RBS do a good thing

I met Fred Goodwin in 2000 when he was touring the City extolling the virtues of his RBS takeover of NatWest. I didn't take to him then and his open arrogance fed a well placed dislike and mistrust of his corporate strategy in the years that followed. We know how that ended. Encouraged by misguided government, and regulators who were seemingly looking elsewhere, he managed to leverage the balance sheet to breaking point. When the system came under extreme duress, RBS snapped and has been in recovery ever since. 

So, its with some surprise that I've tripped over a pretty good money transfer innovation that RBS are rolling out which is really useful. Remember the days when as a youngster you spent / lost / forgot your cash and had no means of getting some for the last bus / taxi / train home? Or perhaps on a trip somewhere and a bad thing happened, "Mum, please post money to this address." 

All change. With RBS's Get Cash app said parent simply inputs the amount of money to be sent and it generates a code number which you can then text to errant child. They then only need go to an RBS, Tesco or NatWest cash machine within three hours, input the code and it will spit out the cash. I am genuinely impressed. They are relaunching Williams & Glyn too; perhaps bit by bit they are recovering ground.

Rifkind in the Cold

Malcolm Rifkind; in the cold

Malcolm Rifkind is finished. Both he and Labour MP Jack Straw have shredded their reputations by being caught in a journalists "cash for access," sting. It is worse for Rifkind by degrees. As the former chairman of the Intelligence and Security Committee (he resigned ten minutes ago), he has demonstrated a shocking absence of judgement. There are some suggestions in the press that Rifkind has put forward some robust legal arguments to the Chief Whip in his defence and also that he is a good guy because he is nice to his ill wife. There are a lot of people with ill spouses but there is only one chairman of the Intelligence and Security Committee.

Men and women from these shores risk their lives every day in defence of our country and it is simply untenable for a man who has shown a willingness to take money from a company from a foreign power such as China and use his influence to further their unspecified aims to remain in his post, something he has obviously recognised this morning. Rather like a policeman committing a crime this incident is aggravated because of experience, position and current knowledge of security matters.

The Cold War may be over but a very strong message indeed needs to be sent to those walking the corridors of power and influence. The galloping sense of self entitlement of some MP's so often seems to bury any of duty and honour that once they might have harboured. Having resigned from the committee Rifkind should keep walking and be gone from the Commons by lunchtime with Straw in quick time behind him. 

Election Entertainment Quotient just went parabolic

Mr Prescott can't wait for lunch and snacks on the nearest available piece of red meat

Ed Milliband in his first speech as leader “I stand here today ready to lead: a new generation [is] now leading Labour. Be in no doubt. The new generation of Labour is different. Different attitudes, different ideas, different ways of doing politics.” 

In The Observer yesterday, Mr Miliband said on bringing Precott back into the campaign fold, "His abilities and experience, as one of the architects of the Kyoto Protocol in 1997, must be used at this critical time for our future and there is no one better than John at bashing heads together to get a deal." 

Mental Crumble “You said it Ed. Labour go nuclear after the condescending Barbie Bus fiasco and haul back the bullying, inarticulate sleazebag Prescott; he’s the one who looks like Jabba the Hut without the charm and dances like an Eddie Stobart truck doing a three point turn. Still, the Election Entertainment Quotient just went parabolic. Odd choice when you think they could have appointed oh lets see, maybe a scientist or something as climate change advisor. We all know what’s afoot and it’s not about the Greens. It’s about stemming the flow of working class voters to UKIP in trying to give Labour an impression of not being a shower of out of touch north London intellectuals.

Could this have been the moment when Miliband met a real live voter that he decided to press the panic button?

Fifty Shades of Grey

Another manufactured fuss over nothing. Apparently the streets at night are full of gangs of middle aged women and groups of young hairdressers heading to the local Odeon to watch some light porn. It's the spoof reports of DIY shops preparing for a rush on the ropes and padlocks aisle that puzzled me. I can just visualise the scene the next morning, after an embarrassed silence;

"Right, Jonathan, I think you can put those things back in the shed and we'll say no more about."

Oddly, it reminds me of another first paragraph of the book I never got round to finishing... well starting actually, (I'm now considering a book of beginnings).

