Oliver Kamm

The Telegraph and the euro

It may appear snide to question the competence rather than merely the views of a direct competitor, but I refer you to a leading article in the Telegraph today entitled "The euro will struggle to survive the recession".

I can of course understand the argument in principle for retaining the ability to set monetary policy independently. It is beyond argument that (in the jargon) an asymmetrical exogenous shock might be more damaging to a country that is part of a currency union. But I find it remarkable that a weighty newspaper, and an important voice for the normally pragmatic tradition of British Conservatism, should pin its editorial reputation to a prediction that the euro will fail. It's particularly odd - indeed it's extraordinary - that the Telegraph should venture this view when arguing that: "For critics of the single currency, the test of the euro was always going to come during a bust, not a boom."

In fact, critics of the single currency, including many in the UK press, have been predicting disaster for the euro from the moment of its conception. It hasn't happened, and it won't happen. I agree that monetary arrangements are tested by economic crisis, but the remarkable fact of the this crisis is that no country is trying to dispense with the euro. On the contrary, there is a demand to join it.

Take Iceland. The country's economy has been devastated by the collapse of the Western financial system. Its policymakers recognise that there is only option: membership of the EU, and the adoption of the euro as soon as practicable. It will doubtless make no difference to the faith-based approach of the Telegraph, but note that The Guardian today publishes this report: "Iceland will be put on a fast track to joining the European Union to rescue the small Arctic state from financial collapse amid rising expectations that it will apply for membership within months, senior policy-makers in Brussels and Reykjavik have told the Guardian."

The only practicable course for Iceland is to accept that its economy - with a massive financial sector relative to national income - was entirely unable to cope with volatile financial flows, and needs to adopt the euro. Of course there will be immense pain for European economies within the euro zone. But none will seek to readopt a national currency; to do so would lead to a run on the entire banking system. 

Whether Britain should adopt the euro is a separate question from whether other countries should do so - which is one reason that I'm amazed that the Telegraph should advance its anti-euro position in such an extreme and doctrinaire form. (You might compare it with The Times's position, which argues for continued monetary independence but doesn't dispute the benefits for existing euro members, especially those with a history of inflationary problems, of having a reserve currency.) But my own view is that the balance of the argument has shifted during the financial crisis. I have thought for a long time that the benefits of monetary independence for the UK are outweighed by the disadvantage of exchange-rate volatility. The financial crisis has underlined that argument. For a medium-sized open economy, a volatile exchange rate is not a benefit. International investors will increasingly demand a higher premium to compensate them for the risk of holding sterling-denominated assets, including sovereign debt.

Note the Telegraph's belief in "the vital weapons of devaluation and monetary policy with which they can at least try to ameliorate the impact of the global downturn". It makes me wonder if anyone at the Telegraph has worked in the financial markets: the notion that you can choose the level of your exchange rate is not borne out by recent history. Exchange rates overshoot, in both directions. There is a cost to a floating exchange rate, and it's rarely one that opponents of the euro address directly. If they do, they usually counter that exchange-rate risk can be hedged on the forward markets - a complete misunderstanding of how those markets work. If you're a business, you cannot effectively hedge a stream of unknown sale receipts of uncertain amount at unknown times.

As the crisis progresses, bear in mind the Telegraph's observation that: "With the International Monetary Fund this week forecasting that it will be two years before the world economy resumes growth, it becomes increasingly difficult to envisage the euro surviving intact."

I suspect that sentence tells us more about the limits of a leader writer's imagination than it does of the global financial system.

John Updike

When I was coming of age, there were three living and very different writers whom I discovered and admired, and whose work I read whenever I could. They were the philosopher Sidney Hook, the historian Conor Cruise O'Brien, and the novelist and critic John Updike. They had no connection with each other, of course; but they influenced me for various reasons.

Hook lived just long enough to witness the collapse in 1989 of the East European tyrannies that he had done much to expose and oppose. O'Brien and Updike have now died within a few weeks of each other. Their lives and work are of far greater importance than my response to them, but it feels almost a Rabbit-like rite of passage now to read their extensive obituaries. The Times carries a leader today on Updike, which concludes: "He was an author of American life, who illuminated our age."

Literary reputations are inconstant. They fluctuate even over a decade or two - the East German hack writer Christa Wolff was thought of seriously as a great talent as recently as the 1990s. But I'm convinced Updike will be read 100 years from now for the beauty of his prose, and his evocation of a time and place. If you have not read him, you have much to look forward to. I would start with his "Rabbit" tetralogy and his memoir Self-Consciousness.

