John Bruton

Opinions & Ideas

Page 3 of 43

The Euro,  and its threat to the future of Europe

 

euroThe Nobel Prize winning author of “Globalisation and its Discontents” has set his sights on the euro in his latest economic polemic.

He sees the euro as a product of what he calls “neo liberal economics”, which he believes was in the intellectual ascendant in 1992, when the detailed design of the single currency was put in place.

Given that the idea of an Economic and Monetary Union in Europe goes back to the late 1960’s, and that one of the central drivers of the project was a French Socialist, Jacques Delors, this claim is contestable.

The flaws in the design of the euro derive more from poorly thought out compromises between France and Germany, and from wishful thinking, than they do from ideology.

Wishful thinking lay behind the decision to have a single Europe wide money, but to leave the supervision of banks, who create the money in the form of credit, to 17 different national authorities. This happened because Germany wanted a German authority to supervise German banks, and not a Europe wide one.  And it was these poorly supervised German banks who led the way in the mistaken cross border lending to Greece, Spain, Ireland and Portugal.

It is easy to see that mistake now, but the problem at the time was persuading Germany to give up its beloved DM at all, in favour of the euro. The mistake arose from national pride rather than economic ideology.

Obviously, if there was to be a single currency, there had to be common rules for preventing any one country issuing too much of it, and thereby creating inflation and devaluing everyone else’s money. In this case, the mistake was made of assuming that the only risk of this happening was through governments borrowing and spending too much. This lay behind the 3% of GDP limit on government borrowing in the Maastricht Treaty.

But no similar, centrally supervised, limit was placed on private sector money creation through the banks. As we now know, it was cross border private sector credit creation, through banks, that created the problems in Ireland, Spain and Portugal, whereas it was only in Greece that government borrowing was primarily to blame.  Stiglitz argues that this focus on controlling government borrowing, and ignoring private sector banking activity, arose from an ideological bias in favour of the private sector. He has a point.

He also points out that imbalances arising from trade deficits and surpluses within the euro zone were ignored in the original Maastricht rules. Before the crisis, the Irish and Spanish balance of payments deficits, and their counterpart German balance of payments surplus, were signals of the same underlying problem. The excessive private sector borrowing in Ireland and Spain was stimulated by the excess of German savings. Germans were earning more than they were spending, so they sought a return on their money by lending it to the Irish and the Spaniards. The persistence of this imbalance was a warning signal that was ignored. The new EU macroeconomic imbalance procedure belatedly attempts to deal with this, but it remains to be seen whether it will be implemented properly.

More profoundly, Stiglitz argues that, for the euro to work well, there must be a consensus among policy makers in all euro zone countries of what makes an economy grow. That consensus is missing. German and French economic views differ as much now, as they did when the euro was launched.  Germany does not believe that governments should provide fiscal stimulus when there is a down turn, whereas, in France, the political consensus would favour stimulus in almost all affordable circumstances.

Stiglitz, like the French, believes that reducing deficits should not be a priority, when the economy is slowing.  This may be good advice in theory, but there are two difficulties with it.

The first difficulty is that it presupposes that governments will pay for what they spend in bad times, by cutting back in good times. But that is usually politically impossible. This is a practical flaw in Keynesian economics.

The second difficulty concerns a fundamental fact that is not mentioned once in Stigltz’s 350 pages. This is the ageing of the population of all EU countries over the next 40 years. This reduces the ability of EU states to borrow and spend for other things.  The extra costs of pensions and health care for Europe’s ageing population will, if policies remain as they are, mean that the debts of EU governments will rise from around 90% of GDP today, to 400% by 2060. That prospect leaves little room for stimulative borrowing today.

In the 1990’s it was different. Then Europe had a younger population, there was an annual growth rate in world trade that was twice the present one.  There were growth promoting options then that do not exist now, and are not likely to exist in the near future. This limitation is ignored by Stiglitz, who blames everything on the euro.

