Britain, France and Germany will meet next month to co-ordinate policy across an unprecedented range of areas, heightening fears among smaller states that the European Union is being dominated by the “big three”.

Less than a year after the Iraq war, the leaders of Europe’s three most powerful nations and senior cabinet ministers - members of the so-called “directorate” - will meet at a summit in Berlin in a striking display of reconciliation.

The February 18 meeting will involve five or six ministers from each country, in addition to the national leaders, covering employment, the economy, education, finance, social affairs and foreign policy, British and German officials said.

Gerhard Schröder, the German chancellor, Jacques Chirac, the French president, and Tony Blair, UK prime minister, have held several informal get-togethers in recent years but next month’s summit will have a more formal agenda and structure.

The meeting is scheduled to last at least half a day whereas previous meetings usually took an hour or two. The ministers will meet their counterparts in working groups. The foreign ministers are expected to attend the summit dinner.

Jack Straw, UK foreign minister, this month said it was “logical” for the three countries to work together to steer the EU when it expands to 25 members on May 1.

British diplomats believe the Franco-German motor, which traditionally drove the EU, is no longer strong enough to propel a larger union, which includes many Atlanticist countries from central and eastern Europe. Last year the three leaders laid the groundwork for an agreement on a common EU defence policy while their foreign ministers took a joint initiative on Iran.

Last week Franco Frattini, Italian foreign minister, said in reference to the trilateral co-operation: “There can be no directorate, no divisive nucleus that risks putting European integration in danger”.

Diplomats in Berlin admitted there was a danger of “irritation” in other capitals. However, they stressed that the summit would focus on promoting economic reforms in the three countries and was therefore in the interest of the wider EU. They said ministers could be involved in future summits if next month’s event were a success.

Wolfgang Clement, German economy and labour minister, said this week the summit would reinforce recent co-operation between the three countries on strengthening EU industrial policy and on competitiveness initiatives, as part of the EU’s Lisbon agenda of economic priorities.

Two policy papers drawn up jointly late last year by the French and British governments on promoting innovation and enterprise would feed into the discussions, diplomats said.

The papers, seen by the Financial Times, argue for a strengthening of the “innovation action plan” under preparation within the European Commission. The issue of state aid to industry is also expected to be raised, although this remains contentious.

The meeting is expected to prepare common positions for the March EU leaders’ summit, due to focus on economic reforms.
Source Financial Times

When Britain, France and Germany agreed last month to work more closely together on security issues, there was relief among the European Union’s other member states and those about to join the union.

Many had feared that Paris and Berlin were more interested in pursuing their own special relationship at the expense of supporting the EU’s enlargement or reviving the transatlantic relationship.

So it was with some enthusiasm that they greeted London’s move closer to Paris and Berlin on defence, with Britain promising that any “enhanced co-operation” would be inclusive.

One month on, several countries, particularly Italy, Poland and Nordic member states, are watching with mounting concern the opaque working methods of the “Big Three”.

One concern is how they will influence broader issues on future EU foreign policy and whether other countries could be excluded from decision-making. The other concern is that nobody knows quite what agenda Britain, France and Germany are pursuing.

“There is no transparency from the Big Three,” said Janusz Onyskiewicz, director of the Warsaw-based Centre for International Relations in Poland. “Transparency is a must. The EU’s foreign policy has always been based on consensus among all member states. Some issues are being initiated without debate.”

Poland insisted it would not remain passive over how the Big Three made decisions, hoping Italy and Spain would also challenge the London-Paris-Berlin axis, but diplomats say that is unlikely. José María Aznar, Spain’s prime minister, steps down from the political front line in March after domestic elections and Silvio Berlusconi, the Italian prime minister, is not seen as a reliable partner.

But other countries say that does not excuse the Big Three for bypassing Javier Solana, the EU’s foreign policy chief, on wider policy issues. “If you take a pessimistic view of what the Big Three are doing, it is a slap in the face for Solana,” said a Scandinavian diplomat.

Iran is a case in point. Last year the foreign ministers of Britain, France and Germany together put pressure on Tehran to accept stringent inspections of nuclear sites by the International Atomic Energy Agency.

Italy, in the EU presidency chair, resented being excluded and, even though Mr Solana put a brave face on it, diplomats said he was being undermined. “When the three foreign ministers went to Iran last month, it would not have hurt them to take Solana. It would have given the EU a profile and the pressure on Iran would not have diminished,” said Mr Onyskiewicz.

All three capitals deny they are undermining attempts to build a common EU foreign policy.

Instead, they argue that because the regular meetings of foreign ministers have become almost unmanageable with 25 countries, it has become inevitable that a few capitals should take the lead on some policy issues.

