Thursday, 23 April 2009

Who's Going to Pay?

Yesterday was “budget day” here in the UK, a day of huge significance to the British calendar and psyche with events lasting the whole week. Whereas in the US the budget is usually unveiled without a whole lot of fanfare or media attention (with the notable exception of Obama’s first budget this year), in the UK there’s a big hullabaloo around it, with the Chancellor of the Exchequer (for the most part the equivalent of the treasury secretary in the US) walking from 11 to 10 Downing Street clutching a ceremonial briefcase containing the all-important document, which will by that point already have been ceremonially presented to the Queen the day before. He then delivers an address to the parliament which is the first public unveiling of the plan, and that evening he makes a televised speech to the nation explaining his rationale. This is followed the next several nights by speeches from the leaders of the opposition parties.

It’s perhaps telling that yesterday’s budget day was so momentous and yet as usual, St. George’s Day today (England’s patron saint's day) was completely ignored. I didn’t even realize it was St. George’s Day until I happened to notice a sad little steel drum performance celebrating it in Hammersmith this afternoon while getting lunch.

Budget Day is always a big deal here, but this year it was attracting a particular amount of attention. Everyone knew that this was going to be a momentous budget, both in terms of the dire state of the economy the Labour government would have to reveal and in terms of the drastic measures everyone assumed were going to need to be taken. But despite being primed for eye-popping numbers by the bank bailouts last year, The City seemed to be absolutely shocked by the astronomical amount of debt Chancellor Alistair Darling announced yesterday. UK debt was set to reach a whopping £1.4 trillion in 2009 - equivalent to almost 80 per cent of the UK’s economy. Collapsing tax revenues, the chancellor admitted, will mean he will have to borrow £175 billion in 2009,12.4 percent of GDP. That will be the biggest annual deficit for the UK ever in peacetime.

And yet Darling seemed to offer little in the way of spending cuts or tax rises in order to pay off that debt. His announcement of a tax hike to 50 percent for people making over £150,000 may have raised eyebrows (while not uncommon on the continent such a tax rate in the UK hasn’t been seen in a very, very long time), but cynics in the UK suspected it was a cheap ploy to distract the media from the larger issue – the huge amount of debt announced. The budget included no rise in the tax rate for the middle class, and the reality is that those who make large sums of money are usually pretty adept at getting out of paying tax rises, so the 50% tax rate is likely to raise little revenue. The British media seems to have almost uniformly assumed that the Labour Party will not be in power much longer, but perhaps the real question now is what exactly will the Tories be inheriting if they take over the government next year? Eventually someone’s going to have to pay for all this expenditure, as necessary as it may be, and who is going to deliver the bad news to the middle class that they are going to have to chip in? It’s a surefire election loser, but with his plummeting poll numbers it would have been interesting to see Brown fall on his sword and broadly raise taxes to pay for the debt, knowing it would guarantee a Labour defeat in the upcoming election.

Tea-Bagging Across the Pond

Interestingly, the same issue is being wrestled with across the pond in the US. Barack Obama’s budget will allow the Bush tax cuts on the rich to expire, and will increase the tax burden on the top two percent of income earners. The rest of the population will either see their tax rate remain the same or decrease. Of course this didn’t stop legions of blue-collar “tea-bagging” protesters from turning out on the streets last Wednesday (“tax day,” in the US, a day perhaps of equivalent symbolic importance to ”budget day” in the UK) to decry Obama as a fascist who will tax all Americans into oblivion. Left-leaning media outlets have been at lengths to point out that 99 percent of the people out at those protests won’t see their taxes go up at all under Obama’s plan (although the people organizing those protests, Fox News and lobbying groups like Freedom Works – which interestingly enough also represents AIG – will). The American left used to scream in frustration that the working class was being hoodwinked by Republicans who used an appeal to social issues to get the working class to vote against their own economic interest. Now with the tea-bagging protests, the left has been observing is disbelief that Republicans now seem to be able to convince them to vote against their own economic interest based on an appeal to economic issues somehow as well. It's a strange country.

But despite the left's dismissal of them as mindless sheep, perhaps the tea-bagging protesters are on to something. While it is true their taxes aren't going up right now, they know that with the huge amount of expenditure being spent to rescue the global economy from collapse, someone's going to have to pay for it. And really, why not the tea-baggers? More than a few people have pointed out that these are the same people who enthusiastically supported the Iraq War and the huge expansion of the government with the establishment of the Department of Homeland Security. Now they're taking to the streets to protest the fact that they might possibly be asked to pay for it.

