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Friday, 28 March 2008

28 March 2008

I trust you’ve been feeling well-loved this week – because President Sarkozy of France loves all of us. He adores us, admires us and wants to move in with us. (Apologies to my non-British readers: in this context “us” means “us Brits”.)

He has smothered us in love, he has ladled love upon us in such quantities that it has been difficult to breathe. He has flattered and flirted so outrageously that his new wife, the delectable former model Mme Carla Bruni-Sarkozy, must have been left wondering if his affections have already moved on.

So how should we react? Well, it’s always nice to be loved and admired – and Gallic charm can go a long way. But we’re grown-ups, aren’t we, and we know that a flatterer’s intentions are not, shall we say, always strictly honourable.

“Nations have no permanent friends or allies, they only have permanent interests.” Lord Palmerston, 19th century prime minister and foreign secretary, knew a thing or two about foreign relations -- and I suspect he would not have succumbed to M Sarkozy’s blandishments. Nor, I fancy, will Gordon Brown.

Yet we did learn something important during the French president’s visit. He is unusually pro-Anglo Saxon in his outlook; he thinks the UK has shown France the way forward. True, he may be a lot more showy than Mr Brown, but the two men do share a deep admiration for Margaret Thatcher.

For the best part of 30 years, France and Germany have been the motor that drives what is now the European Union. (When it started life as the EEC, its main purpose was to prevent those two countries going to war again.) But M Sarkozy is not a huge admirer of the current German chancellor, Angela Merkel, nor she of him. It has long been a British dream to come between France and Germany, and now, maybe, the dream has come true.

Or maybe not. Lord Palmerston was right about national interests – and it may well be in France’s interests to cosy up to Britain, but it is certainly not in its interests to cold shoulder Germany. M Sarkozy isn’t changing friends; rather he wants some new friends while keeping all his old ones.

What it means is closer cooperation between Paris and London when it suits both parties – but only then. As for relations between Paris and Washington, the 71-year-old Republican presidential hopeful John McCain likes to joke: “France now has a pro-American president, which just goes to show you that if you live long enough, you'll see everything."

A close aide of M Sarkozy’s told me at the time of his election last year that the President got on famously with Tony Blair, but found Gordon Brown a lot harder to read. Like Mr Blair, he has a way with words, is a great charmer, and delivers a great speech. None of which can be said of Mr Brown.

Yet I fancy the prime minister would agree that the Royal Gallery in the Palace of Westminster has rarely witnessed a tour de force such as that delivered by the French president on Wednesday. Together, he said, France and Britain can rule the world. “If the United Kingdom and France together want more justice, the world will be more just. If the United Kingdom and France fight together for peace, the world will be more peaceful. If the United Kingdom and France unite to brave the rising economic storm and jointly propose the necessary reforms, the world will be less uncertain and more prosperous.”

We shall see. Back home, French voters are none too impressed with their flamboyant President’s performance so far … and yesterday the French newspaper Le Monde commented acidly that M Sarkozy had seemed just as British in London as he had seemed American in Washington.

A final word about Mme Sarkozy: some of my colleagues say she reminds them of Audrey Hepburn. I agree she’s elegant and charming, but for me, La Hepburn will always be, as they say, nonpareil.

Friday, 21 March 2008

21 March 2008

I’d perfectly understand if you’d rather not think about money this weekend. But you’ll probably have noticed that the words “financial crisis” have been much in the air again this week, and I think we need to try to make sense of what’s going on.

I’m one of those people who get a headache just looking at a bank statement. So this hasn’t been an easy time for me. But I labour long and hard on your behalf, and I think I’ve got the hang of it.

It goes, I think, something like this. Suppose I ask you to lend me £50. How you respond will depend in large part on how much money you have. If you don’t know exactly how much you’ve got – if you’ve already lent out oodles of dosh but you’re not sure you’ll ever get it back – well, you may politely tell me to look elsewhere. And if you’re just one of many in the same position, I’ll find it pretty tough to get my hands on that £50.

I will be, to use the technical term, the victim of a credit squeeze. And I will be in pretty much the same position as many of the world’s biggest banks. No one wants to lend, because no one is sure any more how much is in the coffers.

Last Tuesday, my colleague Jonty Bloom explained it all in wonderfully simple terms in an essay which you can either hear again via the Listen Again facility, or you can read the transcript which I’ve put online here.

Here’s the key passage: “It all started with sub-prime lending. There is a lot of ignorance about what sub-prime actually means, but it is quite easy really: sub-prime is a euphemism for rubbish. American banks lent lots and lots of money to people who couldn't pay it back because they were too poor to. That was bad enough, but the banks made it worse by then passing on the risks of not being paid back by bundling together thousands of good and bad mortgages and selling those bundles on to other banks around the world.”

Have you ever heard of a “Minsky moment”? Hyman Minsky was an American economist who used to argue that markets are inherently unstable and that if you have a long stretch of good times, you’ll just end up eventually with a bigger collapse.

His reasoning went like this: When times are good, investors feel so confident that they take on more risk. The longer the times stay good, the more risk the investors take on, until, one day, they've taken on too much. They reach a point where the cash generated by their assets is no longer enough to pay off their debts. That’s when the lenders start to call in their loans – and asset values collapse. It sounds horribly familiar, doesn’t it?

So perhaps capitalism has a built-in contradiction. It thrives on private risk – and the notion that the bigger the risk, the bigger the potential reward. But if too many people lose too much by taking on too many risks, the state has to intervene, because it’s in no one’s interests for the whole edifice to come crashing down.

