Thoughts from Galicia: 10.3.17

Oh dear, Spain's Report Card gets worse . . . 

1. Per the EU Commission . . . Levels of poverty, inequality and social exclusion are among the highest in the EU. The gap between the wealthiest 20% and the poorest 20% is one of the largest in the EU and continues to rise. See here.
2. Spain has dropped 3 places in an annual international assessment of the world's best countries. In contrast, the UK is now 3rd. More here.

The Spanish centre-right Ciudadanos went into a pact with the right-to-far right PP party on the basis that the latter would initiate a Parliamentry Commission on corruption. To no one's surprise, this has not come to pass and Ciudadanos has said it's ending the pact. Spain's (PP) President has replied that investigating corruption is not currently a priority for his party and government – which is about the truest thing he's ever said – and that the latter will get on with tackling the problems that people really care about. Right. Like political control of the media, perhaps.

Smack on cue, the investigating judge in what's known as the Púnico corruption case, has said there's prima facie reasons for taking a look at the decisions of the ex mayoress of Madrid, Esperanze Aguirre - known to some as Spain's Maggie Thatcher. Whom no one thought could possibly have kept a clean nose but who left politics  a few years ago smelling of roses. Almost. Note: At least I think it's the Púnico case but it could be one of the several others winding their way through the Spanish justice system right now. One gets as confused as some rather lenient judges obviously do.

Closer to home, we've learnt this week that the centre of Brazil's biggest corruption case is a brass-plate office in the centre of Pontevedra's old quarter rented by a lawyer by the name of Rodrigo Tacla Durán. Who was collared last week. So, it's not only our drug barons we can be proud of.

Hearing someone on a News program referring to the UK's health service as our cherished NHS got me thinking about its similarities with the EU. Both are vast bureaucratic enterprises beyond the capabilities of human management. Although founded on a base of incontrovertibly impressive ideals and although responsible for many good things, both cause great misery to large numbers of people. And both are impervious to sensible reform and are thus cracking under the weight of their massive deficiencies. Like others, I've always seen both of them eventually ceasing to exist but, like the author of the first EU article at the end of this post, I now fear that the implosion of the EU is actually coming too quickly. And I never thought I'd write that.

There's a second article on the mess the EU is in and then one on the NHS and a different approach to financing it. I'm not convinced that would be enough to save it.

Finally . . . Is the Spanish or Galician dental market undergoing rapid growth? Or are high-street dental practices a good front for money laundering? I ask this because one of the latter sprouts on the streets of Pontevedra every 6 months or so. Here's the latest, at the bottom of the old quarter, near Burgos bridge and the market:-

Used to be a shop selling the dowdiest of clothes for women. I wasn't surprised that closed.

THE 3 ARTICLES

THE EU

1. We must leave the EU quickly – it is falling apart faster than I thought

Allister Heath, The Daily Telegraph

The EU is at its weakest, most vulnerable since its creation, and it is now touch and go whether it survives 2017 or whether it is swept away in a catastrophic populist revolt

Hand over a €60 billion ransom or we won’t even start to discuss a trade deal: that, if Jean-Claude Juncker is to be believed, will be the European Union’s opening gambit ahead of Brexit.

Bring it on, I say: the best way to expose a very weak adversary who is pretending to be very strong is to call their bluff. Yet it may never even get to that. At this rate, what is left of the EU could soon be begging us for a trade deal, not the other way around.

The reality is that the EU is edging ever-closer to the abyss: it is at its weakest, most vulnerable since its creation, and it is now touch and go whether it survives 2017 or whether it is swept away in a catastrophic populist revolt.

Trouble is not only brewing in France, where Marine Le Pen keeps gaining ground, but also in the Netherlands, in Greece, in Italy and in eastern Europe.

Even if the dissidents fail, for now, the EU will soon be crippled by Britain’s departure, robbing it of its financial centre and billions of pounds a year in net contributions.

The EU’s modus operandi has always been to buy support with German and British money, especially in poorer regions and in France’s agricultural heartlands: when the cash runs out, or is replaced by some euro-tax, tensions will flare up again.

We keep worrying about how Brexit will affect Britain. But the real question is how Brexit will debilitate Brussels, shift the balance of power and ideology on the continent, with smaller, more pro-market nations losing their British champion, and trigger a new dash to yet more unpopular centralising treaties, fuelling more rage and anger. Yet the Eurocrats in Brussels and some Remainers in Britain keep on talking as if nothing has changed, as if the UK were leaving some powerful, eternal, economically successful superpower. The status quo is gone, forever, and what is left could be smashed further in just three months’ time.

