Speaking for England

Now I have had chance to read the lengthy Bank of England Report on EU membership I have been struck by the lack of evidence to support its one positive conclusion for staying in the EU. The Bank claims that membership has helped the “dynamism” of the UK economy.

They do see the need to define and prove this vague statement. They do so by saying the EU has made the UK a much more open economy, and this can be seen in the growth of trade resulting from this greater openness. Yet when you turn to the Annex to see the figures, you find in Annex 3 that the UK’s openness as measured by increased trade has advanced less quickly than that of the OECD as a whole. It is true they only give the figures for the period 1999-2014, not our whole membership. However, the last 15 years is the most relevant, as it is only in the last fifteen years that the EU has become so much more integrated and intrusive. Their figures show both trade in services and trade in goods increasing more rapidly for the OECD as a whole than for the UK.

The Bank of England is more in line with reality with the negatives they cite. They are right that the “UK economy was materially affected by the euro-area crisis” , which could of course recur. They are also right that “the impact of EU membership on financial stability is more challenging”.

It is difficult to argue that the single market increases our dynamism, when it weighs business down with dear energy, complex product rules, high VAT rates, an expensive overarching bureaucracy at EU and national level to implement it all, and a failure to negotiate free trade deals with much of the rets of the world. The EU seems to favour a limited number of large companies in each sector at the expense of challengers and small businesses.

The government is engaged in an important defence review. It is tine indeed that we discussed what threats our nation faces, how we should protect ourselves, and what contribution we should make to NATO and the UN. Listening to many experts in this field I am struck by the extent of muddled and jargon laden thinking that passes for strategy.

Let me this morning suggest three roles for our defence establishment to carry out.

The first overriding requirement is to concentrate sufficient force in the UK so that no power would consider mounting a seaborne or airborne invasion. Whilst there is currently no enemy in sight who would seek to do that, history warns us that is the ultimate danger. France carried out one successful invasion in 1066 and failed in the early nineteenth century. Spain failed in 1588 and Germany failed in 1940. he Dutch succeeded by agreement with the powers that be in GB in 1688.

The second requirement is to make our contribution to NATO, and to work with NATO to act as a credible deterrent to aggression towards any NATO member.

The third requirement is to have an expeditionary ability so that we can contribute to UN tasks around the world, and can help defend our own friends and associated territories.

Much of modern thinking is based on collaboration and mutual dependence with allies. History reminds us that we have not always been able to rely on allies. We needed to have our own forces to recapture the Falklands, as allies did not agree with expelling the invader by force. In 1940 we had to stand alone against Germany. This suggests to me that when it comes to defending these islands we need to have the ships and planes in our own military that could do the job.

I will turn to a more detailed consideration later, along with thoughts on countering cyber attacks and modern asymmetric conflicts with terrorism.

This week the Commons Foreign Affairs Committee published a good report. They concluded that UK bombing in Syria would not be a good idea. They recommended diplomatic intervention and the start of a difficult peace process.

Meanwhile the international community is edging towards a similar conclusion. The long war has shown that the main combatants are unable to win. The Assad regime has killed many of its own citizens but still cannot exert its control over large parts of the country. ISIL has limited forces on the ground terrorising locals into acquiescence. The Kurds have established some presence in the north but do not wish to extend their military power over the whole country, recognising this would be impossible and undesirable. Other opposition forces have also proved unable even with western assistance to forge a winning force.

Peace talks will be far from easy. There are several important regional powers to involve as well as the USA and Russia. Many of those interested and powerful in the region do not have a preferred outcome for a new Syria which is feasible. Anyone seeking to rule the whole of Syria has to have great powers of persuasion that they can be fair to different religious and ethnic groupings in the country.

Many in Parliament have decided that Syria is not short of bombs and violence. The UK would not be able or willing to make a large contribution to any western alliance intervention. The West’s Commander in Chief, the US President, is uncertain about committing much force to this continuous civil war. I am glad the PM continues to say he would only bring a proposal to bomb Syria to the Commons if there were a consensus in favour of such action. As the Select Committee has just demonstrated, there is no such consensus.

When I was working with the BBC on the Analysis programme about single currencies (to be broadcast again on Sunday at 9.30pm), I could find no-one well known in the UK political world to defend the Euro. The BBC asked on my behalf various senior Labour and Liberal Democrat politicians to come on the programme. They explained that we were looking for someone who would either defend the Euro as it is currently structured, or who would say what reforms they thought the EU should make to create their ideal Euro. These were not trick questions. It was not an invitation to an unfair or unpleasant party political debate. It was a chance for a well know EU enthusiast UK politician to tell us what they like about the modern Euro.

