Eurozone - A crisis waiting to happen?

French colleagues around at the time report that General de Gaulle was a man of few words; one of them being "Non" But he wasn't averse to soundbites: "How can you govern a country which makes 146 types of cheese?"

Imagine how much harder it is for the European Union with a domain stretching from the Baltic to the Aegean. Election results in France and Greece demonstrate there is no longer an appetite for austerity and despite scolding from Chancellor Merkel, the days of the complete Eurozone could be numbered, with some members taking an early exit.

It started well; after World War II the desire was to co-operate not fight. We had the ECSC, EFTA, then the EU: lots of initials, little actual co-operation. So how could the venerable ideal of a European Union become so unstuck?

Fuelling The Crisis?

A World War Two poster issued by the Information Ministry around the time of the Blitz is now re-doing the rounds on t-shirts, coffee mugs and even duvet covers. It reads very simply: ‘Keep Calm and Carry On’. Some things never go out of fashion. Compare that with the conflicting messaging coming out of the UK Government last week on possible petrol shortages even before a strike had been called.

The tanker driver issue has been bubbling on for over a year, so following classic crisis theory, Ministers should have known and been prepared. It's called 'horizon scanning'; an early warning system of problems ahead. There should also have been a unified management plan with agreed communication objectives, delivery system and of course, key messages.

On a wing and another prayer

Perhaps the best soundbite to emerge out of the protest outside St Paul's Cathedral came at the weekend from Ken Costa, former chairman of Lazard's Investment Bank who has been tasked by the church to head a group looking at what can be done about the issues which have been highlighted. He is, he said, looking to reconnect "the financial with the ethical." And he goes on to argue that maximising shareholder returns should no longer be the sole criteria for judging how a company is run (or sins).

Sterling stuff but there is still a whiff of a church trying to catch up. The structure of the Church does not allow a command and control system in the normal form, so the fragmented system in place has allowed the Cathedral response to appear disjointed. The Archbishop of Canterbury has, in the word of one commentator, broken his silence and attempted to rest control of the agenda; it was a rudderless ship with events taking over.

On a wing and a prayer

To lose one cleric may be regarded as a misfortune; to lose two looks like carelessness. (With apologies to Oscar Wilde.) St Paul's has now lost its Dean, following on from the resignation of the Canon. All driven by confusion of how to deal with the anti-capitalist protest on the doorstep.

To be fair it is hard for a symbol of the established church in England to come up with a coherent way of dealing with an event which has managed to close the doors of St Paul's with a subsequent loss of revenue and international prestige. Hard, but not impossible.

Quote, Unquote

Economist John Maynard Keynes once said of the business cycle that in the long run all would be well. He added waspishly, "but in the long run we are all dead."

Watching last week's unraveling of the financial system he might have a point ... but this time in the short run. $2.5 trillion has been wiped off global stock exchanges. It has been the worse week in the markets since 2008 and Lehman Brothers.

And the response from government? As another economist J K Galbraith put it, "In the US though power corrupts, the expectation of power paralyzes." Barack Obama has been characterised as being well meaning but ineffectual. Things have hardly been any better in Europe.

Dust off the Plans

Knowing what to do when everything starts to fall apart around you is a key skill that Politicians and Directors need. Forget competence when things are going well. It’s when they aren’t that the true mettle and character of leadership shows through.

Just as Greece is lining itself up for another round of Ponzy scheme investments, which are seemingly designed to keep the European banks from revealing the true scale and interconnectivity of the bond debts. We lose the head of the IMF to allegations of a serious assault, which not only exposes the fragility of the European Community, but the gulf in culture between America and France.

Easing off the accelerator

This could be the week of sticky pedals as Toyota and the Bank of England face the truth about what happens when you take your foot off the gas. Has the UK economy reached its cruising speed? And it is now all down hill to an economic recovery?

The question now in everyone's minds is how safe is it to ease off, is the timing right and what happens if it starts to unravel? Will the economy continue to accelerate or will the brakes cut in?

Right said (Sir) Fred - it's a hole new crisis

Those readers old enough to remember Bernard Cribbens and his song about men trying to dig a hole and then giving up. might pause to reflect on how it all ended. After many attempts to dig said hole, the lads abandoned it. In the lyrics the line was: Right said Fred, let's have another cuppa tea and then go home. Or in Gordon’s case, lets go to the White House.

The hole gets deeper; Lord Myners says he knew something but not everything about the pension deal. Yet Harriet Harman says the government will seek legal action to stop Sir Fred getting the full whack. Something m' learned friends think might be hard to deliver. But that doesn’t matter because apparently the case is not scheduled for Court Number One at the Old Bailey but at the court of public opinion. Presumably it’s the one across the road in the pub.

Storm in a coffee cup

It is a sign of the times that nearly eighty years ago, as depression swept the western world, the British Empire or what remained of it sat down, brewed a nice cup of tea then tried to figure what went wrong.