"The downward spiral in Edward Townsley's life could be traced to the moment he decided to invoke a spirit of adventure in the marital bed. Years of commuting on the 06:39 from Godalming, a repressived life as a good corporate citizen, mixed with a heady cocktail of alcohol and spirited bonhomie invoked by a school reunion, created a combustible mix of a born again adolescent faced with a stern and regimented Surrey housewife was only going to have one outcome.

It seemed a good idea at the time. Unfortunately, when repeated by his wife"s barrister in court his inspired and colourful idea sounded cheap, tawdry and to some ears downright offensive. Edward bowed his head and  both the judge and court stenographer blushed more than was likely as the barrister concluded his withering assault on Edwards previously unblemished character."



There has been a right old fuss over nothing this week in respect of the call from Ed Balls for people to ask for receipts for cash payments as low as £10 and the subsequent "revelation," that he himself hasn't asked for a receipt from his window cleaner for 17 years while claiming for the cost on parliamentary expenses. 

The ensuing furore over the obvious hypocrisy missed a simple and vital point.

What in the blazes is the hard pressed tax payer doing paying for window cleaning for these people? Has the world gone utterly bonkers? There was another MP fellow claiming for the cleaning of a one bedroom flat...... madness.

Unless these MP's are aliens foisted on us by a superior world that wanted to rid itself of its remedial cases , and I think there is a pretty good chance that they are,  they need to get in touch with Planet Reality PDQ. 

Ready the pitchforks.....

Disappointed but not Surprised

After a lifetime of reading the Daily Telegraph I’m finally jacking it in. Changing ones newspaper doesn't come easily to people from these shores but I've had enough. I read the Telegraph as a teenager, I had it delivered courtesy of the Sally Ann Red Shield Club in Deilinghofen in Germany when a private soldier, I read days-old dog-eared copies in the jungle, in South Armagh and then while lounging in the ante rooms of varied Mess's over morning coffee, right through the years of commuting on the Portsmouth line. It’s been part of my life.

The apparent subjugation by the owners, the Barclay brothers, of honest journalism for the sake of advertising revenue is unfortunately, a last straw. I’m disappointed but not surprised. Most Telegraph readers will admit that standards and the breadth of coverage have been falling for years. In fact its become something of a broadsheet tabloid but Peter Oborne’s resignation and statement have pretty much slammed the door shut for me. I’m off to the Times then, where the on-line thing and editorial line is superior,  (and where at least letters should be more easily published although I shall miss the quirky style of the last remaining gem in the Telegraph).

I’ve always had a soft spot for PB, ever since he walked onto Newsnight and handed the previously pro Euro Richard Lambert a copy of his pamphlet, “The Guilty Men.” Oborne’s statement is worth reading. Here it is, 

Why I have resigned from the Telegraph

PETER OBORNE 17 February 2015

The coverage of HSBC in Britain's Telegraph is a fraud on its readers. If major newspapers allow corporations to influence their content for fear of losing advertising revenue, democracy itself is in peril.

Five years ago I was invited to become the chief political commentator of theTelegraph. It was a job I was very proud to accept. The Telegraph has long been the most important conservative-leaning newspaper in Britain, admired as much for its integrity as for its superb news coverage. When I joined theTelegraph had just broken the MPs’ expenses scandal, the most important political scoop of the 21st century.

I was very conscious that I was joining a formidable tradition of political commentary. I spent my summer holiday before taking up my duties as columnist reading the essays of the great Peter Utley, edited by Charles Moore and Simon Heffer, two other masters of the art.

No one has ever expressed quite as well as Utley the quiet decency and pragmatism of British conservatism. The Mail is raucous and populist, while the Times is proud to swing with the wind as the voice of the official class. TheTelegraph stood in a different tradition. It is read by the nation as a whole, not just by the City and Westminster. It is confident of its own values. It has long been famous for the accuracy of its news reporting. I imagine its readers to be country solicitors, struggling small businessmen, harassed second secretaries in foreign embassies, schoolteachers, military folk, farmers—decent people with a stake in the country.

