QUALITY TIME FOR BANKERS?

Quality time for Bankers?

I have no problem with most of the recommendations from the Parliamentary Commission on Banking Standards, which suggested that senior bankers who are guilty of reckless misconduct should be jailed. That’s fine with me, and probably lots of people, but what about the politicians who appear to have largely escaped censure beyond the prospect of being elevated to the House of Lords. Personally I would have been happier had the commission recommended that the politicians who were responsible for the crash in the first place could be held to account (as happened in Iceland) and subject to conviction, should also have faced the prospect of going to jail.

The weighty 571-page report has recommended that the government review alternatives for selling off the Royal Bank of Scotland (RBS), including breaking it up, and has demanded action to make the banking market more competitive. In relation to RBS, the committee only suggested that the Westminster government formally look at different options for the nationalised bank by September 2013. Some committee members recommended splitting RBS between a "good bank" (an active High Street lender with a cleaned-up balance sheet) and a "bad bank" (a warehouse for all of the dud loans left over from last decade's debt bubble).

Another option, which was backed by the Archbishop of Canterbury and committee member Justin Welby suggested breaking RBS up into a number of smaller regional banks. The committee cautioned against rushing to privatise the bank, which it said risked getting poor value for the taxpayer, and because the committee believed RBS first needed to be restructured, in order to make sure it played its key role in supporting the economy. This is the cross-party parliamentary group's fifth report laid into the lack of accountability of bankers and also recommended that some bankers bonuses be withheld for up to 10 years - something that would probably not upset many people, save for the bankers.

YOU ARE ON YOUR OWN BOYS...

News that Downing Street has public criticised the retailers for their silence in the on-going horsemeat scandal may well be a significant development in the questionable relationship between the politicians (at Westminster and elsewhere) and the large supermarket retailers. With Downing Street criticising the apparent reluctance of stores involved in selling affected products to step up to the plate and comment publicly on the horsemeat crisis – this could be interpreted as David Cameron telling the supermarkets that they are on their own and that its time to face the music.

The BBC quoting Number 10 sources reported that they were told that “it isn't acceptable for retailers to remain silent while customers have been misled about the content of the food they have been buying". They also allegedly said that  those selling affected products should answer key questions such as how did the crisis arise, what inquiries have supermarkets made about their suppliers and how can any similar problems be avoided in the future.

Some people will always seek to maximise profits, regardless of the consequences for the rest of us. This whole sorry saga is about chasing profit, with the pressure coming down from above for the cheapest red meat, so that profits can be maximised by the retailers at the cost of quality. The retailers silence is telling, as their persistent failure to ask too many questions (or looking the other way) on the part of the larger retailers has led us to where we are now.

Irish food inspectors announced last month they had found horsemeat in some beefburgers made by firms in the Irish Republic and the UK, and sold by a number of UK supermarket chains including Tesco, Iceland, Aldi and Lidl. Since then, a growing number of UK retailers have recalled processed beef products found to contain horse DNA. UK police are currently investigating allegations that horsemeat was mislabelled as beef have arrested three men on suspicion of offences under the Fraud Act.

In response to finding themselves (temporarily) out in the cold some the reluctant purveyors of hidden horsemeat said that they would speak out once the results of tests to determine the presence of horsemeat in processed meals are released. The first results of industry-wide tests are due to be released sometime today (Friday 15th February 2013), they were ordered by the Food Standards Agency after the revelation that quantities of horsemeat had entered some beef ready meals.

Samples of beef products have been examined in laboratories for traces of horse DNA as part of the tests, and food retailers said they would have results from about 30% of their product ranges.
Retailers said getting through all their processed beef ranges could take several weeks. Some shops have already recalled products they found to be contaminated - including Asda which withdrew a beef bolognese sauce on Thursday, the first fresh beef product to be involved. Aldi, Tesco and Findus have also withdrawn some beef-based ready meals.