“That’s all very well,” said another Scandinavian diplomat. “But EU countries are not even being informed of the issues or decisions made, just when we are supposed to be finding ways of creating a foreign minister for Europe.”
Source: Financial Times

Yes, the trial of Armin Meiwes, the ’Rotenburg cannibal’, has come to its end, and I suppose nobody will be very happy at the outcome. The prosecution had demanded a verdict of ’guilty of murder’, which brings a sentence of life imprisonment (on paper; in reality, a minimum of 15 years before eligibility for release can be considered). The defence by contrast asked for a finding of ’killing on request’, which bears a tariff of six months to five years. In the event, the court pronounced Meiwes guilty of manslaughter and sentenced him to 8½ years.

With the most obsequious respect to their lordships, this result strikes me as muddle-headed and contemptible. There were some odd things about this case, and they seem to have inspired the court to seek out a via media (as many had predicted they would). But it is worth recalling the words of that eminent Texan philosopher whose name escapes me for the moment: there ain’t nothing in the middle of the road but white stripes and dead armadillos.

It would not, perhaps, go amiss at this point quickly to review the relevant provisions of the Criminal Code. Section 211 declares a murderer to be one who ’kills a person … out of lust for killing, for the gratification of the sex drive, … or in a brutal manner….’ I’ve left out the bits that don’t seem at first blush to apply to Meiwes’s act, but I do think we can squeeze that act into one or more of the categories cited.

Killing on request, § 216 Crim. C., is one of those bad laws made by hard cases. It is designed to express public disapprobation of euthanasia while recognising that there are cases where treating the perp as a murderer (with its minimum 15 year tariff) seems grossly inappropriate. Now, you are probably saying to yourself about now, ’Surely though this wasn’t meant to cover asking to be eaten.’ But if the text of the law is unambiguous on its face, we cannot look past it to enquire what the legislator was thinking. And in this case the text provides a mild sentence for one who ’is moved to kill by the express and sincere request of the victim.’ The legislator was thinking of mercy killings, but if Meiwes’s action fit the description in the statute, then that is the act of which he may be found guilty, and what the legislator might having been thinking matters damn-all. But the evidence makes perfectly clear that this is not the case. Yes, Meiwes’s dinner companion earnestly sought to serve as dinner. But his request was not needed to move Meiwes to kill him. Meiwes had long and actively sought his meal; the meal’s express and sincere requests were important to him only insofar as he sought a consenting victim, and the consent of the victim does not excuse homicide.

The court took a middle path, finding Meiwes guilty of manslaughter (§ 212 Crim. C.). Now, this is not quite as egregiously perverse as it might seem to readers from the Anglo-American tradition. At common law (and in its codified modern descendants) manslaughter has a positive element: it is killing in the heat of the moment (traditionally, in ’chance medley’) after adequate provocation. The German concept of manslaughter (Totschlag), by contrast, is defined negatively: any killing (that is illegal and without valid defence) that is not murder. Even so, manslaughter looks a false call in this case. Manslaughter German-style requires that none of the elements of murder be present and, as I discussed above, it is hard to see how this could be true here. I believe the judges allowed themselves to be troubled by the unusual fact of the victim’s consent. They shouldn’t have let this trouble them; their judgement is, IMO, wrong as to both fact and law. I imagine the prosecution will appeal (and, in the German system, there may be appeal as to both factual and legal matters).

Note that this is all my first impression, without benefit of having read the opinion. Still, it’s hard to imagine how the judges’ reasoning put on paper would seem any less convoluted and mistaken.

- - - - -

Though I have hard words for the court in this case, I suppose I should tip my hat to the German media. This was a sensational case to be sure, yet there has been little media sensationalism over it. (Without having seen it, I’d bet there was a fair bit of racy reporting in the Bild-Zeitung, but I refer here to media intended for people who aren’t illiterate.) I was in the USA when OJ Simpson allegedly killed his wife and her companion, and during his trial. All American media, it seemed, swiftly made the transition to ’all OJ, all the time’ format. My agents in America inform me that something similar is going on right now, concerning the trial of a man in California alleged to have murdered his pregnant wife. The German media are to be commended for viewing news as something other than grand-guignol entertainment.

It is too early to grasp the real aftermath of 9-11 in Hollywood, but some trends are more obvious than others. Couple of last year’s major Hollywood productions indicate that the major change is afoot in American film industry, closely resembling shifts in American foreign policy resulting from 9-11.

The changes are very visible for those who paid attention to clichés in 1990s Hollywood films, especially those dealing with films’ villains. Some films - like Braveheart, Michael Collins and Patriot – were more explicit than others, but in those times almost all villains were British, people with heavy British accents or at least people played by renowned British actors.

All that changed with 9-11 and Iraq crisis. British ceased to be nation of inbred aristocrats, evil oppressors of Ireland and incompetent losers who can’t win a single war without Uncle Sam coming to their rescue. Instead they became noble allies, proud descendants of the same stock that had defended world’s cause of liberty from tyrants like Napoleon and Hitler. In such circumstances it was difficult for Hollywood to continue with his old ways and insult America’s most precious allies.