My grandfather, Lt Col Tom Oborne DSO, had been a Telegraph reader. He was also a churchwarden and played a role in the Petersfield Conservative Association. He had a special rack on the breakfast table and would read the paper carefully over his bacon and eggs, devoting special attention to the leaders. I often thought about my grandfather when I wrote my Telegraphcolumns.

‘You don’t know what you are fucking talking about’

Circulation was falling fast when I joined the paper in September 2010, and I suspect this panicked the owners. Waves of sackings started, and the management made it plain that it believed the future of the British press to be digital. Murdoch MacLennan, the chief executive, invited me to lunch at the Goring Hotel near Buckingham Palace, where Telegraph executives like to do their business. I urged him not to take the newspaper itself for granted, pointing out that it still had a very healthy circulation of more than half a million. I added that our readers were loyal, that the paper was still very profitable and that the owners had no right to destroy it.

The sackings continued. A little while later I met Mr MacLennan by chance in the queue of mourners outside Margaret Thatcher’s funeral and once again urged him not to take Telegraph readers for granted. He replied: “You don’t know what you are fucking talking about.”

Events at the Telegraph became more and more dismaying. In January 2014 the editor, Tony Gallagher, was fired. He had been an excellent editor, well respected by staff. Mr Gallagher was replaced by an American called Jason Seiken, who took up a position called ‘Head of Content.’ In the 81 years between 1923 and 2004 the Telegraph had six editors, all of them towering figures: Arthur Watson, Colin Coote, Maurice Green, Bill Deedes, Max Hastings and Charles Moore. Since the Barclay Brothers purchased the paper 11 years ago there have been roughly six more, though it is hard to be certain since with the arrival of Mr Seiken the title of editor was abolished, then replaced by a Head of Content (Monday to Friday). There were three editors (or Heads of Content) in 2014 alone.

For the last 12 months matters have got much, much worse. The foreign desk—magnificent under the leadership of David Munk and David Wastell—has been decimated. As all reporters are aware, no newspaper can operate without skilled sub-editors. Half of these have been sacked, and the chief sub, Richard Oliver, has left.

Solecisms, unthinkable until very recently, are now commonplace. Recently readers were introduced to someone called the Duke of Wessex. Prince Edward is the Earl of Wessex. There was a front page story about deer-hunting. It was actually about deer-stalking, a completely different activity. Obviously the management don’t care about nice distinctions like this. But the readers do, and the Telegraph took great care to get these things right until very recently.

The arrival of Mr Seiken coincided with the arrival of the click culture. Stories seemed no longer judged by their importance, accuracy or appeal to those who actually bought the paper. The more important measure appeared to be the number of online visits. On 22 September Telegraph online ran a story about a woman with three breasts. One despairing executive told me that it was known this was false even before the story was published. I have no doubt it was published in order to generate online traffic, at which it may have succeeded. I am not saying that online traffic is unimportant, but over the long term, however, such episodes inflict incalculable damage on the reputation of the paper.

Open for business?

With the collapse in standards has come a most sinister development. It has long been axiomatic in quality British journalism that the advertising department and editorial should be kept rigorously apart. There is a great deal of evidence that, at the Telegraph, this distinction has collapsed.

Late last year I set to work on a story about the international banking giant HSBC. Well-known British Muslims had received letters out of the blue from HSBC informing them that their accounts had been closed. No reason was given, and it was made plain that there was no possibility of appeal. "It’s like having your water cut off," one victim told me.

When I submitted it for publication on the Telegraph website, I was at first told there would be no problem. When it was not published I made enquiries. I was fobbed off with excuses, then told there was a legal problem. When I asked the legal department, the lawyers were unaware of any difficulty. When I pushed the point, an executive took me aside and said that "there is a bit of an issue" with HSBC. Eventually I gave up in despair and offered the article toopenDemocracy. It can be read here.

