What is Michael Heseltine Smoking?

In surely the nuttiest news of the day week month century, former British Deputy Prime Minister (an office of “great repute“) Lord Heseltine suggests that Britain will join the Euro.

From the Grauniad:

Britain will join the euro, Conservative peer Lord Heseltine has claimed. The former deputy prime minister, a long-time supporter of the single currency, said the public had “no idea” of the potential impact its collapse would have on the UK.

But he believes Franco-German “determination” will secure the euro’s future and pave the way for Britain to sign up. Lord Heseltine, who now heads up the government’s regional growth fund, told BBC1’s Politics Show on Sunday: “I think we will join the euro.

“I think the chances are the euro will survive because the determination, particularly of the French and the Germans, is to maintain the coherence that they have created in Europe.”

The problem is that there is no coherence. Nobody is really in charge — not van Rumpuy, nor Barroso, nor Draghi, nor Merkel, nor Sarkozy. The thing is a total hodgepodge, a hyper-bureaucratic, hyper-leveraged mess. Nations were free to borrow and spend as much as they liked — without the ability to monetise debt, and without any real lender of last resort or safety net. Europe has no coherent political or decision-making structure, no single culture of work, no single language and little workforce mobility.

The idea of Britain giving up its monetary independence (and thereby — as Greece is discovering — fiscal independence) to such an incoherent, bureaucratic and anti-democratic cabal is absurd and dangerous.

I suppose there is one kind of coherence in Europe, though.

Goldman Sachs has a finger in every pie and a minister or central banker in (almost) every government. And — as Papandreou discovered, when he suggested Greece hold a referendum on austerity — if you don’t play ball with Goldman Sachs and the cult of international finance, you are quickly disposed of and replaced by a Goldman-endorsed technocrat.

From the Independent:

Fortunately for Europe (and the world) Goldman’s 21st-Century-Schizoid loot-and-pillage hyper-fragile economic model doesn’t offer any kind of long-term prosperity, and is bound to fail. Japan — and more recently, America — is ample evidence for that. Bailing out zombie financial institutions, piling on more debt, and preventing liquidation just tends to lead to the stagnation and zombification of the wider economy.

Certainly, with European sovereign debt now in a Lehmanesque downward spiral (demand collapse) there is no chance of Britain joining the Euro. But the end of the Euro in its current form does not necessarily the end of this mess.

How much productivity, industry, opportunity and wealth will be destroyed by the cult of financialism, hyper-leverage, endless centralisation and no-haircut-bailouts? No-one knows.

The real question is what long-term damage has been done to liberal capitalism as a political and economic system?

16 thoughts on “What is Michael Heseltine Smoking?

  1. It seems to me however, that Britian wants to have its cake and eat it too…be a part of the Eurozone but keep its own currency and financial policy – or am I wrong

    • All nations can have their cake and eat it too, Karen. It is perfectly possible to have trade agreements and open markets and friendly relations with neighbours while retaining independence.

      • You are certainly better versed in economics than I, but I cannot see how “all nations can have their cake and eat it”. How? And isn’t Britain’s one trump card the fact that it has its own currency? Apart from that, the economy is tanking there too, so it needs the weight of the Eurozone…but then it must make some compromises, no?

        • If Britain was in the Euro it would be in a position probably quite similar to Spain or France — very risky waters, and much worse than now. Simply, Britain is too highly indebted. Being subject to Frankfurt and Brussels on monetary issues would simply make Britain far more fragile.

  2. Technocrats, working within a constitutional framework (Economic & Social laws), and severe anti corruption, graft and cronyism laws to avoid the perceived and real issues of corporate lobbying, combined with severe restrictions on the size of government agencies/debt as a % of GDP may be the only answer.

    Right now we have battle between the hard Left and hard Right. The pubic will have to choose, based on reasoned arguments. If Spain is an example, the Right is taking charge. Reminds me of the 1930’s

  3. About the EU: but isn’t it strange that this very hodge-podge of contradicting views is what leads to what I feel are your most cherished outcomes for the near-term future? That is, UK took on its sovereign balance sheet the debt of its banks just like the US – no questions asked. Currently, the most likely outcome in the EU (due to German obstinacy) is for the creditors to take on massive losses in order to preserve the value of the currency (and not reflate the “situation”). Isn’t sound money what most would prefer? The same reckless borrowing and spending happened both in the US & UK.

    As a specific example: I believe the EU was beneficial for Romania because our otherwise hopelessly corrupt politicians would never have taken the right steps without being obliged to do so by the Eurocrat “dictators”.

    Again, I have more questions than answers, but I’m just stating what I feel your post does not address.

    * Sorry if I may appear “confrontational” in all my comments – but what value would comments have if they were all “this is the greatest thing I ever read”?

