Frederick Forsyth's open letter to the German Chancellor


I'm a bit late with this but it's good to have it on the blog, both for those who may have missed it and as a matter of record.

Frederick Forsyth, author of some thundering good reads and Express colunmist, has penned an open letter to the German Chancellor, Angela Merkel. Couldn't have put it better myself; this should be a mandatory read for Cleggites and their ilk.

"Dear Madame Chancellor, 

PERMIT me to begin this letter with a brief description of my knowledge of, and affection for, your country.

I first came to Germany as a boy student aged 13 in 1952, two years before you were born. After three extended vacations with German families who spoke no English I found at the age of 16 and to my pleasure that I could pass for German among Germans.

In my 20s I was posted as a foreign correspondent to East Germany in 1963, when you would have been a schoolgirl just north of East Berlin where I lived.

I know Germany, Frau Merkel, from the alleys of Hamburg to the spires of Dresden, from the Rhine to the Oder, from the bleak Baltic coast to the snows of the Bavarian Alps. I say this only to show you that I am neither ignoramus nor enemy.

I also had occasion in those years to visit the many thousands of my countrymen who held the line of the Elbe against 50,000 Soviet main battle tanks and thus kept Germany free to recover, modernise and prosper at no defence cost to herself.

And from inside the Cold War I saw our decades of effort to defeat the Soviet empire and set your East Germany free.

I was therefore disappointed last Friday to see you take the part of a small and vindictive Frenchman in what can only be seen as a targeted attack on the land of my fathers.

We both know that every country has at least one aspect of its society or economy that is so crucial, so vital that it simply cannot be conceded.

For Germany it is surely your automotive sector, your car industry.

Any foreign-sourced measure to target German cars and render them unsaleable would have to be opposed to vetopoint by a German chancellor.

For France it is the agricultural sector. For more than 50 years members of the EU have been taxed under the terms of the Common Agricultural Policy in order to subsidise France’s agriculture. Indeed, the CAP has been the cornerstone of every EU budget since the first day.

Attack it and France fights back.

For us the crucial corner of our economy is the financial services industry. Although parts of it exist all over the country it is concentrated in that part of London known even internationally as “the City”.

It is not just a few greedy bankers; we both have those but the City is far more. It is indeed a vast banking agglomeration of more banks than anywhere else in the world.

But that is the tip of the iceberg. Also in the City is the world’s greatest concentration of insurance companies.

Add to that the brokers; traders in stocks and shares worldwide, second only, and then maybe not, to Wall Street. But it is not just stocks.

The City is also home to the “exchanges” of gold and precious metals, diamonds, base metals, commodities, futures, derivatives, coffee, cocoa… the list goes on and on.

And it does not yet touch upon shipping, aviation, fuels, energy, textiles… enough. Suffice to say the City is the biggest and busiest marketplace in the world.

It makes the Paris Bourse look like a parish council set against the United Nations and even dwarfs your Frankfurt many times.

That, surely, is the point of what happened in Brussels. The French wish to wreck it and you seem to have agreed. Its contribution to the British economy is not simply useful nor even merely valuable.

It is absolutely crucial. The financial services industry contributes 10 per cent of our Gross Domestic Product and 17.5 per cent of our taxation revenue.

A direct and targeted attack on the City is an attack on my country. But that, although devised in Paris, is what you have chosen to support.

You seem to have decided that Britain is once again Germany’s enemy, a situation that has not existed since 1945.

I deeply regret this but the choice was yours and entirely yours. The Transaction Tax or Tobin Tax you reserve the right to impose would not even generate money for Brussels.

It would simply lead to massive emigration from London to other havens. Long ago it was necessary to live in a city to trade in it.

In the days when deals can flash across the world in a nanosecond all a major brokerage needs is a suite of rooms, computers, telephones and the talent of the young people barking offers and agreements down the phone.

Such a suite of rooms could be in Berne, Thun, Zurich or even Singapore. Under your Tobin Tax tens of thousands would leave London.

This would not help Brussels, it would simply help destroy the British economy.

Your conference did not even save the euro. Permit me a few home truths about it. The euro is a Franco-German construct.

