) should bear losses as a result, but the inevitable will be more painful.

Is there an alternative? Well there was.  The Greek public could have voted for politicians who promised to balance the books, but they voted for politicians who promised Western European style socialist welfare, health and education systems paid for by borrowed money.   The fact that Greek politics is dominated by thieving socialists speaks volumes.  Of course ordinary Greek citizens think that they are not to blame, after all they couldn't have borrowed as the state did, or spend other people's money so flagrantly.  However, they did sit by and let it happen.   In a democracy (Greeks shouldn't need reminding of this), power is meant to reside in the people, and in this case they don't want the responsibility of their casual blindness to what the last few decades has been built on - borrowed money.

So Greece will default.  Its banks will collapse, it will leave the Eurozone, and the savings and incomes of its population will be wound back around 15-20 years.  There will be more riots on the street.  Foreign investment will flee and the Greek economy will be rebuilt on tourism and low value exports in a highly devalued currency.

Meanwhile, EU politicians will try to evade reality for a little longer, for fear their own banks will face collapse once more.  That shouldn't scare them, as long as depositors up to a certain level are protected, the banks should fail.  It will be an object lesson to the Europhiles that their federalist economic experiment is a failure.  Ironically, but unsurprisingly it will be under the watch of supposedly centre-right governments in Germany and France, though there should be no delusions that it would have been different had the left been in power in either country.

However, there is more to come.  Yet it is important to note how much of this crisis is NOT about the privately owned banking sector being profligate, but about government evading economic reality.

As Heath says:

the biggest error is the establishment’s inability to accept that increasingly, the biggest systemic risk will come from states, not private financial institutions. It is not just Greece, Portugal and Ireland – Belgium is in real trouble, while Spain and Italy are also in the frame. At some point, something will have to change in Japan, a country with an exploding national debt and a weak economy. America is also in terrible trouble, and not just because of short-term issues over debt ceilings.

During times of austerity and cutbacks the left thinks it has an advantage, as it typically promises to spend other people's money on the things that give comfort, like pensions, health, education and subsidised pseudo-employment.   Yet it is failing to capitalise on it, because enough of the public actually understand that governments cannot perpetually run budget deficits and accumulate debt.    Even 35% of Greeks support serious levels of austerity, not a majority, but a significant number are facing the truth.

The obvious biggest accumulation of problems is in the Eurozone, where even France has a longer term issue of sustainability with its finances.   The ramifications of a Greek default and break up of the Euro will be profound.  In the long run it will be good for Europe, but the casualties along the way will be high.  Those are casualties caused directly by the failure to face austerity and controls on government spending in the past.   The people who benefited from profligacy will, in many cases, not be facing the cost of it.

Yet Japan and the USA on top of this are more worrying.  Japan has been engaging rampant Keynesianism for well over a decade now, and failed miserably to restart its economy.  Given it is on the doorstep of China this is scandalous and shows just how featherbedded and corrupt the Japanese state became under the good years, with the Liberal Democratic Party so deeply entrenched with protectionist business (and indeed the Yakuza).   The USA at least has some facing reality, although that doesn't include the President.  Sadly the forthcoming Presidential election shows little sign that the Republican Party can lay old ghosts to rest in favour of a candidate who actually believes in the economy first.

No doubt some time will be bought for Greece with other people's money.  The bigger question is how long is the inevitable going to be delayed, for the longer it is, the more painful it will be - and very few politicians elected in liberal democracies like having to face up to spending less of other people's money.

Ireland's troubles can be blamed on its government

The "Celtic Tiger" has gone astray and is now seriously considering a bailout from the EU or more widely.   Such a bailout will be embarrassing for a country and economy that was booming and considered a successful role model for economic growth.   However, whilst it looks like  "just another government bailing out banks" let's understand why this has happened, and why the Irish government is bothering to save the banks.

First is that the Irish banks were flooded with cheap credit because of the Euro.  Unlike other fiat currencies, the supply of Euro is set not by a national central bank, but the European Central Bank, which is largely driven by the three major Euro economies - Germany, France and Italy.  Monetary policy in the age of fiat currencies is driven by management of inflation, so it has been economic growth and inflation in Germany primarily, but also the other large economies that has driven interest rates with the Euro.  For Ireland, which has had economic success partly on the back of economic reform and low rates of company tax, this has meant inflation of assets and consumer prices. 

In an age of national fiat currencies, governments tighten monetary policy to reduce the supply of credit and control inflation (although the only inflation measured is consumer prices, which neglects inflationary speculation of property).   Ireland had no such instruments, so "enjoyed" a boom fueled by cheap credit.  That cheap credit fueled a bubble of investment, largely related to property.  Many companies relocated because of the lower corporation tax, and Ireland's infrastructure improved significantly (telecommunications, electricity, water, roads and airports all upgraded significantly, as well as public transport in Dublin).  Ireland's government borrowed to fund this and expenditure on health, education and welfare.

The bubble can be blamed on three key sets of players.  Firstly, the European Central Bank for continuing to maintain low interest rates for the Euro, expanding credit and helping to fuel loose credit for Irish banks.   Secondly, Irish banks for taking these cues to lend and fuel the property boom.   Lending was imprudent, not by all banks, but by enough to create a bubble of bad debt not only for property, but businesses based on the wider economic bubble.   Thirdly, the borrowers.  Those people and businesses who chose to ride the wave of the property bubble.  They sought quick capital gains, they borrowed on the basis of the same chimera.

