John Bruton

Opinions & Ideas

Category: USA

“THERE IS NO SUCH THING AS FREE WATER”

I visited Washington this week and was here for an eventful week.

At a time when there is persuasive evidence that drought is causing a huge famine in East Africa. Yet the Trump Administration is announcing plans to scale back America’s already modest contribution to the battle against man made global warming.

Under the Paris Agreement of 2015, the US committed itself to cutting its CO2 emissions by 26/28% compared to 2005 levels.

The new Administration wants to increase fossil fuel production in the US.

The limitations on CO2 emissions by US power plants will be cut.

Coal production will be boosted .

One study suggests that the policy changes will mean that the US will only cut its CO2 emissions to 14% below  2005 levels , rather than  26/28% below as it had promised under the Paris  Accord.

Meanwhile in East Africa, lack of water is causing crops to wither and animals to die of thirst. I heard former Vice President Al Gore claim recently that a similar drought in the Middle East contributed to the start of the Syrian Civil War because of the hardship it caused. Lack of water leads to poor sanitation. This, in turn, leads to diseases like cholera.  This risk is especially high in camps, where climate refugees congregate.

A human being can survive for weeks without food, but can only survive for five days without water.

And global warming evaporates water. That is the price paid for  CO2 emissions in wealthy, water rich, countries.

As Isaac Nur Abdi, a nomad in Southern Sudan, said

“There is no such thing as free water”

A FAILURE ON HEALTHCARE

Meanwhile President Trump has had to withdraw his Health legislation because of a lack of support.

There is no doubt that US health policy is in need of reform.

It is exceptionally costly.

The incentives in the system are often perverse.  Over prescription of painkilling pharmaceuticals is generating major addiction problems.

The proposed reforms would have put some check on the open ended growth of the cost of Medicaid, a health programme for lower income families. There would have been losers from this.

But the cost of Medicaid has risen from $180 billion in 2005 to almost $360 billion today, but without any clear evidence that it improved health outcomes.

The cost of providing health care for ageing populations will eventually pose a threat to western democracies, because democracies have difficulty making choices in this field, as demonstrated again in Washington this week.

THE US PRESIDENTIAL ELECTION

US political partiesI am in the United States this week, and finding out how people here feel about the Presidential Election.

Although the candidates have been selected through a primary process, in which the voters themselves have had the final word, they now find themselves deeply dissatisfied with the choice they have given themselves.

Everybody is looking to the debate on Monday night, as a signal for the momentum of the campaign.

The debate may enable Hillary Clinton to re establish the lead she won after the Conventions. Or it may confirm the more recent trend, of increasing support for Donald Trump.

One influential person told me he thought more Americans will be watching the debate than have ever watched any event on television before.

In past Presidential Elections, the first debate has also had a disproportionate influence.

Under the Electoral College system, a narrow win in the popular vote can gain all the electors of that state for the winning candidate. The margin of victory does not matter. The winner takes all. Because of the way her support is spread throughout the country, this system gives Hillary Clinton the advantage.

The system means that the candidates will tend to focus their appeal to certain “swing” states. One seasoned observer said to me that the election comes down to just four swing states, Pennsylvania, Ohio, Florida and North Carolina. He said that, to get a majority in the Electoral College, Hillary Clinton just needs to win one of these swing states, whereas Donald Trump must win all four of them.

As a European, I have found the depth of the hostility, in some quarters, to Hillary Clinton surprising. Concrete evidence of specific wrongful acts is absent. But the negative feelings towards her are very strong. Her own campaign advertising against Trump is itself very negative, which feeds this.

In the case of Donald Trump, it is his personality, rather than his policies, that attract attention.

 His policies include

  • Imposing 35% tariff on imports from Mexico
  • Imposing a 45% tariff on imports from China
  • Ending the trade agreement with South Korea
  • Considering US withdrawal from the World Trade Organisation

These trade policies of Donald Trump are a radical departure from the traditional policies of the Republican Party.