It was a German chancellor (Kohl) who ordered a German banker (Karl Otto Pohl) to get together with a French civil servant (Delors) on the orders of a French president (Mitterrand) and create a common currency.

Which they did. IT was a flawed construct. Like a ship with a twisted hull it might float in calm water but if it ever hit a force eight it would probably founder.

Even then it might have worked for it was launched with a manual of rules, the Growth And Stability Pact. If the terms of that book of rules had been complied with the Good Ship Euro might have survived.

But compliance was entrusted to the European Central Bank which catastrophically failed to insist on that compliance.

Rules governing the growing of cucumbers are more zealously enforced. This was a European Bank in a German city under a French president and it failed in its primary, even its sole, duty.

This had everything to do with France and Germany and nothing whatever to do with Britain.

Yet in Brussels last week the EU pack seemed intent only on venting its spleen on the country that wisely refused to abolish its pound.

You did not even address yourselves to saving the euro but only to seeking a way to ensure it might work in some future time.

But the euro will not be saved. It is crumbling now. And since you have now turned against my country, from this side of the Channel, Madame Chancellor, one can only say of the euro: YOU MADE IT, YOU MEND IT."

Clegg The Ungrateful


Nick Clegg's Political Career Takes An Unexpected Turn

After a weekend of bluster Nick Clegg has failed to appear in the House of Commons this afternoon for the Prime Ministers statement on on the EU treaty. Aides say he didn't want to be a distraction. Poor lamb.

Like it or not Clegg is part of the government and should be there; the deputy prime minister can't cherry pick only the fluffy warm user-friendly announcements that he wants to be associated with. In fact, Clegg has done himself enormous damage this weekend. Flip flopping between different views doesn't sit well with voters who, like and agree with them or not, prefer men of conviction and loyalty. Clegg meanwhile is displaying all the characteristics of a political and moral coward and in effect is ensuring his own political end.

What he may have failed to appreciate is that if Cameron had gone along with the treaty, the subsequent referendum would have kicked the EU firmly into touch in the UK and the subsequent and inevitable general election would have signed off himself and the rest of his lie-down-and-cry party into deep oblivion for a generation. Cameron's act of defiance therefore was in fact in the Liberal's best political interests.

It is anyway a common talking point amongst Liberals that Clegg will get the heave at the next general election from the good people of Sheffield. He may find that the EU commissioner job he was pencilled in for is off the scorecard now and so should it be. 

The best thing that Clegg can do is to man up and stand firm for the government and for Britain. If it alienates his party members then so be it. His only alternative is immediate resignation. Any compromise between the two will leave his reputation and future in tatters and regardless of what some of his more naive colleagues and flapping BBC journo's may think, the same will be true of his party's electoral prospects.


Kyle Bass on Europe


In every disaster movie there is one character who exudes calm and an air of common sense whilst all around him are losing theirs. In the rolling car crash that is the European financial crisis, one such beacon of rational thought is Kyle Bass of Hayman Capital Management. You may wonder, as I do on a daily basis, why it takes a fund manager all the way over in Dallas to articulate the massive issues at stake for Europe and the Global economy when so few of our leaders seem able to. Perhaps, some simply don't understand the enormity of the problems we face or more probably, lack the moral and political courage to face them.

In his latest newsletter, (linked with permission), Mr Bass lays out the challenge in simple and straight forward terms. For students of economics, taxpayers and market professionals alike it's well worth taking the trouble to read.

His blunt assessment that, "We are saddled with the largest accumulation of peacetime debts without any playbook for what happens next," ought to leave most people shifting restlessly in their chairs. Mr Bass, now getting into his stride moves on to say, with a bluntness that would have great resonance with most of our grandmothers, 

"Given the enormity of the debt burdens of the PIIIGSBF, (Portugal, Italy, Ireland, Iceland, Greece, Spain, Belgium and France) coupled with those of Japan (and at some point the US), lending schemes designed to lend more into an intractable debt problem are destined to fail miserably. There is no savior large enough with a magical pool of capital to stave off this unfortunate conclusion to the global debt super cycle. We think hard defaults are imminent."

