Stress and State Finances

A smug feeling must have pervaded through the Square Mile of London on Friday, when none of the major English banks failed the ECB stress tests. This is however only a slither of a much longer drama being played out in both the financial markets and the media. Spanish banks lead the way with their already known banking failings, yet the Spanish state seems powerless to do anything about it. The economy is much the same as Italy - it is only a matter of time before a bail-out becomes a reality. The question is not when, but how much? Personally I hope not to see Spain go 'cap in hand', it would be disasterous to the Euro-zone. Feelings in the British press seem plainly ignorant to the contagion effect such a financial meltdown would have on UK plc, and UK banks. 

Should we be worried at all by any of this? When looking at the Spanish banks, they are not universally traded, they have little or no economic power outside of Spain (http://goo.gl/IiM9A) , and it would appear that they do not hold much Greek debt. Be that is it may, it is troubling to many that Spain has allowed these same banks for years carry on without  enough sovereign reserves. At time of writing, Spain has not suffered any sort of mass sell of of banking stocks and shares. Cold comfort then for nations such as Greece, Germany and France. If the Greek government defaults then there is a dangerous after-shock waiting for some of those bigger banks in Western Europe. They hold much of Greece's sovereign debt and are exposed heavily to any default. 

Another issue that is troubling economists at the moment is the levels of capital reserves imposed by Basel III. At the current rate banks would need somewhere in the region of 41 Billion euros to keep their ratios above the agreed 7% margin. This is expected already by the financial markets, though a criticism levied at the ECB in their stress tests, is that their bar is too low: 5%. It remains to be seen as to how this will level out, in the meantime banks would be wise to 'stock up' on reserves hoping that the much mooted Greek default passes by with less of an impact than feared.(http://goo.gl/GQ8tj). I am no economist, I don't proport to understand the intricacies of the markets and how confidence can be shattered in an instant. However it seems plain to me that if banks don't have enough cash reserves for the proverbial rainy day, then it is madness to expect governments, who are already saddled with debt far exceeding their own incomes, to bail out banks yet again. 

Gordon Brown and Barak Obama were heralded as saviours of the financial world - my view is that they simply threw money they didn't have at a problem they failed to recognize and tackle to the core. A dangerous precedent has been set by governments 'paying' off banks because 'they are too big to fail'. The current reset of this capitalist cycle is not complete - it is simply on pause.

New Look & Relaunch

As you may have noticed, the blog has had a summer spruce. Just to fill you in on a couple of points, I'm now a board member of the JEF Leiden Section newly created in the Netherlands. (Young European Federalists). Don't despair as to the title, I've not gone all totally integrate or be damned just yet!

As this has taken place I should be able to 'blog' a little more on issues that arise in the JEF universe - not everything they say in Brussels I agree with, but more to the point I think their goals and aims for young Europeans are perfect. Awareness is key, and what better way than to be involved in a organization who dedicates itself to the youth of Europe.

Coke, EU and Skeptics - Europe has a bit of an image problem.

14th July 2011 - We are bombarded by images all day long, be it on TV, the internet or the simple bus-stop billboard. The most famous of all being that of Coca Cola - after reading an interesting piece in yesterday’s Euractiv (http://goo.gl/HA4BQ) on the lack of successful marketing the EU does for itself, my mind turned to a thorny issue that haunts the EU particularly in skeptical states such as the UK. 

Being a Europhilic Englishman brings its own problems, but one of the most worrying is the lack of press directed at the EU other than to tell us that our bananas are not straight enough (http://goo.gl/joqKL), or that perhaps our national football team ‘could be forced’ to wear the EU flag on their jerseys as soon as the dastardly European Commission has got its wicked way (http://goo.gl/nyNtH). As comical as these stories are, it highlights a popular problem associated with the Union. In simple terms there is not enough positive coverage, nothing adorning billboards or television to tell an electorate what good the EU actually does. Countries such as the UK who have advanced infrastructures and developed economies rarely ‘see’ returns on their European investment. This is far from the truth, as beneficiaries of the European Union Cohesion Policy will no doubt attest to, as if it needs more confirmation, universities and further education centres in the South West of England under the old South West RDA received £20 million alone from the period running 2007-2014, with nearly £20 million more committed just to ensure that the projects did not run out of money. (Source: http://goo.gl/oDMi5) 

Now, one can argue as to what efficiencies are gained from such large sums of money being committed early on, also one can discuss protective measures to ensure that the money does not go missing. But all of this misses the point. In a time when the government of the UK is perceived to be cutting higher education funding (this includes bricks and mortar) the EU is still funding projects, be they bricks and mortar or less tangible. All of the information listed earlier is readily available on the Regional Policy website of the European Commission. Problem is, I had to look quite hard for it. As a case in point I spent well over an hour looking for the amount of money spent by the EU on advertising itself (it is now an entirely online operation, with paper advertising slowly being phased out). Another difficulty I faced was that although I could tell you all about Cohesion, Competitiveness and the like, I couldn’t pin down any hard figures. Given another hour I’m sure I would have found something more appropriate, but that defeats the point. 

So what are we faced with? A flood of information is ‘easily’ available online, but the issue is how to get to it. Even Google struggles bringing up the correct financial information for the EU. Alas the Commission’s marketing strategy, though sophisticated, cutting edge and bristling with that en vogue watch word: Transparency, lacks a certain je ne sais quoi!  So what of the article I mentioned at the beginning? Well, an American educated Indian, heading the French business school INSEAD pretty much knocked the issue on the head. In his interview he focusses on how national, or rather European (not Union) pride should be pooled and exported as a marketable image. The key components of culture, longevity and a uniqueness of the society as a whole. I’m not advocating that the people of Europe package themselves and put a gaudy label on a lunchbox and ‘sell’ themselves in order to promote the EU. The EU should instead be moving towards a direction where the humble bus-stop is a chance to extol the virtues of being part of a Union. Make them region specific even - though the costs may rise, nothing makes life easier for any legislating body if it is popular because of what it does. Negative press is free and readily available from all quarters, be it in the blogosphere or senior cabinet ministers. Myth busting websites go someway to alleviating this problem, but if the population don’t know what it is you are doing to help them personally, then it remains remote at best, meaningless at worst. 

As a member of a new JEF section in the Netherlands, I feel that even in one of the most pro-EU perceived nations there is a vacuum in which many citizens don’t know what the EU is, or does for them. I enjoy telling new-comers about what we do, what the EU does and the benefits that come with membership of this exclusive club. That does not mean that I am blind to those excesses and failings that creep just around the corner, waiting to trip me up in the guise of another Euro-skeptic. Coca Cola tells us all the time that its there, whether we look or not, it is always there. (If you don’t believe me, look at the local kebab shop sign.) Saturation advertising and a pervading sense of the brand gives people something sub-consciously to recognize. If you associate Coke with a vending machine, you are more likely to purchase the product next time you go to a vending machine. If you are constantly being reminded that the EU is there as a force for good, and personal improvement, then the extreme views that strangle development of the Union will fade slowly with time. There is unfortunately no quick fix, but one must start somewhere, and where better than to be known for building a library, a school, or a wing of a hospital with ‘your money’ from investing in the EU.

It is just a thought - but when skeptical nations such as the UK start to add up Project 1 investments and their like, they will soon forget about those pesky straight bananas.