Media objectivity

Daniel Finkelstein raises an issue I've addressed recently: whether broadcasters, and specifically the BBC, are biased in their coverage of foreign affairs, and specifically the conflict in Gaza. My answer is no, and I appear to have different criteria from Daniel's. He defines the issue this way, with reference to remarks made (with irony, I should have thought) by Jon Snow on Channel 4 News last week: "It isn't a question of whether you think [Snow] is right or wrong to hold these opinions. It is a question of whether it is possible to be objective when passionately committed to one view."

It is indeed possible to be objective while passionately committed to one view. The task of journalists is to report the world as they see it, while being aware of the necessarily partial information they possess and the presuppositions they bring. My main criticism of the BBC's news coverage is that its journalists are so wary of the charge of bias that they seek out a via media rather than say what they see. This was the problem that journalists encountered when they reported on the Balkan wars of the 1990s: there were barbarous murders of civilians on all sides, but not all sides were equally culpable for the outbreak of war. Treating the conflict as an intractable clash of ancient animosities was not an objective stance, but a misreading of the aim of a greater Serbia.

Let me turn round Daniel's question. It is (literally) his job and mine to write opinions - our own, in signed columns, and our editor's, in leader columns. We aren't here to report the news. Are we the best qualified people to detect media bias when it does occur? I believe we are not.

There they go again

This isn't the most important of stories, but it is a tiresome business that is becoming increasingly scandalous. The Independent on Sunday yesterday carried a review of a book called, with a subtlety that matches its thesis, The Liberal Defence of Murder by Richard Seymour. Seymour is a blogger and a member of the Socialist Workers' Party, a totalitarian organisation that has in recent years allied with antisemitism and Islamist reaction. It is a hint of the thoroughness of his historical research that his book identifies the 1972 US Democratic presidential nominee as someone called Eugene McGovern.

The review is by a David Renton, and it welcomes enthusiastically "an excellent antidote to the propagandists of the crisis of our times". Renton is a former member of the editorial board of Socialist Review, the monthly magazine of the Socialist Workers' Party. The SWP, being a Leninist organisation, operates on the principle of "democratic centralism" - a contradiction in terms nicely expounded thus by one political theorist (Joseph Femia, Marxism and Democracy, 1992, p. 136):

'By "democratic", Lenin meant that the elected Party Congress was to be supreme over policy. By "centralism", he meant that once general policy was agreed, the everyday decisions of the central bodies were absolutely binding on all members, who were expected to march in step, whatever their private reservations.'

I believe that Renton is no longer a member of the SWP, but this history is relevant to assessing his review. (Note, not incidentally, Renton's politically fatuous but personally revealing description of Slobodan Milosevic's aggression against Bosnia as "the civil war in Yugoslavia".) It is left unstated. There seems to be a template here: compare with a review by Seymour, published in the New Statesman last summer, of a book by Chris Harman, a longstanding member of the Politbureau of the Socialist Workers' Party. You even find the same ingratiating word "quibble" at the end of the gush. Nowhere will a reader of the NS learn that Seymour and Harman are members of the same Leninist organisation, bound by a common party discipline. That interest ought to have been disclosed by the reviewer to the editor, and the journal to the reader.

Incidentally, Renton includes this in his litany of disrepute: "You can think of writers such as Christopher Hitchens, who opened the David Horowitz Freedom Centre in 2006 by telling his listeners that it was a pleasure as well as a duty to kill Muslims...."

I haven't checked this directly, but I would be willing to wager if not my life then at least the shirt off my back that Renton has here elided the distinction between Muslim and jihadist. If I'm right in that inference, then Renton's comment is more serious than mere misrepresentation.

LSE and the suppression of speech

I wrote yesterday of the disturbing case of Geert Wilders, the Dutch politician being prosecuted for speaking his views on Islam. In a similar context, let me direct you to an item in today's Standard:

'A right-wing writer has been banned from chairing a debate on Islam at the London School of Economics today amid security fears, the Standard has learned.

'Douglas Murray, a self-confessed “neo conservative”, was due to chair “Islam or Liberalism: Which is the Way Forward?” at the university tonight — 24 hours after the end of a week-long sit in at LSE in protest at Israel's attacks on Gaza....

'The LSE asked Mr Murray not to attend in the interest of public safety as his presence could provoke further unrest. A spokesman added: “He has spoken at LSE in the past and will be welcome to do so again in the future.”'

I know Douglas Murray well. Our political views on immigration, economics, Europe and numerous other issues are miles apart; and again, that is completely irrelevant to the case.

The LSE's conduct is cowardly and unconscionable. A university is a place for the untrammelled discussion of ideas. The LSE has curtailed the ability of one invited guest to contribute to a discussion - as chairman of a debate and not even as a speaker - because of a presumed threat of violence arising from the offence he might thereby cause. I've seen the LSE's internal correspondence on this. It refers to complaints made about Douglas's views on Islam. It seems that Douglas has been disinvited because of the effect on the sensibilities of students - or on "campus relations", as one particularly arch piece of misdirection has it - at a time of Middle East conflict.