It wasn’t difficult to see which nation would, in the end, fill the void and provide Hollywood with the reliable source of evil characters.

In Matrix Reloaded and Matrix Revolutions one of the chief villains is non-human entity with French name, played by French actor and he even explicitly expresses his French identity for those in the audience too ignorant of those facts.

In 1990s film based on O’Brian’s Aubrey-Maturin series was impossible to be made in anti-British Hollywood, just like any other film in which the main protagonist was belonging to such criminal, oppressive organisations like Royal Navy. With 9-11 everything changed and British were allowed to be good guys for a change and even have films made about their heroes. But someone had to take their place as villains. Following the plot of O’Brian’s novels and using French as adversaries wasn’t enough – the best way to signal this change was to take O’Brian’s novel in which protagonists had to fight American vessel. The film Master and Commander: Far Side of the World changes the nationality of villains into French and, furthermore, they are shown as dangerous, perfidious and dishonourable foes that aren’t above playing dirty tricks after they have lost in fair contest.

Even more explicitly anti-French is The In-Laws. The main villain is French arms dealer, played by David Suchet, who also happens to be effeminate and decadent. Despite all that physical and moral inferiority towards American macho protagonists, French villain in the film is sneaky and seductive enough to endanger their families and seduce few misguided Americans with his “culture” and lure of decadent lifestyle.

The examples mentioned clearly show how French could be used as perfect villains in future Hollywood productions. They are effeminate, weak, cowardly and therefore obviously inferior to machistic Americans; but they are also able to trick naïve Americans with their cuisine, music, films and other forms of “culture”, able to seduce American women and create support among more snobbish, alienated and potentially treacherous segments of American society. Needless to say, Frenchmen are perfect because they happen to be white, male and, despite all their effeminacy, heterosexual – therefore their villainy won’t offend “political correctness” of modern Hollywood. The example of Spielberg’s Catch Me If You Can – where protagonist’s family falls apart because of adulterous French mother – also shows that even French women could serve the same purpose when they aren’t any Frenchmen around.

Perfidious Frenchman (or Frenchwoman) is a Hollywood cliché which is going to stay, at least until American foreign policy shifts. In the meantime, French can retaliate only by giving “Palme d’Or” and other prestigious festival to Elephant, Bowling for Columbine or any other film which explicitly portrays modern America as hyper-violent, backward, barbarous or evil.

Annan was apparently given a standing ovation (oh what hypocrisy!), and appealed for leadership in dealing with the issue, saying managed immigration and proper integration into Europe’s ageing societies would help boost the economy and ensure a richer and brighter future:

”Without migrants many jobs that provide services and generate revenue would go unfilled and many societies would age and shrink. Migrants are part of the solution, not part of the problem.”

Sometimes you do things because you have to, sometimes you do them because they are the right thing to do, and sometimes you do them because you want to. Occasionally, just ocasionally, the three coincide. This is what I would truly call the ’sweet moment’.

Meantime Joseph Chaimie, Head of the UN Population Division has been briefing the press on the economic and demographic background.

Wealthy countries send conflicting messages to people around the world seeking a better life: “Help Wanted” and “Keep Out,” the head of the U.N. Populations Division says.

Joseph Chamie said Wednesday that many wealthy countries that have aging populations aren’t producing enough children and face a serious shortage of workers unless they allow immigration.

But at the same time, immigrants have become a political issue in some countries, including Austria, France, the Netherlands and Denmark, and serious efforts have been made to curb the influx of foreigners.

Chamie spoke at a briefing ahead of a speech to the European Parliament in Brussels, Belgium, on Thursday by Secretary-General Kofi Annan, who is expected to urge European countries to increase legal migration and accept greater diversity in their populations.

The number of foreign-born people living in countries around the world is estimated to be 75 million, about double the number in 1970 but still roughly 3 percent of the world’s population, Chamie said.

“However, the supply of the potential migrants who are free to leave their homelands simply exceeds manifold the demand for migrants which is set by the receiving countries,” he said.

The influx of illegal migrants into developed and developing countries has “increased enormously,” Chamie said.

An estimated 8 million to 10 million people are living illegally in both North America and Europe, he said.

If these people can enter without documents, the immigration systems in those countries “is not operating,” Chamie said. And many of those countries are also “either unable or unwilling” to send back asylum seekers denied entry.

He said Annan would urge European nations to improve their management of cross-border crossings.

For Europe, immigration is crucial. In 2003, the population of the 15-nation European Union grew by just 294,000 - a figure that India, in comparison, needs only seven days to reach, Chamie said.

However, 900,000 immigrants landed on EU shores in 2003, providing a significant boost to Europe’s population, which is about 370 million.