The problem with hidden horsemeat is not limited to the UK and Ireland as food safety experts from across Europe are due to meet in Brussels this morning to  try to draw up plans on how to conduct DNA testing of a large number of beef food products across much of the continent in the next few g weeks. This meeting follows accusations from the French government who accused meat processing company Spanghero of knowingly selling horsemeat labelled as beef. The firm has denied the allegations, saying it only ever dealt in meat it believed to be beef.

In the wake of the hidden horsemeat scandal it will come as no real surprise that trade in local butcher’s shops has risen by around 15%. What’s important is that the entire meat industry isn't tarred with the same brush and that people finally recognise the benefits of buying produce sourced locally. Here in Wales, we have excellent quality red meat much of which reaches us through our local butcher and other local shops rather than the larger retail outlets.

Our surviving local butchers and local shops are the vital backbone of the Welsh meat industry, so it’s important that they receive the support they need and deserve. This horsemeat scandal will knock customer confidence in the supermarkets, so what better way of helping this important sector of our local economy than by buying the safer, healthier option in local butchers shops and giving a much needed boost to some of our small businesses.

LESSONS IN ICELANDIC

There are plenty of lessons to be learned from the way that Iceland has dealt with the consequences of the worldwide financial collapse. Iceland has worked to reduce (or cut) its dependence on the banking and finance sector of its economy, recognising that this sector is essentially unproductive, essentially short term in outlook and draws talented people away from more productive parts of the economy.

Iceland faced with the collapse of its major banks (in 2008) something that threatened to drag the state’s public finances down. The Icelandic Krona fell 50% against all major currencies, as unemployment roared up to 10% (not forgetting that this in a country where it had previously been negligible) and money flew out of the country at a truly scary rate.

The financial storm was weathered with capital controls (something the European Union Single Market prohibits) to stop the disappearance of cash. Around 100 new taxes were brought in and public spending slashed to the bone. Iceland borrowed money from its Scandinavian neighbours and the International Monetary Fund.

The one big difference was that Iceland let its privately owned banks, which were directly responsible for the crisis in the first place, die. Despite years of bullish talk from the City of London at the first sign of real trouble most (but not all) of the big boys went whining to Westminster for a bailout (which they got). In my opinion we would have been better off if Westminster had said no, you want to life by the market then you can die by it too! In Iceland’s case this meant that investors lost everything it crucially meant that taxpayers were not burdened with their banking debt.

Oddly enough in the darkest depths of the economic crash, following the collapse of the financial sector Icelandic businesses found that they had few problems when it came to recruiting highly skilled graduates. Iceland's businesses had previously struggled to recruit skilled graduates as they were being attracted to the bonus-paying banks, with the demise or reduction of that essentially unproductive sector they found the scientists, IT graduates and engineers that they required.

Any nation’s primary resource should be its people, this is something that Iceland, but not every state has recognised. Iceland is also blessed by a handy supply of cheap clean energy – something that reduces the country’s dependence on imported oil and gas. Around 99% of the Iceland’s energy needs are supplied from hydroelectric sources or hot thermal springs.

There are even proposals to export this renewable power via cables under the sea to Denmark or even Britain. This abundant cheap energy has brought financially important industries (and jobs) such as aluminium smelting, which uses significant quantities of electricity to convert bauxite (shipped in from Australia) into aluminium products in the country.

The Icelandic people have still paid a hard price for the financial collapse with renewed emigration and austerity, but, the country has just gone through the seventh straight quarter of economic growth (averaging at 2.5%) this is something most European governments would give their hind teeth for. Additionally Icelandic unemployment has dropped to slightly just under 5% something that suggests that a degree of economic confidence has returned – can we say the same here?

One significant difference between Iceland and the rest of the world is the fact that some of the bankers and the politicians responsible for the economic disaster ended up being charged for it (and in some case duly convicted). In the immediate aftermath of the crash, as the country's unemployment rate and inflation in Iceland sky-rocketed all hell broke loose on the political front. There was a huge wave of angry public protests and the then Prime Minister Geir Haarde’s government fell in 2009 and the former PM was duly charged with negligence and got his day in court.