They have been analysed by the Petersen Institute for International Economics (PIIE) in Washington DC, who say that , if implemented,  they would ignite a trade war, because retaliatory tariffs would be imposed on US exports.

They say that, if elected, President Trump could implement these policies even without the approval of Congress.

PIEE have calculated which states within the US would lose most from the trade war a victorious President Trump might initiate. Washington State, home of Boeing, tops the list, with a loss of 5% of all jobs. Other big losers would include California, Connecticut, and Illinois.

But two “must win” states for Trump, Pennsylvania and Texas, also stand to lose more jobs than most, if his policies lead to a trade war.

Support for Donald Trump, and for his anti trade policies, derive from an instinct that many Americans have, that globalisation (the free movement of foods, services and money around the world) is reducing their personal job security, and rendering their skills redundant.

 In the 1990’s, when world trade was growing at 5% a year, and everyone’s income was rising, Americans were willing to put up with the disruption and uncertainty brought by the opening up of markets.

 Now, with the emergency caused by the banking crisis receding, and world trade growing at only 2%, more people are willing to take the risk of voting for a radical anti trade candidate, like Donald Trump.

A similar willingness to take big risks, to make a point, was evident in the 52% vote for Brexit in the UK.

Donald Trump’s policy of making the allies of the US pay more for their own defence also strikes a chord with many Americans. While he wants to “make America Great again”, Trump does not believe the US should pay, as much as it does at present, for other countries’ defence. This explains why some East European countries are pressing for the EU to take a bigger role in defence. Ireland, as an EU member, will have to take account of these trends.

Trump, who is spending a lot less on his campaign than Clinton is, is also tapping into a dissatisfaction among voters with the disproportionate role that money and fundraising play in US politics. From the moment he or she is elected, a new member of Congress must spent three times as much time, every day, on the phone, raising money for the next election, as  he or she does on legislative business or in meeting ordinary constituents.

All this explains why this is an angry election, on both sides of the divide.

EU SHOULD TAKE US TO INTERNATIONAL COURT IF SNOWDEN ALLEGATIONS ARE VALID.

The allegations, by Edward Snowden, that the United States National Security Agency(NSA), for which he worked, spied on diplomatic missions of the European Union in Washington and New York, and even on the building where EU Summits take place in Brussels, are very serious.
They require a deliberate and sustained response, not something exaggerated, or that will last only for a one day news cycle, and later expose contradictions in the EU positions.
The truth is that fundamental values are at stake here for the EU.

The founding idea of the EU was that relations in, and between, states should be governed by rules, rather than, as previously, by raw power. States, and individuals, should be equal before the law.
The Snowden allegations, if true, reveal a grave breach on international law by an agency of the United States government.

This is not something that can emoted about in the short term, and then later  brushed aside, with a worldly wise and jaded shrug, on the basis that ”everyone is at it.”

A CLEAR BREACH OF THREE ARTICLES OF VIENNA CONVENTION

The law on this matter is crystal clear. The Vienna Convention of 1961 codifies the rules under which diplomats and embassies do their work. But the rules themselves go back, in customary international law, to the 16th century.
The 1961 Vienna Convention has been ratified by the United States. Indeed the US relied successfully on that Convention in the International Court of Justice, when its own diplomats and Embassy were interfered with by Iran in 1979.

It is in the national interest of the United States to ensure that this Convention is respected, without question, and as a matter of routine, in order to ensure protection for its own missions abroad.
 The Vienna Convention says, in article 22,
 “the premises of a(diplomatic) mission shall be inviolable”. 
”A receiving state shall not enter them, except with the consent of the Head of Mission” 
“The receiving state is under a special duty to take all appropriate steps to protect the premises of the mission from any intrusion.”
Article 24 of the Convention says the “archives and documents of the mission shall be inviolable” and Article 27 extends similar protection to it correspondence. 
The Snowden/Der Spiegel allegations suggest that listening devices were placed in the EU Mission in Washington, without consent, which would be a blatant breach of Article 22. No such consent was given in my time in Washington.