He argues convincingly that the EU needs greater political integration, if the euro is to be a success. But some of the ideas he canvasses lack political realism, for example a tax on German trade surpluses, and a 15% EU wide income tax on incomes above €250,000 (on top of national income taxes)!

He argues that the euro is, to some extent, now being held together by fear. A currency break up would be so unpredictable that no one wants to try it. But fear is not a healthy basis for European integration. Ultimately a shared European patriotism, and a greater degree mutual trust between euro zone electorates, are needed if these electorates are willingly to put their savings at risk to insure one another against unexpected shocks.

Understandably, as an American and an economist, Stiglitz does not address how this might be done.  That is a task for Europe’s politicians, and so far they have failed to come up with many original ideas.

But if that task is successfully undertaken, the economic rewards for Europe of having its own global currency, and its own system of mutual financial protection for its member states and its banks, could be very great indeed. There are opportunities here, as well as threats, but this book unfortunately only looks at the latter.

Stiglitz might also have given greater weight to the improvements that have been made in the management of the euro in the past three years-in the form of better banking supervision, new bailout funds for states and for banks, and more subtle economic rules.

But this is not enough.

Some of Joseph Stiglitz’s other suggestions- a common bank deposit insurance system, a write off of some Greek debt, and a partial sharing of unemployment insurance costs- should be acted upon. They are needed to ensure that the euro is able to withstand the next economic shock, and should not be postponed until after the German, or any other, General Election.

Book Review for the “Irish Times” Author; Joseph E Stiglitz  Publisher; Allen Lane

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A VISIT TO INDIA

flag-1296283_960_720I am in India this week for a series of meetings.  I met the Minister of State at the Prime Minister’s office, Dr Jitendra Singh.

At the moment , India has the fastest growth rate of any major economy in the world…7.5% pa.

This is driven in part by the youthfulness of its population. Half of India’s 1.2billion people are under the age of 25.

Unlike China, which has been restricting birth rates for years, and will soon see a contraction of its workforce as more people reach retirement age, India will see its available workforce continue to grow for the next generation or more. This gives India almost limitless potential for growth.

But the key word here is “potential”. Unless India’s young people get the right skills for the modern world, they will continue to live in relative poverty.

India has some great companies, but not enough. Only 10 million Indians are employed in companies with a workforce greater than 50 people. A large pool of people are still work in farming . Farming has had two bad years in a row because of drought, which has caused real hardship. That said, India has more internet users altogether than has the United States, and its city roads are clogged with cars.

India is a highly decentralised country, and policies vary widely from state to state. Some states have gone much faster than others in facilitation the setting up of a new business. The World Bank recently highlighted  this.

Of 98 recommendations to improve the business environment, there was  

  • a 70% implementation rate in Gujarat and Andra Pradesh,
  • a 36% rate in Delhi and Punjab but only a
  • 1,23% implementation in Arunchal Pradesh.

Divergences like this are also to be found between the states of the EU in respect of recommendations for economic reform.

Skill development is a key to the development of India, and a robust and reliable system for certifying training and skill levels could make a dramatic difference.

The current government of India, led by Narendra Modi is strongly in favour of opening up the economy. He is also determined to stamp out corruption, the black economy and tax evasion.

His action, this week, in taking certain large denomination bank notes out of circulation is designed to force people to exchange these notes in banks and thereby bring the money into the white economy and under the supervision of the revenue authorities.

Modi is in a strong position because his BJP party has an overall majority.

Relations with Pakistan over Kashmir remain exceptionally difficult ,with frequent incidents, involving deaths, occurring along the disputed border.

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PRESIDENT DONALD  TRUMP

donald-trump-1708433_1280There will be many explanations offered in the days to come for the surprise victory of Donald Trump. The United States is such a diverse country that it is hard to come up with a single or a simple explanation.

Trump was much more eloquent than Hillary Clinton. He came across as comfortable with himself, whereas Hillary Clinton appeared anxious at times.