Their refusal sums up all that is wrong about the EU debate in the UK. There are no well known advocate who will ever come on and make an honest case for the UK being properly involved in the complete and true European project. There was not even anyone prepared to defend what much of the rest of the EU wishes to do together without us. As the Euro is now at the heart of the EU project it is difficult to keep defending the EU without acknowledging the prime role of the Euro and at least arguing it is right for those in it. They will not acknowledge that you need to belong to the Euro if you are part of the aims and ambitions of the EU. They do not wish to talk about political union, though it is a major topic for our partners. Some go so far as to deny that ever closer union means just that, and confine themselves to saying we are not going to join the Euro. They of course wanted to do just that not so long ago.

Many of the defenders of the EU are also strong critics of austerity policies who believe in large state transfer payments. It is curious that they lose their principles and their tongue when it comes to the harsh austerity policies visited on Greece, Spain, Portugal and others as part of their Euro discipline. It is also curious that there are few voices of condemnation of the mass unemployment and the high youth unemployment in the south of the EU, and no remedies ventured within EU and Euro rules on how to right those wrongs.

I tried again in the Commons yesterday to encourage the parties who favour our continued unchanged membership of the EU to defend the institutions of the EU and the policies being followed in the Eurozone. No-one even tried.

You can listen to ‘Currencies and Countries’ here: http://www.bbc.co.uk/programmes/b06mcfdp.

I have worked with Radio 4 Analysis to produce a half hour programme arguing that a successful single currency needs a country to love and back it. This will be transmitted at 9.30 pm on Sunday 8th November. It is also already available on to listen to through the BBC Radio 4 Analysis part of the BBC website.

160 countries around the world are not members of the EU but they are able to trade quite successfully with EU member countries. The main aim of the Stay in campaign is to terrify UK voters into thinking if we leave we uniquely will be unable to sell into the EU single market. Those who like Europe are so unpleasant about our partners in Europe as to think they will spite us on exit. It’s a strange paradox that those of us who wish to leave think more kindly of Germany and France than those who wish to stay.

As I have often pointed out, we are more customer than supplier as we buy more than we sell to the rest of the EU. As such Germany and France will want to keep our trade. As they will wish to continue with favourable ways to our market, they will not be looking for ways to stifle our exports, as we could simply impose the same restrictions on them.

The problem with the Single market is it is not a free market. The UK would like a free trade agreement with the rest of the EU, but that is not on offer if we stay in. Instead we have to pay large dues to the club and accept an extraordinary range of rules and restrictions on what we can do. We are told we have influence over these, yet history shows that we have lost many arguments. Our belief that we need fewer EU rules and regulations gets lost in the passion to drive through yet more agreements and directives.

Out of the EU there would be one huge improvement. All the rules and regulations we have to impose on all our business and trade would only have to remain on those goods and services we supply to the EU. Domestic activity and exports to non EU countries would no longer have to be under those same rules. At one bound we could be free for all but the 12% or so of our GDP that depends on sales to the rest of the EU, whilst that would have the same rules as today.

It is a nonsense to say that outside the EU we would be on the end of a facs telling us how to behave. As a supplier to the US, China, India or the EU we of course need to respond to what the customer wants. At the moment we are at the end of facs having to accept all the rules and regulations of an overregulated market and impose them on everything else. That is what we can free ourselves from.

Unfortunately the EEC/EU was never just a common market. It was always a journey to political union. Now it is becoming a wild ride it is becoming increasingly obvious that this is no market, but an excuse to create a government of the EU.

One of the most notable features of the modern EU is the growing dominance of Germany in its deliberations. This is inevitable as the Euro and the freedom of movement of peoples become central and often all consuming issues. Germany is the paymaster of the Euro and the generator of many of the jobs on the continent that people wish to move to.

UK commentators and media take too little interest in the German philosophy and policy towards the EU. It is critical if we wish to understand why the EU is as it is, and as we assess whether it is the right club for us.

Some say the Germans want similar things to us. This is completely false. It arises because the Germans do want a strong single market, as somewhere to sell their exports and keep their factories in work. However, they want a single market subject to iron disciplines laid down in Germany’s interest. Germans see the Euro as a necessary part of the single market. They see the UK’s absence from the Euro as a temporary and unfortunate delay in getting us inside it. They do not think the UK or any other country in the single market should be free to vary its exchange rate. Having locked themselves into the Euro at a very favourable rate for Germany, they want to preserve that and keep the trade surpluses it allows them to generate.

Germany thinks that having locked most countries into the Euro it is up to the others to struggle to keep up with German levels of efficiency and cost. If another country like Greece or Ireland cannot compete, then it should cut wages to price itself back in. If a country needs to borrow more than the permitted amounts under the EU scheme, they should cut their public spending or put up taxes instead.

Germany is coming round to the view that the EU’s future is for some additional EU taxes like the transactions tax, and in due course some additional EU borrowing. In the meantime they want to see more discipline, and want to see the UK join the Euro and have to face what the others face.To them a single market is a strong set of rules, usually favouring the incumbent large companies. The rules can make it more difficult to innovate and for challengers to compete. They tend not to like “disruptive” competition, but orderly competition to agreed prior designs and standards.