I researched the newspaper’s coverage of HSBC. I learnt that Harry Wilson, the admirable banking correspondent of the Telegraph, had published an online story about HSBC based on a report from a Hong Kong analyst who had claimed there was a ‘black hole’ in the HSBC accounts. This story was swiftly removed from the Telegraph website, even though there were no legal problems. When I asked HSBC whether the bank had complained about Wilson's article, or played any role in the decision to remove it, the bank declined to comment. Mr Wilson’s contemporaneous tweets referring to the story can be found here. The story itself, however, is no longer available on the website, as anybody trying to follow through the link can discover. Mr Wilson rather bravely raised this issue publicly at the ‘town hall meeting’ when Jason Seiken introduced himself to staff. He has since left the paper.

Then, on 4 November 2014, a number of papers reported a blow to HSBC profits as the bank set aside more than £1 billion for customer compensation and an investigation into the rigging of currency markets. This story was the city splash in the TimesGuardian and Mail, making a page lead in theIndependent. I inspected the Telegraph coverage. It generated five paragraphs in total on page 5 of the business section.

The reporting of HSBC is part of a wider problem. On 10 May last year theTelegraph ran a long feature on Cunard’s Queen Mary II liner on the news review page. This episode looked to many like a plug for an advertiser on a page normally dedicated to serious news analysis. I again checked and certainly Telegraph competitors did not view Cunard’s liner as a major news story. Cunard is an important Telegraph advertiser.

The paper’s comment on last year’s protests in Hong Kong was bizarre. One would have expected theTelegraph of all papers to have taken a keen interest and adopted a robust position. Yet (in sharp contrast to competitors like theTimes)I could not find a single leader on the subject.

At the start of December the Financial Times, the Times and the Guardian all wrote powerful leaders on the refusal by the Chinese government to allow a committee of British MPs into Hong Kong. The Telegraph remained silent. I can think of few subjects which anger and concern Telegraph readers more.

On 15 September the Telegraph published a commentary by the Chinese ambassador, just before the lucrative China Watch supplement. The headline of the ambassador’s article was beyond parody: ‘Let’s not allow Hong Kong to come between us’. On 17 September there was a four-page fashion pull-out in the middle of the news run, granted more coverage than the Scottish referendum. The Tesco false accounting story on 23 September was covered only in the business section. By contrast it was the splash, inside spread and leader in the Mail. Not that the Telegraph is short of Tesco coverage. Tesco pledging £10m to fight cancer, an inside peak at Tesco’s £35m jet and ‘Meet the cat that has lived in Tesco for 4 years’ were all deemed newsworthy.

There are other very troubling cases, many of them set out in Private Eye, which has been a major source of information for Telegraph journalists wanting to understand what is happening on their paper. There was no avoiding the impression that something had gone awry with the Telegraph’s news judgment. At this point I wrote a long letter to Murdoch MacLennan setting out all my concerns about the newspaper, and handing in my notice. I copied this letter to the Telegraph chairman, Aidan Barclay.

I received a cursory response from Mr Barclay. He wrote that he hoped I could resolve my differences with Murdoch MacLennan. I duly went to see the chief executive in mid-December. He was civil, served me tea and asked me to take off my jacket. He said that I was a valued writer, and said that he wanted me to stay.

I expressed all of my concerns about the direction of the paper. I told him that I was not leaving to join another paper. I was resigning as a matter of conscience. Mr MacLennan agreed that advertising was allowed to affect editorial, but was unapologetic, saying that “it was not as bad as all that” and adding that there was a long history of this sort of thing at the Telegraph.

I have since consulted Charles Moore, the last editor of the Telegraph before the Barclays bought the paper in 2004. Mr Moore confessed that the published accounts of Hollinger Inc, then the holding company for the Telegraph, did not receive the scrutiny they deserved. But no newspaper in history has ever given an unfavourable gloss on its owner’s accounts. Beyond that, Mr Moore told me, there had been no advertising influence on the paper’s news coverage.  

After my meeting with Mr MacLennan I received a letter from the Telegraphsaying that the paper had accepted my letter of resignation, but welcomed my offer to work out my six-month notice period. However in mid January I was asked to meet a Telegraph executive, this time over tea at the Goring Hotel. He told me that my weekly column would be discontinued and there had been a "parting of the ways".