In the United States, the population would remain static at its current level of nearly 300 million without immigration, Chamie said. But immigration is expected to boost the U.S. population to about 400 million by 2050.

Chamie stressed, however, that governments are sending a “confused message” to would-be immigrants.

“On the one hand, we have one message that you see often: Help wanted. The developed countries want workers. … They want skilled workers, technical computer programmers, engineers, doctors, nurses and so on. In addition the countries are seeking semiskilled and unskilled workers, health workers, construction workers, janitors, fruit pickers,” he said.

But these governments at the same time are sending a message to “keep out,” he said, holding up copies of both signs.

“Countries are concerned about the characteristics, the number and the proportion of the migrants,” Chamie said.

In the future, he predicted, “migration will continue to be a controversial and sensitive issue.”

“And in my view, this will be one of the major challenges facing humanity in the coming decades - how to live with a diverse group of people in your midst,” he said.

The struggle has coincided with a dispute over the euro that is adding to strains inside the ruling four-party coalition and threatening to turn into a campaign issue as Italians prepare to vote in local and European parliament elections this year.

Silvio Berlusconi, prime minister, last week told reporters it was undeniable that the euro’s introduction in 1999 had contributed to higher inflation in Italy.

At a weekend rally of his populist Northern League, Umberto Bossi, minister for reforms, went further and poured scorn on Europe’s single currency, saying: “The euro isn’t loved by the people a - it’s loved by the freemasons who wanted it and imposed it [on Italy].”

Among those springing to the euro’s defence were Romano Prodi, the European Commission president, who is tipped to lead the centre-left opposition in Italy’s next national election, due by 2006, and Carlo Azeglio Ciampi, Italy’s head of state.

The dispute recalled an episode in January 2002 when Renato Ruggiero resigned as Mr Berlusconi’s foreign minister in protest at the hostility of some fellow ministers towards the euro.

Rocco Buttiglione, minister for European affairs and a member of the centrist Democratic Union of the Centre (UDC), had harsh words on Monday for Mr Bossi. Commenting on the prospects for a relaunch of the government’s programme, he said: “In the last few days nothing has changed except that Bossi has heaped insults on us.”
Source: Financial Times

So what started off as a mere Enron-scale scandal (in a country which itself is almost bankrupt, see my earlier post) has now tipped over into a dispute which threatens the independence of the central bank (in a country where corruption is widespread, who exactly is expected to oversee whom?). Then in order that the milk can really boil over in the pan, the running sore of Mediterranean fringe inflation (again see this yesterday) spills into a generalised dispute along party lines about the euro, with the minister of ’reforms’ making declarations reminiscent of the Mussolini/Franco era. What a mess!

Now back to the Parmalat details.

PwC, the accounting firm brought in to sift through the bankrupt dairy group’s accounts, on Monday said Parmalat’s net debt stood at €14.3bn at the end of September. But debt was now slightly higher because of cash requirements, the Financial Times was told.

PwC also slashed Parmalat’s previous results for 2002 and the first nine months of 2003 after uncovering numerous cases of false billing, false financial gains and false transactions claimed by previous management.

Nine-month 2003 earnings before interest, taxes, depreciation and amortisation (ebitda) totalled €121m, against €651m declared earlier. Revenues were reduced by 26 per cent from €5.38bn to €4bn. Parmalat had claimed net debt of €1.82bn, thanks to a purported cash hoard of €4.2bn and stated debt of €6bn.

The cash evaporated last month when it emerged that the group had faked statements and faxes with Bank of America letterheads, claiming it had €3.95bn in a BofA account at the end of 2002 and €4.4bn at the end of June.

PwC said liquid assets at the end of 2002 and up to September 30 2003 were “negligible”.

Unless investigators recover cash that may have been hidden by Calisto Tanzi, Parmalat founder and main shareholder, or other executives, Parmalat’s net debt will equal its gross debt.

Parmalat’s 2002 revenues were restated down from €7.7bn to €6.2bn, while ebitda stood at €286m, down from the €931m stated by Mr Tanzi’s management team. Mr Tanzi and Fausto Tonna, former chief financial officer, are among 11 people arrested since Italian magistrates opened a probe last month.

Under Enrico Bondi, Parmalat’s government-appointed administrator, the group has managed to stabilise revenues and cash flow at its large Italian and North American operations, according to one person.

However, Brazil, which once accounted for nearly a quarter of revenues before the depreciation of the real, continues to bleed cash. In Italy, Parmalat’s overall food operations probably have ebitda of €50m-€60m, another person said. North American operations, in particular in Canada, also make a small profit.

The marginal gross operating profit could fuel hope that part of Parmalat could be kept running and that creditors could be willing to swap their debt for shares in a renewed and restructured group, observers said.

Mr Bondi, who is being assisted by Lazard and Mediobanca, is not expected to present a plan to creditors before March.

