Uncharted Territory

June 20, 2012

Rio+20 Mañana

One of my New Year 2012 resolutions was to report here about events I attend. Trouble is I always seem to put it off – “mañana”, I think – and after a few days there’s another event to report on. In fact I’m already one event behind (thorium – mañana) but am nevertheless starting by reporting on the Alternative Rio+20 Summit organised in London by the Campaign against Climate Change (CCC).

My expectations were moderate to low – I was hoping for a briefing on what Rio+20 is all about and maybe some interesting talks and discussions. I can’t say these aims were met. The CCC is about climate change and that’s not the main topic at Rio, so the conference wasn’t focused as well as it might have been. And whereas a few years ago CCC conferences were excellent and informative, they now seem to be a gathering mainly of “activists” all keen to promote their cause. The Q&A sessions were therefore largely hijacked, most annoyingly by a social networking bedwetter carrying around a 3ft dragon soft toy as a way to attract attention, and a woman wearing Mickey Mouse ears with text proclaiming something about “McNulty”. She was campaigning against proposed cuts in rail services. The effectiveness of her interjections may be judged by the fact that I had to google “McNulty rail” to find out who the guy was. Both campaigners, using the term loosely in the case of Mr Twitter-will-save-the-world, not only spoke off-topic in the plenary, but in subsequent breakout groups too. Most people in the breakout meetings will have attended the plenary.

The likelihood is extremely low that any intelligent debate can be organised around topics so vaguely defined as “sustainability” and “development”. Compounding the problem, “sustainable development” is – if these words mean anything at all – an oxymoron. So what I found most interesting about the whole Alternative Rio+20 event were the reflections on the history of international negotiations made by a couple of academics from the host institution, the School of African and Oriental Studies (SOAS). Harald Heubaum spoke about how Copenhagen failed for procedural reasons and suggested that the G77 group of countries was less unified than at the original Rio (the “Earth Summit”) and the West less inclined to make concessions. My initial thoughts were that perhaps the Earth Summit was too successful and, as well as taking all the low-hanging fruit (so how could any subsequent conference possibly match its ambition?), locked in unhelpful features, such as the distinction between “developed” and “developing” countries, with no mechanism for movement between these groupings. Of course, dividing the world in this way is madness, but the very idea of countries negotiating in the way they do is flawed. The interests of states is not the same as the interests of their people, so we end up with bizarre assertions, such as that the “right to develop” is a human right. It’s not, “development” is collective, human rights refer to individuals.

As far as climate change is concerned, these international talks are becoming increasingly fruitless, at least in terms of action (as opposed to exchange of ideas). The whole exercise has become entirely dominated by demands from developing countries that the developed countries are unable to meet. “Development” is in any case not something that can simply be given, or prevented. What’s clearly needed is to establish technocratic institutions that are able to say these are the rules for burning coal, preserving forests & oceans, wherever they are in the world. That’s right – we need the same rules for everyone.

Reading about the Rio talks – such as the draft text – is profoundly depressing. There’s little clarity, but the question our leaders are apparently asking is something like: “How can the aim of preserving the environment be prevented from conflicting with ‘development’?” The “needs” of the economy rather than the need to preserve the environment are taken as a given. Common sense, such as the observation that there are indigenous peoples who just want things left as they are and who aren’t really bothered about “development”, would suggest turning the whole thing round. “How can we protect the planet from the Malthusian juggernaut of industrialisation?” Clearly there’s a process – economic growth or “development” – that may be a good thing or may be a bad thing, but has certainly been accelerating for a couple of centuries, a process that will, if left unchecked, consume the planet. This process simply needs to be constrained. Such an observation would suggest that we need to simply protect remaining biodiversity wherever it is, leave fossil fuels in the ground wherever they are and so on. The tools currently being employed by the global community are not achieving this, and are never likely to.

We don’t need Rio+20. We don’t need any more COPs (Conferences of the Parties), such as Copenhagen. What we need is an entirely different process that starts from the environmental problems we’re actually trying to solve. The interests of nation states (or those of any other institution) should not be represented, since these will obviously conflict with the goal. Sovereignty must be delegated, else solutions are impossible. The technocrats would simply need to decide what the best mechanism is for preserving each resource – outright bans on exploitation perhaps in some cases, but most likely some form of pricing – and how best to implement it.

I do have more to say, but the morning is over. I’ll try to find some time to finish. Mañana.

June 2, 2012

Grexit? Spout? No, better half-in, half-out!

I’m not a huge admirer of Margaret Thatcher, and still less of her Chancellor, Nigel Lawson. But, back in the day, they suggested the eminently sensible idea of “currency competition” as an alternative to European Monetary Union (or, rather aptly, EMU). The idea was that the euro would be introduced alongside the pound, franc, mark and so on, with markets deciding the extent to which the international currency displaced the national currencies. But did the eurocrats listen? No, like improbably large flightless birds, they simply buried their heads in the sand.