Twenty years ago, a great columnist for this newspaper, Bernard Levin, wrote about precisely this issue ("If they shout down, send them down", The Times, 6 June 1989). He said, of a recent wave of intolerance in the academy and a pitiful non-response by university authorities:

"This time, the institutions collapsed at the first shout; and that is not a misprint for shot. There was hardly even a token attempt to make sure that free speech, the very life blood of any institution of learning, was defended, much less promoted; much less still was there any policy of disciplining those who broke the rules of democracy and decency alike.

"And worst of all, the enfeebled authorities failed almost entirely to preach the gospel of tolerance, with or without sanctions for the intolerant, to their students. It is not in the least an exaggeration to say that there are many thousands of students, and very many more recent ex-students, who literally do not know, because they have never been taught, that the holders of views which they do not share, or indeed which they truly abhor, have as much right to an uninterrupted hearing as have their own beliefs."

It is the LSE's responsibility - stemming from its function as an institute of learning - to rescind its decision, allow the event to take place as planned, and to send down any student who tries by violence or threat to prevent a guest from speaking.

Free speech: the Wilders case

Geert Wilders, leader of the right-wing Freedom Party in the Netherlands, is to be put on trial for "inciting hatred and discrimination, based on comments by him in various media on Muslims and their beliefs". The BBC reports the case here. I have written a brief article for Index on Censorship, in which I argue:

"Wilders’s populist and nativist politics are exactly opposed to my own views, and entirely beside the point. In a constitutional state, with liberal political rights and the rule of law, a man is being prosecuted for causing offence by expressing his views. Wilders’s protest that the judgement is ‘an attack of freedom of expression’ is scarcely adequate to the infringement on liberty. These proceedings are a monstrous abuse of power. Wilders must be supported."

Intermission

I'm doing Newsnight Review with Kirsty Wark on BBC2 this evening. The other guests are Oona King and the crime writer Ian Rankin. We'll be talking about Barack Obama, the new production of Oliver! with Rowan Atkinson as Fagin, and other things.

I'll then be away for a few days, and will resume this site in about a week.

UPDATE: A reader asks in the comments below if there is a recording of the programme. It's available on BBC iPlayer here.

Euro arguments

I debated the euro with Peter Oborne of the Daily Mail yesterday on Radio 4's You and Yours phone-in programme. It wasn't quite down to Galloway levels, but it was not a discussion characterised by profound mutual respect.The Mail ran a news story - a news story - on 28 December 2001, three days before the introduction of euro notes and coins that began: "Holidaymakers will face chaos when they go to the Continent as shops and businesses battle to get used to the euro from January 1." And the newspaper's confident predictions about those bungling foreigners have been undiminished since.

Sean O'Grady, the economics editor of The Independent, wrote an article last week entitled "Why I am Glad We are Not in the Euro". Slightly to my surprise, as "a fellow, but far less distinguished, son of Leicester", he commended the views of the late Sir Alan Walters. (As I pointed out in my post on Walters, I'm a son of Leicester too. Sean, the economics writer Chris Dillow and I all attended the local grammar school. Higher up the school was Andrew Bailey, now the Chief Cashier of the Bank of England, whom I ritually greet with the feeble joke that it's kind of him to take time from his busy schedule of signing banknotes.)

Walters's famous critique of the system was wrong. He argued that the ERM would result in a convergence of nominal interest rates, thereby ensuring that, perversely, higher-inflation countries would have lower real interest rates. They didn't. It may seem pedantic to point this out, given that the ERM did fail, as Walters predicted. But it's important to be clear on the reason. The ERM failed because policymakers were reluctant to subordinate exchange-rate stability to other goals. The same policy dilemma doesn't apply to the euro, because by definition there is no longer any exchange-rate volatility between the eurozone's members - they have a common currency.

I'm sceptical that the sharp depreciation of sterling in the second half of last year will provide respite from the recession, as Sean suggests. (November's trade figures are dominated by the collapse of global demand.) Competitive devaluations can work in certain circumstances. They do so by cutting real wages (through an increase in import prices) while the nominal wage remains constant. But opponents of the euro never, from my experience, deal with the costs of the vaunted flexibility of a floating exchange rate.

You can't just choose the level of sterling on the foreign exchanges: exchange rates are set in the asset markets, and asset prices overshoot. I have never come across a trader, a fund manager or a financial economist who disputes this. So far from protecting us against shocks, a flexible exchange rate may itself be the source of shocks. This, in my view, is what's likely to happen to the UK owing to the financial crisis. The risk premium on UK sovereign debt will rise because of the exchange-rate risk to international investors holding sterling-denominated assets. There is a cost, in the literal financial sense, of staying out of the euro.

