Friday, 28 February 2014

Ukraine: Welcome to Hell

"Welcome to Hell," is what the new Ukrainian Prime Minster and probable next Presdent Arseniy Yatsenyuk said to journalists in the centre of Kiev last night.

The Ukraine consists of the West, the East and the Crimea. In the West (60% of the population) they speak Ukrainian - a Slavic language which shares more than half its words with Russian - and want to join the EU, and in the East (40% ish) they speak Russian and want to join a Russian bloc comprised of Russia, the Ukraine and Belarus.

Meanwhile the Crimeans speak Russian and about 60% of them actually work for the Russians in their naval base at Sevastopol. (The other 40% presumably depend massively on the spending of the first 60% for their livelihoods.)

The lure of the West is EU membership, the euro currency and hard currency loans from the IMF. The East offers unlimited oil and gas from the vast Siberian oil fields and membership of a newly emerging super-power. President Putin openly refers to the Ukraine as a "region" not a country - and this is the attitude of Russians generally and plenty of Ukrainians think that is just fine.

The downfall of former (technically: current) President Viktor Yanukovych was orchestrated by an American organisation called the National Endowment for Democracy. The NED is funded by the US taxpayer and while notionally an independent think-tank has a tacit brief to steer revolting countries towards "democracy" ie, into the American camp. The NED produces the propaganda, and runs a paramilitary force called the Euromaidan Security Patrol - these are the guys who were at the front of the protests in Kiev when the government was overthrown. At the moment they have uniforms but no guns. That may change soon, not the uniforms!

(#Euromaidan is the twitter hash tag used to coordinate the overthrow of the government and has now given its name to the movement itself. The "euro" part is obvious and "maidan" means town square and tells the protesters where they should meet. The NED is using the techniques it developed for the Arab Spring in 2011.)

So the West is using subterfuge and the promise of loans and eventual access to the famed Western freedom, in the form of EU membership.

The Russians have more tangible gifts to offer. At the moment they are pumping subsidized oil and gas into the Ukraine, which is keeping the Ukrainians warm at night, the lights on, the cars moving, and their outdated and inefficient industrial wheels turning.

Subsidized, because the Ukrainians cannot afford the open market price.  The difference is being rolled up in the form of a big fat US$30bn debt. If the Ukraine jumps West their first loans will have to be given to the Russians anyway just to keep the country functional. The Russians also offer "security" in the form of tanks openly operating on the streets of Sevastopol and fighter jets openly violating their airspace.

One possible model for how this is going to pan out is the 2008 South Ossetia war when the Russians invaded Georgia to "protect" their citizens from the ethnic Georgians. That ended with a comprehensive Russian victory and effective annexation of a good deal of Georgian territory.

The coming days will be quite interesting.

Tuesday, 18 February 2014

Inflation below target

Gosh! CPI inflation in January (2014) was 1.9% - down from 2.0% the previous month - that is below the Bank of England's target. Sadly RPI inflation rose from 2.7% in December to 2.8% in January, so you won't actually feel any better off. And neither your earnings or savings will be keeping up with inflation.

So the BoE's strategy is fully vindicated, now they have managed to get under target for the first time in four years.

No, not really. It is just a statistical anomaly. When people are feeling hard up they cut down on the non-essentials. For example they stop going to concerts and the theatre. Those are easy things to cut out of your life, unlike say, food, or housing. So the prices of tickets fall to try to fill the seats and the munchkins who compute inflation dully record the price cut as a fall in inflation.

To be fair, alcohol and tobacco are also down a bit (not really down, just rising less fast) and so are hotels.

Unfortunately the things you still have to buy when you're feeling the pinch, goods and services including insurance, gas and electricity, and most foods, are not falling at all.

Friday, 14 February 2014

Wythenshawe results

The results are in, and they are as expected. Here are the numbers for yesterday and the general election in 2010.

            2010             2014
Party   Votes   %     Votes   %     Change

Labour  17,987  44.1  13,261  55.3  +11.2%
Con     10,412  25.6   3,479  14.5  -11.1%
LibDem   9,107  22.3   1,176   4.9  -17.4%
BNP      1,572  3.9      708   3.0  - 0.9%
UKIP     1,405  3.4    4,301  18.0  +14.6%
TUSC       268  0.7        -     -      
Greens       -    -      748   3.1  
Loony        -    -      288   1.2

Total   40,751        23,961

As you can see turnout was massively down, only half as many people voted this time (28% of the total electorate) - stormy weather cannot have helped.