Yet when things started to look shaky elsewhere, the Irish Government made the most foolish move of all, it decided to prevent a run on Irish banks by providing a government guarantee for all deposits, debts and investments.   The purpose being to shore up the banking system by attracting investment and deposits from elsewhere, the result being to make Irish banks far less interested in being prudent and shifted the liability from bank shareholders and debtors to Irish taxpayers.

Now that bubble has burst, and the Irish government is to get a €100 billion bailout from the EU.  A bailout that is worth a staggering €16400 per person.

Meanwhile, the Irish government is to engage in further austerity, cutting spending significantly.   The Austrian government has already complained about the low corporation tax wanting Ireland to be forced to increase taxes (which make it more competitive against the many higher tax Eurozone economies).   The Irish government has been resisting this quite rightly.

It has been suggested the Irish government should abandon this guarantee of the banks and abandon the Euro.  Allister Heath says it shows the treaty on the Euro is worthless.   Of course the dimwitted Labour Party in the UK says it is the fault of the Irish government's austerity measures from last year, which is a bit like blaming a heart attack on the stress of going to the doctor.    It is claiming the UK could face the same crisis, demonstrating how astonishingly out of its depth it really is.

Sadly the medicine Ireland needs is to abandon the Euro, maintain its low tax policies and swallow the price collapse in property, and the end of several of its banks.  The government probably has to guarantee bank deposits up to a certain level, but withdraw its guarantee for future deposits or liabilities for banks it does not own, and privatise the ones it does.   It needs a new relationship with the EU which is not one of dependency, but one which only embrace the open flow of goods, services , investment and people. 

However, it has wider repercussions whatever happens.  Some in the Eurozone say the real need is to strengthen EU control of national fiscal and taxation policies, that in fact the crisis in Eurozone countries can only be managed by a more centralised EU - which would be an economic disaster and politically unpalatable.    The alternative of the end of the Euro has already been described by EU Council President as risking the end of the EU.

Frankly, bring it on.  The EU has been the transformation of a sound project to remove barriers between European countries into a statist socialist monolithic unaccountable super-state which seeks to regulate (and tax if it could) European citizens into a pablum of mediocre non-competitiveness with each other.   The more it is in crisis, the better it will be in the long run for European citizens, or rather the ones that don't work for the EU and aren't the recipients of its ill gotten largesse.

The Irish will resist pressure for Brussels to control its government spending and taxation policy, the stronger Eurozone countries will get fed up bailing out those others who have been profligate with government spending.   Something has to give.

Mr Barroso can go to hell

So the  European Commission President Mr. Jose Manuel Barroso (who, believe it or not, is more free market oriented than most in that entity) is upset that some Member States are opposing the expansion of the EC's budget, which means that a 2011 budget has not been approved which might mean the EC works on a month by month basis.

How sad.

Tough.  Time to wake up to the real world.

When he says "Those that think they have won a victory over 'Brussels' have shot themselves in the foot. They should know that they have dealt a blow to people all over Europe and in the developing world"

He is so wrong.   People all over Europe don't want to pay more to your unaccountable, unaudited monolith of  bureaucracy and socialism.  

Taxpayers are already reaping what has been sowed as overspending by their national governments has created mountains of national debt, and continued deficit spending that is growing those mountains.   They all face spending cuts in national budgets, and many also face tax increases.  

On what planet does Mr Barroso think Europeans will be disappointed if they pay more for his bureaucracy and its socialist inspired programmes (which are basically subsidies for inefficient farmers or development assistance for former Soviet bloc economies)?

No.  It is time for European taxpayers to stand up, to tell their feather-bedded MEPs in Brussels a big no to more spending.  

The most the European Commission ought to expect next year is a ZERO budget increase, which would be the case if it went to month by month approvals hopefully.

What I'd like to see are cuts, of the kind that would help match the savings of many Member States cutting spending.   33% next year would be a good start.  The same again the following two years, and by then what's left is enough to fund the windup of the European Commission into a small monitoring team to ensure barriers on free trade and investment within Europe are maintained.  Those who will complain the most will be some thousands of people in Brussels who will need to find real jobs, thousands of farmers who will face having to sell goods for a living rather than live off of subsidies and those who seek the lucre of EC construction projects in the east and south.

EU = socialists that are out of touch

There is a budget deficit crisis in most EU Member States, which of course is meaning they are no longer particularly keen on funding the European Commission's endless demand for more tax victim money to fund feather-bedding of farmers in western Europe, grand infrastructure projects in eastern Europe, ridiculous projects (such as duplicating GPS and CNN) and the jobs for life in Brussels.

The EU is seeking a 5.9% increase in budgets this year, which is laughable given virtually all EU Member States are cutting their overall budgets, some on a grand scale, to live within their means.

The response from Member States has been to look askance at this, as the EU is acting as if there isn't a recession and isn't a fiscal crisis across Europe. The Eurorats simply want to close their eyes and ears and continue wasting money as usual - bearing in mind that almost all of what the EU spends money on is destructive to economic growth (the only good thing is to police Member States from introducing discriminatory interventionist policies).

So what is proposed? The EU will liberate Member States from this burden, to make them all full of glee that they don't have to worry any more about paying for the EC (the European Commission being the bureauratic arm of the EU).

Instead, the EU will impose a tax on the PEOPLE of the EU. According to the Daily Telegraph, the EC is pushing for the powers to impose pan-European taxes on financial transactions and air travel.