"If we are correct regarding our hypothesis on the outcome of the debt crisis, the world will have it social fabric ruffled or even torn for a period of time. Be mindful that we are not talking about the end of the world as we know it; we are simply saying that it will be a different and slightly more difficult place to live in for those of us in the developed and indebted West."

Now, moving the family down to the basement with candles, tinned food and bottled water might be something of an over reaction but then again................. you can never be too prepared.



Osborne; Gliding Down The Dark Side of the Laffer Curve

George Osborne gives his Autumn statement today in which he is likely to give us the good news that UK public sector net debt in Sept 2011 was £966.8 billion, equivalent to 62.6 per cent of GDP. This excludes financial sector intervention.

If we include all financial sector intervention is included (e.g. Royal Bank of Scotland, Lloyds), the Net debt was £2266.3 billion (148.0 per cent of GDP).

That gives us a hefty interest bill this year of £48.6 bn (3% of GDP).

He is also likely to tell us that his original plan of tax rises and cost cutting to take us to salvation has taken the trajectory which, on a plane, would see the oxygen masks falling and the passengers donning life jackets. This is because there was a fundamental flaw in the plan and that was, (in the words of Black Adder), the plan was bollocks.

Government cost cutting has been insipid and half hearted. A sense of urgency has been lacking from the very start and as we've discussed on multiple occasions, what should have been a brutal but cathartic exercise in descaling government has been diluted many times over by political dogma and a failure of political courage. Instead of amputation, we're slowly bleeding to death. I expected entire government departments that are surplus to requirement to be axed; instead, the services have faced a vicious scythe and precious little else. 

Having dodged the early opportunity for which the electorate might have forgiven the government, Osborne, pushed along by the Liberals, resorted to draconian tax increases which are strangling the consumer and therefore the economy. It's all very well Vince Cable, possibly the most inept individual ever to walk down Whitehall, taking a "tax them till they squeal," approach but here's a newsflash Vince; the poor don't pay any more and nor do the very rich. The middle class, the spending engine of the economy, are on their knees. A real rate in the order of 60% is the financial equivalent of euthanasia.

Some may contend that high rates of taxation are bad for entrepreneurs. Nothing could be further from the truth. Every week I meet people who are setting up their own businesses and becoming self employed. Only, they're not employing anyone, they're mostly doing the same job but switching from PAYE and halving their tax rate in the process. Actually, it's madness not to.

This is an example of the Laffer Curve at work. So George, I reckon you're well past the optimal point of taxation, the point of equilibrium, and you're gliding down the other side.


If today all we hear about is help for small business then you're missing the point; you're treating the symptom not the cause. 

A brave man would slash the higher rate, all the way to 35%. A genius would introduce a flat rate for all of 20% on a six month trial basis. Inward investment would turn into a deluge, Europeans would head here by the planeload, businesses would flower and people would spend. 

This is important because the level of debt in itself is not the big problem, (it's was very much higher in post war Britain); it's an abscence of a commensurate level of growth which is killing us.

Moreover, there is one more important point to make. Europe is in disarray. Germany took full advantage of our industrial problems in the sixties and seventies to move into and exploit our tradtional markets. We now have a generational opportunity now to restore the economic balance against our competitors. If we only stand off and rely on falling tax receipts and marginal spending cuts we risk being dragged down with the rest of them. 



Why the US Won't Bail Out Europe.


Pelley: When kids at school ask you where you live, what do you tell 'em?

Austin Metzger: When they see the truck they ask me if I live in it, and when I hesitate they kinda realize. And they say they won't tell anybody.

Arielle Metzger: Yeah it's not really that much an embarrassment. I mean, it's only life. You do what you need to do, right?

A great deal has been written over the weekend about the possibility of the Fed bailing out Europe by buying European bonds or indeed with Europe being bailed by an enhanced IMF fund which necessarily would require a large degree of US funding.

Not only are we entering the final 12 months of the US presidential cycle but there more than sufficient domestic demands on the traditional generosity of Americans. A quick look at this video from the 60 Minutes programme from CBS and it will become clear that the US has screaming needs of it's own. Proof perhaps, that the American pioneering spirit is alive, but heartbreaking nonetheless.

Good luck kids; we all admire your stoicism.