He felt he could allow himself to be spontaneous, whereas she did not.

People listened to him, partly because they did not know what he was going to say next.  He did not worry about what the media described and “gaffes”, or worse. His electorate made allowances for him, because they felt he was authentic. Authenticity is very much in the eye of the beholder, and if people like what they hear, they will consider the speaker “authentic”.

But the Trump victory was about more than a livelier personality and better rhetoric.

My own sense is that it was primarily a cultural, rather than a narrowly economic, statement that the Trump supporters were making.

A majority of Americans are anxious about the pa
ce of change, and about the fact that the familiar world, in which they grew up,  is disappearing.  Americans felt that, by voting for Trump, they were taking back their own country. In a sense, they felt he would return them to an imagined past, in which they would be more comfortable.

Trump supporters no longer felt in full control of their future.  They felt that traditional institutions, like trade unions, could no longer protect them from the forces of automation and immigration, or allay their worries about the  affordability of entitlement programmes. These factors explain the Trump gains in states like Michigan, Wisconsin and Pennsylvania.

Donald Trump appealed to American nationalism, a nationalism that provides Americans with a sense of belonging and mutual security in an uncertain world. This nationalistic surge is not confined to America. English nationalism is behind the Brexit vote. Nationalism is likely to play a part in the French Presidential election, with potentially disastrous results for the European Union.

Trump’s victory also was a rebellion by those, who had not had the benefit of a college education, against being patronised, and told how to think, by those who had. This resentment has been aggravated by the prohibitive cost of college education in the United States, which has shut so many people out of the “American Dream”.

It is much harder to start poor, and become wealthy, in the United States today, than it was 50 years ago. Trump explicitly sought to appeal to this discontent. He was able to do this simply by repeatedly  attacking elites, but without putting forward specific policies that would increase social mobility.

Actually applying his policies will be the real challenge for Donald Trump as President.

If he implements 45% tariffs on imports from China and 35% on  Mexico, this will start a trade war. US corporations who have invested in supply chains involving these two countries will face major disruption. The likely abandonment of the Trans Pacific and Trans Atlantic trade and investment deals will slow the growth of world trade, which already has weakened by the slowing of the Chinese economy. This is bound to have negative effects on European exporting nations, like Germany.

He will not get Mexico to pay for the wall, so it may never be built.  The status of illegal immigrants in the United States will not improve, but I doubt if we will see mass deportations. The present situation is deeply unfair, and an affront to the rule of law, but it will probably continue.  

On the other hand, his commitment to invest heavily in the tired infrastructure of the United States will give a boost to global economic growth.

His tax cuts for richer Americans will not do much for growth because the better off people are, the more likely are they to save, rather than spend

He has the power to implement his policies. He will not have many excuses .He will not be able to blame a hostile Congress for blocking him, because Republicans have a majority in both Houses of Congress.

He promised the repeal, and replace, the Obama health insurance programme, which is proving to be more costly than expected. Repealing it will be easy, but replacing it will be really difficult.  

Whatever system of paying for healthcare is chosen, the costs seem to be rising inexorably. This is because people are living longer, and expecting, or are being recommended ever more complicated treatments.  I think this will be Donald Trump’s most difficult domestic policy challenge.

The most difficult thing to assess is President Trump’s foreign policy. Clearly he will be looking for allies of the United States to pay more for their own defence. But previous Presidents did the same. His trade policies will work against this. A trade war will weaken the ability of allies to pay more for their own defence.

In way, thanks to fracking and the increase it has made in US domestic energy supplies, the US is much more independent of the rest of the world than it used to be.  An early sign will come when President Trump has to decide of his policy on the war on Syria.  If he decides to ally himself with Putin, he will put himself on a collision course with Saudi Arabia. This could draw Turkey into the conflict because of its strong opposition to Assad.

