Tag Archives: EU

The Doomed Euro?

In any normal January commentators offer their views on the coming year. However, most years, after the usual mix of doom and gloom, the world seems to carry on in the same old way.

This year, however, really is different. Quite a lot of the world is already not carrying on in ‘the same old way.’ In 2019 we are going to realise that something big has changed ‘out there’.

The Eurasia Group, political risk consultancy and adviser to the world’s elites, warns in its latest report: ‘The geopolitical environment is the most dangerous it’s been in decades.’ This is the year that events, and lack of remedial action, threaten global stability and risk collapsing the old world order in a way not seen for many years. The post-1945 Pax Americana is crumbling before our eyes as President Trump unravels the transatlantic alliance that has underpinned Europe since the 1950s. Many blocs – NATO, the UN, the G7, G20, WTO and the EU – are in varying degrees of crisis as new global challenges emerge and as America walks away from acting as the world’s sheriff. The Middle East is a basket-case, fighting its own ‘Thirty Years War’ between Sunni and Shi’a with a wary Israel looking on. In the East, China and North Korea are flexing their muscles; and in the emerging world a new breed of hard-line autocrats are taking over in Brazil, Turkey, Saudi Arabia, the Philippines and Hungary.

The world order is changing – and not for the better.

The outlook is bad enough; but to make things worse, a world trade recession is looming. Global economic forecasts for 2019-20 make for dismal reading: 2019 could turn out to be the year that the world economy falls apart, although timing global economic slumps is like watching an oil tanker running slowly onto the rocks.

This is the wretched backdrop against which the European Union is confronting the biggest challenge to its existence since it began as a dream of a single European superstate back in the 1950s.

The year 2019 will be full of important decisions for the EU, as Brussels will have to set a seven-year budget – without Britain’s cash – as well as appointing new leaders to key institutions, and discussing reform, whilst coping with falling economic growth, the threat of populist national elections, trade frictions with the US, plus the challenges from Russia and China. Brexit is merely background noise to the increasingly embattled, unelected and unpopular bureaucrats sitting in the Berlaymont (European Commission HQ).

The EU is fighting on three fronts at the same time, even as many of its member states have their own domestic problems to contain (the French anti-Macron revolution is a symptom of a wider EU malaise):

  • First, nationalism (aka, ‘populism’)
  • Second, the Catalan rebellion and the Visegrad Four’s mutiny epitomise the growing challenge to Brussels’ rule
  • Third, underpinning everything, is the threat to the Euro. Brussels’ flagship currency is in deep trouble

The smiling celebration party for the euro’s 20th anniversary masked the rising panic among the fat cats, bureaucrats and bankers waving champagne flutes for the cameras. They now know that their grandiose plans to cement the EU together by issuing a single currency was a huge gamble and a serious mistake. ‘The house of cards will collapse’, admits Professor Otmar Issing, ironically one of the original cheerleaders of the euro and the founding chief economist of the European Central Bank (Business Insider, 17 October 2016).

For a real monetary union to work smoothly you need a genuine single authority, plus the ability to swing government money around a united economy. Thus England can pipe London taxpayers’ cash to support Scotland, Wales and Ireland; and the US can shore up the Rust Belt states with money from New York and California. Brussels however does not have the power, or the authority, to transfer rich German taxpayers’ cash to struggling Greece, or to get the Netherlands to pay for the million illegal immigrants who are descending on Italy.

The real economic problem is the EU’s ‘Club Med’. Southern Europe’s economic fragility was well known when Greece was allowed to join the euro, after some pretty dodgy accounting. It was always a risky venture.

To take one simple example, when Greece had its own currency, Athens could stimulate an economic slump by devaluing the drachma: suddenly Greek holidays were dirt cheap and millions of tourists brought their spending power to Greece. Not anymore. Athens was trapped into a currency it could not control or devalue, and which the big boys of the EU wanted to keep strong at all costs.