These are extraordinary times, and they will likely call for extraordinary levels of sacrifice from all people. Sooner or later, the middle class is going to have to contribute financially to solving the mess. The problem, on both sides of the Atlantic, is that nobody wants to be the one who has to tell them that.

Wednesday, 22 April 2009

The Roaming Battle Rages On

The European Parliament held what in effect will be its last consequential Strasbourg plenary session before June's election today, and there was a lot put on the table. One of today's items up for a vote was a measure to further limit the amount EU mobile phone operators can charge their customers when they are roaming in other EU countries. The parliament passed the measure, and it is well on its way to becoming law.

The parliament had already capped the roaming rates for calls back in 2007, capping rates at 45 euro cents (£0.39) per minute to make a call and (£0.19) per minute to receive a call. Before that some mobile operators were charging as much as £1.50 a minute to make a call while roaming in the EU. This new legislation goes even further and will require mobile operators to lower the roaming cap down to 35 euro cents (£0.30) to make a call within the EU. It would also set a cap on sending a text within the block at 11 euro cents (£.09). Given that T-Mobile now charges me £0.40 per text message I send while roaming in the EU, this is a significant cut. Additionally, the legislation will cap mobile internet data charges to 1 euro per megabite and force companies to round to the nearest second when charging for roaming rather than to the nearest minute. (Interesting sidenote: in Switzerland T-Mobile is still charging me about a pound per minute to use my phone, as they're not part of the EU).

This has been a pet issue of mine for awhile, but a few British MEPs making statements in parliament today got me thinking about the issue in a way I hadn't before. Conservative London MEP Syed Kamall addressed the chamber and made the argument that while this legislation may benefit the people in that room (MEPs, civil servants, journalists, businessmen), it could actually harm the poor, who rarely leave their own country and have no use for lower roaming charges. His fear, he said, was that the mobile operators would have to pass the lost profit from roaming costs on to the domestic customers, "robbing the poor to give to the rich." A teenager living on a council estate in his constiuency, he argued, was going to be charged more money so that an MEP can chat away on his mobile while in France.

While I do have to begrudgingly admit that yes, most Europeans don't use their mobiles for roaming (Kamall cited a figure that said 70 percent of European mobile users don't roam at all in a given year), really his assertion that somehow it is only the rich elite who would have any need for a telephone while in another EU country is rather strange. This is, after all, supposed to be a common market. Should it really be assumed that someone is some kind of monied aristocrat just because they leave their country every once in awhile?

But even beyond the logic of his original assertion, it also seems odd to be so concerned about a company passing on costs it shouldn't have been collecting in the first place. The mobile companies have been making a huge profit off of these roaming charges. According to the European Regulators Group, European mobile operators make up to 20 times more profit on customers when they're roaming as when they are in their home countries. It actually only costs the operator a few cents per minute to connect these calls, and even less if it's the same company (a T-Mobile UK customer roaming with T-Mobile Germany for instance). The high charge of roaming is not to make up for the expensive cost of connecting a customer's call when they're abroad, but rather it's been a cynical way to get loads of cash out of two small groups that won't raise a fuss about it: the occasional holiday traveller who doesn't think about money when he's on vacation, and the frequent international business traveller who probably doesn't even see his phone bill because his company pays for it.

In the end, Kamall's insistence that the MEPs are selfishly voting in legislation that benefits themselves and not Joe Six-Pack back in their constituencies doesn't hold water. It would be a legitimate argument if the rates the mobile operators were charging really reflected what it costs them to connect the call, but that is clearly not the case. They've instead been making a hefty profit off of a vulnerable group that can't complain about it. Even though we international travellers may be few in number, we can't be expected to subsidize everyone else's artificially low rates by being forced to pay exploitative roaming charges.

The new rates are set to take effect 1 July, so just in time for people's summer holidays. As Telecommunications Commissioner Viviane said earlier, "Today's vote marks the definite end of the roaming rip-off in Europe."

Wednesday, 15 April 2009

Back in London

I thought I would write a quick update on where I am and what the heck I'm doing. I just got a full-time job reporting on EU environmental issues for a news service. I'll be working from the company's headquarters in London at first, and then in the Autumn I'll be moving back to Brussels to continue doing it from there. I'm looking forward to it!

So for now I'm back in London, getting back to the swing of things in the UK. I'm actually very excited to get back to full-time working. The freelancing was cool, but I think in the end I realized I really prefer a full-time regular job.