They also suggest that the NSA hacked into the computer system of the EU missions, which would be a clear breach of both article 24 and 27 of the Vienna Convention.
Reacting to these allegations, US figures, like the former head of the CIA, made no reference  at all the US obligations under international law, to the US interest in protecting diplomacy, or even to the unfairness and  bad faith involved in spying on partners with whom one is supposedly negotiating in a transparent way. Instead he sought to dismiss them, by hinting vaguely about intelligence gathering by some EU states.

But what is alleged was not a case of the US reciprocally countering supposed illegal activities by  some EU states. It was hostile and illegal activity, by the US, directed against the EU itself, and the EU does not do have either the capacity, or the authority, to carry on any reciprocal surveillance of US missions in Europe, and does not do so. The ex head of the CIA knows that perfectly well.
In any event, I do not understand the point of what the NSA was supposedly doing. The activities of the EU Missions abroad, and of the Council of Ministers in Brussels, deal with subjects on which the facts are well known, and on which negotiating options are also fairly obvious. They can be easily discovered by US officials, simply by asking. They do not involve sensitive questions concerning the security of the United States, which is supposed to be the concern of the NSA. 
There will, very occasionally, be commercially sensitive and confidential information shared with the EU Mission in Washington by European or American companies, which might be useful to its competitors.   Apart from the illegality involved, the NSA would have no legitimate reason to seek out, collect, or share that sort of commercial information.
I believe what is involved here is a case of a security bureaucracy gradually extending is role, and engaging in “mission creep” just because it can, and because nobody is stopping it. The missions of Agencies are often lazily defined, and open to multiple interpretations. That may well be the case with the NSA.

BUT TRADE AND INVESTMENT TALKS SHOULD CONTINUE

What should the EU do now?

I will start by saying what it should not do.

It should not suspend the negotiation of a possible Trade and Investment Pact with the United States. In fact, it should recognise that these allegations strengthen the EU’s hand in these negotiations, in the sense that the US now has to demonstrate its good faith.
Nor should it expect an early, full, or contrite admission from the United States of what might have happened, or make that a precondition for anything.
Instead, The EU should adopt a twin track approach
It should continue with the trade and investment negotiations, as if nothing had happened. 
But, simultaneously and separately, the EU and its member states should follow the example set by the United States itself in 1980, and take a case in regard to these allegations of breaches of the Vienna Convention, to the International Court of Justice in the Hague. This assumes that it can obtain sufficient documentary evidence of the Snowden allegations from Mr Snowden, or from Der Spiegel.  Pursuing a legal route would depoliticise the issue in the short term, and allow time for things to cool down.
Surveillance technology has advanced a great deal since 1961 when the Convention was concluded. A new judgement from the International Court in this case would be helpful. It would re-establish and modernise the norms of behaviour we would want all countries to respect in future, notably emerging powers like China. 
President Obama, who, probably more than any previous President, understands the  significance of international law, and who wants to bring countries like China fully within its strictures, should welcome such a robust reaffirmation of the Vienna Convention. 

Financial Services in Ireland

THE JOB POTENTIAL OF FINANCIAL SERVICES IN IRELAND


I am looking forward to helping the international financial services industry in Ireland make an even greater impact on job creation in this country, when I take up my role as Chairman of IFSC Ireland in September. In the meantime, I am reading and listening.

The industry already provides about 25000 jobs directly in banking, funds management and insurance, and supports many more jobs indirectly in back up services like accounting, law, and hospitality.

Wholesale financial intermediation creates about 7% of the GDP in Ireland as against 2% on average throughout the EU, and 4.5% in Britain.

About 10% of all EU funds under management , are managed here in Ireland ,a country with only 1.4% % of the EU’s GDP.