This somehow is meant to be palatable to Member States because it wont be their burden, it will be the EU taxing the public.

You see the EU only thinks of itself and Member States as the legitimate actors here, the long -suffering European taxpayers are merely cogs in the machine of the grand project.

Take this quote:

Janusz Lewandowski, the EU budget commissioner, said: "If the EU had more of its own revenues, then transfers from national budgets could be reduced. I hear from several capitals, including important ones like Berlin, that they would like to reduce their contribution."

Note the euphemism "revenues". Not revenue from selling goods or services to willing buyers, or making investments in commercial businesses that generate dividends or capital gains, no it is revenues taken by force, where the only sliver of accountability will be voting for the European Parliament, where every vote has the fraction of influence of a vote at a national level.

What is astonishing is the bizarre belief that somehow having Member States to reduce their state contributions (but have the people living in the Member States pay new ones), is somehow a great achievement?

The UK Government is thankfully having none of this, with Commercial Secretary, Lord Sassoon (who despite the name doesn't have great hair) saying "The Government is opposed to direct taxes financing the EU budget... The UK believes that taxation is a matter for Member States to determine at a national level and would have a veto over any plans for such taxes". None of the Liberal Democrat wishy washiness about Europe there.

However, it does show how the EC is a funny little world isolated from political and economic reality. It should face budget cuts, which would make Europe far better off as a whole, although the French would object as the biggest beneficiary of the status quo.

The EU's only value today is maintaining open borders and in rules that stop national governments providing assistance to their own businesses or in protecting local businesses, beyond that it is a project of tired old failed Euro-socialists whose own vision of the state has just been demonstrated to be a recipe for stagnation.

Hedge fund manager puts socialists on the spot

Last night on BBC's Newsnight, a hedge fund manager, Hugh Hendry participated in a discussion about how he is speculating on Greece defaulting on its debt. He was joined by Joseph Stiglitz, a US economist, and Spanish Ambassador to the UK, Carles Casajuana.

Many on the left blame the likes of him who in speculating on Greece's public finances, when what he actually is doing is exposing the real risk. He is doing it with his own money and money of those who have chosen to trust him to manage.

That is the fundamental difference.

He has bet millions on the Euro, betting on it dropping if Greece defaults. As he says, if he is wrong, he and his investors lose. He expects nobody to bail him out. If he succeeds, it will be because he is right.

Why is he in a position to do this? Because the Greek governments, democratically elected for years, have been both lying about the public finances and been lax about getting those who elect them to pay for what they want.

However, the discussion on Newsnight last night was simply beautiful.

Stiglitz claimed there should be more borrowing and spending, and it is "absurd" to bet on a default. Hendry said simply:

"Look what happens - you get into difficulty and these guys over here [pointing at Stiglitz and Spanish Ambassador to the UK, Carles Casajuana] say, "hey we don't like it."

"Suddenly the truth hurts! Suddenly we want to abandon the truth. Suddenly speculation becomes a pejorative term!"

In other words, the politicians and some economists want reality evaded, the truth of the Greek government's inability to see that constant borrowing is unsustainable, is something they don't want to know - because what it really means is that spending must be cut, drastically.

Then he got threatened by the weasel who is the Spanish Ambassador who said "we're coming to get you".

He replied: "I see you champagne socialists when I travel business class, and the reason you're up in arms now is because you've got yourself into a crisis and cannot get out of it. So you're looking for scapegoats".

Indeed. The unaccountable reality evaders, statists both on the left and right, wont confront the truth that they are trying to defend mortgaging future taxpayers with their profligacy of today.

If the European Union decides to pillage taxpayers to save its members from default, then it will deserve the backlash that will be inevitable. Blaming entrepreneurs for betting with their own money for the failings of government is a lame attempt to cover up massive incompetence and failure by governments to spend within their means. Indeed, it would demonstrate once and for all the anti-business, anti-capitalist and pro-statist agenda of the European Union, except this time taxpayers are unlikely to stand for the machinations of those who like to spend their money for them.

Let Greece default, let Portugal, Spain and others follow.

Meanwhile, watch Hendry's excellent performance here and see the difference between someone who has made a success of his life and taken risks, compared to those who have spent their lives living off the back of others:



UPDATE: Here is Hendry again, for UK viewers only (through BBC iPlayer) pulling apart Poul Rasmussen, leader of the Party of European Socialists. The start is 22 minutes into the programme...

http://www.bbc.co.uk/iplayer/episode/b00rdynp/Newsnight_09_03_2010/

EU screws Britain on Olympics

Reported this morning on BBC TV news.

EU law prohibits the organisers of the London 2012 Olympics from setting aside tickets for sale only to Londoners or UK citizens/residents - because it would be discriminatory.

So despite UK taxpayers forking out £6 billion for the Olympics, those paying for it aren't entitled to privileges regarding ticket sales.

Yep, another reason why the EU goes so far and beyond what is useful....

Greece's socialism catching up

The sovereign debt crisis with Greece has a long history. It isn't just about the Greeks lying about their budget deficit.

The symptoms of Greece's current fiscal crisis tell a story of such inept economic management and performance that few should be surprised. Only those with their heads up the short term goals of financial markets (and so untrained and uninterested in the wider context), the proponents of the Euro, and what appears to be most of the Greek political class (and bureaucracy) didn't notice the progressive bankruptcy of what was the cradle of European civilisation.