Labour held the seat of course; they were always going to do that. But they increased their vote share quite impressively. The Tories lost almost the exact amount Labour gained. Some Tory loss was to be expected - the Tory voters mainly live in the more rural parts of the constituency and, given the weather and the inevitability of the result, must account for a large part of the no-shows.

No, the Tories' big problem is that UKIP has surged. Its vote share has grown by even more than Labour's. That was not enough to change this result, but there are plenty of places where it would be.

The LibDems were wiped out - they lost their deposit. They went down by even more than anyone else went up. They are looking at national oblivion unless they do something dramatic. If this had happened at a general election the LibDems would be left with Orkney and Shetlands and not much else. Certainly Nick Clegg (Sheffield Hallam) would lose his seat.

The BNP, as expected, lost a little ground, although nothing dramatic.

Thursday, 13 February 2014

A tale of two fishes

Today, the two fishes, Alex Salmond, First Minister of Scotland, and Nicola Sturgeon, his deputy, are banging the drum for Scottish independence. They have been spurred into action by the Chancellor of the Exchequer, George Osborne,  going to Edinburgh and saying that there would be no currency union between an independent Scotland and the rest of the UK.

There will be a referendum on independence on the 18th of September this year. Only people in Scotland will get a vote.

Since it is not likely that the Scots will take the bait it is not worth much consideration of the issue. However HMG has put quite some work into the possibility. A number of papers on how the nations could be divided are available here.

There are a couple of precedents on how to break up a nation: the division of Czechoslovakia into the Czech and Slovak republics in 1992 is one, and closer to home the formation of the Irish Free State in 1922 is another.

The media seems to consider money to be the main issue. (This blog thinks citizenship and nationality will be just as troublesome.) On money the Scots' options are: keep the pound, adopt the euro, or create an independent currency.

The Chancellor has said they are not having the pound sterling. He rightly does not want the Bank of England retaining liability as "lender of last resort" for the debts of Scottish banks. The Scots could use sterling without consent (some countries use the US dollar without permission from Washington - notably Zimbabwe where the typical note in circulation is a filthy rag of barely visible denomination). Using the pound like this means that the new Scottish government could not source notes and coins easily, and could not control the money supply. Of course Scotland does already print its own "sterling" bank notes.

Anyway the new Scotland intends to join the European Union - and it is a condition of joining that the euro is adopted. However it would take a couple of years to get into the EU so the most likely way forward is a rather unsatisfactory "informal" use of sterling until EU accession. (The UK has a euro opt-out thanks to Margaret Thatcher, but that is not available to newcomers.)

Needless to say, the euro is not popular in Scotland. They have seen what happens to small countries in the euro (Greece, Ireland, Portugal) and they don't like it.

Inventing their own currency just to handle the transition to the euro would be more work than anyone really wants.

The two fishes have been threatening that if Scotland is not allowed into the "sterling zone" then they will renege on their share of the national debt. Ironically Alex Salmond used to put it about that "the pound was a millstone around Scotland's neck." Now he wants in.

It seems likely Scotland would be able to get away with not taking any part of the national debt. London would have to continue making coupon payments on all UK gilts. There is no way of apportioning some of them to Scotland. The only response that the "continuing UK" (Whitehall speak; the term rUK is also gaining favour - where r stands for residual, but basically we're talking England here) could make is to retain some assets - oil fields maybe - but Scotland would also be entitled to a share of some pretty big pension funds (NHS, teachers, local authorities) so those could be "taxed".

Scotland has 8% of the UK's population and 31% of the land. A fair per capita portion of the debt would be approx £100bn. That's per capita of people actually living in Scotland. The fishes have said that Scottish citizenship will be bestowed on all the British residents of Scotland, plus all the people born in Scotland now resident anywhere else in the world - most of them in England of course. Making the Scots take a £100bn note would be hard. They would have to sell their own gilts, probably at a higher yield than UK gilts since they have no credit history, and then pass the cash to the Bank of England which would cancel some UK gilts - fortunately the BoE is holding £375bn worth of QE-purchased bonds so finding some to cancel will not be a problem.

An independent Scotland joining the EU would also be required to join the Schengen agreement. This gives document-free travel to all EU members of the scheme. (Again the UK has an opt-out, and so does the Republic of Ireland.)