Donald Trump has raised so many expectations that may be impossible for him to live up to them. Populism in power may not be as popular as populism on the campaign trail. Only if that happens, will the democratic world return to evidence based politics.

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THE VERDICT ON DAVID CAMERON’S PRIME MINISTERSHIP

cameron-at-10I read “Cameron at 10…the Verdict”, by Anthony Seldon and Peter Snowdon, over the summer, to understand how the UK came to hold a referendum on leaving the European Union, whose aftermath will bog down the UK and the EU in unproductive work, for years to come.

The first thing to say is that this is a good and well researched book.

It shows how the Liberal Democrat /Conservative Coalition came together in an atmosphere of good will and cordiality. It was bedded down by good institutional arrangements, which held it together right to the end.

But the cordiality disappeared when the Conservatives campaigned, with venom, to defeat the referendum on the Alternative Vote (PR in a single member constituency).

It is interesting to note that the Lib Dems loyally supported the austerity policies of the government, including on tuition fees which did them a great deal of electoral damage.

The reforms introduced by the Coalition, in education, health and welfare were important, and enduring. But they were not very different from what might have been done by a government led by Tony Blair. Cameron’s military intervention in Libya, for which he was a much greater cheerleader than Obama, was just as much a disaster as Blair’s intervention in Iraq. But Cameron knew what had happened in Iraq, so there is less excuse for him.

Cameron’s idea of a “Big Society”, where local communities take over responsibilities from government, never amounted to much. As one critic said “most people I know do not want to run their local library or school, they just want the service to work”.

Cameron’s problem with the European Union was not so much that he was a Eurosceptic, but that, like many Britons, he just did not find the EU interesting at all. Like his compatriots, he thought the EU was something external to the UK, with which the UK did business on an arm’s length basis, rather than something of which the UK was a full member.

He did not invest time in it, and thought that problems could simply be sorted out by a chat with Angela Merkel, as if the other countries would always do what she told them.  Merkel for her part thought Cameron was “apt to make his mind up too quickly”, and ask for more than he could ever hope to get. She preferred to start her negotiations with modest demands and build on them.

In 2007, as a newly elected leader of his Party, he had promised a referendum on the Lisbon Treaty, but by the time he came into office it was too late for that, because the Treaty had been already ratified. But his failure to keep that so called “promise” left him with problems with his backbenchers for the rest of his career.

The same backbenchers were also, of course, angry with him because he had not won the election in 2011, and instead had to opt for a Coalition with the Europhile Liberal Democrats.

The authors of this book think that Cameron’s position was so weak that he had no option, in 2013, but to promise an In/Out referendum. I disagree.  While there was a real threat from UKIP, I do not believe his party would have brought him down over this issue. There is no evidence that Cameron gave any serious thought to what ought to be done if the people voted for “Leave”.

When he came to fight the Referendum itself, he chose to appeal only to people’s pockets, and not to their hearts, or to their sense of self respect.

He could have pointed out that in 1914, Britain went to war, not for its Empire, but for Europe…to defend Belgian neutrality.

He could have reminded his fellow citizen that Britons went to war in 1939, also for Europe, to defend Poland.

 He did not do so.

Such an appeal to patriotism could have countered the xenophobia that occupied the emotional space,  that his materialistic campaign left unoccupied.

But then it emerges in this book that Cameron himself sincerely believed in having a cap on immigration, including from Poland, the country Britain went to war to defend in 1939.

In 2010, he had said “Kick us out in 5 years, if we don’t deliver a cap on immigration”. A well informed Party Leader would have known, even then, that such a promise was incompatible with his country’s obligations as an EU member!

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FERGUS O’BRIEN RIP

former

I am deeply saddened to learn of the death of my great friend, Fergus O’Brien.

He had a distinguished career in politics, winning friends for his direct approach, in all parts of the political spectrum.  He was never silent when he felt the issues at stake were important. He was someone to whom I turned for advice many times.