Devaluation of any German controlled pan-European currency was unthinkable. So Greece was told to cut its budget and live with austerity. That meant that the only way Greece could get extra euros was by borrowing – heavily. Sure enough the big German and French banks were only too happy to lend trillions of euros to the Club Med countries. Unfortunately it became a vicious circle, known as a ‘debt doom loop’, between countries with high levels of debt and the banks that hold that debt.

The problem got worse. Big banks have bought more and more public debt from Eurozone countries. However, should the debts not be paid back (‘non-performing loans’ in Bankspeak) then the banks holding those loans are themselves in deep trouble. Now the euro-banks are running scared. Without payment, they could follow Lehmann Brothers into oblivion. The ‘rescue’ of Greece 2010-13 turns out to have been nothing more than a face saving bail-out ‘loan’ to save the big French and German banks. Even the IMF has admitted that Greece was sacrificed to save the euro and the European banking system from disaster in the great financial crisis.

Italy is the canary in today’s Eurozone coal mine. Italian banks hold one-third of the unpaid euro loans; Italy largest banks hold 300 billion euros of bad debt, dodgy securities and off-balance sheet items that aren’t being repaid. Also, billions of euros of Italian government bonds are held by Deutschebank, Commerzbank, Societé Générale, Crédit Agricole and the Netherlands’ ING.

All this could be solved at the EU level; however there is fierce opposition from Northern European countries to swinging their taxpayers’ money around. In 2018 they diluted President Macron’s proposals for greater money pooling and higher spending in the Eurozone. The idea of stripping elected parliaments’ control over taxation, spending, and the economic policies of the nation state was never going to be accepted; ‘ever closer union’ had hit the buffers of national self-interest, as the UK’s Brexit proves.

Without a means to transfer funds and a ‘fiscal union’ by the EU countries (by pooling everyone’s taxes in Frankfurt and Brussels) the euro is at mortal risk. Now the economic storm clouds are gathering to make things even worse. Eurozone economies are slowing. Even the German economy is contracting. Industrial production was down by 4.7 per cent in the previous year leading up to November 2018. This means that, unbelievably, Germany – yes, Germany – is probably heading for a recession. Meanwhile, Italy has been in recession for a long time and Greece, Ireland, Spain and Portugal are still struggling to escape the last financial disaster. The Eurozone is heading for a full-blown recession; and without the means to devalue, or order ‘government’ spending to boost European economies, a slump seems inevitable. The pressure to break out of the stranglehold of the euro in order to print their own money has never been stronger for some nations.

‘What is clear is that the status quo cannot persist indefinitely if the euro is to survive in the long term’, an LSE blog article warned in October 2016.

This combination of member states’ disillusionment with Brussels, domestic problems, a shrinking economy, massive indebtedness, social and political challenges and the crisis of migration, plus the intrinsically unstable basis of the euro, means that monetary union has failed economically and politically.

Unless the EU27 agree to form a new central Treasury, the euro is doomed. That’s something to keep an eye on in 2019.

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Fog in Channel over Brexit?

‘Fog in Channel – Continent Cut Off’ was a famous headline before the World War I. However, it still captures the deep-rooted insularity of the British.

This attitude towards Europe has skewed Britons’ understanding of Brexit, because Britain’s decision to leave the EU doesn’t just affect the UK. Britons tend to forget that it also came as a shock to the 27 remaining EU countries and, above all, to the unaccountable, corrupt Commission with its feather-bedded officials, living well on foreign tax payers’ money.

Commission dreams of ‘The Project’ and unstoppable progress towards ‘ever closer union’ and a ‘United States of Europe’ have come badly off the rails since 2016. It is timely therefore to examine just what Brexit means for Britain’s European partners and how Britain’s departure is viewed from the Continent.

It is not a happy scene.

As with most divorces, the first quarrel has been about money. Grandiose EU plans are doomed if the UK refuses to pay the £39bn settlement; it’s PM May’s most potent weapon. Brexit therefore confronts ‘Europe’ with a massive problem. Losing one of the biggest financial contributors to the EU means that the Commission’s budget will have to be rewritten and a lot of expensive projects shelved. (However, the Commission will fudge it: no honest accountant has signed off the EU’s ‘audited’ accounts for 21 years.)