England, Scotland, Ireland north and south, Wales, Isle of Man, the States of Jersey and Guernsey and so on are all members of something called the Common Travel Area. This gives document-free travel within the area. However CTA membership is not compatible with Schengen membership. So a Scotland joining the EU would not be allowed to have an open border with England!

Then comes the citizenship issue. History is no help here. When Czechoslovakia broke up all citizens were told to pick one: Czech or Slovak - but not both. When the Irish Free State was formed the Irish invented their own citizenship and granted it to all residents but the UK did not recognize this and from 1922 to 1948 treated all Irish people as British citizens. Even to this day the ROI has a law, the Aliens (Exemptions) Act, which says Brits are not be be treated as aliens, and there is a UK law which says the Irish are not foreigners for most purposes.

So people would need to know if they were now British or Scottish. For some it might be obvious: born and live in Scotland makes you Scottish, but there are UK citizens who have never even visited the United Kingdom - where do they stand?

The fishes intend to allow joint Scottish-British nationality. But it is by no means clear that it is in the interests of the UK to allow that. Scotland could become a back-door into British citizenship if being Scottish grants British. (We currently are playing host to 10,000-ish Somali refugees who went first to the Netherlands and were granted citizenship thus acquiring the right to move anywhere in EU and claim benefits.)

It is probably not even in the UK interest to allow the Scots to work in the rUK. And before they are in the EU they would have no obvious right to live/work here if they didn't have British nationality.

However, there is no chance that the Scots will actually vote for independence so it is all academic really

Monday, 10 February 2014

Swiss referendum cracks Europe

Technically it was an "initiative" not a referendum, and it was passed by a tiny majority, and only a minority even voted, but yesterday (Sunday 9/Feb/14) the Swiss voted to end open immigration from EU countries and set quotas for immigrants.

One in four residents of Switzerland is an immigrant. This is a higher degree of swamping than any other European country has experienced. Fortunately for the Swiss, moving to Switzerland is one thing, but getting the nationality (and hence being able to vote in more immigrants) is much harder. It takes ten years to become Swiss and there are all sorts of hurdles to jump - they even ask your neighbours if you put the bins out on the right day and sweep away the snow diligently!

It seems from the pattern of voting that it is immigrants coming up from Italy who are the main cause for complaint. The cantons closest to Italy were the most opposed to immigration; those bordering France and Germany most in favour. Italy is the EU's open door from Africa. The Italian authorities have been overrun from North Africa and now simply issue documents to new arrivals and encourage them to head north to get them out of Italy.

By itself this vote means nothing. The Swiss will not implement the change for three years, but this could be the European Union's high watermark; the first time the "ever-closer-union" ratchet has slipped backwards.

The sponsors of the initiative, the Swiss Peoples' Party, is jubilant and their success may be infectious. Come May we have EU-wide elections for the European Parliament. In France the Front National (FN) under Marine Le Pen is riding a wave of popular support. At the French presidential election Mme Le Pen got 17.9% of the vote. The most recent opinion poll put the FN at 23%, and this is likely to rise given the Swiss result.

Of course over here UKIP is riding high and on Thursday we will see just how high. The Swiss lead may give them a boost as well.

Monday, 3 February 2014

Focus on Wythenshawe

In the first week of January Labour MP Paul Goggins went out for a run, collapsed, and died a few days later. Thursday next week there will be a by-election to replace him in his Manchester constituency of Wythenshawe and Sale East. Obviously the Labour candidate Michael Kane will win and become the new MP.

At the 2010 the general election the results were as follows:

Candidate               Party   Votes   Percent

Paul Goggins            Labour  17,987  44.1
Janet Clowes            Con     10,412  25.6
Martin Eakins           LibDem  9,107   22.3
Bernard Todd            BNP     1,572    3.9
Christopher Cassidy     UKIP    1,405    3.4
Lynn Worthington        TUSC    268      0.7

(TUSC is a small trade unionist/socialist party.)
Labour holding the seat is not really in question. The two questions of note are, 1) will the Lib Dems get wiped out, and 2) how big a bite out of the Tories will UKIP take?

Wythenshawe is seen as a good early indicator of how the European elections in May are going to go. On the basis of Wythenshawe we could see realignments of the parties; the Lib Dems may be forced to distance themselves (further) from their government partners - they are already getting fractious with them and the Tories may be forced to formalise some sort of relationship with UKIP.

Sadly, the BNP is expected to lose vote share to UKIP.

So the significance of Wythenshawe is very much in the small print.