He stressed, however, that the Telegraph would continue to honour my contract until it ran out in May. For my part I said that I would leave quietly. I had no desire to damage the newspaper. For all its problems it continues to employ a large number of very fine writers. They have mortgages and families. They are doing a fine job in very trying circumstances. I prepared myself mentally for the alluring prospect of several months paid gardening leave.

Story, what story?

That was how matters stood when, on Monday of last week, BBC Panorama ran its story about HSBC and its Swiss banking arm, alleging a wide-scale tax evasion scheme, while the Guardian and the International Consortium of Investigative Journalists published their 'HSBC files'. All newspapers realised at once that this was a major event. The FT splashed on it for two days in a row, while the Times and the Mail gave it solid coverage spread over several pages.

You needed a microscope to find the Telegraph coverage: nothing on Monday, six slim paragraphs at the bottom left of page two on Tuesday, seven paragraphs deep in the business pages on Wednesday. TheTelegraph’s reporting only looked up when the story turned into claims that there might be questions about the tax affairs of people connected to the Labour party.

After a lot of agony I have come to the conclusion that I have a duty to make all this public. There are two powerful reasons. The first concerns the future of the Telegraph under the Barclay Brothers. It might sound a pompous thing to say, but I believe the newspaper is a significant part of Britain’s civic architecture. It is the most important public voice of civilised, sceptical conservatism.

Telegraph readers are intelligent, sensible, well-informed people. They buy the newspaper because they feel that they can trust it. If advertising priorities are allowed to determine editorial judgments, how can readers continue to feel this trust? The Telegraph’s recent coverage of HSBC amounts to a form of fraud on its readers. It has been placing what it perceives to be the interests of a major international bank above its duty to bring the news to Telegraph readers. There is only one word to describe this situation: terrible. Imagine if the BBC—so often the object of Telegraph attack—had conducted itself in this way. TheTelegraph would have been contemptuous. It would have insisted that heads should roll, and rightly so.

This brings me to a second and even more important point that bears not just on the fate of one newspaper but on public life as a whole. A free press is essential to a healthy democracy. There is a purpose to journalism, and it is not just to entertain. It is not to pander to political power, big corporations and rich men. Newspapers have what amounts in the end to a constitutional duty to tell their readers the truth.

It is not only the Telegraph that is at fault here. The past few years have seen the rise of shadowy executives who determine what truths can and what truths can’t be conveyed across the mainstream media. The criminality of News International newspapers during the phone hacking years was a particularly grotesque example of this wholly malign phenomenon. All the newspaper groups, bar the magnificent exception of the Guardian, maintained a culture ofomerta around phone-hacking, even if (like the Telegraph) they had not themselves been involved. One of the consequences of this conspiracy of silence was the appointment of Andy Coulson, who has since been jailed and now faces further charges of perjury, as director of communications in 10 Downing Street.

Urgent questions to answer

Last week I made another discovery. Three years ago the Telegraphinvestigations team—the same lot who carried out the superb MPs’ expenses investigation—received a tip off about accounts held with HSBC in Jersey. Essentially this investigation was similar to the Panorama investigation into the Swiss banking arm of HSBC. After three months research the Telegraphresolved to publish. Six articles on this subject can now be found online, between 8 and 15 November 2012, although three are not available to view.

Thereafter no fresh reports appeared. Reporters were ordered to destroy all emails, reports and documents related to the HSBC investigation. I have now learnt, in a remarkable departure from normal practice, that at this stage lawyers for the Barclay brothers became closely involved. When I asked theTelegraph why the Barclay brothers were involved, it declined to comment.

This was the pivotal moment. From the start of 2013 onwards stories critical of HSBC were discouraged. HSBC suspended its advertising with the Telegraph. Its account, I have been told by an extremely well informed insider, was extremely valuable. HSBC, as one former Telegraph executive told me, is “the advertiser you literally cannot afford to offend”. HSBC today refused to comment when I asked whether the bank's decision to stop advertising with theTelegraph was connected in any way with the paper's investigation into the Jersey accounts. 

Winning back the HSBC advertising account became an urgent priority. It was eventually restored after approximately 12 months. Executives say that Murdoch MacLennan was determined not to allow any criticism of the international bank. “He would express concern about headlines even on minor stories,” says one former Telegraph journalist. “Anything that mentioned money-laundering was just banned, even though the bank was on a final warning from the US authorities. This interference was happening on an industrial scale.

