COSTS OF A GREXIT FOR EUROPE AND THE UK?

The Greek Crisis - Leaving the Euro in an Orderly Way? 

The Greek election on the 17th of June is crucial not only for Greece but for the Euro and Euroland itself. The European Financial Stability Facility (EFSF) will be providing Greece with 145 bn Euros by 2014 and the IMF will provide Greece with 28 bn Euros by 2016. Greece needs to redeem bonds held by the ECB as well. If Greece rejects austerity there is a danger that the existing creditors will loose patience and the Greek Central Bank would find it impossible to support its own commercial banks and its banking system would be in peril. This would stop spending and economic activity within the country. European countries,firms and private individuals would face losses on the loans they made to Greece. Economists at Barclay's capital have calculated that the Greek government owes Euro institutions and governments around 290bn Euros or around 3% of Europe wide GDP. At the end of 2011 Greek households and companies owed international banks around 54bn Euros.

What if the Greek Government were to exit the Euro in an orderly way or in a chaotic way? Mark Cliffe an economist at ING bank has done some work on this. For the Euro area, a chaotic exit would cost  nearly 9% of Euro GDP in the first year whilst an orderly Greek exit in the first year would cost nearer 2% of Euro GDP. In the second year of a Greek exit from the Euro these costs would be roughly half of what they were in the first year. The effects on the UK of a Greek exit from the Euro are not covered by the report but as well over half of the UK's trade is with the EU27, a very crude estimate of this would be that a chaotic Greek exit from the Euro could cost the UK 4.5% of its GDP in the first year whilst an orderly Greek exit from the Euro would cost the UK nearly 1% of its GDP in the first year.The second year Greek exit costs for the UK would be roughly half of what they would be for Euroland as a whole.Ironically Mark Cliffe predicts that an orderly Greek exit would increase Greek GDP by nearly 1% in the second year.

If Greece has to leave the Euro, then we need to ensure that such a move is properly planned for and delivered in an orderly manner both to minimise any economic impacts on Greece and on Europe as a whole.

Please see:

http://www.economist.com/node/21555923?scode=3d26b0b17065c2cf29c06c010184c684

ALL CHANGE- HOW CHANGE NEEDS TO BE ADDRESSED

Are we ready to cope with change?

Change can be defined as a transformation or transition from one state, condition, or phase to another; it affects everyone and in recent times the pace of change has accelerated to such a degree that many people find it very unsettling. Changes to our economic,scientific and technological environment mean that we will need to think very seriously about how we can cope with the effects of such changes both in our personal and professional lives.

In our work lives we will need to ensure that we plan for the future and are in a position to exploit future opportunities and that we have adequate funds to do so. We really do need to spend some serious time thinking about the future and where our professional and personal lives might fit into that future. We need to see change as an opportunity but that is something difficult if you are used to and happy with your current work\life position.

To anticipate the future is risky but not to do so is even riskier. We probably need to systematically anticipate and prepare for change perhaps under the cloak of innovating our own products and services; this needs to be done frequently;sometimes without the fear of abandoning things that may have worked well in the past but may not do so in the future. Changes to organisational structure and products need to be successfully piloted with strong advocates to ensure these change elements are successfully delivered.

In classical philosophy there are several approaches to change;

Hegelian: The classic Hegelian dialectic model of change is based on the interaction of opposing forces. Starting from a point of momentary stasis, Thesis countered by Antithesis first yields conflict but subsequently results in a new Synthesis.

Kuhnian: Thomas Kuhn argued that people are unlikely to jettison an unworkable paradigm, despite many indications that the paradigm is not functioning properly, until a better paradigm can be presented.

Heraclitan: The Greek philosopher Heraclitus argued that to stay alive any organism must constantly change.

Daoist: The Chinese philosophical work Dao De Jing, uses the metaphor of water as the ideal agent of change. Water, though soft will eventually wear away stone. Change in this model is to be natural, harmonious, and steady, though imperceptible. This approach tries to ensure that change will be delivered incrementally so that people can get used to it -- however often (as in emergencies) this is not possible.

The Hegelain model of change springs from a conflict situation - whilst the Kuknian version sees people hanging onto the past until a workable alternative can be presented. Often the workable alternative cannot be delivered swiftly enough to make a difference to an organisation or a person and the approach to coping with change falls down.