    • I now saw your other post about the debt-deflation spiral – Ambrose Evans-Pritchard certainly talks a lot about it. So I assume this must be your argument against a German driven collapse (like http://dailyreckoning.com/give-collapse-a-chance/ ) way of solving things. But these things like Nominal GDP targeting seem to me like coming from the same “kick the can down the road” inventory. Just because it’s kicking the can down the road (potentially) farther than other methods do doesn’t make it seem less suspect. Maybe the term “abolition of depression” would be more appropriate than “abolition of deflation” when talking about our current economic policies.

      • Here’s AEP calling Wolfgang Schauble “the most dangerous man in the world”: http://www.telegraph.co.uk/finance/financialcrisis/8903036/Spain-the-fifth-victim-to-fall-in-Europes-arc-of-depression.html

        And yet, he was the one calling for a Greece default right from 2010 – apparently he was able to use a pocket calculator. From what I gathered from your blog, you are yourself a proponent of govt. defaults when they are inevitable. So what gives? Just trying to put the pieces together.

        • Andrei — I appreciate you questioning me. It means I have to refine my views, and you are very knowledgeable and smart so it is always a good challenge.

          AEP’s point is that Teutonic-driven austerity (Bruning II) is a very stupid idea, which will directly result in negative growth, greater unemployment, and more pain throughout the periphery. That’s my point too, as you know. Thanks to that graph and article you pointed me toward before about the failure of inflation as a means to debt reduction I think we can safely say we have a choice between a variety of speeds of default.

          Now here’s the rub. I am sure you know that I believe that the interconnection of the system will bring the entire global system down with just a few moderate (Argentina+) defaults.

          A technical paper I found goes into way more depth than I do:

          European global banks intermediating US dollar funds are important in influencing credit conditions in the United States. US dollar-denominated assets of banks outside the US are comparable in size to the total assets of the US commercial bank sector, but the large gross cross-border positions are masked by the netting out of the gross assets and liabilities. As a consequence, current account imbalances do not reflect the influence of gross capital flows on US financial conditions. This paper pieces together evidence from a global flow of funds analysis, and develops a theoretical model linking global banks and US loan risk premiums.

          In other words, Euro-defaults will bring America to a credit contraction at least, if not deeper trouble. Of course, the paper ignores the derivatives picture, which is far, far worse. I asked Nassim Taleb about bilateral netting the other day and he said he didn’t feel like talking about finance…

          Anyway — myself, Paul Krugman, Graham Summers, Max Keiser and a variety of others all seem to agree massive losses mean global trouble or systemic collapse.

          Now systemic collapse in the long run will turn out to be a good thing, because it will erase all the debt. The problem is that the Germans (and all creditor nations) want to get there via the most slow and painful route (austerity), rather than just admitting that the game is over and having a global debt jubilee. This may be a deeper problem – creditors want their pound of flesh, but debtors cannot grow their way to paying it, and getting creditors and debtors to a mutual understanding seems like a mind-boggling task. So in all likelihood it seems to me like there will be no real resolution, and we will sleepwalk toward a systemic breakdown. And the problem with systemic breakdown rather than managed default is that it tends to get much, much messier.

          As for Romania, (and others) well of course, Euro membership has been a gross win. In the long run, we should be more cautious. I’d say we can rule Euro/European membership a net win if the EU can survive another ten or twenty years.

          An interesting dissenting voice to all this is Niall Ferguson at the WSJ (someone needs to explain to him the dangers of bilateral netting)

      • Public debt expressed as a percentage of GDP is deceptive and dishonest. It’s comparing public debt versus public AND private production, and even then GDP is not revenue. If anything, it implies that governments OWN private revenue. So either it’s deceptive and dishonest, or worse, an inference that they would nationalise private profits to pay back debt.

        Many countries have already nationalised (or outright confiscated) superannuation so the latter is already to some extent true.

        National sovereignty, democracy and private property are being deliberately eroded as fast as possible, and few people have even noticed. The time is coming for people to take back what is rightfully theirs. We need politicians with backbones. Unfortunately, such conditions as we are in are ripe for a Hitler type to come to power.

        They know not what they create.

  4. University of East Anglia’s ”strategic alliance” with Goldman-Sachs:


    date: Mon, 18 May 1998 10:00:38 +010 ???
    from: Trevor Davies ???@uea.ac.uk
    subject: goldman-sachs
    to: ???@uea,???@uea,???@uea


    We (Mike H) have done a modest amount of work on degree-days for G-S. They
    now want to extend this. They are involved in dealing in the developing
    energy futures market.

    G-S is the sort of company that we might be looking for a ”strategic
    alliance” with. I suggest the four of us meet with ?? (forgotten his name)
    for an hour on the afternoon of Friday 12 June (best guess for Phil & Jean
    – he needs a date from us). Thanks.


    Professor Trevor D. Davies
    Climatic Research Unit
    University of East Anglia
    Norwich NR4 7TJ
    United Kingdom

    Tel. +44 ???
    Fax. +44 ???

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