Icelandic democracy remained vibrant despite the economic crash, in the March 2010, Icelandic voters rejected overwhelmingly via a referendum the proposal to pay the UK and the Netherlands 4 billion euros (£3.4 billion) they lost when the Icesave bank collapsed. In December 2010, Iceland the UK and the Netherlands agreed a new repayment deal. The country's parliament (in February 2011) voted yes to a new plan to repay the UK and the Netherlands for reimbursing 400,000 citizens who lost their savings in the collapse of Icesave's parent bank, Landsbanki.

Iceland's president, Olafur Grimsson, duly put the deal to a public vote. Back in April 2011, the voters of Iceland once again rejected the repayment deal in a referendum.  The Icelandic citizen’s view was that they should not be made to pay so much for their banks' bad decisions. Now this is a feeling that I suspect is shared by most of us, save for our elite who are busy making the rest of us pay off their mistakes and the mistakes of their friends in the City.

What are the real lessons from Iceland for Wales or anywhere else for that matter? Don’t let your economy get driven by a voracious and grossly irresponsible financial sector might be the first. Invest in the skills of your workers might be another lesson. Don’t be dependent upon imported energy suppliers and develop and retain control of your own sustainable renewable energy resources, we may not have hydrothermal power resources but we do have significant potential for developing renewable energy (onshore and off shore) which could provide us with a good reliable base for a sustainable economic future.

WAITING FOR THE GLIMMER MAN...

Yesterday we were waiting with no particular degree of anticipation for Chancellor George Osborne to inform MPs (and the rest of us) that there was no "no miracle cure" to the UK's economic woes in his Autumn Statement. The Chancellor made his statement against a pretty grim economic background when compared with his budget forecast made last March in the Budget. Mr Osborne continued to state that the coalition was continuing to "confront the country's problems" and was hard at work reducing the deficit.

The cancellation of the proposed 3 pence a litre increase in fuel duty may help a little and the  extra £227 million pounds for capital projects is useful it does little to redress fair funding for Wales. When it comes to growth being predicted to be -0.1% in 2012, down from the 0.8% prediction in the Budget in March we are truly in the realm of old style Soviet economic statistics. I suspect that some of the Con Dems (the Cons rather than the Dems I suspect) actually believe that austerity is the answer to the economic disaster left behind by Gordon Brown (and New Labour).

The party formerly known as New Labour predictably called the government's economic policy "a terrible failure” not that they would have done anything different if Gordon had managed to pull the electoral fat out of the fire back in 2010. What’s pretty clear from all of this is that the Con Dems are out of ideas, there was not really a Plan A, so there is little likelihood of a Plan B and clearly no desire to sort out the ongoing UK’s problem with tax evasion. So much for being all in it together.

Almost unnoticed by the UK’s self Anglo centric media the Irish Government presented its sixth austerity budget since the banking and economic collapse. Tax rises and spending cuts were announced as the government aims to save another 3.5 billion euro (around £2.8 billion). All of the so called economic "low-hanging fruit" has been picked clean after four harsh years of austerity. A new property tax (set at 0.18% of the value of a home up to 1 million euros (£800,000 pounds or $1.3 million dollars) and cuts to the health and social welfare budgets are planned.

Since 2010, Ireland, following an international bailout, has been forced to follow strict spending limits set by the EU and International Monetary Fund. The Irish government stated that it would meet its deficit reduction target for 2012 and that it  projected a budget deficit of 8.2%, compared with a target of 8.6%. Therefore the deficit would continue to fall steadily to 2.9% by 2015, it added. Irish economic forecasts (unlike on this side of the Irish Sea) were based on economic growth of 1.5% in 2013, rising to 2.9% growth by 2015.