His ministerial career was fruitful and contributed to the development of what was to become the IFSC, in Dublin’s , then semi derelict, dockland quarter.

I saw him during his illness and was struck by his positive attitude and his continuing interest in others, in his faith,  and in the country to which he had given such great service.

To Peggy and all his family I extend heartfelt sympathy.

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REMEMBERING JOHN DILLON MP

john_dillon_1851-1927I spoke at a Seminar organised by the Reform Group in Wynn’s Hotel in Dublin on John Dillon MP , the last leader of the Irish Parliamentary Party (IPP), who was the father of James Dillon TD, who was leader of Fine Gael from 1959 to 1965. John Dillon died in 1927 having lost his seat in the 1918 General Election.

A soundtrack of the seminar can be accessed through the Reform Group website at

http://www.reform.org/site/2016/10/15/forgotten-patriots-seminar-15-oct-2016/

As well as Dillon, the seminar dealt with the DD Sheehan MP, who was a member of  The” All for Ireland”  League, set up by William O Brien MP, who was one of the few Irish Nationalists of the time to make a serious effort to understand the concerns of Ulster Unionists.

O Brien and Dillon, once close friends and allies, became rivals later in their careers, although both of them shared a belief in the Home Rule cause, and in exclusively constitutional and peaceful agitation to achieve their goals.

Grandchildren of both men were present at the seminar.

THE LAND QUESTION, RIGHTLY, CAME FIRST

John Dillon was first elected to Parliament in 1880 and, from the outset, he pressed the cause of land reform, which, along with the enactment of Home Rule into law in September 1914, was to be a crowning achievement of the IPP.

In looking for rent reductions, and the eventual transfer of Irish land ownership from landlords to their tenants, Dillon had to contend with claims that this involved breaching contracts and property rights, which were then, and still are, regarded as central to the market economy.

Yet, if the land question had not been solved prior to Irish independence, the resultant struggles might have been so severe as to undermine the democratic character of the state, something that happened in some central European countries ,who gained independence in the early 1920’s without prior land reform.

PARTY DISCIPLINE

Dillon, from the beginning, also believed in party discipline, and in the central control of candidate selection. In this, he clashed with Tim Healy MP and with William O Brien.

He believed, rightly, that discipline was vital if the Irish nationalist minority in the House of Commons was to achieve anything. In a parliamentary democracy, party discipline is of abiding value in achieving coherent outcomes, something Irish voters are inclined to forget nowadays.

COULD NORTH EAST ULSTER EVER HAVE BEEN COERCED INTO A UNITED IRELAND?

Like many Irish nationalists, then and since, Dillon had difficulty facing up to the reality that Ulster unionists could not, in practice, be coerced into a United Ireland.

Arguing publicly for something, that one knows in ones heart cannot be achieved in practice, is bad political leadership.

Successive Irish governments gave bad leadership on the question of how a united Ireland might come about, until the principle of consent was belatedly accepted in the 1970’s.

In Dillon’s case, he gave a speech in Belfast in March 1915 in which, on the question of a possible partition, to exclude part of Ulster from Home Rule, he said

“We will never agree to divide this nation”.

That remained the position of the IPP.

But Tim Healy claimed, in a letter to his brother Maurice in 1914, quoted in Frank Callanan’s excellent biography of Healy, that Dillon was privately of a more realistic opinion

“Dillon is going about (the House of Commons) talking to the Liberals in favour of the exclusion of Ulster “

Healy claimed Dillon was justifying this by saying

“How can we coerce Ulster with our record against coercion and that we cannot face civil war as a beginning to Home Rule”.

If Healy is to be believed, and he was no friend of Dillon, then Dillon was more realistic in private, than he was in public.

Healy, himself , thought the Ulster Unionists were only bluffing, and could be coerced. This is a nonsensical belief, but it is the unstated assumption of most modern day critics of the Home Rule  policy, including Sinn Fein and some historians.

At least in private,  John Dillon was a realist.