The roots of the political culture behind this go back to World War 2 and the Greek Civil War. After the Nazis were pushed out of Greece in 1944, the Greek government in exile faced the communist "Democratic Army of Greece" supported by the Soviet Union through communist Bulgaria, Albania and Yugoslavia.

The subsequent five years of fighting (which played no small part in encouraging Greek emigration to the likes of Australia, New Zealand and the USA) divided Greek society enormously. The communists lost in part because of the split between Tito and Stalin that saw the Greek communists side with Stalin, which spelt an end to Yugoslavia's ample support.

However the cost of the civil war was immense in slowing reconstruction after the previous Nazi occupation. Between the civil war and EEC membership in 1981, Greece was politically divided. The military coup in 1967 was due to some fears of a far-left wing takeover by some forces, that junta was one reason Turkey gave for invading and occupying northern Cyprus in 1975, even though the junta was overthrown some months before.

Greece's governments have been dependent on aid since the end of the civil war. The influence of leftwing politics has been strong, with the communist party coming 4th in 1974 and 1977 and 3rd in 1981 with between 9 and 11% of the vote during this time, with more moderate socialists winning power in 1981. Since then the socialists have won a majority of Greek elections, and the communists have come third in all but one of the elections in that time. In other words, Greece is used to being governed with the principles of big government and socialism. The current Prime Minister, George Papandreaou might consider how his father, Andreas, when he was Prime Minister, ran enormous budget deficits in the 1980s when he was PM. Greece has been living beyond its means for a very long time.

When it joined the then European Economic Community in 1981, it was one of the poorest new members. Its membership ushered in a period of 20 years when it, along with Spain and Portugal, got the bulk of the subsidies for infrastructure and development that the EU now lavishes upon the likes of Romania and Bulgaria. Greece was one of the biggest recipients of Western European aid. This helped to bolster Greece's addiction to debt and budget deficits.

With membership of the Euro this gave Greece a high value currency with low European Central Bank interests rates that it could borrow with. It took advantage of the ability to issue sovereign debt in Euros to continue spending up large.

Now the chickens have come home so to speak.

The current government is starting to face fiscal reality by announcing spending cuts, and of course, on cue in a country beset with socialist attitudes, the public sector is going on strike. It doesn't think it is to blame, yet it might look at how its wages and operations have been getting funded for decades - it's been a lot of borrowed money.

However, Greece's problems are not just about spending too much money. It is about the deliberate lying about its accounts, and the lack of transparency of many areas of public spending. For example, Greece has long claimed its expenditure on defence to be a "state secret". The truth is that to placate the army, and evade a risk of a coup, Greek government have taken a blank cheque approach to defence. The current level of spending might have been justified in the Cold War, when Greece was very much on the front line with Bulgaria on its doorstep (Yugoslavia and Albania were not Soviet aligned from 1948 and 1960 respectively).

The airforce has 33,000 personnel and 477 aircraft, the navy 30,000 personnel and 84 warships, whilst the army has 100,000 personnel. This is similar in number to Israel, although Greece has a smaller population. The Netherlands, another NATO member, with higher population, has only 68,000 active members of the military. 5% of GDP is spent on defence it is estimated.

Furthermore, according to Spiegel Greece rigged its accounts to hide its budget deficit, with help from Goldman Sachs, by excluding some military spending and hospital spending. Similarly, Goldman Sachs participated in off balance sheet lending, by using fictional exchange rates to engage in sovereign debt swaps. These are the actions you'd expect of a tinpot sub-Saharan dictatorship, not an EU member state in the Eurozone. Right?

This sort of behaviour should be punished, the politicians who have been a party to it held up for all to see, but also the snivelling useless public sector managers who have ignored basic practices like double-entry accounting, and have participated in enormous fraud, should be shown up for what they are - the shysters that have borrowed and wasted money on behalf of Greek taxpayers.

However, some of the EU wont want that, because they want to protect the consequences of their own failures.

When the EEC accepted Greece, Spain and Portugal it was about looking forward to countries that had only recently turned their backs on military dictatorship, with the European project to pour mountains of European taxpayers' cash into lifting their incomes to levels commensurate with others in Western Europe. The same happened with the former Warsaw Pact countries, most recently with the inclusion of Bulgaria and Romania, both countries still besotted with corruption, organised crime and distinct paucities of transparency in their government accounts. European taxpayers are plundered to subsidise enormous EU funded infrastructure projects and of course the massively inefficient and environmentally disastrous Common Agricultural Policy.

The single currency across a range of economies with wildly varying levels of wealth and development has been a disaster for the poorer economies, who face a highly valued Euro which makes their relatively lower value commodity exports (and tourism sectors) relatively expensive, whilst now also making their mountains of debt unaffordable. Greece's sovereign debt is barely above junk status. Bear in mind that France and Germany have both run budget deficits beyond the Euro rules, but then they set the rules don't they?

So there are strong expectations of some credit being offered to Greece to avoid a default, it will no doubt be at the expectations of massive reductions in the budget deficit (Greece is claiming to cut the deficit from 12.7% in 2009 to 2.8% in 2012, but none of its plans show any sign of meeting this), which will mean accepting strikes, possibly riots and enormous political cost - the cost Greece should and would have faced in the 1980s and 1990s had it not been propped up by EU aid.