This is a highly competitive industry. Modern communications mean that these services can be provided in any number of places or time zones. They will continue to be provided in increasing quantity in Ireland but only if Ireland continues to offer a top quality financial, social and regulatory environment. This is a people based industry, so a supply of well educated and motivated young people, who want to work in Ireland ,is crucial.

A key figure in the industry, Willie Slattery, pointed out last weekend that the economic downturn has had a side effect of making Ireland more competitive because it has led to a significant reduction in relative labour , office accommodation, and other costs in the past two years. The reduction in housing costs will also have helped in attracting staff here from overseas.

I believe it is critical that Ireland have a reputation as a thorough, rigorous, and pragmatic regulator of the industry. These three characteristics complement one another. Nothing is to be gained either by laxity or rigid formalism. At the end of the day, it is all about winning and holding trust, and in that there is no divergence of interest between regulator and regulated.


RESTORING ECONOMIC GROWTH


The success of the endeavour depends very much on Europe’s success in restoring economic growth. The financial crisis affecting banks and Governments is no more than a symptom of a deeper problem. That problem is a loss in relative competitiveness of both Europe and North America vis a vis the emerging economies of China, India, Brazil and others over the past twenty years. The loss of competitiveness was accompanied by an unwillingness to face up to long term problems like the eventual cost of ageing societies, and the ephemeral nature of some of the innovations of the so called “new economy”.

The boom- driven expansion of credit was like an anaesthetic that concealed an underlying loss in competitiveness from us until 2008. Now that the anaesthetic has been withdrawn, after such a long time, the pain is acute. The human cost is all too real.

The answer to this for all European countries is, I believe, to work to increase what economists would call the total factor productivity of our economy, the productivity of the way in which we use all our resources, public and private, capital and labour, tangible and intangible. We need a new way of thinking , an enhanced orientation towards finding ways to earn a living from meeting the needs of the rest of the world.


PUTTING THE EURO BACK ON A SOUND FOOTING


As many of you will know, I am a strong believer in the European Union, the world’s only historical example of an entirely voluntary, and democratically sanctioned, pooling of sovereignty between different nations, many of whom were at war with one another in living memory. No other part of sthe world has attempted anything as ambitious, or as successful as the European Union.

I know that there is not a little concern at the difficulties of the euro and complaints that the EU’s policy makers have been slow in rectifying what may be seen as substantial omissions in the original design of European Monetary Union.

But all of this should be kept in proportion. In January 2001, the euro was worth 92 US cents. It subsequently rose as high as $1.59, thereby affecting euro zone exports as anyone living along the border with Northern Ireland can confirm. It has recently fallen back from that to a lower, and perhaps more sustainable, level. But that is a level well above where it was in 2001.

The arguments that are now taking place in the EU now about bail outs, about surveillance of national budgets, ECB bond purchases, about supposedly pro cyclical budget cutting, about moral hazard, about the need to devise a workable resolution mechanism for large but insolvent entities, and about the exact amount solidarity which member states of the euro owes one another, are all real arguments, concerning real choices ,on which there are legitimate grounds for disagreement . There is nothing wrong with the fact that there are vigorous arguments between countries about these issues at EU level, just as there are at national level. That is normal politics.

The criticism of the EU that has the greatest validity, in my view, is that it has waited for foreseeable problems to become acute before tackling them.

It is not so much the EU’s decisiveness, as its foresight, that has been open to criticism.

It was foreseeable that the combination of a single centralised monetary policy, with divergent and decentralised fiscal policies would create contradictions.

We must not make the same mistake again. We must show foresight, and intellectual rigour, in regard to the problems looming on the horizon.


THE GERMAN CONSTITUTION AND THE EURO


There is one matter affecting the euro, and the solidity of the European economy generally, on which foresight is now needed. That is a decision the German Constitutional Court might take on whether the proposed closer fiscal policy integration in the euro zone is compatible with the German Basic Law or constitution. For understandable historical reasons, German Courts take democratic norms and the sovereignty of the people very seriously.

