Category / Euro

A single supervisor to rule them, a single central bank to recapitalize them June 29, 2012 at 10:02 am

From the Euro area summit statement:

We affirm that it is imperative to break the vicious circle between banks and sovereigns. The Commission will present Proposals… for a single supervisory mechanism shortly… When an effective single supervisory mechanism is established, involving the ECB, for banks in the euro area the ESM could… have the possibility to recapitalize banks directly.

Mario, François and Mariano win this round.

The worrying decline of the unsecured interbank market June 18, 2012 at 9:35 am

Benoît Cœuré, Member of the Executive Board of the ECB, recently gave an important speech. It has quite a lot in it so even the bullet point version isn’t that short, but I promise you that it is worth thinking about his essential argument.

  • Money markets around the world came under severe stress during the recent financial crisis and in the subsequent sovereign debt crisis, with interest rate spreads jumping to unprecedented levels and market activity declining significantly in many market segments.
  • Opacity in banks’ balance sheets, coupled with uncertainty about the real valuation of their assets, led to acute tensions in the markets for credit instruments… Off-balance sheet entities became unable to roll over short-term financing in the US asset-backed commercial paper market. These events reinforced each other and generated uncertainty about both the solvency and liquidity of money market participants. Counterparties could not distinguish good banks from bad.
  • Liquidity was no longer flowing from cash-rich banks to cash-poor banks.
  • The Eurosystem introduced a fixed-rate full allotment regime in its refinancing operations, offering unlimited liquidity to banks at predictable cost against an expanded set of eligible collateral. The rise in the liquidity deposited with the Eurosystem after October 2008 was a direct consequence of this new regime and a symptom of a malfunctioning money market.
  • Stress in the Euro unsecured money market continued beyond 2008, with a reduced turnover and preference for lending at shorter maturities.
  • Dispersion in banks’ access to funding increased considerably in the euro area, with banks domiciled in countries under sovereign strains facing severe constraints even in obtaining secured funding.
  • Deep and liquid money markets, not unlike other markets in the economy, play an important part in information aggregation and price discovery. They also help to ensure market discipline.
  • Money markets play a central role in monetary policy transmission in the euro area.
  • It is important that the Basel 3’s new liquidity regulations do not hamper the functioning of funding markets. This applies in particular to the calibration of the run-off rates for interbank funding and to the asymmetrical treatment of liquidity facilities extended to financial firms.
  • The regulators’ welcome push to OTC derivatives towards CCPs may also have an effect on both the unsecured and secured money market segments. Such a move will lead to an increased need for high-quality collateral. The supply of safe assets is finite and the pool of “good” collateral is dwindling as the creditworthiness of certain sovereigns is questioned by market participants. The more good collateral is pledged to the CCPs, the less is left to use in the secured money market, and the fewer assets are available to other creditors in the event of default, making it difficult to obtain unsecured refinancing. This strengthens the need to find ways to identify or produce new assets that can be used as collateral and to mitigate the pro-cyclical consequences of credit ratings and of market valuation.

Greece votes – the Euro is not dead yet June 17, 2012 at 9:36 pm

You wil have the news already. I am using this as a shabby excuse to post this picture:

Not dead yet

The markets want austerity right? June 11, 2012 at 9:11 am

Post Bailout Spanish Yields

Apparently not. Spain now owes 100 billion euros more, give or take, but yields are compressing and stock markets are rising. Clearly the austerians have, in a limited sense, been defeated.

In the immediate aftermath, two things occur to me. First, this fits alarmingly into the pattern of doing enough to prevent an immediate crisis, but not enough to address the underlying problems, guaranteeing that another crisis will arrive in a few months. Second, I bet the Irish are exceedingly peeved by this. After all, they didn’t get a break anything like this, and have suffered huge pain as a result. Moreover the Spanish bailout doesn’t even give them hope that they can line up at the queue for that sweet sweet Euro-liquidity.

(HT FT Alphaville for the data.)

The backlash begins December 17, 2011 at 8:08 am

The consequences of Cameron’s ‘diplomacy’ are becoming clearer. Bloomberg reports:

European Union officials may abandon U.K.-backed safeguards on derivatives legislation, four people familiar with the situation said, a week after Prime Minister David Cameron’s demands to protect London’s financial industry almost wrecked an EU summit.

Ambassadors for the EU’s 27 nations, meeting yesterday in Brussels, discussed weakening an October agreement to grant national regulators powers over clearinghouses, according to the people, who couldn’t be identified because the talks are private. The British government has argued that the accord was essential to protect U.K.-based clearing firms from pressure to move part of their business to the euro area.