This gap between public rhetoric, and private belief, about the feasibility of enforcing a united Ireland, has proven very costly ever since.

This sort of self deluding rhetoric may become prevalent again in nationalist circles, if Theresa May persists in her “hard Brexit” policy.

COMMEMORATION ……WHAT CRITERIA SHOULD WE USE?

I believe official commemorations, of their nature, have to be selective.

So what criteria should guide our selection of the events to be singled out for commemoration in government ceremonies, postage stamps and public sculptures?

Commemorations cannot change the past.

All they can do is influence how we think about the future.

So government should select things to commemorate that will help us use historical event that help us manage foreseeable future challenges.

Thus I believe the focus of official commemorations on violent events, like the Howth gun running, the 1916 Rebellion and ambushes, is wrong.

These events have little of use to teach us about what we need to do in the future Ireland of the 21st century.

In contrast, the careers of men like John Dillon, his agitation, his compromises and his peaceful achievements, have much more to teach us ,about what is relevant to today and tomorrow.

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WHO WILL PROTECT IRISH AND OTHER EU FIRMS DOING BUSINESS IN THE UK AGAINST DISCRIMINATION, AFTER BREXIT?

cropped-European-Union-flag-006-1.jpgMany Irish firms, and firms from other EU states, have extensive investments and trading interests in the UK. Indeed this must one of the most intense investment relationships in the world.

For the past 40 years, these investments have been protected by UK membership of the EU, which allowed firms, who might feel they were being discriminated against, in favour of British owned competitors, to appeal not only to the UK Courts, but also to the European Court of Justice(ECJ)

Yesterday the UK Prime Minister announced that , once the UK leaves the EU, the jurisdiction of the ECJ in the UK would be ended. Thus there will no longer be any, non UK controlled, arbiter to protect Irish or other EU investors in the UK against discriminatory laws by a future UK government. The UK has no written constitution.

Therefore it will be important that there be a robust independent investor protection disputes mechanism, capable of overturning discriminatory decisions that might be taken by the UK courts against the interests of EU owned firms.

 This must take immediate effect the day the UK leaves the EU.

It cannot wait for the longer term trade agreement the EU negotiates with the UK, which may take years to finalise. Investor protection clauses can be controversial, as we have seen with the TTIP negotiation, and are a reduction of “sovereignty” in the abstract sense.

But , given three factors

  • the highly nationalistic tenor of UK politics at the moment,
  • the dramatic ideological trends in the Labour  party, and
  • the likelihood of trade tensions between the UK and the EU,

Irish and other EU firms doing, or intending to do, business in the UK will need a very robust independent investor protection regime.  These three phenomena must be confronted realistically. We must not assume that everything will work out in the end. It may not!

Unless Irish and other European firms have concrete assurances that they will not face discrimination of any kind in  their activities in the UK after Brexit, they may have to commence disinvestment to protect their shareholders’ legitimate interests. The proposed “Great Repeal Bill”, reversing EU law in the UK, will need to scrutinised with immense care by  Irish and other European investors in Britain. Political assurances will not be good enough.

In the present atmosphere of UK politics, it is all too easy to envisage calls for discrimination in favour of UK firms in contracts with UK local authorities, in access to certain public services, and in standards for goods and services. All would be done, of course, in the name of “protecting British jobs”, or “defending British standards”.

If the ECJ is no available to protect Irish and EU firms from discriminatory practices on the UK market, alternatives will have to be agreed with the UK. These alternative mechanisms, investor courts in other words, will have to have the power, like the ECJ, of striking down UK decisions, including UK court decisions,  that they deem to be discriminatory against the interests of an EU investor.

These mechanisms are known as  an Investor-state dispute settlement (ISDS) or an  investment court system (ICS). They are an instrument of public international law and  grant an investor the right to use dispute settlement proceedings against a country’s government.