The most urgent threat to the EU system comes from Le Pen. Her rise, the extent of which has confounded everybody, is the most important story of the year. Her hard-Left views on big companies, capital and trade are incompatible with EU membership, as are her views on immigration; and she wants to quit the euro.

France’s current, already broken constitutional arrangements and “social contract” wouldn’t survive. Le Pen’s election would detonate a neutron bomb under all post-war institutions and the global economic order; a disorderly French withdrawal from the euro, which would also lead to others such as Italy following suit, would wipe trillions off asset values and trigger another global financial crisis.

Le Pen is now polling around 27 per cent in the first round and while she would still be defeated in the second, surveys suggest she would grab an unprecedented 42 per cent of the electorate. Given that this is a rise of around five percentage points in just a few weeks, anything is now possible, and it reflects the extreme, explosive disenchantment among the French public with decades of economic, social, immigration and crime policies. Even if she loses, the genie will be well and truly out of the bottle.

The likes of Juncker, a Marie Antoinette figure if ever there were one, are now so firmly ensconced in a parallel reality, replete with alternative facts and constructs, that they no longer understand what is happening. They still look at the shiny new Europa building in Brussels, which cost €321 million, and see a powerful, purposeful force for progress, rather than an increasingly loathed, soon-to-be bankrupt bureaucracy whose demise threatens the peace and prosperity of our civilisation.

They labour over their preposterous economic models, telling us how impoverished the UK will become as a result of us loosening our ties with an imaginary fast-growing European economy, not realising that they are the victim of an extraordinary case of cognitive dissonance. They look at the world, but only see what they want to see, rather than what exists.

One of the reasons why I backed Brexit was because the UK is the only major European country able and willing to extricate itself from the doomed project in a rational, pro-trade, pro-market way. Brexit allows us to show the world that there is a better, more sustainable way to embrace real globalisation without having to hand over power to corrupt, unelected technocrats, and that wanting self-government doesn’t necessitate voting for extreme, destructive National Front-style parties. So far, it looks even better than I hoped, thanks to Theresa May’s enthusiasm for free trade and her commitment to keep the country open to capital and talent.

But where I may have been over-optimistic was that I was hoping that the EU would survive for at least another five years to 2022, giving Britain more time to build new institutions, diversify our trade and show the rest of Europe how it could be done. I was counting on the cyclical economic upturn, which will give all European economies a boost, as well as on an assumption that someone other than Le Pen would win in May, before going on to fail to reform France and thus delivering the country into her hands the next time around. Jacques Chirac failed to reform France, as did Nicolas Sarkozy; one must hope that Francois Fillon would pull it off, but that’s unlikely. Emmanuel Macron, a fashionable neo-Blairite with no party backing, would fail disastrously.

I’m no longer so sure that we have so much time. It still seems likely that the EU will stagger on for a few more years, just as it survived earlier crises, but the day of reckoning is getting ever closer. We need to leave, urgently, to insulate ourselves as best we can from the fallout.

Given the gravity of the situation in France, the House of Lords should be debating how to accelerate our withdrawal from the EU, not how to delay it. Big banks should be planning on shifting bankers to Britain from France, not (in one case) the other way around. Remainers should stop producing anti-Brexit reports that massively exaggerate all of the difficulties caused by leaving, and turn their attention instead to ways of mitigating the fallout from the EU’s implosion.

It is in Britain’s interest that the EU’s demise be carefully managed. Unfortunately, it increasingly looks like the opposite will be true. The Government should be hoping for the best, but planning ever-harder for the worst. 

2. The EU is divided, fearful and in total disarray - there's just one thing the 27 agree on.

Peter Foster, the Daily Telegraph

The European Union stands on the cusp of momentous change: with Vladimir Putin menacing in the east, Britain poised to leave and the streets fizzing with populist discontent, the continent’s political establishment is under greater threat than at any time since the Union’s inception.

But perusing an advance copy of the conclusions for today’s EU leaders’ summit in Brussels you wouldn’t guess anything much was amiss.

The entire document reeks of just another damp day in Brussels at which the EU leaders will (again) “reiterate the need to complete the banking union”, urge member states to show “solidarity” on migration and congratulate themselves on the “encouraging” news that European unemployment, stratospheric after the 2008 financial crisis, is now only sky-high.

At a time when you might think that the Europe Union was reaching for a grand new vision to revive its faltering project, the pallid memos coming out of Brussels have taken on a near-hallucinatory, end-of-empire complacency.