The possible unravelling of the derivatives deal follows Cameron’s decision to break ranks with French President Nicolas Sarkozy and German Chancellor Angela Merkel at an EU summit last week.


Two post summit issues December 12, 2011 at 7:29 am

First, is the agreement the 26 have reached a good one? I tend to agree with Foreign Policy on this one:

Merkel’s short-sighted, audaciously Germany-first reaction to staunch the eurocrisis is the Germanization of European monetary and fiscal policy, foremost the codification of its obsession with tight money, fiscal purity, and budgetary orthodoxy. In spite of all evidence to the contrary, she insists that what’s good for Germany is good for everybody else, too. It’s clearly not. And with the world’s leaders begging her to do “whatever it takes” to stave off global calamity, she’s doing it with Sarkozy at her side and over the heads of the now completely irrelevant European “voters” (“subjects” is the more fitting word). This is a catastrophic mistake, which, politically, vastly expands the EU’s centralized authority while robbing it of even the fig leaf of democratic legitimacy it had sported. Moreover, the economics of Berlin’s Germanocentric prescriptions for the eurozone compound the very problems that landed Europe’s weaker economies in the mess they’re in right now.

In other words, it is politically dangerous – because it has no democratic legitimacy – and it probably won’t work in the long run (and maybe even the short run).

Second, what really caused Cameron to use his veto? The Economist has a lot more evidence here than we had on Friday morning.

By a certain point on Thursday night, I am told, a majority of countries were growing interested in a quick and dirty legal fix, suggested by the president of the European Council, Herman Van Rompuy. The fix was dreamed up by lawyers working for Mr Van Rompuy. They said that a legal device, known as “Protocol 12”, would allow the 27 leaders of the EU to agree most of the new rules and mechanisms for fiscal union in the euro zone by a simple, unanimous decision among themselves.

Suddenly, Germany looked isolated. Mr Van Rompuy, a former Belgian prime minister elected by EU leaders to chair their summits, decided to see if he could sweeten the deal for the wavering EU leaders, and asked Mr Cameron if he would consider dropping some of his requests. This made sense to some leaders in the room. Mr Cameron’s demands were already more than many of his colleagues would tolerate, and Britain had already said publicly it would tailor its demands to the scale of the treaty change on the table. Mr Cameron said he would not lower his ambitions, and that his demands would be the same in the event of Protocol 12 being used, or a full-blown EU treaty.

A hostile view of this is that Mr Cameron overplayed his hand. In this version of events, the British prime minister thought the mood of the room was running towards Protocol 12, and because Protocol 12 is decided by unanimity, he thought he had the whip hand.

Instead, my source tells me, the room turned on Mr Cameron. This, I am told, “was the point at which the Protocol 12 route, which requires unanimity, was effectively closed down and one country after another accepted a new treaty at 17+.”

Did Mr Cameron miscalculate? Did he want to end up with a treaty being crafted at almost 26, with Britain on the outside? My source is certain that was not Mr Cameron’s goal, and my source is not alone in this thinking.

It is now almost inevitable that separate structures be set up, with Britain on the outside, it seems. Talk in London of preventing the “Eurozone-plus” from using the Court of Justice is also a mistake, I am told. Article 273 of the treaty allows just this.

You can choose to believe this account or not. It comes from a single source, who is well-placed but clearly viewing this from a particular perspective.

Time will tell. But what a mess.

What Britain wanted was a return to inanimity for votes on certain issues in financial regulation; that was Cameron’s price for agreeing to Protocol 12. Clearly he overplayed his hand. The more you read about it, though, the more extraordinary it seems that a compromise could not be reached. Perhaps Cameron didn’t want an agreement in order to appease his backbenchers. (I typed ‘bankbenchers’ the first time I wrote that sentence, a telling error.) Perhaps the French waited for Cameron to go too far then shot down his balloon. In any case, the outcome – both in terms of what has been agreed and where it leaves Britain – is depressing and unsatisfactory.

One key point – a point I didn’t get on Friday – is that Cameron wasn’t trying to stop Sarkozy from doing something: he was trying to get agreement to change the voting system for financial regulation. He didn’t succeed. In other words, he annoyed the 17 (or more) and got precisely no gain for Britain. This, I suspect, is why Clegg changed his tune over the weekend. In any event, Cameron looks more incompetant now that the facts are clearer.