The squeals of pain from the 27 have already started. Beggar-states such as Bulgaria and Romania are furious at not getting their handouts from Brussels for ‘EU-funded’ projects, and the net contributing countries – not many left, with the UK gone –  aren’t happy either. Germany, Holland and the other contributors to the Brussels money tree are reluctant to cough up more to balance EU books. If you don’t believe that, listen to the German car manufacturers, the Spanish fishermen or the French farmers. They are distinctly disgruntled and alarmed by what Brexit means for them.

The truth is that Britain’s exit from the EU has proved a devastating blow to the founding fathers’ dream of a European superstate, run by unelected civil servants, because Brexit affects other nations, politics, people, and challenges the Brussels-based Commission’s control.

The remaining 27 member states have been forced to confront their own membership of the EU; and we tend to forget the mess that most European countries are in.

The EU was already heading towards a crisis even without Brexit. Across a continent beset by mounting problems, Britain’s departure is a stinging vote of no confidence in Europe’s collective future. Ken Clarke’s wish for Westminster ‘to become mere provincial council chamber in Europe’ has proved false. People across the Continent want to rule themselves, with their own borders and as individual nations. They are fed up with the EU meddling in their lives.

Now the suppression of nationalism, which has always been the bedrock of Euro-federalism, is being challenged. By its own admission the EU has suffered one of the most disastrous years in its history. It needs to reform quickly to avoid a head-on challenge, as governments throughout the continent face a backlash of anti-EU votes.

The EU’s leaders – Emmanuel Macron and Angela Merkel – have already seen their popularity ratings plummet to record lows. In Italy things are worse, as Rome’s government, one of the EU’s Big Four (France, Germany, Spain), now represents a serious anti-Brussels majority. Italy’s new ‘government of change’ openly defies Commission edicts on any Euro-budget, and refuses to accept EU immigration policies. Hardly surprising, as, thanks to the stranglehold of the German Euro, Italy’s economy is little bigger than it was 20 years ago, and youth unemployment is 32.5 per cent. The national debt stands at almost €2.5 trillion — over 130 per cent of annual GDP. That money can never be paid back and so Italy is heading for bankruptcy.

Italy is not alone with economic woes. Spain is in deep trouble, too. More than a third of young Spaniards have never had a job. This human tragedy is directly linked to membership of the EU, because the Euro has rendered large tracts of the Spanish and Portuguese economy hopelessly uncompetitive.

In Athens, the birthplace of European democracy, the long-running Greek tragedy continues. Membership of the Eurozone has ruined Greece, wiping out businesses, jobs and entire industries. The Greek economy has actually contracted; shortages and hardship stalk the streets, whilst Brussels dictates orders from afar.

Inevitably this growing economic crisis has now spilled on to the streets of Europe. In France, President Macron’s unpopular ‘reforms’ – like increased petrol tax – have encouraged citizens to protest in the traditional French way. The gilets jaunes (yellow vests) are rioting on the streets. But their protests are about more than just France. They are also about the EU, because Macron has become the main cheerleader for the EU now that Angela Merkel’s long Chancellorship is heading for the German knacker’s yard. Macron’s capitulation to the rioters with his curious cocktail of police brutality and concessions to rioters shows that the greatest crisis for the EU is the spreading challenge to Brussels from despised ‘ordinary voters.’

Spain’s experience reinforces this view. The bitter internal dispute between Madrid and the Catalan separatists – whose leaders either await trial at home or are in exile abroad – has exposed the simmering power of ‘the people.’ Brussels’ snub to the breakaway Catalans will not be easily forgotten. Like all the other unrest across the Continent, it spells out the EU’s dreaded ‘N word’ – Nationalism.