Provisions for ISDS are contained in a number of bilateral investment treaties, in certain international trade treaties, such as the North American Free Trade Agreement (chapter 11), the Trans-Pacific Partnership (chapters 9 and 28) and the Comprehensive Economic and Trade Agreement (sections 3 and 4). ISDS is also found in international investment agreements, such as the Energy Charter Treaty.

If an investor from one country (the “home state”) invests in another country (the “host state”), both of which have agreed to ISDS, and the host state violates the rights granted to the investor under public international law, then that investor may bring the matter before an arbitral tribunal.

The prospect of having to use such cumbersome procedures will undoubtedly be daunting and difficult for small firms.

This will be particularly difficult for Irish firms who have been used to treating the UK as part of their “home market” since 1966 and the Anglo Irish Free Trade Agreement.

In the aftermath of the original referendum decision, soothing statements were made by British Ministers about the position of Ireland, and about there being no “hard border. But Prime Minister May’s speech to her Party Conference yesterday represents a major shift in position. She is going for a “hard Brexit”, which inevitably means a “hard border”. She offered no assurances to Ireland.

Indeed it is hard to see how the UK could offer special protection to Irish firms investing in the UK that it was not also offering to French or Romanian firms.

The Irish food industry is heavily invested in the UK market. Before it joined the EU, the UK discriminated heavily in favour of UK farmers and against Irish exports. The food industry is far more complex now than it was forty years ago, and the opportunities for discrimination more subtle and more numerous.

The European Union will need to adopt a tough line on investor protection in the forthcoming negotiations and make sure these protections apply in full from the moment the UK leaves, and are not left to a wider long term negotiation.

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AFTER THE DEBATE….WHERE STANDS THE RACE?

US political partiesMost observers believe Hillary Clinton did better in the recent television debate than Donald Trump.

But not everybody did.

The Republican supporting “Washington Times” newspaper claimed that Trump did better because he focussed on America’s (perceived) global weakness, and  because he “projected authority”, and “appeared every bit the non politician”.

He did appear to me to me to be more spontaneous than Hillary Clinton, who sometimes appeared to have memorised her lines.

But the price of being spontaneous is that he said some things that were barely coherent , and  were sometimes inaccurate.

Given that the United States is a democracy governed by politicians, rather than by bureaucrats, it is worth reflecting on the preferred system of government of anyone who thinks being a “non politician “ is a plus.

In the 1920’s in parts of Europe, “anti politician” rhetoric like this was often a prelude to something much worse.

The Washington Times also argued that Clinton had not been asked the hard questions about her record as Secretary of State in the Obama Administration on

  • Libya,
  • the attempted “re set “ of relations with Russia and
  • the rise of China.

I think the intervention in Libya, although motivated by humanitarian concerns, may have led to even worse humanitarian results than non intervention, but that is hard to prove. Trump may bring that up in later debates.  Mrs Clinton support for the Iraq war ,as a US Senator, is not quite on the same level of responsibility, as Mr Trump’s alleged initial support for it as a private citizen, and she got away with pretending that it was

It is hard to argue that an attempt should not have been made to improve relations with Russia, although these have proved fruitless.

It is not clear what Mrs Clinton’s critics would have wished the Obama Administration to have done about the rise of China.  It did attempt to negotiate a Trans Pacific agreement to draw the rest of Asia closer to the US and away from China, but both Trump and Clinton now oppose that .

Trump’s plan to impose a 45% tariff on Chinese imports to the US would certainly slow China’s rise, but would hurt America too. That issue was not explored in the debate, which was a great pity. Mrs Clinton seemed to be more interested in Mr Trump’s business past, than in his potential future trade policies.

The race will be fought in a few battleground states.

To win the Electoral College, Trump must win all four of the following states

  • Florida (where he is 0.5 points behind in the latest polls),
  • Pennsylvania (where he is 1.8 points behind),
  • North Carolina (where he is 0.8 points ahead), and
  • Ohio (where he is a more comfortable 2 points ahead)

He needs a major win in the debates to achieve this, and so far he has  not achieved that.