Most people initially deny\resist change then they explore it and eventually accept it. Helping them accept and cope with change needs caring and visionary leadership which must win the commitment and support of the people upon which these changes will impact the most. This last phase of  implementing change is often the least successful and is the phase that requires most work and preparation. We would neglect this at our peril.

A GREEK TRADEGY FOR US ALL

Greece- Saying Goodbye to the Euro?

As the Greek situation worsens it is important not to forget the human implications for Greece's population; increasing poverty,social breakdown,unemployment, a deteriorating health service and an abandoned generation. The Germans see it very differently of course, a profligate nation that tricked its  way into the Euro by fiddling the figures on the level of its public sector deficit. According to the Spectator, the cost of employing Greeks increased by 40% in the first 8 years of the Euro. If Greece was not in the Euro they could have devalued -- making their exports more competitive but their imports dearer. A default on their external debt would produce a very similar monetary outcome but with added complications. State Spending in Greece increased by nearly 90% over the last decade nearly 5 times faster than in Germany. Unemployment is nearly at 22% of the working population, GDP  year on year is falling at 7.1% and the interest rate on it's 10 year government bonds is a whopping 28.41% -- will there be any takers even at that eye watering rate of interest?

If Greece pulls out of the single currency then any substitute currency (New Drachma?) will be worth much less than the previous euro in terms of the exchange rate. Greeks could see the value of their savings,currently in euros halved or even worse in terms of the existing euro purchasing power. Many richer Greeks will be taking their money out of the country and investing it elsewhere (in the London property market?). What about trade and foreign investment in Greece? If a government, private bank or individual has lent money to Greece or invested in the Greek economy will they wish to withdraw their cash, or as much of it as they can now? Or will they wish to see their investments\loans converted into new Drachma? I hardly think that holding new Drachma's will be an attractive proposition for many people. How will these issues affect the balance sheet of UK PLC limited? In terms of trade with Greece, will that be also affected?

The UK will need to be cautious about how the Greek crisis might affect its own economic position and it will need to be careful to minimise any potential cross contamination effects of the Greek crisis on the UK economy. This will be as important for the UK public sector as it will be for the UK private sector ? It will need to mitigate these risks as best it can.

FUTURE COALITION POLCIES - THE EUROPEAN ISSUE

Europe-- Will we stay or will we go? 

The coalition will need to focus upon the economy but will also be considering issues like reform of the House of Lords and the long term care of older people. The latter  is judged to be more important than the former except if you are a constitutional lawyer perhaps.The High speed rail link seems to have been kicked into the long grass but the 10 year programme to reform welfare support is ongoing if not controversial;similarly out of circa 3,260 schools 1,300 (55%) have applied to be academies.

One possible future development has been ignored but not by the Spectator. Boris Johnson, (becoming increasingly popular amongst the Tory rank and file and indeed some MP's as well), has apparently signed a petition to have a referendum on UK membership of the EU. If Boris were to press David Cameron for the Tory Party leadership what an extremely popular ( if not populist) move this would be. In 2015, to differentiate itself from the the other parties -- the Tories may well offer a referendum on continuing UK EU membership. Apparently this is "highly likely" to form a big plank of the future Tory election manifesto.

The shadow of UKIP and its growing though yet still relatively small influence also has a part to play in this story. The question in any referendum may well not be a straight in or out. It may ask the people to give the UK  government the authority to substantially renegotiate the level of the UK's EU membership. I am not sure what our European partners will think of such a move.Leaving Europe, if that were to happen, would not necessarily shield us from the economic consequences of what goes on in Euroland, whatever the Eurosceptics might have us believe.

THE QUEEN'S SPEECH -- POLICIES FOR ALL?





The Queen -- Telling us the Government's programme

It was interesting to hear what the government has in store for us in the coming year or so. I am not sure that transferring maternity leave between partners will be a huge hit, especially if one partner is under a great deal of work pressure to deliver. The proposals on making adoption easier, more support for special needs for children and greater access for divorced fathers are welcome.

The focus on certain aspects of the economy is understandable and the splitting of the banks between their investment and retail arms is long overdue. The introduction of a Green Investment bank could provide a much needed stimulus to the economy and it really does need it at the moment. It could well be easier to sack workers as a result of the industrial tribunal system being overhauled; This should be balanced by shareholders having more powers to curb excessive pay for directors and that is especially welcome when those directors have not performed as they should have. The reduction of the deficit and associated borrowing remains a key target however there is little recognition that the best way this can be done is by promoting economic growth and not just cutting public spending. 