Even in safe, comfortable Germany, the nationalist far-right now poses a menacing threat to the cosy CDU-SPD order, with the electoral successes of the anti-EU Alliance for Germany (AfD) party. Also, In Belgium, ‘capital of Europe’ and headquarters of the EU, a political shambles is taking shape. Prime Minister Charles Michel resigned just before Christmas and now leads a caretaker government until fresh elections can take place in May 2019. He is leaving the screen whilst ordinary Belgians worries about chronic unemployment and Islamic immigration are stoking serious public unrest.

However, the most direct challenge to the authority of Brussels and the Commission comes from further east. There the situation is much more menacing, with the rise of openly far-right parties. The Visegrad Four: Poland, the Czech Republic, Slovakia and Hungary are in a state of open mutiny, mainly over unpopular immigration diktats from Brussels. Hungary in particular presents an increasingly authoritarian alternative to the EU model of liberal politics.

Elections for the European Parliament in spring 2019 may prove a nasty shock to the EU elite as right-wing parties look likely to score significant gains. New populist politicians will emerge, making Nigel Farage look like a hand-wringing local vicar. Suddenly Marie le Pen’s vision of an alternative Europe – even a ‘Frexit’ – is becoming a possibility.

There is no question the EU is confronting a serious crisis – and Brexit is only part of it. In 2019  we are entering truly troubling times, with the EU heading towards a showdown as some of its member states may elect openly nationalist governments intent on defying Brussels. The problem is that the EU Commission is terrified of reform, still believing that every crisis is just another opportunity to push for ‘ever closer union’.

Europe’s diverse countries with their infuriatingly democratic electorates now seem intent on keeping their national identities and to hell with Brussels. Ironically, the unsustainable EU’s flagship euro is the weakest link. The Centre for Economic and Business Studies warns that the ‘internal contradictions’ of the euro will eventually force the Eurozone to either integrate completely or break up.

European law professor at UCL, Ronan McCrea, sums it up: ‘Brexit on its own isn’t the existential threat to the EU that other things are. Migration, a crisis over the rule of law in Hungary and Poland, and the Eurozone’s future – all three of these could destroy the EU ….’

With or without Brexit, the storm clouds are gathering. For the smug fat cats of Brussels an unhappy year has begun.

Democracy?

Sir Winston Churchill famously growled, ‘Democracy is the worst form of government – except for all the others.’

The great man had a point. He understood the dangers of ‘the tyranny of the majority’ very clearly, even adding on one occasion, ‘the best argument against democracy is a five-minute conversation with the average voter.’ Despite this, Churchill was a genuine democrat. He believed in the people and accepted their judgments.

‘Let’s do this the Democratic way …. Hands up all those who agree with me?’

This is highly relevant today, because democracy is under attack. The most obvious is Britain’s undeclared civil war over Brexit, where a narrow majority of voters – albeit on the biggest recorded electoral turn out – voted to quit the European Union. The subsequent uproar and the blatant attempts to pervert and obstruct the people’s decision to leave have shown that the democratic will is only recognised by some when it suits them. That is profoundly undemocratic. But, as in some many things, it all depends on what you mean by ‘democracy.’

Democracy as a political idea dates back to ancient Greece. Literally, it means, ‘rule by the people.’ The word comes from the Greek word dēmokratiā, which is a combination of ‘the people’ (demos) and ‘to rule’ (kratos). The first major exponent of the system was the city state of Athens, around 400 BCE. Not every Greek agreed with the concept. When a Spartan aristocrat argued for more democracy, he was put down firmly by the retort, ‘I’ll believe it when you run your own family as a democracy!’

Since then, both the theory and the practice of democracy have undergone profound changes.  What worked for certain types of male citizens of Athens centuries ago (women, slaves, foreign residents and children under 18 years of age had no vote) clearly does not work for hugely diverse countries like the USA or complex modern societies like the UK.

However, the idea of the people as ‘sovereign in their own affairs’ persists at the heart of democracy. Lincoln spelled it out simply in his Gettysburg Address: ‘… government of the people, by the people, for the people shall not perish from the earth’. From this, three principal systems of democracy have emerged; ‘direct’; ‘delegated’; and ‘representative’.