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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.

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THE APPLE DECISION……….GOOD FOR INVESTMENT IN EUROPE?

apple-euThe EU Commission decision that Ireland must collect 13 billion euros in back taxes from Apple has created quite a sensation. Most people agree that multinational companies can, and should, pay more tax. That general goal of the European Commission is widely supported.

The key question is whether Apple was given selective aid, and , if so, if this breached EU  competition rules.

It is therefore important to say that the Irish government never “selected” Apple for subsidy.

Apple, of its own accord, simply applied for, and was given, an interpretation of Irish tax law as it stood at the time (in 1991 and again in 2007). Any other company, in a comparable legal and factual situation, could have applied for, and got, a similar ruling.

It is important to stress that, in its interpretation of the meaning of Irish tax laws, the Irish Revenue Commissioners act independently of the government. Their relations with individual taxpayers, large and small, are confidential. They hold themselves to a high standard of objectivity and integrity.

The Commission ruling, going back and revising ten years of tax liability on grounds of competition policy, rather than of tax law, creates uncertainty for many other companies about their present liabilities.

At a time when too many companies are failing to invest and are, instead, paying down debt or accumulating piles of cash, this added uncertainty is not good for the revival of the European economy.

It may even encourage some companies to incorporate or invest outside the EU, where the Competition directorate of the European Commission will not have the same power to issue retrospective directives to national tax authorities.

The Commission decision in the Apple case attempts to change the way in which profits can be attributed, for taxation purposes, as between different parts of a multinational company’s structure.

Previously, companies could get authoritative guidance on what was permissible in this respect from the relevant national tax authorities. This was possible because taxation was understood by companies to be primarily a member state, rather than an EU, competence.

Now companies will no longer be able to rely in the same way on these rulings, but will have to seek clarity from the European Commission on whether a ruling could be construed as offering a “selective” advantage to the company. In light of the Irish experience, revenue authorities of member states will be very cautious. All doubtful cases will tend to be referred to Brussels. This will add greatly to the burden of work of the Commission, and will entail an extension of the Commission’s field of activity. Commissioner Verstager herself has said that companies should double check the compatibility with EU Competition and State aid rules of the rulings they have been given by their national tax authorities.  

As the corporate structures of multinationals vary considerably, the national tax ruling on each of them will have to be individually examined and adjudicated upon as to whether “selectivity” of some kind is involved.

The test of whether a ruling is illegal, in the Commission’s eyes, is whether it is “selective”. “Selective” is defined as giving a company an advantage over other companies in “comparable legal and financial situation”. As the factual situation of every company is different, this leaves a lot of room for subjectivity and argument.

The Commission will have hundreds of thousands of tax ruling of the 28 member states to review, and so far it has only looked at a thousand.

The Apple ruling also raises  new questions about which country is responsibility for collecting the taxes on particular profits, depending. Up to now, it was understood that a country was expected to collect taxes on profits on activities within that country. Now, Ireland is being told it must to collect the 13 billion euros from Apple even though, in Commissioner Verstager’s own words, “other countries” may actually be owed the money, not Ireland.

Much of the profit may actually be derived from activity undertaken by Apple in the United States, and any tax to be collected it may belong to the US. But Ireland now is told it must collect the money anyway. This is new form of universal jurisdiction!

This precedent will increase uncertainty, jurisdictional disputes, and compliance costs. Yet the Commission is promoting TTIP, precisely in order to reduce uncertainty and compliance costs. The form of the Apple decision sends a directly contradictory signal.

I believe it would have been wiser for the Commission to concentrate its attention, in a forward looking way, on ensuring the uniform and rigorous implementation of the EU Anti Tax  Avoidance Directive which has already been approved by all member states, including Ireland.

The determination of the amount, and the collection, of back taxes should be left to national tax authorities, who, after all, have plenty of incentive already to go after the money!

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