Issues that may be at stake before the German Constitutional Court are whether


1. The increased EU surveillance of the German budget, or

2. The large new German contribution to the special vehicle being set up to help euro member states with funding difficulties,


run afoul of the German constitution or Basic Law. It is important for markets ,and for the economic stability of Europe and the world ,that the EU not be taken by surprise by any decision the German Court may take on these vital matters that are now underpinning the euro.

The Court has already addressed this sort of issue in 2009, in its judgement on the Lisbon Treaty. So we have a preview of its thinking. It emphasised its belief that the sovereign state is still the main vehicle presently available for democratic governance.


DEMOCRACY THE KEY TEST


It said then that “an increase in integration(in the EU) can be unconstitutional (in Germany)l if the level of democratic legitimation (in the EU) is not commensurate to the extent and weight of the supranational power or rule” at EU level

And it has added that, for it, the test of democratic legitimation is whether “the allocation of the highest ranking political offices” takes place by means of “competition of Government and opposition” in a free and equal election . Essentially the question it posed was ..can the people vote the EU government out of office? Even though the European Parliament is directly elected, it not believe that the EU yet passed that democratic test. And they are right, the people of the EU do not have an opportunity to vote the EU government out of office.

The Court was therefore very reluctant to agree to further EU integration, beyond that proposed in the Lisbon Treaty, without a qualitative improvement in democratic governance at EU level. Otherwise it favoured keeping power at the level of the states because it argued that the states of the EU have a more developed democratic practice than the EU does ,at the moment.

I am certain this issue of whether there is sufficient democracy at EU level will arise again in any appeal to the Court against the proposed closer integration of Germany in responsibilities to, and for, the rest of the euro. Such an appeal will take place and has the potential to destabilise financial markets unless something is done to forestall the problem.

I have long advocated a simple remedy to this problem.


ELECTING AN EU PRESIDENT DIRECTLY


The Stability and Growth Pact, governing the euro, was finalised at the Dublin Summit of 1996 during the Irish Presidency. During that same Presidency, I commissioned a study on the possible direct election of the President of the European Commission by the people of Europe in a free and equal election of the people of the EU.

I really do not believe that it would be wise for EU leaders to sit and wait to see what the German Court might say . Its jurisprudence is already published in its judgement on the Lisbon Treaty.

That judgement should now be studied carefully, and urgently, by The European Council, the Commission ,and the Eurogroup.

The European Union must further improve democracy at EU level, to an extent that would make whatever further EU integration is necessary to underpin the euro, acceptable to the German Constitutional Court. It is as simple as that.

This could, for example, be achieved by providing for a electoral competition, among all the people of the EU, for the posts of highest ranking political actors in the EU.

The European Council could decide, without changing the Lisbon Treaty, that in future it will only nominate as President of the European Commission, as President of the European Council, and/or as President of the Eurogroup, a person who has won a majority of votes in an EU wide election for that post, held on the same day as the European Parliament election.

That would create a similar level of democracy at European level to that we each enjoy at national level.

Finally, the idea of a direct EU wide direct election is not as radical as it might seem. In December 2002, the Laeken European Council specifically asked the European Convention to examine this matter, but that never happened . All the emphasis was put on increasing the powers of the European Parliament, but direct election of a President by people themselves was never seriously considered. Nor was any change in the electoral system to the European Parliament itself.

The present crisis is an opportunity ,not only to deal with long hidden fiscal problems, it is also an opportunity to make the European Union even more democratic.


Speech by John Bruton, former Taoiseach, at the Annual lunch of the Federation of International Banks in Ireland on Wednesday the 2nd June at 12.50 pm in the Westin Hotel, Dublin


COPYRIGHT JOHN BRUTON & CONTENT

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