(Further, insightful comment on how well the pact will work can be found here, while this post has an interesting discussion of Cameron’s behaviour and its consequences.)

David Nicked December 9, 2011 at 10:14 am

Oh dear me. This is very hard. I dislike David Cameron and most things he stands for. I think Britain’s future is in Europe, and I was (wrongly) in favour of the UK joining the Eurozone – so I’m not exactly a Europhobe. But much to my distaste, I have to admit that Cameron might – might – have done the right thing in Brussels last night. Now clearly it wasn’t diplomatic, and the veto might have been better wielded later in the process. But if this list of Cameron’s demands (from the Guardian) is correct, then they are pretty reasonable:

  • Any transfer of power from a national regulator to an EU regulator on financial services would be subject to a veto.
  • Banks should face a higher capital requirement.
  • The European Banking Authority should remain in London. There were suggestions that it might be consolidated in the European Security and Markets Authority in Paris.
  • The European Central Bank be rebuffed in its attempts to rule that euro-denominated transactions take place within the eurozone.

It seems to me that Sarkozy tried to impose policies which would have moved a lot of financial activity from London to Paris or Frankfurt, and Cameron wouldn’t let him. So yes, this veto represents a tragedy in terms of Britain’s influence in Europe and it is to be hugely regretted on those grounds, but David might actually have had reason for what he did.

Update. So why were these issues so important?

Well, financial services are (rightly or wrongly) hugely important to the UK economy. So Cameron wants to make sure that UK bank regulation, and indeed regulation of foreign bank subsidiaries operating in the UK, remains under UK control. In particular I would guess he doesn’t want a Paris-based EBA to set capital ratios for UK Banks. This cuts both ways; EBA requirements might be either too high or too low from a UK perspective. Also of course it is important for the UK to be able to impose the Vickers Commission requirements without having to ask for permission from Brussels.

The final point is in many ways the most interesting. It is very much against the UK national interest for there to be a requirement to clear Euro denominated derivatives in the Eurozone – as London is a (in fact, currently the only) credible alternative. So Cameron wanted to make sure that this was not forced upon him.

If Sarkozy thought that he could impose these changes on Cameron by force of will, he sorely mis-read his man (and his man’s backbenchers, it must be said). It would have been an enormous miscalculation to use something as important as this summit to try to grab financial services business away from London.

Today’s ECB measures December 8, 2011 at 3:18 pm

The highlights, from the ECB:

  • To conduct two longer-term refinancing operations (LTROs) with a maturity of 36 months. [3 years. Jeepers, 3 years!] and the option of early repayment after one year.
  • To discontinue for the time being, as of the maintenance period starting on 14 December 2011, the fine-tuning operations carried out on the last day of each maintenance period.
  • To reduce the reserve ratio, which is currently 2%, to 1% as of the reserve maintenance period starting on 18 January 2012. As a consequence of the full allotment policy applied in the ECB’s main refinancing operations and the way banks are using this option, the system of reserve requirements is not needed to the same extent as under normal circumstances to steer money market conditions.
  • To increase collateral availability by (i) reducing the rating threshold for certain asset-backed securities (ABS) [so that basically any obligation up to and including dry cleaning receipts will be eligible collateral at the ECB] and (ii) allowing national central banks (NCBs), as a temporary solution, to accept as collateral additional performing credit claims (i.e. bank loans) that satisfy specific eligibility criteria. These two measures will take effect as soon as the relevant legal acts have been published.

I’ll give some comment tomorrow. Meanwhile though Reuters sets the tone: European shares fall on Draghi comments.

The new Eurozone will be called Bolon Yokte December 3, 2011 at 6:49 am

Let me explain. First, some news from Mayan archaeology:

The end is not quite nigh. At least that is the conclusion of a German expert who says his decoding of a Mayan tablet with a reference to a 2012 date denotes a transition to a new era and not a possible end of the world as others have read it.

The interpretation of the hieroglyphs by Sven Gronemeyer of La Trobe University in Australia was presented for the first time on Wednesday at the archaeological site of Palenque in southern Mexico.

Gronemeyer has been studying the stone tablet, which was found years ago at the archaeological site of Tortuguero in Mexico’s Gulf coast state of Tabasco.

He said the inscription described the return of the mysterious Mayan god Bolon Yokte.

Now, turning to the Eurozone, we have Angela Merkel’s comments yesterday:

Angela Merkel has vowed to create a “fiscal union” across the eurozone with wide-ranging powers to avert catastrophe, saying the process was already under way as part of the “marathon” effort to solve the European debt crisis.