Parmalat said PwC’s work was “still in progress” and that Monday’s figures were “not final and are subject to change”.
Source: Financial Times

Well the prime suspect here has to be the rate of interest. Spain as a member of the eurozone has been having the luxury of enjoying a rate of interest lower than the rate of inflation for some years now. In this situation the real rate of interest (that obtained by subtrating the inflation rate from the actual interest rate) is clearly negative. The consequence of this is that no-one wants to leave money lying idly around in the bank, and since opportunities for profitable investment have reduced substantially (here in Catalonia we are currently living through a wave of factory closures as industry - unable to work in the new high cost Spain - moves out). Incidentally whilst people are talking extensively of the way the job creation machine is moving down the value chain in the US, little comment is being passed on this in the European context: yet a staggering 91% of all new contracts in Spain last year were temporary ones. And the people entering employment are now earning significantly less than those they replace, as companies in all sectors struggle hard to maintain profitablility.

Now normally running an economy in this way would be regarded as extremely bad practice, but in the context of the euro ’experiment’, what was once deemed to be undesireable may now be seen as a virtue. However does it occur to no-one that the impact of a systematically lower than optimum interest rate (and a correspondingly artificially over-valued currency) might not have been having serious detrimental effects on economies like Spains?

Let’s put it this way: you need to divide the Eurozone countries into two camps, those who - broadly speaking - need a higher, and those who need a lower, rate of interest. (In fact virtually none of the economies needs the rate you actually have).

Now the latter group have certainly experienced a loss in GDP in relation to what might have been achieved with an appropriate rate of interest, and Germany is obviously the principle casualty here. They could have run more efficiently, although they have perhaps been able to sell more to the former group, so this offsets the loss somewhat.

The second group, which of course includes Greece, Spain and Portugal appear at first sight to have gained GDP, since they have run a lot hotter than would otherwise have been possible. It is here the biggest problem lies in my opinion. Because this short term growth has only been obtained at the price of longer term problems, being achieved as it is by borrowing more than would otherwise have been advisable.

The consequences of this folly are sometimes extraordinarily clear. Again speaking of Spain, which is the country I know best, we have the most horrendous housing boom. Property prices have risen at around 20% per annum during the last three years. 40% of all residential property built in the eurozone was built in Spain last year. Now put bluntly with an ageing and mid-term declining population, Spain simply doesn’t need all those homes. But since they are assumed to be rising in value for ever, and since the interest rate makes them seem so attractive, the typical middle class investor has gone on a shopping spree, just like when they open the doors on 1 January. Here in Barcelona I don’t know anyone in this category who has not bought at least one extra property, and normally it’s two, three or more.

Has nobody else seen this? Well the IMF, the Commission and the Bank of Spain have been repeatedly warning, but of course, what can anybody do. It is a by-product of the euro. Interestingly enough, the UK which has had its own housing bubble in recent years considered this disadvantage decisive in the recent ’tests’ exercise.

So what will happen when this finally bursts? I dread to think. Certainly we will leave a generation of young Spanish people horribly indebted - and even more so if the global environment turns deflationary. In addition two large questions also loom in the background. Most industrial enterprises have seen themselves inexorably converted into what are effectively property companies as the balance sheet impacts of the upward spiral have made themselves felt. So what will be the consequence of the deindustrialisation process here in Spain’s industrial heartland, in Catalonia.

Secondly, just around the corner lies another headache. The centres of Spain’s big cities have been converted into zones packed with high value office premisses, where again the projected rise in the property value may, paradoxically, have been an incentive for the location decision, and even a prime motive force in the final decision to set up the business in the first place. However out there in front lies another big social transformation: home working. Most vulnerable to this is every kind of office work as employers look for ways to reduce costs as an alternative to outsourcing in India or Argentina. And the 24 billion dollar question is: what happens to city centre property prices when the offices are no longer required as offices?

Since this legendary (and legendarily corrupt) Bavarian Ministerpräsident joined the Blaskapelle invisible in 1988, his mortal remains have awaited the last trump next to those of his wife in a tomb in Rott am Inn. Unless the last trump blows quickly, though, he might need to shift his resting place.

The tomb is not in the churchyard but on a privately-owned plot just behind it. And there’s the problem, as the Süddeutsche reports. The plot now belongs to Strauss’s son Max. And Max is not only insolvent but facing trial for tax evasion. The inland revenue has slapped liens on everything he owns, including the tomb. And, unless Max comes up with a wodge of money that he apparently does not have, the state will auction off his real property, tomb included.

Now, Strauss is revered to this day as something of a god by a substantial slice of Bavaria’s political establishment. Beery jowls grew an angry red at the news. ’Impiety! Sacrilege!’, came the cries. Nobody at the inland revenue wanted to admit to having filed the lien. Current Ministerpräsident and one-time prime ministerial candidate Edmund Stoiber is feeling the heat: how could he have failed to know about this, and if he did know about it, how could he have failed to stop it? Can’t have the pharaoh’s mummy on the auction block.