Of course what SHOULD happen is that Greece should default - its foolish creditors, who took a risk on a series of lies should suffer for their foolish decision to take up Greek debt. The Greek government, unable to borrow, will then face confronting the socialism and incompetence that has bankrupted itself. The Euro would rightfully suffer, as it should bear the devaluation of one of its participants failing to meet its obligations.

Allister Heath in City AM puts it plainly:

"Regardless of which plan is agreed upon, a rescue would fill the City with joy in the short-term – but would cause huge damage over time. There should be no bailout: it is high time that countries and investors learn to live with their mistakes."

Unfortunately, when you have the ability to plunder the pockets of future generations through taxation, there isn't much incentive to do that.

That, you see, is when the phrase "taxation is theft" so clearly comes into its own.

Unless the role of the state is constrained so that it cannot ever be used to bail out foolish investments or the governments of liberal democracies that vote themselves bankrupt, the easy option - which politicians never truly even start to face the cost of (what is being voted out when you put people in debt for years?) - will be used and the only loser is the taxpayer.

Iceland's revolt

Iceland has suffered more than most countries in Europe from the recent recession, not least because it became the host for a series of financial institutions that have since failed. The most notable one is Icesave, which borrowed heavily to establish itself as an institution engaged extensively in providing credit for property and offering high interest bearing bank accounts.

Like other banks that have failed in this part of the world, none of those in the sector drew any attention to the nature of the operation, and the UK regulator - the Financial Services Authority (FSA) - happily rubber stamped it all. In other words, what it did was officially approved as being robust. With Icesave, among others, very highly leveraged, the financial crisis saw it unable to rollover its debt facilities, so it all came to a tumbling end. Hundreds of thousands of depositors in the UK, Netherlands and Germany found their accounts frozen, all assuming that with state "endorsement", their money would be "safe". So the UK government decided that other UK taxpayers should bail out the depositors. Not for a moment did Gordon Brown argue that depositors should have thought more carefully, not for a moment did he seek to fire the FSA for being effectively useless, not for a moment did he think about taxpayers over investors.

So having done this, the UK looked to recover some of this from Iceland, effectively demanding Icelandic taxpayers pay the UK for its policies. Quite what Icelandic taxpayers have to do with a private Icelandic company is beyond me, after all it was a policy choice by Gordon "borrow" Brown to bail out depositors. The Icelandic government agreed to cover a portion of the deposit costs, under significant pressure, but Iceland's taxpayers have turned on their government.

The total cost of this foolish promise is £3.6 billion, for a country with the population of greater Wellington. Allister Heath in City AM points out the scale of this, which explains why nearly a third of Iceland's adult population has signed a petition demanding the President veto legislation authorising the deal:

the proposal will now be put to a referendum and crushed. The sums involved are huge: 40-60 per cent of Iceland’s national income, taking the national debt to 200 per cent of GDP. Each of Iceland’s 304,000 citizen would have to pay £11,700 without getting shares or any assets in return. The money would be gone for good. Imagine if UK taxpayers were asked to pay £700bn to overseas governments because one of our banks had messed up. We too would be up in arms.

Yes, the bank was irresponsible, but it was a private entity.
Yes Iceland's government shouldn't have agreed to help pay part of the bailout to the UK and Dutch governments, but then given the UK economy is 144x the size of Iceland's how could the UK expect much from it?
A better response from Iceland's government would be to state that its banks operate in a free market are not government guaranteed so creditors beware.

So Iceland's taxpayers, who didn't own the failed bank, didn't invest in it and never promised to bail it out and saying "enough". Good for them. Whilst some noise was made about Iceland voting in a new leftwing government, which has supported the deal, the protests have clearly rattled both it, and its belief that taxpayers are there to be fleeced for "their own good".

Big bully Brown is threatening to veto a forthcoming Icelandic application for EU membership. Iceland ought not to be too concerned, since all such membership will do is mean Iceland, as (still) a relatively wealthy European country will probably be a net payer to the socialist subsidy schemes of the EU, and Iceland's ample fisheries would be plundered by the parasitical subsidised fishing fleets of France, Spain, Portugal and the UK.

As Allister Heath continues: "The bankers were incompetent, as were the Icelandic authorities, the UK authorities, the EU and the depositors who didn’t do their research. Egged on by price comparison websites and personal finance pages, the public assumed regulators would ensure every newfangled online bank was safe and forgot that high returns often mean high risk. Instead of acknowledging this, Brown is pursuing a vendetta against Iceland, trying to recoup all of the cash from its government."

Iceland's voters will no doubt say no in a forthcoming referendum, not wanting to put themselves and their children under enormous state enforced debt. If it means pariah status from the IMF and the EU, Icelanders are likely to prefer that to being under servitude to bail out policies from other governments.

As the Daily Telegraph points out, this marks a new low in relations with the UK since the Cod Wars. The UK government classified the Icelandic Central Bank alongside Al Qaeda, under anti-terrorism laws, just so it could seize its assets. Iceland is a member of NATO.

So Iceland has served as a warning, that taxpayers will only take so much from governments claiming to speak on their behalf. Sadly, the UK is too big, and British taxpayers too inert to revolt against state kleptomania.

Berlin Wall Series: German Democratic Republic

The Berlin Wall itself was a response to one simple point. The abject failure of socialism to satisfy the citizens of the German Democratic Republic to want to stay. For with many east Germans able to receive west German television, and all able to receive western radio broadcasts, the contrast was clear. Coca-cola, the Beatles and capitalism were far more attractive than the dreary sameness of the GDR. Most importantly, if you had any degree of self motivation, ambition and desire to succeed, beyond shooting and spying on your fellow citizens, you had to leave.