Changes to communications legislation will make it easier for police and security services to collect information on people. Let's hope this will not be mis-used by organisations that should know better. Another freedom promoting move could be a check on the buying power of huge supermarkets and the effect they might have on local suppliers and communities. How this might be delivered through an independent adjudicator is anyone's guess. The moves to televising court proceedings need to be done sensitively as we do not wish to be turned into an American TV legal system. Driving a car when you have had a spliff or two should always have been a criminal offence in itself -- Offences relating to driving under the influence of drugs do need to be clarified. A particularly good proposal in my experience is the move to cut down voter registration fraud, which is a deep stain on our democracy.

I may be able to retire at 66 with a flat rate pension but what will the quality of my social care provision be like at that age? At least I will not be exposed to funding a Euro bail out if a Euro country defaults. Can the UK really get out of that one?

Pushing for Lords reform - making the Upper Chamber more democratic is still in the programme though I guess that this will be a hard road to follow in this parliament. The Upper Chamber needs to be more democratic but perhaps we have bigger fish to fry at the moment.

In a joint statement, Mr Cameron and his Lib Dem deputy Nick Clegg said: "The primary task of the government remains ensuring that we deal with the deficit and stretch every sinew to return growth to the economy, providing jobs and opportunities to hard-working people across Britain who want to get on."

There have been 19 Bills in different stages proposed in this speech, not all of them will get through, but the economy remains paramount  -- that needs to be fixed first of all before too much time can be spent on other things.

The government cannot be distracted it must try and get people back to work as well as just cutting public spending. Working people paying taxes is the best way of turning the country round.

Read more at: http://www.bbc.co.uk/news/uk-politics-17994738#

ALL IN IT TOGETHER? - TAX AND THE PUBLIC SECTOR WORKER

Let's keep this at a minimum?

In recent weeks it has become more and more obvious that certain public sector employees are not being paid in the traditional PAYE manner when it comes to work they are performing. Certain employees are utilising devices that will minimise their tax bills like for example setting themselves up as limited companies -- the state then pays the limited company a fee and that company in turn pays the individual partially in terms of a salary and partially in terms of a dividend. This reduces the tax bill of the individual concerned. There is even another way to do this. Instead of paying the individual a dividend, it can make a loan to that person,providing that person is a director of the company. That person can, for a limited period, pay tax on the amount of the loan interest only, the loan eventually needs to be declared as a dividend within a given time period. Other individuals can form limited liability partnerships, where losses on some activities can be offset against gains on others.

Is this proper behaviour in an age of such austerity and hardship? Everyone would like to do it if they could, however strict rules should apply to public service figures who are remunerated in this way. If there has been a long term agreement to employ an individual to perform a service within a public sector organisation then that arrangement should be reviewed and certain tests need to be applied to it. Who bears the risk,if any from that relationship? Certain criteria could comprise the following:

• The length of time of the work service contract with the public sector body.
• The nature of the company\partnership contracting with the public sector -- e.g. size and number of directors etc.
• The length of time that the individual\company has actually worked for that public sector body ( especially if contracts kept having to be renewed)
• The proportion of weekly hours that person(s) devoted to the work for the public sector body during the total period of time that person and/or his company/partnership worked for the public sector body.
• The % of weekly time that the person(s) spent during that public sector contract doing work for other bodies.
• The contract covered the work of a certain named individual and\or his company\partnership or direct agent.
• The degree of freedom that the individual\company\partnership could exercise within the work contract i.e. were they directly instructed what to do by that public sector body?

A combination of the above factors could be used to determine whether there was a commercial relationship between the individual\company and public sector body or whether there was an employer\employee -- master\servant type relationship. These tests will need to be devised.

When employees within the public sector enter into an agreement with their employer where they foresake some of their security and increase their own group risk e.g by providing work to the employer and others for a fee and not a wage\salary -- Then they should be treated differently from normal employees in terms of taxation and HMRC should approve these type of relationships. 

Many of the agreements that have currently been identified have been master\servant type arrangements disguised as something else. This cannot go on as it will undermine public confidence in an already battered and bruised UK fiscal system.

The following weblink to the Guardian makes interesting reading

http://www.guardian.co.uk/politics/2012/may/02/2000-public-sector-officials-paid-private-companies