The German chancellor said she was determined to push for treaty changes at next week’s EU summit.

It’s all pretty clear. The new Eurozone will begin in 2012 and, as per the prophecy, it will be a God amongst currency zones, with one bank to rule them all. Now I admit that ‘Bolon Yokte’ is not quite as catchy as the ‘Neues Eurozone’, but it could catch on…

Draghi and transmission December 1, 2011 at 3:03 pm

From Mario Draghi’s speech today:

Dysfunctional government bond markets in several euro area countries hamper the single monetary policy because the way this policy is transmitted to the real economy depends also on the conditions of the bond markets in the various countries. An impaired transmission mechanism for monetary policy has a damaging impact on the availability and price of credit to firms and households.

It is worth spending a moment on why this is true. First and most obviously, falling bond prices causes losses at banks which threaten their solvency – or at least the perception of their solvency. This in turn makes it difficult for them to lend, not least because it is difficult for them to borrow.

There are more subtle and possibly just as significant other mechanisms at work too though. As bond prices decline, repo haircuts increase, and that creates funding stress too. Banks are pushed to fund more at the central bank as less collateral becomes acceptable in the private markets.

Confidence bites too as banks delever so that they can claim to be relatively well capitalized. An arms race of competitive deleveraging can even set in. This is particularly toxic as it further impairs the monetary transmission mechanism: central bank money doesn’t go into increased lending, but rather into reducing private funding.

Liquidity alone is not enough in these circumstances: capital is needed too. That, I fear, will be one of the next steps in the unfolding saga of central bank intervention.

Update. In that context, Bloomberg’s account of the new EU rules on state support for banks is worth reading.

Separately, Bloomberg also reports remarks made by Mervin King today about yesterday’s intervention:

“This is not a solution,” King said at a press conference in London to present the Financial Stability Report. “All this can be is to help with temporary relief for liquidity problems, but those problems are a result of solvency issues.”

Were the markets bamboozled by the Euro? November 15, 2011 at 6:28 am

This picture is from Pictet (via the ever helpful FT alphaville):

Eurozone bond spreads before and after union

Alphaville’s question is, given this, was Union sensible? I think it clearly was; on a weighted average spread basis, the EZ countries are still doing better than they were prior to the Euro, and even if they weren’t, those eight or nine years of low spreads were worth having (or at least they would have been if the money had been spent sensibly). In any event, what interests me more is why spreads were so low for so long. It seems to me that there are three (not necessarily mutually exclusive) possibilities:

  • Despite having thousands of smart people looking at these things, the markets were wrong about what the bond spreads of Eurozone countries should be. They have now woken up.
  • The markets have over-reacted to current events, and spreads are now well above where ‘fundamentals’ would suggest they ‘should be’ (whatever that means).
  • The markets are right, and the spread changes have been in response to new information, specifically the discovery that leading EZ politicans are unwilling or unable to backstop the periphery.

I’m not sure where I come out on this yet…

Is Jens Weidmann the most dangerous man in the world? November 13, 2011 at 3:03 pm

The president of the Bundesbank has ‘firmly rebuffed international demands for decisive intervention in the bond markets by the European Central Bank to combat the eurozone debt crisis, warning that such steps would add to instability by violating European law’.

Jens Weidmann told the Financial Times that ‘only politicians could resolve the crisis, and he rejected the idea of using the ECB as “lender of last resort” to governments’.

All he needs now is a white cat to stroke.

The European dream – soon to be rubble? November 10, 2011 at 12:01 am

We won't pay

The Guardian says:

Reports that Germany and France have begun talks to break up the eurozone amid fears that Italy will be too big to rescue

If this happens, it will make the aftermath of Lehman look like a day in the park. An utterly preventable disaster is now looking entirely possible. Truly our leaders have let us down.

Update. I strive not to be drawn into hysteria. As the economist says:

I hate to get this pessimistic about the situation. It feels panicky and overwrought. I can’t believe that Europe would allow so damaging an outcome as a financial collapse and break-up to occur… the window within which something could be done to prevent it is closing, and fast. I hope to be proven astoundingly wrong in my assessment, but I’m struggling to see alternative outcomes.

These folks are not known for proclaiming the end of the world on a regular basis. Neither is Brad DeLong, and he says:

I have been complaining for some time now that Reinhart and Rogoff think that the time is always 1931 and that we are always Austria–that the great fiscal crisis is about to erupt and send us [i.e. the US] lurching down toward Great Depression II.