Ireland is no Greece and while it has been riot it has not been protest free. The evident anger (if not quiet rage) at the bankers and the elites abject criminality and sheer folly may have been sidelined at the prospect, after hard years, by some light at the end of Ireland's dark economic tunnel, but, I suspect that it won’t be forgotten. Despite some economic glimmers  there are still plenty of people across the Celtic Sea who are less than happy with the choices made by the Irish elite and the fact that they have largely got away without punishment for their crimes, misdemeanour's and bad decisions.

There have been calls for a new republic and a fresh start literally writing off the past (and the debt) in a simular manner to Iceland. in ‘Towards a Second Republic’, Peadar Kirby and Mary Murphy exposed the winners and losers from the current Irish model of development and related the distributional outcomes of the use of power by Irish elites. It’s analysis of Ireland's economics, politics and society, draws some important lessons from its cycles of boom and bust. They also look at the role of the EU and compare Ireland's crisis and responses to those of other states.

The book (which is well worth a read) also includes proposals to construct new and more effective institutions for the economy and society are also included. Considering (somewhat closer to home) that  there have been no real consequences (or punishments for that matter) for the banking crash for the inhabitants of the Westminster village or the bankers (save for the loss of the odd bonus), I suspect that it won't be on the Christmas reading list of any elite reasonably near here.

TIME FOR SOME CONSEQUENCES?

Back in March I noted with interest that the trial of Iceland's former Prime Minister Geir Haarde, who was accused of negligence in his handling of the 2008 financial crisis that severely undermined the Icelandic economy, had begun in the capital, Reykjavik. A sizeable part of me thinks that it is quite refreshing for elected politicians to face real consequences for their actions? I mention this again because of the ongoing consequences of the embarrassing childlike spat between Osborne and Balls, which has served to provide a degree of distraction from New Labour and the Conservative party’s cosy relationship with the bankers and the City.

Now as most people know Iceland fell into recession when the country's major banks, including on-line bank Icesave's parent company Landsbanki, crashed in the autumn of 2008. Icelanders awoke to find that they owed six times the island's total gross domestic product (GDP), the world's credit markets promptly dried up, they were left high and dry unable to refinance loans. Iceland’s big three banks, who's business web stretched across Europe (with customers that included Welsh local authorities), collapsed under billions of dollars of debt.

Iceland’s economy had largely been based on and around fishing, but in the 1990s, the banks boomed and expanded abroad and Icelanders got cheap credit (just like the rest of us) with next to no regulation. After the crash, the unemployment rate and inflation sky-rocketed, and on the domestic political front all hell broke loose. A huge wave of angry public protests followed and the then Prime Minister Geir Haarde’s government fell in 2009.

The ex Prime Minster was accused of negligence because he had not ensured financial safeguards were in place. He has denied the accusation, saying he was only doing what he thought was best for the country at the time. The ex PM could face up to two years in the slammer if convicted. Ironically he was one of four politicians blamed in a 2010 parliament-commissioned report for contributing to the country's financial collapse, yet is the only one on trial.

In September 2010, the Icelandic Parliament decided that only the ex Pm should be tried on charges relating to the financial crisis, the trial began in March (2012) and ended with a guilty verdict (in April 2012). From here it certainly looks like the former PM was left carrying the can as two current ministers (Prime Minister Johanna Sigurdardottir and Foreign Minister Ossur Skarphedinsson) were not referred to the court, along with some of his former colleagues including the former foreign, finance and business ministers.

In the March 2010, Icelandic voters rejected overwhelmingly via a referendum the proposal to pay the UK and the Netherlands 4 billion euros (£3.4 billion) they lost when the Icesave bank collapsed. The Icelandic citizens view was that they should not be made to pay so much for their banks' bad decisions. Now this is a feeling that I suspect is shared by most of us, save for our elite who are busy making the rest of us pay off their mistakes and the mistakes of their friends at length.