In 1945, with the Red Army having taken around a third of conquered Germany. The remaining territories, which would be known as west Germany were occupied by American, British and (don’t laugh) French troops, until the Federal Republic of Germany was established in 1949.

Stalin’s plan was clear.
- In association with the Allies, a quarter of territory was taken for neighbouring states, including separating Austria once more.
- A third of east Germany’s industrial equipment and facilities were removed for use in the Soviet Union.
- The Red Army became firmly based in east Germany as the front line between east and west;
- East Germany would become the location of a new German society on Marxist-Leninist lines, rejecting the Nazi past.

Elections were held in the Red Army occupied east in 1946 for some form of local administration, and while past political parties (pre-Nazi) were legalised, Stalin forced the merger between the largest social democratic party and the communists, into the Socialist Unity Party. It won the election, given extensive Soviet propaganda, much based on fact, about the horrors of the Nazi era.

However, for women and girls in east Germany there wasn’t relief with the defeat of the Nazis. The Red Army unofficially tolerated widescale rape and sexual abuse of German women and girls in the years after the war. Conservative estimates put the number of female victims of the Soviet occupation at the hundreds of thousands. These stories have only been allowed to be told and confronted in the years since the fall of the Berlin Wall.

As the Soviet occupation continued, Stalin was concerned about Berlin. Berlin had been divided between American, British, French and Soviet zones, but surrounded by Soviet occupied east Germany. Three single access corridors were guaranteed by road and rail between the west German occupied zones and the Berlin equivalents. However, Stalin had decided this shouldn’t continue, and he wanted the west out of Berlin. He started having trains stopped and inspected on the corridor trips, and then demanded that land access be closed. This was due to frustration at the money being poured into west Germany under the Marshall Plan and the establishment of the Deutsche Mark, both of which he opposed. He closed land access and electricity supply to west Berlin on the pretext of there being no formal agreement between the allies on such corridors of access, the allied response was what is now known as the Berlin airlift. The subsequent months are well known, as planes flew every four minutes on average into Tempelhof airport, supplying food, fuel and other supplies to west Berliners. At the time, Berlin was still a devastated poor city, and malnutrition was not unknown at all in post war Germany. Stalin responded by offering “free food” to west Berliners to move east, few did. Ultimately, the airlift succeeded, Stalin blinked and land access was restored. 70 pilots are aircrew had died in crashes during the airlift, indicating the risk involved in aviation at the time.

A protest at the Brandenburg gate at Stalin’s attempts to form a single municipal government for Berlin (bear in mind no wall at the time), saw the start of the serious division of the city. Half a million rejected attempts at communist domination of the Berlin council. The response was for the Soviet sector to establish a communist local authority, whilst the western sectors remained under military control.

When the Federal Republic of Germany was declared, it incensed Stalin further. An independent liberal democratic German capitalist state, that would become a NATO ally and be at the front line of the Cold War was not how he envisaged Germany. So the German Democratic Republic was hastily created in the east, using east Berlin as its capital, although it was meant to nominally be Soviet territory.

“Don’t mention the war”, as east Germans were all told they are new socialist citizens. The official line for most was that they were members of the anti-fascist resistance. The Socialist Unity Party would lead a so-called “national front”, but in effect had a monopoly on political power.

The usual communist policies were introduced, with all property nationalised and almost all businesses state owned and controlled, except crafts. Walter Ulbricht was the Stalinist leader of the GDR, and he created the Stasi, the secret police that would be many times more pervasive than the Gestapo. 2.5% of the population worked as Stasi informers. Whilst the Nazis were militarily aggressive outside Germany, and genocidal maniacs, the communists were totalitarian towards their own on a grand scale.

In the early 1950s, large scale industrialisation was the focus, but a growing problem was the exodus west. By 1953, an average of 37,000 were migrating from east to west, as skilled and talented east Germans rejected the totalitarian society being inflicted upon them, so by the mid 1950s, the extensive land border between the two German states was sealed. This culminated in the Berlin Wall in 1961, as east Berliners were swelling west Berlin with talent, and getting passports as a result. By the time the wall was completed, east Germany had lost a quarter of its population since the war.

The ability to leave wasn’t the only response by east Germans. Increases in minimum production quotas saw workers strike in 1953 in what became known as the 1953 Uprising. Tens of thousands turned out to protest in east Berlin, before the police and army turned on them, arresting hundreds and killing up to 100. This was the first major uprising in the eastern bloc.

The subsequent years saw Stalinism rolled back slowly in the 1960s, Ulbricht followed Czechoslovakia in allowing more autonomy for industrial units, hiring management based on skills and ability, more than politics. Technical competence would be rewarded. The results were improved levels of production, but although Ulbricht supported the Soviet invasion of Czechoslovakia in 1968, forces within the Socialist Unity Party were moving to overthrow him.

Erich Honecker conspired with Brezhnev to overthrow him on the pretext that he was moving away from Marxism-Leninism to a more pragmatic economic policy, although at the same time Ulbricht participated in discussions on normalising relations with western countries including the Federal Republic of Germany.

Honecker pushed Ulbricht to the sidelines in 1971, and refocused propaganda on Marxism Leninism. Meanwhile, the movements of Ulbricht on improving relations with the west continued, so by 1973 the Berlin and Basic Agreements saw significant changes in the relationship. Postal and telecommunication links were reopened, and greater freedom of movement for westerners to the east (though not vice versa). This allowed families divided by the Cold War to have some contact.