Ah, as I reach the end of the article, I read that Strauss’s daughter has been told the lien will be lifted. Pity, that; I might have put in a bid myself. Just think what Gunther von Hagens could have done with the corpse!

All our well-known demonstrations of the large deadweight losses from social programs overuse imagination and assumption. There are good reasons why statistical tests keep coming up with near-zero estimates of the net damage from social programs on economic growth. It’s not just that the tales of deadweight losses describe bad policies that real-world welfare states do not practice. It’s also that the real-world welfare states reap offsetting benefits from a style of taxing and spending that is pro-growth.

The keys to the free lunch puzzle are:

(1) For a given share of social budgets in Gross Domestic Product, the high-budget welfare states choose a mix of taxes that is more pro-growth than the mix chosen in the United States and other relatively private-market OECD countries.

(2) On the recipient side, as opposed to the tax side, welfare states have adopted several devices for minimizing young adults’ incentives to avoid work and training.

(3) Government subsidies to early retirement bring only a tiny reduction in GDP, partly because the more expensive early retirement systems are designed to take the least productive employees out of work, thereby raising labor productivity.

(4) Similarly, the larger unemployment compensation programs have little effect on GDP. They lower employment, but they raise the average productivity of those remaining at work.

(5) Social spending often has a positive effect on GDP, even after weighing the effects of the taxes that financed the spending. Not only public education spending, but even many social transfer programs raise GDP per person.

(6) The design of these five keys suggests an underlying logic to the pro-growth side of the welfare state. The higher the social budget as a share of GDP, the higher and more visible is the cost of a bad choice. In democracies where any incumbent can be voted out of office, the welfare states seem to pay closer attention to the productivity consequences of program design. In the process, those countries whose political tastes have led to high social budgets have drifted toward a system that delivers its tax bills to the less elastic factors of production, in the Ramsey tradition.

Or, to summarise, social spending is good for personal productivity, and democracy is effective in ensuring that real-world governments avoid the costly mistakes that anti-welfare theorists assume. Apart from illustrating the dangers of hand-waving economic arguments, this tells us that the choice between a European-style high-welfare state, and a US-style low-welfare state, has nothing to do with promoting economic growth and is simply a matter of which kind of society we find more pleasant to live in.

[Via this Electrolite comments thread]

Some of these objections are rational indeed. Cyprus is an obvious and painful sore thumb. And, though Turkey seems to have improved somewhat in recent years, its human rights record needs a bit of burnishing to bring it up to EU standard. (And I’d have thought the prospect of eventual EU membership a great big fat carrot in that regard.)

Given such rational objections, I think it clear that an invitation to Turkey to join tomorrow would be premature. But Turkey can work with the EU to remove those objections.

It is the irrational objections that annoy me. And these, I suspect, are not objections to Turkey joining now but joining ever.

The objection that only a small smidgen of Turkey is actually in Europe may be waved aside with a laugh. That is the argument of those who triumphantly point out that Ireland sticks up farther north than Northern Ireland (or Virginia farther west than West Virginia).

But the more serious ’emotional’ objections boil down merely to bigotry. In Germany, the right-wing Union parties think Turkey too, em, different to belong to the EU. One suspects they’d be more amenable to the idea, if only the Turks were Christian, and less swarthy.

But it’s called the ’European Union’, not the ’European Christian Union’. Europe is not Christendom. It is a post-Christian place in which a good number of people remain, to a greater or lesser degree, Christians. In the same way, Turkey is not Islamic, though most Turks are (to a greater or lesser degree) Muslims.

Squint your eyes a bit so the confessional differences blur. In this light, Turkey and Europe start to look much the same: secular polities that leave a lot of room for individual religious belief. (Indeed, one could argue that European nations are more solicitous of the religious freedom of Muslims than is Turkey; or at least one could have done, before a number of European governments began recently to shriek in horror at the sight of a hijab.)

Yes, there are devout Muslims in Turkey, and some of them have views that don’t quite square with modernity. But then one may easily enough find Bavarian backwoodsmen who still have the Syllabus of Errors written in their hearts; that is no reason to expel Germany into the utter void. Squint your eyes, as I say, and those who dislike secularism and pluralism start to look very much alike, whether they be Germans or Turks. And secular, pluralist democracies can tolerate them, even leave them free to live and believe as they wish.

Those Europeans who cannot put the Battle of Lepanto behind them ought to reflect that the current member states have done pretty well at leaving behind the Battle of Verdun. And that, in a way, is the point of the exercise.

Think about it: On May 1, virtually nothing will change for the positive in the accession countries. Granted, as Doug Arellanes points out, prices of imported wine will drop substantially; and easterners will be able to work legally in the frigid zones of UK and Scandinavia. Whoop-dee-doo.