  • Direct democracy means every voter has a direct say via referendums. The Swiss and Californians like these.
  • Delegated democracy means that the people elect an individual to carry their views to a governing body such as a Senate, as in Ancient Rome. British Trades Unions are a modern example. Shop stewards are given instructions from their members and send delegates to the TUC with ‘a mandate from their members’.
  • Representative democracy means that elected officials represent a group of people. This is the theme of the rest of this article.

Colonial America favoured a system of representation because of the new country’s enormous size and widespread population. The Constitutional Convention (1787) realised that ‘the People of the United States’, could only govern themselves at the national, Federal level by electing Congressmen to go to distant Washington DC to represent their wishes.

The key word is ‘represent.’  Whereas a delegate is merely a mouthpiece, a representative is sent to use his (or her) best judgment on behalf of his constituents. The English political thinker Edmund Burke described his role as an MP to the voters of Bristol in 1774: ‘Your representative owes you … his judgment; and he betrays, instead of serving you, if he sacrifices it to your opinion.’ This explains why, for example, hanging is not put to the popular vote. Polls show that any referendum of the people would reimpose capital punishment, but Britain’s elected representatives in Parliament disagree. MPs think they know best, so they use their judgments to represent their constituents; they do not take their instructions from the people between general elections, which gives rise to the saying: ‘If you don’t like me or my views, then you can vote me out.’

Democracy therefore can mean different things to different people. What is clear, however, is that representative democracy requires mutual trusttrust of the representative by the people; and trust in the people by their elected representatives. Somewhere in the past 20 years that trust has begun to break down. We live in a world where politicians spout democracy – but do everything in their power to overturn it when the people give the ‘wrong answer’ at elections.

Nowhere was this more in evidence than the 2008 farce of Irish voters rejecting the Lisbon Treaty, only to be sent back to vote again after EU officials’ behind-doors deal to force a second referendum. Similar European Commission’s contempt for democratic majorities – and for democracy itself – has been seen in Denmark and France. For Brussels, ‘the people’ cannot be trusted and must be forced to vote again until they come up with the ‘right answer.’ This is dangerous stuff and reflects Bertholt Brecht’s sardonic comment on Communist elections: ‘Would it not be simpler, if the government simply dissolved the people and elected another?’

Closer to home, the UK’s Brexit referendum and Trump’s election in the USA sent shock waves through liberal elites, by coming up with the ‘wrong answer’. The chattering classes were horrified. What these events revealed across the Western world is a widening chasm in far too many countries between voters and the cosy governing class represented by the likes of Davos, the Bilderburg Group, Brussels, Westminster, Washington, politicians, intellectuals and civil servants. This gap is made worse by the refusal of these elites to accept the will of the people; vested interests do everything in their power to block resolutions using non-elected institutions, such as supreme courts and the European Commission, to clamp down on dissent and liberty. For the EU it’s the (deliberate) ‘democratic deficit’; for the chatterati it means finding some way to ignore or neutralise voters’ wishes.

So, when added to the alternative-fact extremes of frightened metropolitan-elite politicians who wish to bash the masses using phrases like ‘post-truth politics’ to control the ‘unqualified simpletons of the great voting public,’ something sinister and profoundly undemocratic is emerging.

Democracy itself is under attack across Europe and the USA, a fact becoming plainer with every daily headline. The idea that the ‘common people are too ignorant and too driven by base emotions to really understand what they voted for’ has gained ground in political circles ever since Trump was elected and Britain voted for Brexit. This is sold as defence of human rights, and especially minority rights against the ‘tyranny of the ignorant majority’. These days it’s not the aristos who fear the mob – it’s the ivory-tower academics and intellectuals who think only they know what is best.

Their solution? ‘Ordinary people are too ill-informed to know what’s best for them – leave it to the experts.’ Well, the experts of the IMF, CBI, the EU, most of the media, the Chancellor and the Bank of England forecast instant ruin, famine, unemployment and plagues of frogs if Britons dared to leave the EU. They’re still waiting.