East Germany had a reputation for the highest standard of living in the communist bloc, which was true. Industrial production had become more oriented towards (poor quality) consumer goods, partly because there was so much awareness of the west through broadcasting. It was virtually impossible to enforce bans on listening or viewing foreign broadcasts, although the Stasi would certainly use evidence of such activities as a reason to harass.

One way the GDR pushed national pride was sports, with the tragic use of steroids and hothouse training conditions for GDR Olympic athletes. Arts and culture were focused on socialist realism, but from the 1970s on east German cinema also went beyond the stultifying Stalinist themes and had an unusual genre of American Western type films, which would have the native Americans as heroes against the imperialist USA. There was strong support for classical music, but also underground rock and pop music bands would appear, occasionally harassed by the authorities, influenced by Western broadcasts.

Ultimately, this pervasiveness of Western broadcasts meant that it became increasingly unsustainable for the GDR regime to resist change whilst perestroika was being carried out in the USSR. Notwithstanding that, Honecker insisted in carrying out 40th anniversary celebrations for the German Democratic Republic, months before he was removed and the Socialist Unity Party surrendered its monopoly on power.

Honecker had been inspired by Tiananmen Square and had ordered a “shoot to kill” policy to respond to protests which culminated in Leipzig. Fortunately, the military refused, and so the murderous tyranny he ran, ran out.

The fall of the wall has already been discussed, but the subsequent events demonstrated how weak and insubstantial the whole German Democratic Republic was. The Peaceful Revolution resulted in the first and only free elections in east Germany in March 1990, which ended months of protests calling for the reformed communists to leave power. The former communists got 16% of the vote, against 48% for a centre right coalition and 22% for the centreleft opposition. The result was for the GDR to be dissolved and for east Germany to be incorporated into the Federal Republic of Germany.

A third of Germany had been shifted from a genocidal totalitarian nightmare to a more Orwellian totalitarian nightmare. No doubt the GDR was less murderous than Nazi Germany, but it did execute opponents, it executed those seeking to leave. It ran a prison state, it ruined the lives of many through psychological torment, and it wasted the lives of millions in stagnation and mediocrity. Most of all it showed the utter destruction of humanity in being a contrast between two systems. The difference in living standards made it clear, and the inability to censor broadcasts from the west meant east Germans knew only too well they had the raw deal, and all the state wanted to do is make sure they shut up and trusted the Party. East Germans were all “in it together”, but individually they were nothing, just a part of a machine. Aspiration and success would only be rewarded if it fitted in with the goals of the party, and east Germans had to go underground to have some sense of freedom.

East Germany was also the frontline of ambitions to destroy the west. The Red Army was there to be the footsoldiers for any future advance, and east Berlin sponsored terrorism in the west, with the Red Army Faction including the infamous Baader-Meinhof gang. Murderous thugs to the letter as they were.

Nothing in Europe exemplified more the economic, intellectual and moral bankruptcy of “really existing socialism” than east vs. west Germany. As JFK once said “at least we don’t have to build a wall to keep our people in”.

As a footnote, Erich Honecker fled to Moscow after the end of the Berlin Wall, to escape charges of conspiracy to murder - because he decided on the shoot to kill policy for escapees. He took refuge in the Chilean embassy, but extradited by the Russian government of Boris Yeltsin where he faced trial. However he was too ill for trial in 1993, so it was discontinued and he had his final year in Chile, dying of liver cancer.

His wife remains in Chile, she had been a Minister under the communist regime and she still argues life was better then.

Berlin Wall Series: Bulgaria

By contrast to Czechoslovakia, it would be fair to say Bulgaria is for many a “far off country of which we know little”. Today it is a member of NATO and the EU, which would have been almost impossible to conceive 20 years ago.

However, Bulgaria’s importance is underestimated, being one of those countries on the “frontline” of the Iron Curtain bordering Greece and therefore NATO. Bulgaria isn’t known for having had any high profile attempts at resistance and liberalisation, like Poland, Hungary and Czechoslovakia. It isn’t the centre of Europe like Germany, and it did not have quite the megalomaniac like Romania.

Bulgaria’s status in World War 2 owes a lot to Tsar Boris III. He took the Bulgarian throne in 1918 after his father abdicated due to Bulgaria being on the losing side of World War 1. Bulgaria had faced reparations and loss of territory as a result. During the period of his reign Bulgaria swung between coups and plots from communists and militarists, culminating in a military coup in 1934 by the Zveno group. It established an authoritarian state abolishing political parties and trade unions, and attempting a corporatist economy. In other words state direction of private enterprise. The coup reduced Tsar Boris’s role to one of a figurehead, which he did not tolerate so he staged a monarchist counter coup in 1935. He appointed allies to be Prime Ministers, and in 1939 Bulgaria was neutral in the war, but within a year Boris III had allied himself with the Axis powers. Anti-Semitic laws were introduced barring Jews from intermarriage, government employment and from certain geographical areas. However, even the pro-German regime successfully resisted attempts to deport Bulgarian Jews en-masse.

The Bulgarian shift in favour of the Axis was in part due to the Axis offering to return land to Bulgaria that had been ceded to Romania and Yugoslavia. German troops used Bulgaria as a transit point, but Bulgaria notably never declared war on the USSR even after the German invasion. However in 1943, Boris died suddenly, and as his eldest son was only a child, governance effectively swung to a pro-German regency council.