Today as the greatest minds in Europe plus our own Prime Minister prepare for the April G20 summit, the true state of the British economy is brought home, not by an infusion of leaves from Ceylon, but by that standard bearer of globalisation, Starbucks.

NIMBY ... or not in my back yard until “buddy can you spare a loan?” – all currencies accepted

For those with a long memory, you might recall that globalisation was touted as a sort of business panacea; embrace this concept and all will be well with international trade. A keen supporter, surprisingly, turned out to be Bin Laden himself (or perhaps one of the 20 plus people the CIA believe might be him.) He appeared in a video wearing a Taiwanese watch; carrying a Chinese Kalashnikov; speaking into a Japanese camera; and transmitted via a US satellite uplink, espousing his particular version of the Internationale.

Ah, things were so simple then. Now, it is not a good time to be a foreigner in a globalised, UK, world. Workers at nuclear power plants in Sellafield, and Heysham joined oil refinery workers at Lindsey to protest at the employment of non UK nationals, leading Lord Mandelson to proclaim that the strikers were pursuing the “politics of xenophobia”.

That we are in the midst of crisis is now well understood

No. It was not about an attempt to “bury bad news.” Just coincidence that Bank Governor Mervyn King’s gloomy outlook for the UK economy hit the Press on the same day as the Obama speech. His predictions about “a difficult year for us all” had been underlined by the announcement that the Royal Bank of Scotland had made the biggest corporate loss in British history. So could it be that we are about to be rescued by the US 7th Cavalry, also known as the Federal Reserve Bank? The pound, which has fallen in value by 25% since mid-2007, could certainly do with some support.

Obama’s address has been variously described as “not enough like Lincoln at Gettysburg” or “in the great traditions of Paul Revere and the call to arms” (against, you recall, the British invader). So whilst opinion remains divided on the rhetoric, what is clear is that he firmly placed crisis at the top of the agenda. According to one US TV commentator on Pennsylvania Avenue, “he was, in American parlance, telling it like it is.”

Easing our way out of a crisis?

Funny how some situations often have a buzz phrase attached. "Book him, Dano", from Hawaii 5-0; or "You're nicked", from The Sweeney; or "Loadsamoney", courtesy of Harry Enfield. Which brings us neatly to financial crises which have generated their own vocabulary. The pound in your pocket; subprime loans; crisis? what crisis; and now, step forward quantitative easing ... a buzz phrase you will be hearing more of in the future.

It's jargon for printing our way out of the current credit crunch. Like the Weimar Republic and Mr Mugabe why not just print more money and all will be well. Watch out, too, for the concept of the "bad bank" ... something being seriously considered. Basically a state bank would be set up where all those so-called toxic loans could be parked out of harm's way ... and then covered by the taxpayer.

Skirts ruffled for the old lady of Threadneedle Street

Sometimes it can seem really hard to get it right. Abraham Lincoln probably came closest when he argued that you can’t please all of the people all of the time. The Bank of England must feel exactly that way at the moment.

Has it judged the crisis correctly or reacted too late?

In the interim, perhaps the most important question is “How good is the analysis and who is in charge, the Bank or the Government?” Last week’s 1.5% cut in the interest rate took us back to 1955. It also took our interest rates below the eurozone for the first time. So panic or shrewd policy? The jury remains divided.

How the tulip mania burst the economic bubble (or do we scent chaos in the market?)

Scottish journalist Charles Mackay wrote a book called Extraordinary Popular Delusions and the Madness of Crowds in which he attempted to find some rationale behind the herd instinct which seems to bedevil markets. Sound familiar? Well, Charles Mackay published his findings way back in 1841 and although more recently some of his conclusions have been debunked, his basic ideas still attract support.

Mackay was writing about what many argue was the first “economic bubble” ... Tulip Mania ... which engulfed the Dutch economy in the 1630s. It centred around an exotic bulb brought from the Ottoman Empire which became a “must have” purchase in the fashionable salons of Europe, almost regardless of price. The inevitable happened; the price rose to the point at which the market collapsed.

Diagnosing the financial pandemic

... or why Wall Street’s problems could cause more than a sneeze across global markets.

When Canadian communications specialist Marshall McLuhan wrote about the rise of the global village in the 1960s, it seemed like a good idea at the time. The whole “village” concept of interdependency coupled with self help and a drive towards levelling out inequality was an attractive one.

What followed eventually was a drive towards global standards for good and services; cross-border brands which delivered wherever you lived; free trade as a matter of course; and the famous time/space continuum reduced by the increasing power and penetration of electronic communications. In fact many years before, Richard Cobden argued in 1843 that any law which hindered the free movement of goods “interferes with the wisdom of Divine Providence and substitutes the law of wicked men for the law of nature.” Strong stuff.