Now where, save in Iceland have the ordinary people had a direct opportunity to pass judgement on any of the deals done to bail out the banks. Back in December 2010, Iceland the UK and the Netherlands agreed a new repayment deal. Iceland's parliament (in February 2011) voted yes to a plan to repay the UK and the Netherlands for reimbursing 400,000 citizens who lost their savings in the collapse of Icesave's parent bank, Landsbanki. Iceland's president, Olafur Grimsson, then put the deal to a public vote. In April 2011, the voters of Iceland once again rejected the repayment deal in a referendum. I wonder how the voters would have voted if we had been given a choice on bailing out the banks?

Anyway while Iceland fell into one of the most severe recessions anywhere in the world when the markets crashed in 2008 and economic output fell by around 12 per cent in two years. Yet despite this Iceland did not fall, an International Monetary Fund reports show that growth has resumed. GDP is expected to increase by a relatively healthy 2.5 per cent in 2011. The Icelandic public finances are on a sustainable path too with government debt projected to fall to 80 per cent of GDP in 2016.

Iceland's output is still more than 10 per cent down when compared to pre-crisis levels. The country's unemployment level is around 6.7 per cent, this is considerably higher than it was pre 2007. The Icelandic standard of living is also well down and there is limited access to foreign currency. The risks to recovery still remain and Icelandic Central bank interest rates are currently going up in order to curb inflation, something that could have an impact on growth. Yet despite all of this the outlook for the Icelandic economy looks much healthier than some other distressed economies in Greece, Ireland and Portugal.

Plaid Cymru believes that only a full public inquiry can offer an adequate response to a scandal on such a scale. A parliamentary inquiry could bring senior figures from the last New Labour administration to the dock under oath. Surely Gordon Brown and Alistair Darling, and Ed Balls and Ed Miliband, their former economic advisers, would relish a chance to clear their names by being called to account for their actions.

Both New Labour and the Conservatives have been (and still are) entirely fixated with putting the market before people regardless of the cost. A parliamentary inquiry could at least shine a light on the City’s murky dealings. Sadly both New Labour and the Conservatives are still entirely hooked on high finance and dazzled by the City’s dodgy money men, so we may have a long wait before we start to see politicians giving evidence in the dock.

UNFORESEEN CONSEQUENCES...

Its no secret, but, I have never been one for elites, whether they be elective, self-selective, cultural, social or sporting (something which may explain a slight dislike of Manchester United on my part). I noted with interest that the trial of Iceland's former Prime Minister Geir Haarde, who is accused of negligence in his handling of the 2008 financial crisis that severely undermined the Icelandic economy, has begun in the capital, Reykjavik. How refreshing for an elected politician to face real consequences for his actions?

Iceland fell into recession when the country's major banks, including on-line bank Icesave's parent company Landsbanki, crashed in the autumn of 2008. The Icelanders woke up to find that they owed six times the island's total gross domestic product (GDP), the world's credit markets promptly dried up, they were left high and dry unable to refinance loans. The county’s three big banks, who's business web stretched across Europe (with customers that included some of our local authorities), collapsed under billions of dollars of debt.

The country's economy had largely been based on and around fishing, but through the 1990s, the country's banks boomed and expanded abroad and Icelanders benefited from cheap credit just like the rest of us. In the immediate aftermath of the crash, the country's unemployment rate and inflation in Iceland sky-rocketed, and on the domestic political front all hell broke loose. A huge wave of angry public protests followed and the then Prime Minister Geir Haarde’s government fell in 2009.

The ex Prime Minster has been accused of negligence because he had not ensured financial safeguards were in place. He has denied the accusation, saying he was only doing what he thought was best for the country at the time. The ex PM could face up to two years in the slammer if convicted. Ironically he was one of four politicians blamed in a 2010 parliament-commissioned report for contributing to the country's financial collapse, yet is the only one on trial.