Meanwhile, a number of other countries (importantly, Spain, Austria and Germany) have insisted on “transition periods” periods of their own for the free movement of labor. This transition period could well last beyond the end of the decade. Sort of takes the shine of EU accession, no?

Finally, the one thing ordinary people will probably notice the most is that every dish at their favorite restaurant just went up in price by a good 17%. Apparently, the Poles and Hungarians successfully negotiated a transition period for their VAT laws, and VAT on restaurants will remain low there. The Czechs, thinking the French proposal would pass, didn’t even try. As a restaurant owner myself, surely I’m more sensitive than ordinary people to the VAT change. But from a purely diplomatic point of view, I really don’t think this is a wise move. I for one plan to put a big sticker on our menu reading, “Welcome to the EU! All items now 17% more dear!”

The fact that the Czechs didn’t even try to negotiate a transition period puts a new spin on things: Perhaps they want the extra revenue from a higher VAT, but don’t want to shoulder the blame. They can call it an “EU tax” and remind the populace that they voted for joining. Seems terribly unsportsmanlike.

On Wednesday our darling Iraqi Puppet Council decided that secular Iraqi family law would no longer be secular- it is now going to be according to Islamic Shari’a. Shari’a is Islamic law, whether from the Quran or quotes of the Prophet or interpretations of modern Islamic law by clerics and people who have dedicated their lives to studying Islam.

The news has barely been covered by Western or even Arab media and Iraqi media certainly aren’t covering it. It is too much to ask of Al-Iraqiya to debate or cover a topic like this one- it would obviously conflict with the Egyptian soap operas and songs. This latest decision is going to be catastrophic for females- we’re going backwards.

Don’t get me wrong- pure Islamic law according to the Quran and the Prophet gives women certain unalterable, nonnegotiable rights. The problem arises when certain clerics decide to do their own interpretations of these laws (and just about *anyone* can make themselves a cleric these days). The bigger problem is that Shari’a may be drastically different from one cleric to another. There are actually fundamental differences in Shari’a between the different Islamic factions or ’methahib’. Even in the same methahib, there are dozens of different clerics who may have opposing opinions. This is going to mean more chaos than we already have to deal with. We’ve come to expect chaos in the streets… but chaos in the courts and judicial system too?!

This is completely unfair to women specifically. Under the Iraqi constitution, men and women are equal. Under our past secular family law (which has been in practice since the ’50s) women had unalterable divorce, marriage, inheritance, custody, and alimony rights. All of this is going to change.

I’ll give an example of what this will mean. One infamous practice brought to Iraq by Iranian clerics was the ’zawaj muta’a’, which when translated by the clerics means ’temporary marriage’. The actual translation is ’pleasure marriage’- which is exactly what it is. It works like this: a consenting man and woman go to a cleric who approves of temporary marriage and they agree upon a period of time during which the marriage will last. The man pays the woman a ’mahar’ or dowry and during the duration of the marriage (which can be anything from an hour, to a week, a month, etc.) the man has full marital rights. Basically, it’s a form of prostitution that often results in illegitimate children and a spread of STDs.

Sunni clerics consider it a sin and many Shi’a clerics also frown upon it… but there are the ones who will tell you it’s ’halal’ and Shari’a, etc. The same people who approve it or practice it would, of course, rather see their daughters or sisters dead before they allow *them* to practice it- but that’s beyond the point.

Anyway, secular Iraqi family law considers it a form of prostitution and doesn’t consider a ’pleasure marriage’ a legitimate marriage. In other words, the woman wouldn’t have any legal rights and if she finds herself pregnant- the child, legally, wouldn’t have a father.

So what happens if a married man decides to arrange a pleasure marriage on the side? In the past, his legitimate wife could haul him off to court, and ask for a divorce because the man would be committing adultery under Iraqi family law. That won’t be the case now. Under certain clerics, a pleasure marriage will be considered legal and the woman won’t have a case for divorce. Under other clerics, he’ll be committing adultery- so who gets to judge? The cleric she chooses, or the cleric he chooses?

Another example is in marriage itself. By tribal law and Shari’a, a woman, no matter how old, would have to have her family’s consent to marry a man. By Iraqi law, as long as the woman is over 18, she doesn’t need her family’s consent. She can marry in a court, legally, without her parents. It rarely happened in Iraq, but it *was* possible.

According to Iraqi secular law, a woman has grounds to divorce her husband if he beats her. According to Shari’a, it would be much more difficult to prove abuse.

Other questions pose themselves- Shari’a doesn’t outlaw the marriage of minors (on condition they’ve hit puberty). Iraqi secular law won’t allow minors to marry until the age of at least 16 (I think) for women and the age of 18 for men.