The financial regulatory agencies are meant to keep an eye on the banks to make sure that they behave sensibly. But Jonty Bloom has a theory: that people’s memories are just a fraction shorter than the typical economic cycle – so that there’s always a period when they come to believe that this time things are different: that they have reinvented the wheel, that the force of gravity has been overcome.

So do yourself a favour. Write a note in big black letters, and stick it somewhere where you’ll see it every day. “What goes up, must come down.” And if you know any bankers, give them a copy too.

Friday, 14 March 2008

14 March 2008

If you were listening to the programme on Wednesday, you’ll have heard us report that the level of violence in Iraq is on the increase again. (If you missed it, it’s still available via the Listen Again facility on the website.) Yesterday morning, I received this message from a medical student in Baghdad:

“Do you know what the most difficult thing is? When you have cancer, and your doctors are assuring you that you're really getting better, and that the tumour is declining, but in reality it turns out that it's only a latent period for the cancer cells, and that those cells have exploited this latent period to gather their strength and start to become apparent again. Can you imagine the disappointment when you find out this horrific truth? You'll feel so alone. And because your loved ones have got used to the idea that you're actually getting better, then they'll need a lot of time before getting used to the idea that your condition is deteriorating.”

The violence is the cancer. We, the outside world, are, I think, her “loved ones”. And this is the same student’s account of her attempt to get to her university one day last week:

“Today I was supposed to have my big obstetrics exam. The majority of the main roads in Baghdad are blocked since yesterday because of the visit of [Iranian president] Mr Nijad to Baghdad. Early in the morning today at about 6:45am my driver came to my house to pick me up to go to college, my two girlfriends were in the car (it's extremely unsafe for Baghdadi girls to use the public transport to move around in Baghdad, so I and 3 of my best girlfriends have hired a private driver in order to take us to college). As we got closer to the district in which my college lies, a roadside bomb has exploded at a close distance ahead of us. So we all decided to go back home. On our way back home, another roadside bomb has exploded also at a close distance behind us. I saw the other car flying in the air. So in the end we got back home. And we missed our obstetrics exam. And that's a very ordinary day of our ordinary daily Baghdadi life.”

Three days later, her 25-year-old neighbour Ali was killed in yet another car bombing.

Yes, it’s true that the level of civilian deaths is still a fraction of what it was a year ago. But whereas for much of last year, the trend was downwards, it is now starting to go back up again. Why? Well, within the next few months, the extra 20,000-25,000 US troops who made up the military “surge” will begin to go home. So it is likely that the upward trend in violence is the start of a new attempt by, in this case, mainly Sunni militias to reimpose their authority in areas where the Americans had, for a time, taken control. Over the past five days, 15 US servicemen have been killed.

Even so, according to a survey by the Pew Research Center, fewer than one-third of US voters know that the total US military toll in Iraq since the invasion five years ago is now approaching 4,000. So how long, I wonder, before Iraq returns to centre stage in the US presidential campaign? Because it may well be that by the time of the election in November, the violence will be considerably worse than it is now. According to Pew, in a single week last month, coverage of Iraq made up just one per cent of total US news coverage.

I suspect that is about to change.

Friday, 7 March 2008

7 March 2008

BARCELONA: The last time that I was here, Spain was still under the rule of the Fascist dictator General Francisco Franco. It was more than 35 years ago – and it was illegal to speak the Catalan language in public, or to fly the Catalan flag.

Well, you won’t be surprised to learn that things have changed a bit since then. Barcelona is now not only one of Europe’s most vibrant and successful cities, it is also the proud capital of a resurgent Catalunia, which enjoys a considerable degree of autonomy from the central government in Madrid, but where some people hope that one day they’ll be an independent nation again, as they were until the early 18th century. (Think Scotland, but with more sunshine.)

And that’s one of the main reasons why I’m here. On Sunday, Spanish voters will be asked to elect a new parliament – for the past four years, the Socialist party led by prime minister Jose Luis Rodriguez Zapatero has been in power, but if he’s to win again this time, he’ll need as much support as he can get from the Catalans.

The signs are that he’ll probably scrape through, but it could be tight. The Spanish economy is in the doldrums: house prices are falling, unemployment and inflation rates are rising, economic growth is down. And there’s rumbling unhappiness about immigration: the construction boom of the past decade has been largely fuelled by migrant labour from Morocco, Latin America, and Romania, and 10 per cent of the Spanish population were born abroad. (Yes, that includes all the Brits who’ve retired to the Costa del Sol.)

Last night, I was at a huge Socialist party rally in a sports hall just next to Barcelona’s vast Olympic stadium. More than 25,000 of the party faithful were there, waving flags (more Catalan flags, in fact, than red flags), and cheering party leaders as they forecast victory on Sunday.

Four years ago, as you may remember, the last general election was held in the immediate aftermath of the Madrid train bombings in which nearly 200 people were killed. The right-of-centre government of Jose Maria Aznar was unexpectedly kicked out by voters furious at its response to the attacks: its original claim was the bombings were the work of the Basque separatist movement ETA, whereas as it soon became clear, they were carried out by Islamist jihadists linked to al-Qaeda.

This time, Spanish voters have a chance to make their decision in a more tranquil environment. But like voters in many other European nations – Italy, where an election is due in just over a month’s time; France; Germany; and Britain – they are uncertain about their future. A long run of economic growth is coming to an end, and large movements of immigrants, as a result of globalisation and the expansion of the European Union, mean there are questions about the nature of their societies.

Here, more than three decades after the death of Franco, voters also have a chance to show whether Spain can now be regarded as a mature European democracy. After the unilateral declaration of independence by Kosovo last month, Catalans – and Basques in the north of the country – have to decide how hard to push for more autonomy, or even independence. As a Catalan nationalist MP said to me yesterday: “We are not Kosovo, but we are encouraged.”