“An editorial operation that is clearly influenced by advertising is classic appeasement. Once a very powerful body know they can exert influence they know they can come back and threaten you. It totally changes the relationship you have with them. You know that even if you are robust you won’t be supported and will be undermined.”

When I sent detailed questions to the Telegraph this afternoon about its connections with advertisers, the paper gave the following response. "Your questions are full of inaccuracies, and we do not therefore intend to respond to them. More generally, like any other business, we never comment on individual commercial relationships, but our policy is absolutely clear. We aim to provide all our commercial partners with a range of advertising solutions, but the distinction between advertising and our award-winning editorial operation has always been fundamental to our business. We utterly refute any allegation to the contrary."

The evidence suggests otherwise, and the consequences of the Telegraph’srecent soft coverage of HSBC may have been profound. Would Her Majesty's Revenue and Customs have been much more energetic in its own recent investigations into wide-scale tax avoidance, had the Telegraph continued to hold HSBC to account after its 2012 investigation? There are great issues here. They go to the heart of our democracy, and can no longer be ignored.

Pick Me!

My new ruse for making the commute more bearable has been to listen to old Desert Island Discs downloaded from the BBC iplayer thing. They have been enchanting. Like most listeners I often play the "what would I choose" game but I find it impossible to drill down to just 8 records and as for the chosen luxury......... where's a fellow to start?

.I especially enjoyed Fred Dibnah (1991) but Jimmy Edwards (1952), Dickie Bird (1996), Hugo Gryn (1994) and Kenny Everett (1993) all had golden moments. Amongst others Louis Armstrong (1968), Field Marshal Montgomery (1969), David Niven (1977), the funniest Englishman ever born, Willie Rushton (1984) and another favourite, Douglas Reeman (1983) were all good value.

The all time winner though is the 16 mins only left of the recording of Col AD Wintle in 1962. This is the man who, decorated for bravery in the Great War described the inter war years as being “intensely boring,”  ("Great War peace signed at last." diary, 19 June 1919 / "I declare private war on Germany." diary, 20 June 1919).  Imprisoned in the Tower of London for threatening an RAF Air Commodore in France in 1940 ,who strangely would not accede to his demand for an aircraft to “rally the French Air Force,” he then admitted to the act at his court martial and helpfully produced a list of other people who he would have cheerfully shot to help the war effort including the secretary of state for war. His hunger strike when later a prisoner of war in protest at “the slovenly appearance of the guards,” and other displays to maintain English standards led to the entire Vichy French garrison going over to the resistance according to the then commandant.

My favourite line of his is this, spoken when standing unsuccessfully for Parliament, "Guy Fawkes was the last man to enter Parliament with good intentions. You need another like me to carry on his good work."


Back after a parents trip to Auschwitz-Birkenau. It does make you think about many things…. Europe amongst them.

A visit to any of the camps is always going to be emotionally challenging. It does though, give pause for moments of reflection on many things, the current state of Europe and “could it happen again?” amongst them. Of course genocide has indeed continued to be inflicted on people across the world since 1945 and there seems to be no end, or sense, to the steady stream of racial, religious and ethnic murder and cruelty in the world. Growing divisions in Europe will not take us back to the 1930’s but the shadow of the Second World War is never far away and traditional cross border suspicions are again bubbling under the surface and are not helping; not one little bit.

Angela Merkel took office ten years ago in 2005 when Europe was enjoying the pinnacle of its success. German integration was complete, the Russians were picking themselves up off the floor, Europe was united with a queue of new entrants to the EU project and the global economy was blazing. The world though has very much changed. Europe is in crisis with many members blaming Germany for their problems. Few countries now want to join the EU and the EU doesn’t want any new members. Ukraine is plunging deeper into the abyss and fear of Russia is growing. US politicians are discussing arming the Ukrainians and storing arms for US troops in the Baltic States.