In September 2010, the Icelandic Parliament decided that only the ex Pm should be tried on charges relating to the financial crisis, the trial is expected to last until 15th March. The former PM was left carrying the can as two current ministers (Prime Minister Johanna Sigurdardottir and Foreign Minister Ossur Skarphedinsson) were not referred to the court, along with some of his former colleagues including the former foreign, finance and business ministers.

In the March 2010, Icelandic voters rejected overwhelmingly via a referendum the proposal to pay the UK and the Netherlands 4 billion euros (£3.4 billion) they lost when the Icesave bank collapsed. The Icelandic citizens view was that they should not be made to pay so much for their banks' bad decisions. Now this is a feeling that I suspect is shared by most of us, save for our elite who are busy making the rest of us pay off their mistakes and the mistakes of their friends.

Back in December 2010, Iceland the UK and the Netherlands agreed a new repayment deal. The country's parliament (in February 2011) voted yes to a new plan to repay the UK and the Netherlands for reimbursing 400,000 citizens who lost their savings in the collapse of Icesave's parent bank, Landsbanki. Iceland's president, Olafur Grimsson, put the deal to a public vote. Back in April 2011, the voters of Iceland once again rejected the repayment deal in a referendum.

Now Iceland has been through one of the most severe recessions anywhere in the world when the markets crashed in 2008. The country's economic output fell by about 12 per cent in two years. Yet the latest report on Iceland by the International Monetary Fund shows that growth is resuming. GDP is expected to increase by a relatively healthy 2.5 per cent in 2011. The Icelandic public finances are on a sustainable path too with government debt projected to fall to 80 per cent of GDP in 2016.

Iceland's output is still more than 10 per cent down when compared to pre-crisis levels. The country's unemployment level is around 6.7 per cent, this is considerably higher than it was pre 2007. The Icelandic standard of living is also well down and there is limited access to foreign currency. The risks to recovery still remain and Icelandic Central bank interest rates are currently going up in order to curb inflation, something that could have an impact on growth. Yet despite all of this the outlook for the Icelandic economy looks much healthier than other distressed economies across the water in Greece, Ireland and Portugal.

Closer to home, there are plenty of people across the Celtic Sea who are less than happy with the choices made by the Irish elite and the fact that they have largely got away without punishment for their crimes, misdemeanour's and bad decisions. Some have called for a fresh start and new republic literally writing off the past (and the debt). In recent history in Ireland (and elsewhere on the European mainland) referenda have produced the wrong result, at least as far as the elite are concerned.

Peadar Kirby and Mary Murphy exposed the winners and losers from the current Irish model of development and related the distributional outcomes of the use of power by Irish elites, in their book Towards a Second Republic. The authors analysis of Ireland's economics, politics and society, and draws some important lessons from its cycles of boom and bust. They also look at the role of the EU and compare Ireland's crisis and responses to those of other states. The book includes a proposal to construct new and more effective institutions for the economy and society, I suspect that it won't be on the summer reading list of any elite near here any-time soon.

Even closer to home there have been no real consequences (or punishments for that matter) for the banking crash for the inhabitants of the Westminster village or the bankers (other than the loss of the odd bonus). The Royal Bank of Scotland (RBS) intended to reward its chief executive Stephen Hester a bonus of £1.4 million despite a fall in share prices. The announcement came days after RBS effectively pulled the plug on profit-making fashion retailer Peacocks who went into administration leaving thousands of livelihoods at risk, only serious public criticism led to the rejection of the bonus.

RBS was bailed out with billions of pounds of taxpayers' money during the financial crisis, but showed a marked reluctance to lend to a profitable business during its time of need. The UK financial sector, on the back of Thatcher's plundering of state assets, created a culture of rewarding failure and neglecting responsibility, encouraged by the hands off approach of New Labour. The Conservative dominated Westminster government, shows a marked reluctance to regulate the excesses of the banking sector, perhaps it might cause a few awkward moments in the club...