Another chestnut touted by the new anti-democrats is that ‘Democracy leaves semi-illiterate voters at the mercy of fake news and media lies.’ The high-minded BBC naturally does not agree; but heartily agrees that Fox News and the Daily Mail’s ‘propaganda’ only confuses ordinary, simple folk – quite unlike the BBC and The Guardian, of course ….

The truth is that democracy itself is under attack. Nowhere can this be seen more clearly than in today’s struggle over Brexit, but showing contempt for the masses can only end one way.

As Chairman of the Public Administration and Constitutional Affairs Select Committee, Sir Bernard Jenkin MP has said he ‘dreads to think’ what will happen to British politics if the Establishment fails to implement the people’s verdict in the Referendum. He warned: ‘That’s not what democracy looks like in my book. Of course, the EU has always tried to reverse every adverse referendum … but if they defeat the British people in this endeavour, that would be a disaster for our country.’

And for democracy? Watch out for forthcoming variations on the ‘I’m a democrat, but …’ theme before politicians and bureaucrats then ignore the will of the voters. Be very careful; the ‘post-Democratic’ age is being touted as the way ahead.

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Money Makes the World Go Round

For the second time in a month, to my surprise, I find myself agreeing with President Putin.  Speaking at the International Economic Forum recently he warned: ‘We don’t need trade wars today … we need a comprehensive trade peace.’

Cuddly old Vlad was really warning us that there’s a financial firestorm brewing. Looking at what is going on with the euro and the Turkish lira, it’s hard to disagree.

The euro is really our old friend the Deutsche mark, cunningly devalued and disguised to pay for German re-unification, and now Europe’s chokehold currency of no choice. For example, any independent Scotland joining the EU would nowadays be ‘forced’ to accept the euro. Difficult for the Scots: not for nothing did Thomas Carlyle call economics the dismal science.’

Dismal science or not, money makes the world go round – and always has done. Even St Paul admitted: ‘The love of money is the root of all evil.’ This titanic battle for economic power rages around us every day, as China and America tussle behind the scenes over who owes how many dollars to whom and what they are worth, whilst a worried Commission in Brussels watches nervously as its great dream of a superstate called ‘Europe’ begins to disintegrate.

Because the UK’s ‘Brexit’ is the least of the EU’s problems. With Poland refusing to toe the Merkel party line, the Balkan states disobeying Juncker’s ‘diktats’ on immigration, and now a major trade war looming with the USA, Brussels has its hands full. Money is at the heart of it all. The unfolding Italian political train crash that is the new populist, anti-establishment Eurosceptic government is Brussels’ worst nightmare. It threatens their euro. Austrian chancellor Kurz gives the game away, bleating: ‘We saw in Greece how dangerous it is if a country has a bigger and bigger debt and I hope that we will not have a second Greece in our neighbouring country, Italy.’

The reason? Money and debt. Frightened hard currency has been haemorrhaging out of cash-strapped Italy for months, driving it even further into the red, amid fears of a Greek-style euro debt crisis which would bring the country to its knees. The new Italian government is even threatening to quit the euro and set up a parallel currency.

This is serious, because Italy is the eurozone’s third largest economy, nearly ten times the size of Greece’s.

The former chief economist of the IMF – Olivier Blanchard – believes the eurozone is heading for an ‘horrific crisis,’ denouncing Italy’s popular new government’s plans as ‘likely to violate all EU and domestic fiscal rules and put debt on an unsustainable trajectory’. What he means is that Rome is inviting an economic and political war, because the big French and German banks risk losing billions if Italy says, ‘no more pay offs.’

Brussels now has the beginnings of a serious rebellion on its hands. However, once again Italian voters have been over–ruled by EU technocrats, pressuring President Mattarella to ignore the voters, just as the Berlusconi government was toppled in 2011 by Brussels and the European Central Bank, in what was effectively a ‘soft coup.’

This is dangerous territory.