Germany is willing to take some migrants because she is short of new people for the workforce. However, Germany now realises freedom of movement is delivering too many additional people to Germany. Rather than change the policy of free movement, Germany believes other countries should be made to take more migrants instead. Germany does not think the UK should opt out from this either.

The UK’s problem is a membership based on opt outs is counter to the German view. In the longer run the Germans and their allies in the EU will wish to squeeze out or circumvent the UK’s refusal to join in all features of the discipline. As the main continental paymasters of the scheme Germany will continue to exercise disproportionate power in this club of 28 with just one permanent leader. The UK was not a founder member and has found it difficult to control the number of rules or to prevent rules which are unhelpful to smaller competing businesses.

On Friday 13th November I will give a lecture on currency unions, comparing in particular the sterling union and the Euro. The lecture will consider the moves to greater political union in the Euro area, and the position of the UK in the EU but not in the Euro. It will also look at the extent of taxation and transfers within the sterling currency area, consider the new financial settlement for Scotland whilst staying in the pound, and discuss the wider strength of nationalist movements within EU countries. It will also tackle the needs of England.

The lecture is an open public lecture to be held in the Old Library at All Souls College, High Street, Oxford. There should be seats for those wishing to attend. It would be helpful to have indications of interest in advance to give us some idea of numbers. The lecture is scheduled for 4pm.

The junior doctors and NHS management are locked in a struggle over hours, pay and productivity. The doctors complain that they will have to work week-ends and longer hours for less money. The NHS seeks to assure that the proposals do not include wage cuts or unreasonable hours.

At the heart of the row is the government’s wish to see better care at week-ends. People who fall ill or injure themselves at week-ends need good quality care there and then. The figures show that cover is not so good at week-ends, and the outcomes from treatment and surgery are not so good as a result. The aim of the reforms is to have a better balance of medical talent available throughout the week, as well as making sure there are enough doctors and nurses. The  government points out it has recruited more over the last five years, and will doubtless appoint more over the next five. The NHS budget continues to grow.

Mr Hunt is a patient and thoughtful Secretary of State driven by a wish to improve the NHS and to reinforce its best instincts and professional conducts.He has introduced a system of honest reporting  in the NHS, arguing that air safety improved when pilots and crew had to report every incident or near miss so the airline could learn from it and manage the error out of future flights or engineering. The  same is a necessary part of delivering first class health care. When people make mistakes they need to be reported, and improvements made to protocols, procedures and equipment.

The UK has moved on from creating new money to buy government bonds, but it’s still mighty fashionable elsewhere. Sweden has just announced a new programme. Japan lives by it. The Euro area is pumping out new Euros like there’s no tomorrow. Interest rates remain close to zero in the USA, UK, Euroland, Switzerland, Sweden,  and Japan. At the Bank of England the Chief  Economist muses about some future need to create money, impose negative interest rates, and drop the cash so it can be spent. In China the authorities still have scope to cut their interest rates and relax rules on bank credit to stimulate their economy. The economic world is summed up in the phrase lower for longer about interest rates.

Risk averse savers see this as a nightmare world, where they can get practically no return on their deposits. Other savers have made good money out of rising share and bond prices, as the official money created has been pumped into markets and pushed asset prices up. Borrowers have been benefitting from the low rates, with many able to borrow or refinance at low rates of interest for long time periods. The main winners have been most advanced country governments, able to spend and borrow large sums at very low rates of interest.

So how does this all end? Does it end? Is it just the new normal? Crisis low rates imposed in 2009 have been in place ever since in most cases.  If the west is now more like Japan after her excessive boom and bust at the end of the 1980s, we can look forward to more of the same. Japan has had low interest rates and intermittent programmes of money creation for 25 years.

My problem with all this monetary experimentation in the Euro area, Japan and elsewhere is that it does not directly resolve the underlying problem. The main reason rates are low and these overseas economies are weak is the state of the commercial banking system. All the time the banks are weak or are made to be extra cautious by the regulators, there will be insufficient credit growth through the normal channels. If companies cannot borrow enough to expand, if individuals cannot borrow enough to buy new cars, homes and other  major purchases, if the corporate sector is forced to run a surplus by prudent banks  the economies do not grow. Too much credit is a bad thing. Too little credit makes it difficult to grow, stifles enterprise and stops people accumulating assets for the future. The UK banks are now in stronger shape and more capable of financing the recovery. The pity is they were not sorted out immediately after the crisis, and a bigger pity that Labour’s regulators allowed the mega mergers which created RBS and Lloyds HBOS in the first place. Now it’s the turn of other parts of the world to get their banking systems into recovery shape.