The time for currency competition has now arrived. The case is compelling. So compelling in fact that when I scour the web to check my (in fact accurate) recall of the origin of the idea of currency competition in the eurozone, I find that it’s already been suggested as a solution to the current crisis – an alternative to Greek exit from the euro (Grexit) and Spain out (Spout) – by Philip Booth at Conservative Home. The existence of Professor Booth’s contribution allows me to make this post a little shorter than it would otherwise be. He also points out something I hadn’t previously realised – that it would be necessary to enact “a simple constitutional change to remove the clause in the EU constitution that requires the euro to be the sole legal tender currency in eurozone countries.” Actually that seems to put a small spanner in the works – is there no limit to the stupidity and lack of foresight of the eurocracy?

What would happen is this. In the (extremely likely) event that the Greeks do not vote on June 17th for parties willing to stick to the country’s agreements with its creditors, the EU (and IMF) would say to Greece that no more euros are to be made available from, say, 1/1/13 (to allow for necessary preparations). Greece nevertheless wants to stay in the euro. The conditions would be these:

  • All euros in circulation in Greece remain as euros. New bank accounts in drachma are created alongside for those who need them. Euro debts remain euro debts. And the Greek governments euro debts remain payable (it’s too late, unfortunately, for those that have already been forgiven).
  • Drachma are issued by the Greek central bank, subsequently backed by drachma bonds made available to the domestic market (I say domestic as international lenders are likely to be somewhat sceptical). The drachma floats freely against the euro.
  • Greece starts paying public sector workers, domestic contractors and state beneficiaries (the unemployed, pensioners etc) in drachma. The private sector has a choice. But companies (say in tourism) with euro debts and euro income would have no need to change their main operating currency. Such Greek exporters are not part of the problem – they can and should remain part of the European single market. It’s the Greek government that is bankrupt. The problem is the Greek public sector, not the private sector.
  • All Greek shops (and domestic businesses) would be obliged to accept both euro and drachma at an official market rate, say the previous day’s closing mid-market price.
  • Greece continues to service its international euro debt and recapitalises its banks (in euros, though if drachma are provided, these would have to be immediately converted by the banks). The need for euros for this purpose would be a key factor in determining the value of the drachma and hence public sector wage and other costs. In return (and only if satisfied that the Greek banks are solvent) the ECB would continue to allow Greek banks to borrow from it.
  • In theory it doesn’t really matter what currency Greece collects taxes in (as they are convertible), but because of time-lags the tax currency should match the currency of the taxable event (i.e. if you’re paid in euro you pay taxes in euro). Note that the drachma is likely to inflate, so the public and companies are likely to want to convert to euro for savings purposes.
  • Greek import costs are similarly convertible, but since there may be few external holders of drachma, euro would effectively be required. Greece would be forced to balance its trade (and in fact achieve a surplus, given its debts) – and the drachma would fall until it did.

The goals of such a policy are of course to:

  • Stop the haemorrhaging of deposits from Greek, Spanish and Italian banks. This is taking place because of fear that such deposits will be forcibly converted to a weaker currency, such as the drachma.
  • Remove the need for further Greek and other bailouts.
  • Force Greece (and others) to take reponsibility for their own budget and trade deficits.
  • Allow wages and hence public-spending to adjust in Greece and any other countries that follow the same course.

My flavour of the idea is slightly different from Booth’s in that he doesn’t make such a clear distinction between the public and private sectors of Greece’s economy. What we have in common is the realisation that, as Booth puts it:

“There would be no doubt about the legal status of private debts and credits denominated in euro and little doubt about the legal status of Greek government debt (any doubts would revolve around whether it was denominated in euros or the ‘sovereign currency of the Greek government’ – most likely the former). There would be no capital flight – all euro deposits in Greek banks would remain euro deposits.”

I would say the policy exploits what George Soros terms “reflexivity”. That is, it creates the positive feedback that as soon as it becomes seriously discussed it becomes less worthwhile for Greeks (and Spaniards and Italians) to move their euro bank deposits to Germany, making the policy itself easier to implement.

Note that this desirable reflexivity is in marked contrast to the historically stupid decision to haircut private lenders to Greece, which had the fairly predictable consequence of raising the costs of borrowing by other euro countries perceived by the market to be weak.

I call this the “half-in, half-out” or “Hiho” plan for restoring some kind of normality to the economies of the eurozone’s ailing members and to get the overall European economy moving again. As the ditty goes: “Hiho, hiho, it’s off to work we go!”

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