Well, right now guess what? The time is 1931, and we are Austria.

The Federal Reserve needs to buy up every single European bond owned by every single American financial institution for cash before the increase in eurorisk leads American finance to tighten credit again and send us down into the double dip.

The Federal Reserve Needs to do so now.

A little historical perspective may be helpful. One of the first events in the Great Depression, and a major contributor to the loss of confidence, was the failure of Creditanstalt. This was a proto-investment bank, one of the largest in Austria; its collapse was unexpected – just like Lehman. So, um, yes Brad; it does look altogether too much like 1931 for comfort.

Charting the crisis: Irish government bonds October 27, 2011 at 11:01 am

I have commented before on a number of LCH Repoclear’s margin changes on Irish government bonds, but I hadn’t noticed quite how many there have been until I looked in detail. Here is [I think] the picture:

Irish bond haircuts LCH Repoclear

Default big, default often September 16, 2011 at 7:44 am

Mario Blejer, a former Bank of England adviser who took charge of Argentina’s central bank after the 2001 default, has been reported on Bloomberg:

Greece should default, and default big,… Germany and France will have to bear the brunt of financing efforts to help Greece and other countries that default re-start their economies, he said.

For what it is worth, he has an interesting point. If default is inevitable, then get it out of the way, and then you can start to grow again. Clearly the lower recovery you give, the more debts are extinguished, and hence the better your chances of recovering. Sadly we have moved from ‘if’ to ‘when’ so my sense is that Blejer is right; an early default would actually allow us to move on from the Euro tragedy that is unfolding. (That’s a German word, right, Eurotragik?)

UK to sue ECB over clearing September 14, 2011 at 5:21 pm

From the FT:

Britain is to sue the European Central Bank for setting rules that allegedly handicap the City of London and would force one of the world’s largest clearing houses to decamp operations to the euro area…

An ECB policy paper, released in the summer, requires clearing houses to be based in the eurozone if they handle more than 5 per cent of the market in a euro-denominated financial product.

Britain will ask the courts to strike down the rule on the grounds that it restricts the free movement of capital and infringes on the right to establish cross-border businesses across a multicurrency European Union…

The lawsuit is expected to be filed imminently at the European Court of Justice.

Three things occur to me. First, this case shows the growing importance of clearing. This is a battle the UK can’t afford to lose. Second, the fact that it is necessary reflects (somewhat successful) French attempts to move trading and market infrastructure of Euro products into the Eurozone – and ideally to Paris. Third, this will be an interesting case for the ECJ: does free movement of capital, something built into the foundations of the EU, trump the authority of the ECB?

Understanding the Euro with Charles September 11, 2011 at 4:06 pm

Getting out of the Euro

Goodness, I like Charles’ comment to my previous post more than the original. Let us indeed go with the Geuro (pronounced ‘gyro’; it has got all the meaty countries in it) consisting of Austria, Estonia, Finland, Germany, Luxembourg, the Netherlands, Slovakia and Slovenia; and the Feuro (pronounced ‘furo’; the countries in it are going to take a bath) for Belgium, France, Portugal and Spain. As Charles says, if Belgium splits, then Wallonia has the Feuro while Flanders goes with the Geuro.

I’m not entirely sure I buy the line about Italy having to be out, though; or at least (sorry Charles), I don’t see the argument for excluding Italy as more persuasive than the one for excluding Spain. Indeed, the top half of Italy would perfectly naturally fit with the Geuro countries. It’s the bottom half that causes the issues…

Understanding the Euro with Buck’s Fizz September 10, 2011 at 4:39 pm

Making your mind up is difficult. Jonathan Hopkin gives us some help in a long and insightful post about the future of the Eurozone. He sees two possible outcomes:

The first scenario is disintegration: the reversal of the process of ever greater European economic integration and cooperation. In this scenario neither core nor periphery member states are prepared to meet the costs of staying together: German, Dutch and Finnish taxpayers refuse to sign up to the rescue of the profligate South, whilst in the periphery austerity packages founder on the rocks of collapsing output and/or political instability…

A second scenario can be traced, in which further integration provides the Eurozone with the necessary policy instruments to address the imbalances and weaknesses revealed by the crisis. What exactly would this integration involve? The most immediate problem – the risk of sovereign default in the periphery – will inevitably require a degree of burden-sharing and risk-pooling, most likely through the emission of Eurobonds backed by the governments of the entire Eurozone.