The notion (which Oborne is strong on) that smaller eurozone members will seek sanctuary outside the euro is - ahem - not borne out by recent experience. On the contrary, opinion is swinging sharply in Denmark and Sweden towards euro membership. Iceland (which is not even in the EU) and Hungary will be desperate to join. Among other reasons, countries with currencies that are not widely used internationally have a problem where their banks have substantial liabilities denominated in euros. As Barry Eichengreen writes:

"It is European countries outside the euro area, still with their own currencies, that have suffered the gravest difficulties [in the financial crisis]. Because their currencies are not widely used internationally, many of their bank liabilities are in euros. They can't print the euro liquidity that the banks desperately need. This renders them dependent on interest rate hikes to attract that euro liquidity via the market and on swap lines from the ECB. So far, those swaps have been forthcoming, but with delay and political baggage attached.

"The implication is clear. National banking systems need a lender of last resort. In small countries, where a significant share of bank liabilities is in someone else's currency, the national central bank lacks this capacity. The only options are then to slap draconian controls on the banking system or join the euro area."

It's all very well to say the ECB has been slow in easing monetary conditions. The Bank of Denmark increased interest rates in October (though it has since cut them by 50 basis points) for the reasons Eichengreen identifies.

All the predictions made by the eurosceptics about the euro have been wrong. They said the euro wouldn't get off the ground; that there would be an exchange-rate crisis as the date for monetary union approached; that the euro would spark chaos for consumers; that the euro would fall apart in the first sign of economic crisis. Oborne now forecasts that the euro will collapse within the next decade. I'll offer my own prediction. There will be drastically fewer European currencies in 2019 than there are today; and the euro will be overwhelmingly the most important of them, to wide economic and political benefit.

Back on gold

Well, according to Alex Singleton, a leader writer at The Telegraph:

"The economic stability, the protection for savers and the encouragement of long-term business investment together make adopting the gold standard a vital part of the solution to Britain's current financial mess. It may not be an idea that's reached the mass market yet, but - unlike the euro - it is an idea that would do our economy a great deal of good."

I'm amazed to find such an idea seriously advanced.

The Gold Standard would transform an almighty global financial crash into something altogther less frivolous. We know this, because we've been here before. A central bank cannot both maintain convertibility of the currency into gold and act as lender of last resort to the banking system. While the US was on the Gold Standard in the Great Depression, the Federal Reserve was required to maintain gold stocks equal to 40 per cent of outstanding notes. If the Fed lent to a bank that was suffering a run, it had to stop at the point where it undermined public confidence in its own willingness to exchange paper money for gold. Otherwise there would have been more cash in circulation than could be converted into gold.

(Incidentally, the euro - which Singleton attacks while advancing his own bizarre recommendation - is not the same type of arrangement. The eurozone is a currency union, and its currency floats against the rest of the world. Within the zone, there is a single monetary policy but national parliaments maintain control over budgets. It is thus a similar arrangement to - though more flexible and therefore less integrated than - the phenomenally successful currency union known as the United States of America. The case for the euro is not the same as a hypothetical case for a single world currency, any more than the eurosceptic argument implies that each British region or town should have its own currency.)

Buchan's adventures

Michael Gove writes today that he loved the BBC's adaptation of The Thirty-Nine Steps, and that its author, John Buchan, "has often been caricatured as a writer of Boy's Own fiction, but he deserves to be reclassified as an author of the best sort of chicklit".

I didn't see the BBC's production, but very much dislike the famous Hitchcock version, which has almost nothing to do with Buchan. The Thirty-Nine Steps (or The 39 Steps, in Hitchcock's rendering) would not support Michael's claim, but the later adventures of Richard Hannay would. The Three Hostages has Hannay's wife, Mary (whom Hannay fell in love with in Mr Standfast), tracking down the kidnapped son of Sir Arthur Warcliff. Hannay himself is clearly not in the same intellectual league as Mary. And The Island of Sheep - the last of the five Hannay adventures - contains a particularly forceful juvenile heroine, Anna Hareldsen, the daughter of the man whom Hannay protects. 

All of the Hannay adventures are contained in a Penguin omnibus edition. And the best of the lot is the second, Greenmantle, an astonishingly prescient political thriller published in 1916. The book records Hannay's attempts to uncover and thwart a German plot to spark an uprising in the Islamic world. Its evocation of the politics of wartime Turkey is brilliant, and in parts it's very funny. After knocking out a malevolent German officer, Hannay observes: "My anger had completely gone and I had no particular ill-will left against Stumm. He was a man of remarkable qualities, which would have brought him to the highest distinction in the Stone Age."

I constantly look for opportunities to deploy this line. If you find me using it, you'll know I didn't come up with it myself.