Thursday, 9 April 2009

Obama's Europe Verdict

Barack Obama is back home after his busy week abroad, and the time for reflection on what his trip to Europe says about his presidency is well underway. In London, Strasbourg, Prague and Istanbul Obama wowed the crowds and charmed the leaders, but what do his words say about how the relationship between Europe and the US is going to be defined during his presidency?

There's no doubt that a dramatic change in US foreign policy was officially unveiled during this trip. On the most symbolic level, the change in tone was striking. Obama seemed to be concentrating on putting distance between his policies and those of his predecessor. He admitted the mistakes America has made, while at the same time arguing that America is still the greatest hope for the world.

His speech in Prague, at the EU-US summit, was the main vehicle to deliver this message. "We must be honest with ourselves," he told the crowd. "In recent years, we've allowed our alliance to drift. I know that there have been honest disagreements over policy. But we also know that there's something more that has crept into our relationship. In America, there's a failure to appreciate Europe's leading role in the world. Instead of celebrating your dynamic union and seeking to partner with you to meet common challenges, there have been times where America's showed arrogance and been dismissive, even derisive. But in Europe, there is an anti-Americanism that is at once casual but can also be insidious. Instead of recognizing the good that America so often does in the world, there have been times where Europeans choose to blame America for much of what's bad."

"On both sides of the Atlantic, these attitudes have become all too common. They are not wise; they do not represent the truth. They threaten to widen the divide across the Atlantic and leave us both more isolated."

It is precisely because Obama remains so popular in Europe that he was able to deliver the critical second part of this message. Just imagine George W. Bush in Prague lecturing Europeans on their anti-Americanism. But Obama also warned Europe not to think it can sit back and relax now that Obama has been elected, expecting him to solve all their problems. "America is changing," he said, "but it cannot be America alone that changes."

This later expression of consternation was perhaps essential, as throughout all of these summits European leaders seemed to melt like jelly in Obama's presence, and there is a real risk that Europeans will think that Obama's election means that everything can return to the way it was before. As much as Obama insisted that he respects Europe as an equal partner and he will listen to it, the personal dynamic between the leaders seemed to suggest a very different sort of relationship. It was almost embarrassing to watch Gordon Brown smiling ear to ear during his press conference with Obama in London ahead of the G20, as he basked in the byproduct of the US president's celebrity. And Berlusconi was so overcome with Obamania during the group photo with the queen that he couldn't stop himself from screaming out the US president's name, which earned him a royal rebuke from her majesty.

But after all of Obama's talk about respect for the EU as an equal partner, his speech in Turkey seemed to undermine that. He affirmed the United State's continued support for Turkey's membership in the EU, a very controversial issue within the union. For many this statement not only betrayed a bit of American arrogance in meddling in the internal affairs of the EU, but also seemed to place Obama firmly in the 'EU as a merely a free trade zone' camp. Many have argued, most notably Nicolas Sarkozy, that the issue of Turkey joining the union is really fundamentally about what type of EU Europe wants. They argue that a strong, federal EU could never work after taking on Turkey as a member, and that the Anglo-Saxon desire to see Turkey as a member is reflective of the British/American desire to see the EU be only a free trade zone. Whether or not one agrees with this analysis, it was perhaps unwise of Obama to wade into the thorny issue immediately after affirming is respect and admiration for the EU. Sarkozy has been willing to look the other way in response to the comments, but privately he must be pretty displeased.

All in all it was an impressive visit, plagued by some hypocrisy and inconsistencies of message but as a whole wildly successful in the main thing it set out to accomplish: unveiling a new US foreign policy that will be a dramatic departure from the previous eight years.

Thursday, 2 April 2009

"The Old Washington Consensus is Over"

The G20 has wrapped up, and from Gordon Brown's speech today, it looks like France and Germany have in many ways won the day. There was little in the way of new national loan-free stimulus, and much in the way of a new regulatory system, the death of tax havens, and an end to credit-hungry consumerism. In short, today was the last day of the Anglo-Saxon model of capitalism.

So what will replace it? It's not quite clear yet. In fact all that is clear is that the old system is done. "The old Washington consensus is over," Brown declared today. In his press conference later, Barack Obama said much the same thing. Now of course what they were immediately refering to was the consensus which set up the IMF and the World Bank, but the language they used reflected that there is more change afoot here than just a retooling of these two institutions. And yet we didn't get a Bretton Woods 2 today. That will have to be ironed out in some time.