The Italian president’s refusal to accept the Lega-Gillini finance minister because he ‘could provoke Italy’s exit from the euro’ is dynamite. The political message to Italian voters is clear: whoever you vote for, the eurozone rules. A Lega spokesman explained: ‘You have to swear allegiance to the god of the euro in order to be allowed to have a political life in Italy. It’s worse than a religion.’

In Brussels,  Juncker openly threatens: ‘There can be no democratic choice against the European treaties. One cannot exit the euro without leaving the EU,’ and Günther Oettinger, European Budget Commissioner for Budget, actually said: ‘This will teach the Italians to vote for the right thing.’

Because the ECB and Brussels will fight to the last drop of Italian money to stop anyone escaping from their eurozone straitjacket.  The French Finance Minister warns: ‘If the new government takes the risk of not respecting its commitments [in other words, “If Italy doesn’t pay its huge debts to our big French and German banks”], the financial stability of the eurozone will be threatened. Everyone must understand that Italy’s future is in Europe and nowhere else. … there are rules that must be respected.’

This push to smother Italy’s eurosceptic rebellion, as they muzzled Syriza in Greece, comes from a worried Berlin, Brussels, and the EU power structure. But this time they may have blundered into a trap, because the EU’s economic problems grow worse every day. Now debt-ridden Spain admits it is in serious trouble. And Spain owes euro banks ‘zillions’, too. The bottom line for the EU is that if the Italians and Spanish welch on their euro debts, then the euro is finished – with huge international bankruptcies on the cards.

‘So what?’ says the man in the Kyrenia café, ‘How do big economic problems affect me, my family and my bank account? Who cares?’

The answer to the puzzled denizens of Turkish North Cyprus is ‘look at your money.’ Something very odd has happened to their Turkish lira. One year ago, 1 GBP pound sterling bought you 4.30 TRY; ten years ago, on 31 May 2008, a quid bought just 2.12 lira. And today? Going to press, a pound buys you around 6 lira. That’s what international currency fluctuations do to the expat, watching his pension. That’s how small Turkish Cypriot businesses, being paid in lira whilst paying for their rents in sterling, go bust. The reason? Money: because the Turkish lira is now in deep international doo-doo.

For years, Ankara’s AKP government has funded its massive vote-buying economic programme with money borrowed from overseas investors, attracted by Turkey’s generous interest rates. No less than 70% of Turkey’s deficit is covered by short-term foreign loans.

The problem is paying off those loans. Interest payments were biting deeper and deeper into Ankara’s Central Bank’s precious reserves of hard currency US dollars or euros. Loans began to dry up, so the Central Bank increased interest rates to tempt the punters and keep the all-important foreign dosh flowing. The problem is that at 13.5% the interest payments were expensive – but, at 16.5%, they could become ruinous.

At which point Turkey’s would-be President stepped in, boasting that he personally intends to run the economy when he wins the election on 24 June to become all-powerful leader. On his orders, interest rates will be slashed to 10% to save Turkey’s money. Result? Instant panic and predictable flight by spooked, nervous lira investors. Consequence? A market panic with foreigners desperate to unload their lira while they can. ‘Cheap? Your real, genuine Turkish lira. A real bargain, guv … Gotta sell.’

Because that’s what markets do. That’s how economics works: supply and demand. No demand for lira, they go dirt cheap. The result is that Turkey will either have to devalue, introduce capital controls or accept that, whatever their ‘Dear Leader’ thinks, foreigners will decide just what the Turkish lira is truly worth: and foreign investors are not impressed.

As an anonymous fund manager at a major asset management firm, complained: ‘Erdogan is fighting the extremists, he is fighting after the failed coup – now he is fighting the financial markets, and that is dangerous …. You can fight your domestic foes all you want; but when you are trying to take on the global financial market, that is a battle you can’t really win.’

And the EU? Watch this space. Of one thing we can be sure: the Commission, Berlin, Paris and Frankfurt will gang up in a darkened alley, ready to bludgeon, beat, bribe, browbeat and bully Italy to keep their precious euro together at all costs. Once again, the financial gloves are off. It’s going to get ugly. Just ask the Greeks.

Money really does make the world go round.

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