The combination of economic and political stress has led to an increase in nationalism. Those flames are being fanned by the actions of extremist Islamic terrorists. Germany then, finds itself in the unwanted and uncomfortable position of being forced to take a leading economic and political role. The good thing about that is there is no other country more unlikely to change a political problem into a military one. The bad thing is that institutionally, Germany is not experienced or adept in the handling of cross border crisis.

Reluctantly, probably the most important politician in the world today but with no easy options.

Playing in the Russians backyard and encouraging demonstrations was never going to have an elegant end. As is often the way with liberal minded democracies when shots were fired the Germans backed off and instead of supporting the Ukrainians they joined in with sanctions. Germany will not ever get involved in military action in the East but is now being forced because of its earlier political engagement to seek compromise and to cool the situation down, much to the chagrin of a number of US politicians.

Merkel’s US visit was designed to persuade the US to soften its approach to Ukraine but a deep rooted suspicion of the Russians and their intentions does not easily change in Washington and Putin meanwhile, has his own constituency to serve which will not easily accept Russia backing down without significant concessions.

Equally, the Greek situation is creating unease in Berlin. The Germans have massively benefited from free and open markets with more than 50% of GDP going to export. Growing nationalism and protection may come to threaten Germany’s dominant export position, especially if the Euro is threatened by a Greek default and expulsion with others following. Germany has been forced to adopt a tough public stance with Greece yet the new Greek government was elected specifically with a mandate to challenge Germany.

From a German perspective, they’ve been doing all the right things, including lowering their leverage ration from 80% to 76% of GDP in the last four years. The rest of Europe though has its foot on the floor and is accelerating toward the fiscal cliff edge. Of Greece’s $350bn debt, a mighty $210bn is owed to the Eurozone bailout mechanism. Germany’s share of that is some $57bn. The problem is not the burden which may be placed on German taxpayers, it’s the share which other countries have signed up to and their ability to pay. Italy for example has a debt to GDP ratio of 132.6% and so is borrowing to pay interest. But Italy’s share of the Greek liability is $37bn while France is on the hook for $42bn. France is well down the road of becoming a financial basket case with the state taking 60% of GDP and with a debt to GDP ratio of 92%, (Maastrict supposedly limited debt to GDP at 60%). The problem with these stats is that a Greek exit will be met with a storm of protests from voters when they figure out what the bill means for them and there is little doubt the political map of Europe will undergo further rapid change.

None of this is good for markets. Increasing numbers of strategists are going underweight US equities and overweight European equities. These people don’t learn quickly. In fact, they probably don’t learn at all or are so glued to their valuation models they just don’t see the storm clouds rolling in. True and transparent price discovery of debt instruments in Europe is currently non-existent. That will happen when a central bank quadruples its balance sheet over ten years as the ECB has done. This of course was a necessary requirement to save European banks which had become insanely leveraged into the 2010-12 peripheral debt crisis, (DBK @ 56x for example with $1.9tr of assets and only $36bn of tangible equity).

As I wrote at the time, the unwillingness to force speculative investors to take losses and to underwrite them would simply store problems for the future. The future has arrived but paying the piper is now going to have a political cost and not just an economic one. Of the two alternatives, allowing Greece to go and watching the whole experiment unwind at great cost to the German taxpayer, or appeasing Greece, and subsequently other countries, at great cost to the German taxpayer neither is particularly palatable. The problem with both is that Germany probably ends up stronger and that is as unwelcome in Berlin as it is outside. Germany will probably allow Greece to go, if only because the domestic political cost will be lower than allowing them to stay.

It will however, set in train a sequence of events that none of us can know the outcome of. According to a new McKinsey study, global debt has grown by $57tr since the crisis. Government debt has grown by $25tr and only in the UK, US, Ireland and Spain has domestic, (but not government), debt deleveraged. China meanwhile went postal and increased leverage by 4x and now has a debt to GDP ratio at a stomach churning 282%. Zero interest rates will not hold the wall forever and disruption from FX markets resulting from political breaks are one likely route to what we refer to as real “price discovery.”  You could though, just call it an almighty crash, harsh bear market and economic depression and it’s that last word, depression, that haunts historians and anyone else who has had a reflective thought at any one of the camps.