The G20 agreed to majorly reform the organisation of the international financial system, regulating hedge funds, registering credit agencies, overhauling accounting rules, capping bankers' pay, and ending banking secrecy in tax haven countries. The end package included much of what Merkel and Sarkozy had demanded in their joint press conference yesterday, when they said that a complete overhaul of the Anglo-Saxon financial system was nonnegotiable. They also stood firmly opposed to further stimulus. Sarkozy was understandably jubilant today after the meeting, saying that the result was beyond his expectations.

This result will likely help both Merkel and Sarkozy at home, where they are both struggling.

As regards the banking secrecy, Obama was reportedly instrumental in bridging differences between the French and the Chinese on the issue. In the end the Chinese, who are concerned that a banking secrecy clampdown would affect Hong Kong, relented and agreed to the OECD publishing a 'name and shame' list of non-compliant tax haven countries. It will be interesting to see where Switzerland will find itself on that list. In response to a question at his press conference, Sarkozy speculated that Switzerland would find itself in a gray area on the list.

Wednesday, 1 April 2009

G20 Protests Below the Fortress

I've been out covering the G20 protests in the City today, and aside from a few serious incidents for the most part they were peaceful. Although the big diplomatic events with the world leaders won't take place until tomorrow at Canarry Wharf, the big protest day was scheduled for today in The City, London's financial district. Most of the action was centered at the Bank junction, a large intersection which has the honour of hosting the headquarters of several major British banks, but most notably the country's national bank, the Bank of England. With it's giant imposing walls, much resembling a medeival fortress, it made an appropriate backdrop to a demonstration against the capitalist system.

The day started out fairly quietly. I did a phone-in report for RTE in Ireland at 10 am and at that time there wasn't more than a few people milling about in front of the Bank of England. But soon four groups of protesters marched to the intersection from four different tube stations. They were organised by a group calling itself the "G20 Meltdown," and they were supposed to represent the four horsemen of the apocolypse. Things started off with more of a carnival atmosphere, but after a few hours they got ugly. The police were using a cordoning strategy and seperated the protestors at the Bank of England into two goups, not allowing anyone to enter or leave those areas. Both peaceful and violent protestors started to become angry that they weren't being allowed to leave, and that was when altercations with the police began. At this point however they were still fairly minor, and the police weren't yet wearing riot gear.

Soon however a group of protestors managed to break the windows of the headquarters of the Royal Bank of Scotland, and throw smoke grenades inside. Plumes of red smoke came billowing out of the broken windows, and in the confusion a group of protestors were able to storm the building. They quickly started throwing office equipment out of the windows. It took a surprisingly long time for police to get control of the situation. It was at this point that riot gear police entered.

I was able to get out of the Bank of England area using my press pass, and I headed over to Bishopsgate where the climate change protest was happening. This gathering had an entirely different atmosphere. Protestors had converged on the street outside the European Climate Exchange and quickly set up tents in the road. People were singing, dancing, meditating, you name it. As far as I'm aware, there weren't any violent incidents at this gathering.

What was surprising was that the demonstration that was predicted to be the most likely to result in violence, the march from the American Embassy to Trafalgar Square, had the lowest turnout and was the most uneventful. Interestingly, the anger at these protests didn't seem to be directed at the United States, but rather at bankers or at the global capitalist system. One can only imagine how different these protests would have looked if George W. Bush was still in office. Gone were the effigies and burning American flags that usually accompanied Mr. Bush during his visits to Europe. In fact I would hypothesize that the presence of Mr. Obama at this summit went a long way in diffusing what could have been a very violent day of protests.

Of course there are still two more days to go, but it looks like the danger of violent demonstrations has passed. Now it's on to the real show, the actual G20 summit. Tonight the 20 world leaders are meeting for dinner, and earlier today Gordon Brown assured the press that the world was "hours away" from a new agreement on the economy. But analysts are cautioning not to expect anything big to come out of this. Summits usually only produce big results if the participants are all in agreement ahead of time, and that is definitly not the case here. German Chancellor Angela Merkel and French President Nicolas Sarkozy have formed an alliance resisting further stimulus money and demanding greater regulatitalist system. Sarkozy has even said he will walk out of the summit if the demands of the continent aren't met. Essentially, this summit could come down to team Obama-Brown versus team Sarkozy-Merkel.

Whichever team you're rooting for, it's nice to see Merkel and Sarkozy getting along again.