The effect of the alliance with the Germans was to bolster support for a resistance movement, which the communists and the agrarian movement led. By 1944 both a lack of popular support and losses by the Axis, saw Ivan Bagrianov, a pro-Western politician, appointed by the Regency Council to seek peace with the Allies. However, neighbouring Romania, which had been with the Axis powers as well, turned towards the USSR, as the Red Army marched on. In early 1944 a new government was set up under the Fatherland Front, comprising communists, the authoritarian Zveno movement and anti-Nazi supporters, but this did not stem the Red Army from invading. The Fatherland Front government told the army to not resist and it allied itself with the USSR against Germany. Bulgaria fought with the Red Army to recapture what is now known as Yugoslav Macedonia and Serbia all the way to Hungary.

Following the end of the war, with Soviet backing, the communists in the government arrested many politicians and officials charging them of war crimes. The government was purged of past supporters of alliance with Germany, and an ally of Stalin, Georgi Dimitrov was appointed Prime Minister. A plebiscite was held to abolish the monarchy, which apparently got a 95% vote for such an abolition, and rigged elections were held in 1946. The agrarians and other anti-Nazi parties boycotted the elections in disgust. The young Tsar Simeon II was forced to flee, and a pro-communist government was installed before the People’s Republic of Bulgaria was established on Stalinist lines.

The early leaders, Dimitrov and Kolarov had died by 1950 and so leadership was effectively taken by Vulko Chervenkov who sought to rapidly industrialise the country. He attacked the Orthodox Church, put dissidents in labour camps, and imposed strict rule upon the country. He established a personality cult, and introduced free compulsory education and a public healthcare system. However, he had little support within the party so that once Stalin died, he was replaced as General Secretary and subsequently Prime Minister. He was replaced by the man who would dominate communist Bulgaria to the very end, Todor Zhivkov (that's his official website).

Zhivkov was previously a member of the resistance against the alliance with Germany, and subsequently a member of the Stalinist faction in the party, responsible for the forcible collectivisation of farms in a region he was in charge of. Over the subsequent years from 1954 to 1971 he consolidated rule around himself. He rejected Stalinism, allowing a nationalist view of Bulgaria, although he ceded claims to Slavic Macedonia to Yugoslavia. He bent with the wind, having been pro-Khrushchev, before becoming more hard line again under Brezhnev. He even strengthened relations with China in the late 1950s starting a brief and abortive “Great Leap Forward”. The Sino-Soviet split saw Zhivkov align himself with the USSR more, and he fended off a Stalinist coup.

However, this sort of leadership would mean Bulgarians would pay a price of uncertainty. As Czechoslovakia started a new economic policy, so would Bulgaria, under the Prague Spring saw central planning reasserted, and all those involved in running companies on a market basis would be arrested and purged. He closed down labour camps in the early 1960s, but changed the focus to having a Police state to arrest, frighten and monitor the public. However, unlike his neighbour Ceausescu he resisted having a personality cult, but he did establish a complex system of privileges of luxury goods and service for the elite and supporters to enjoy.

In the 1970s Zhivkov remained closely aligned with the USSR, and gained much material support as being at a frontline of the Cold War. Bulgaria made much foreign exchange by gaining cheap Soviet crude oil to refine and export at global market prices. Apparently Zhivkov even asked the USSR if Bulgaria could be a republic of the USSR, but Brezhnev rejected the request.

Zhivkov’s regime did not tolerate dissent, although in the field of the arts, as long as no political messages were given, his daughter Lyudmila promoted openness. Her sudden death at age 38 affected Zhivkov, and he took it out on ethnic Turks, banning the Turkish language and forcing all Bulgarian Turks to adopt Bulgarian names. His reputation dropped, and by the time Gorbachev had taken over Moscow, Zhivkov was elderly and more resistant to change. He had poured money into defence, increasing the size of the armed forces to be a loyal servant of Moscow.

Little had happened by 1989, but news of change in other eastern European states came through to Bulgarians via Radio Free Europe, BBC World Service and Voice of America, so Bulgarians became brave enough to hold protests in Sofia, ostensibly on environmental issues. The Communist Party sensing the need for change, overthrew Zhivkov on November 10 1989. He was replaced by Petar Mladenov who only distinguished himself by delaying the surrender of the communist monopoly on power by a few months. In June 1990 free elections were held, which were won by the reformed communists who had rejected authoritarian rule and had purged Zhivkov. Zhivkov was arrested and convicted of embezzling public funds, and sentenced to seven years imprisonment. He was put under house arrest, but was acquitted in his old age two years before his death in 1998.

Meanwhile Bulgaria slowly reformed its economy, as the Socialist Party (former communists) did not take dramatic steps to confront what needed to change, beyond political freedoms. In 1992 the government changed to the anti-communist Union of Democratic Forces which engaged in mass privatisation by giving shares in government enterprises to citizens, which had mixed results, primarily as so many government enterprises were grossly underproductive, inefficient and so closed down. High unemployment in the 1990s saw governments change at every election, but eventually some stability ensued. Political freedoms were high, so Bulgaria joined NATO in 2004 and the EU in 2007. Most interestingly, the child Tsar, Simeon II, who was expelled by the communists in 1946, was elected in 2001, with his party winning many seats. The Tsar returned, Bulgaria became a new magnet for European property investors, and the poor forgotten land was never to turn east again.