Viewed from some quarters of a soon-to-be-liberated Britain, the entire EU organisation now wears a deathly pallor that was summed up by Jean-Claude Juncker’s anaemic White Paper on the future of Europe released earlier this month.

Laying out five scenarios for the future, Mr Juncker’s document was intended to launch a rebirth of the Union. Alas, it was so short of intellectual ‘oomph’ that some senior EU diplomats now privately question whether it can be used even as a starting point when leaders meet to celebrate the 60th anniversary of the EU’s founding treaty in Rome later this month.

Underlying the stunted vision is the reality that on the really fundamental questions - on the fiscal transfers needed to underpin the euro, on the shape of a common EU defence policy, on migration and the core shared values of the Union - there is no agreement. What looks like complacency is actually the result of a profound policy paralysis that makes bold plans for reform inconceivable.

There is much talk, for example, of the need for a meaningful EU defence policy, in the light of Brexit, Putin and Trump. But drill down into the detail and the new EU defence plan is essentially an empty vessel, gutted by disagreement between the major players.

The result is an EU Headquarters, agreed this week, that must confine itself to “non-executive military missions”. Even by EU standards, that’s a gloriously tautology.

So while the new eastern countries reject migrant quotas, multi-cultural values and all forms of bossing from Brussels, on the euro – the EU’s structural straitjacket - divisions between northern creditors and debtor countries in the south mean that substantial progress on real EU reform remains in stasis.

Eurosceptic parties may not win power at the coming Dutch, French and German elections, but their influence on the national policy agenda is surely going to make it even harder to sell the ideas of Greek debt relief, a common Eurozone deposit insurance scheme and the creation of a European Monetary Fund.

That is why, when the leaders of France, Germany, Spain and Italy met to discuss the future of Europe in Versailles this week - the “formidable four” as one commentator waspishly dubbed them – emerged with nothing of substance.

With such fundamental divisions, talk of rebooting the idea of a “two-speed Europe” is just that – talk. Recalcitrant non-euro eastern states like Poland and Hungary are determined not to be left behind while the core Eurozone countries, who already to some degree move in a separate orbit, cannot agree on the really big questions.

What is left, as this week’s summit will so amply demonstrate, is just small-bore projects and window-dressing.

Even where there is agreement, such as the need to do more to counteract the rise of Turkish and Russian influence in the Western Balkans, the very need for talks is testament to the fact that the EU’s creeping failure has allowed malign, anti-democratic influences to flourish. 

The reality that the current EU is in no fit state to welcome new members into the western democratic fold reduces Europe’s attractiveness and influence in the Balkans, and conversely increases the allure of the authoritarian regimes of Putin and Erdogan. Talk in Brussels cannot mask these fundamental new realities.

But here’s the rub: surveying this Europe of division and dysfunction, it might be tempting to conclude that the EU will prove a callow adversary when confronted with the reality of a messy Brexit and a set of determined British negotiators who - unlike David Cameron – really are prepared to walk away.

It would be tempting, but viewed from Brussels, it might also be wrong. If Mr Cameron’s failed negotiation demonstrated anything it was that one of the perverse consequences of the EU project’s slow unravelling is its ability to unite in the face of a common threat. In this case that threat is Britain, and its decision to demonstrate there is life outside the Union.

The EU is divided in so many areas, but on this question – that Britain must be seen to be ‘worse off out than in’ – it remains surprisingly united.  Less surprisingly - since the UK’s departure leaves all 27 states out of pocket one way or another - the EU is equally united about the fact that Britain must pay a hefty Brexit bill on departure.

Mr Cameron badly over-estimated the EU’s ability to see that the best way to address the public trust deficit was to reform. The members disagreed, closing ranks and refusing to bend out-dated principles to new political realities. Mrs May, with much higher stakes now for both sides, is determined to try again.

She bets that when faced with Brexit and the risk of chaos across capital markets and car supply chains, the EU will this time opt for a more reasonable course.

Maybe. But on past form, the risks of the opposite outcome must remain high. As one senior British official preparing for the negotiations confided recently, the biggest danger for Britain is this fractious European Union seeks to heal its differences by making Brexit the one issue on which they find common cause. 

3. THE UK NHS

It’s time for a separate tax to fund the NHS

Daniel Finkelstein, The Times.

Here’s a sentence to remember during today’s budget speech: “Within a year of the foundation of the NHS, Labour had realised that the blank cheque on social expenditure was not sustainable.”