I agree entirely: this second scenario seems to me the most likely. There is a third, though, and that is where Buck’s Fizz come in. Various individuals have been in court recently disputing who has the right to use the Buck’s Fizz name. This of course followed various band members leaving, new ones joining, and more attempts at cashing in that you get at the average small town ATM.

So, what if instead of one country leaving the Euro, a split was amicably arranged? The North is rent asunder from the South. In the Neuro block we would have Austria, Belgium, Estonia, Finland, France, Germany, Luxembourg, and the Netherlands. The Seuro would be currency of Cyprus, Greece, Italy, Malta, Portugal, and Spain. Ireland, Slovakia and Slovenia might go either way, and the new accession countries could make their choice too. Both currencies would float; the ECB could remain as the central bank of the Neurozone, while perhaps Rome would be a good location for a newly created central bank of the Seurozone. On the day of schism the two blocs could agree that 1 Neuro = 1 Seuro, but this would rapidly change as the FX markets got to work. The Seuro would fall, restoring competitiveness to its members, while the Neuro would rise. If you got problems with pesky bondholders claiming that the split was a credit event, both blocs could even keep the name Euro; if two different bands both calling themselves Buck’s Fizz can tour at the same time, two currencies with the same name shouldn’t be a big deal. Vive la Rupture!

I have a bad feeling about this July 25, 2011 at 8:01 am

It is midsummer, there is no budget deal, the markets are quiet, and everyone is pig tired of dealing with crises. This could go badly. I’d say go to cash, but then the question is what currency – if a budget deal is done then the Swiss Franc will likely sell off fast, for instance; but if it isn’t, it is a least a safe haven. Unless the Swiss intervene to prevent further appreciation. Now would be a good time for someone to come up with a genuinely uncorrelated asset…

Who knew? July 16, 2011 at 3:47 pm

John Lancaster in the LRB has a corruscating account of the worm’s eye view of the continuing Eurozone crisis:

From the worm’s-eye perspective which most of us inhabit, the general feeling about this new turn in the economic crisis is one of bewilderment. I’ve encountered this in Iceland and in Ireland and in the UK: a sense of alienation and incomprehension and done-unto-ness. People feel they have very little economic or political agency, very little control over their own lives; during the boom times, nobody told them this was an unsustainable bubble until it was already too late. The Greek people are furious to be told by their deputy prime minister that ‘we ate the money together’; they just don’t agree with that analysis. In the world of money, people are privately outraged by the general unwillingness of electorates to accept the blame for the state they are in. But the general public, it turns out, had very little understanding of the economic mechanisms which were, without their knowing it, ruling their lives. They didn’t vote for the system, and no one explained the system to them, and in any case the rule is that while things are on the way up, no one votes for Cassandra, so no one in public life plays the Cassandra role. Greece has 800,000 civil servants, of whom 150,000 are on course to lose their jobs. The very existence of those jobs may well be a symptom of the three c’s, ‘corruption, cronyism, clientelism’, but that’s not how it feels to the person in the job, who was supposed to do what? Turn down the job offer, in the absence of alternative employment, because it was somehow bad for Greece to have so many public sector workers earning an OK living? Where is the agency in that person’s life, the meaningful space for political-economic action? She is made the scapegoat, the victim, of decisions made at altitudes far above her daily life – and the same goes for all the people undergoing ‘austerity’, not just in Greece. The austerity is supposed to be a consequence of us all having had it a little bit too easy (this is an attitude which is only very gently implied in public, but it’s there, and in private it is sometimes spelled out). But the thing is, most of us don’t feel we did have it particularly easy. When you combine that with the fact that we have so little real agency in our economic lives, we tend to feel we don’t deserve much of the blame. This feeling, which is strong enough in Ireland and Iceland, and which will grow steadily stronger in the UK, is so strong in Greece that the country is heading for a default whose likeliest outcome, by far, is a decade of misery for ordinary Greeks.

Queen Anne

This feeling of a lack of control, of understanding, of consent, is pervasive and ultimately potentially of huge significance. It is not just that most people don’t approve of the economic arrangements which shape their lives, it is that they had no idea what they were. Now that they are becoming aware of them, they don’t like them.

It would be a brave man who predicted that growing understanding of economics will bring political change, but at least the odds that it might are growing. Let me leave you then with Queen Anne, whose rule marked the development of much of the political system we have today. How long that system lasts could just possibly depend on how it deals with the economic disenfranchisement Lancaster discusses.