With these words Brian Brivati, Hugh Gaitskell’s biographer, begins his account of one of the great battles of postwar politics — the tussle between two of the rising ministers of Clement Attlee’s Labour government. On the one side, chancellor Gaitskell, on the other the health minister who had introduced the NHS, Aneurin Bevan. Should Labour, in its 1951 budget, impose charges for false teeth and spectacles?

There could only be one winner. The chancellor imposed the charges and Bevan resigned. But it wasn’t just Gaitskell’s authority as finance minister that ensured victory. It was maths and reality.

As Nick Timmins records in The Five Giants, his definitive history of the welfare state: “The NHS proved spectacularly more expensive than expected. The original estimate for the first nine months had been £132 million. Actual spending, at £208 million proved two thirds higher. The first full year, 1949-50, required another 70 per cent rise to £358 million.”

So of course Gaitskell had to act and Attlee had to back him. The government didn’t just need the money. It needed to establish the principle that NHS spending would be controlled. At least a little bit. The 1950 figure, £358 million, is the equivalent of about £8.5 billion now. In 2015-16 the budget of the NHS was £116.4 billion. Imagine where we would be if Gaitskell had lost.

This history is worth understanding as the chancellor rises to speak today. He may be able to — and probably will — resist adding to his planned increases in NHS spending. He is probably correct to judge that it is his job, however difficult, to exercise some sort of control on the budget for a service. Whatever his resistance, the pressure for more spending will carry on and he or his successor will yield to it.

So he needs — we need — a strategic approach. This is the truth about the path we are on: it isn’t sustainable. In January the Office for Budget Responsibility published its fiscal sustainability report for 2017. Because it came out on the same day as the prime minister’s speech about her European plans there wasn’t much discussion of it, but the story it told was dramatic.

The OBR decided to take account of the rising cost of healthcare in its projections of public sector debt. The population is ageing, chronic health conditions are becoming more prevalent and new expensive treatments are becoming available all the time. All of these will push up health spending.

When William Beveridge came up with the idea of the NHS he thought that the cost would fall as the population became healthier. We have long known that he was wrong. But we have only recently become aware that the potential for innovation in care is almost limitless and that more of it will add to cost rather than reduce it.

We can, for instance, treat Aids sufferers now with costly drugs that they take for decades. Tragically, only a few years ago they all died quite quickly.

If there is no change in policy towards healthcare and taxation, and the government from time to time acts as all governments always have, granting more funding to relieve pressure, the spending will drown the country in debt.

Before the OBR included these new health calculations, the national finances were in trouble. With the new adjustment for rising health costs, these bad figures look worse. Far worse. By the middle of the century, unless we do something, our public-sector debt will be almost twice our national income. By 2066, it will be heading towards 250 per cent of our national income. That’s more than four times the proportion that is usually regarded as acceptable.

So we can’t go on as we are. We have to do at least one of three things: reduce the scope of the services offered by the NHS, reform the service to increase productivity, or pay more for healthcare. I suspect we will have to do all three. And it seems entirely obvious that we should consider all three together.

From time to time there is a crisis in the NHS and we have a heated debate about health spending. At other times we are concerned with the deficit and we discuss spending control. Sometimes we talk about health reforms. Wouldn’t it make sense if we did all these things at the same time?

That is the case, and a strong one, for a separate, identifiable health tax. We wouldn’t just be able to put more health spending on the national credit card and we wouldn’t need to starve the NHS of funds when people wanted more spending. When we discuss increasing health spending faster than the economy, we would also have to discuss raising taxes to pay for it. And the knowledge that tax rises might be required, and would need to be argued for, would put pressure on the NHS to increase productivity.

I do not favour this approach in other areas — defence, say, or education. I think the scale, the history and the projections of NHS spending make healthcare different.

A separate NHS tax — hypothecation, as it is called — has always been resisted by the Treasury as eccentric and unnecessary. Nervous at proposing something so unorthodox, I wasn’t much reassured to learn that the shadow chancellor, John McDonnell, is tempted by the idea.

But the strength of the case for an NHS tax, and the clear shortcomings of other approaches, have persuaded Nick Macpherson, until recently Treasury permanent secretary, that the idea now, as he put it in evidence to parliament, “merits further examination”.

What he is suggesting is that a budget for healthcare be set for five years at the beginning of each parliament. During an election, the size of this budget, its content and its tax consequences would then be debated together. If a party wanted a big increase in spending on health it would have to argue for a tax rise.

An incoming government would then set a health tax for the parliament, with the Treasury keeping the fund in balance if required. The best candidate for this tax is national insurance, although its base would need to be expanded so that older people chip in too, since they are the main beneficiaries of the NHS.

Anyone got a better idea? As I said, we can’t go on as we are.