By Iraqi civil law, parents are required to send their children to complete at least primary school. According to Shari’a, a father can make his son or daughter quit school and either work or remain at home. So what happens when and if he decides to do that? Does Shari’a apply or does civil law apply?

There are hundreds of other examples that I can think of and that make me feel outrage. I practice Islam, but do I want an Islamic government? No. I feel that because we have so many different methahib and religions, any religious government is bound to oppress some faction of society. It’s already happening in the south where fundamentalist Shi’a are attacking Christian families and shops.

Juan Cole had something to say about the subject and he referred to an article written in Financial Times appropriately titled, “Iraqi plan for Sharia law ’a sop to clerics’, say women”. Unfortunately, the writers of the article apparently have no background on secular Iraqi law beyond what the GC members have told them. The fundamentalist GC members claim that civil Iraqi law forced people to go against their doctrine, which isn’t true because a large part of civil law was based on Shari’a or the parts of Shari’a that were agreed upon by all the differing Islamic factions (like the right to divorce) and taking into consideration the different religious groups in Iraq.

Women are outraged… this is going to open new doors for repression in the most advanced country on women’s rights in the Arab world! Men are also against this (although they certainly have the upper-hand in the situation) because it’s going to mean more confusion and conflict all around.

What happens when all the clerics agree that a hijab isn’t ’preferred’ but necessary? According to this new change in the ’ahwal shakhsiya’ laws or ’personal circumstances’ laws, all women will have to cover their heads and according to Shari’a, if a woman’s husband decides that she can’t continue her education or work, she’ll have to remain a house-wife.

Please don’t misunderstand- any oppression to women isn’t a reflection on Islam. It’s a reflection on certain narrow minds, ignorance and the politicization of religion. Islam is a progressive religion and no religion is clearer on the rights of women- it came during a time when women had no rights at all.

During the sanctions and all the instability, we used to hear fantastic stories about certain Arab countries like Saudi Arabia, Kuwait, Oman, and Qatar, to name a few. We heard about their luxurious lifestyles- the high monthly wages, the elegant cars, sprawling homes and malls… and while I always wanted to visit, I never once remember yearning to live there or even feeling envy. When I analyzed my feelings, it always led back to the fact that I cherished the rights I had as an Iraqi Muslim woman. During the hard times, it was always a comfort that I could drive, learn, work for equal pay, dress the way I wanted and practice Islam according to my values and beliefs, without worrying whether I was too devout or not devout enough.

I usually ignore the emails I receive telling me to ’embrace’ my new-found freedom and be happy that the circumstances of all Iraqi women are going to ’improve drastically’ from what we had before. They quote Bush (which in itself speaks volumes) saying things about how repressed the Iraqi women were and how, now, they are going to be able to live free lives.

The people who write those emails often lob Iraq together with Saudi Arabia, Iran and Afghanistan and I shake my head at their ignorance but think to myself, “Well, they really need to believe their country has the best of intentions- I won’t burst their bubble.” But I’m telling everyone now- if I get any more emails about how free and liberated the Iraqi women are *now* thanks to America, they can expect a very nasty answer.

There is also another Spainsh expression which comes to mind here: don’t open your mouth if you are only going to draw attention to your own weaknesses. In my book the pledge should never have been made. To keep it on the table as an objective now (one has visions of the various EU leaders being called into Prodi’s office for their annual ’reviews’, to see whether their resepctive countries have fulfilled their ’objectives’) is only to compound the error.

I’m sorry: the future has a name, it is called ’Asia’ . Demographics guarantee that for us. What the US and the EU both have to do is find the way to accept this global rebalancing without provoking a ’hard landing’. Rather than vying to see who will be first, perhaps a better philosophy for the Commission to adopt would be the motif to Tobias’s blog: Balding With Grace.

BTW: don’t miss the little detail at the end of the article posted below:”Long-term sustainability of public finances, particularly in view of the aging population, is not yet secured in about half the member states,” . This is in fact a recycling of a Solbes statement of a couple of years ago that I often quote. In fact Solbes was saying that they were unsustainable, not that sustainablity had not yet been secured. Since he made the initial statement matters have only deteriorated (the Stability Pact problem) so there hardly seems to be any reason for the change of emphasis. It is what you call Eurospeak I suppose, but isn’t that just the problem?

The EU’s executive agency said Europe is falling further behind the United States after a standstill year in which European job growth evaporated, public finances deteriorated and the average unemployment rate rose to 8.1 percent.

In an annual survey of how the 15 EU nations fare in trying to become economically more dynamic, European Commission President Romano Prodi said governments lack political will to overhaul the continent’s economies.

His report lamented a “substantial gap” between Europe and the United States in the ability to rally risk capital and money for research and development, quickly process patent applications and spend generously on information technologies.

EU employers reacted to the report with a new plea for governments to cut red tape and “deliver economic reform.”

At a 2000 summit in Lisbon, Portugal, the EU leaders pledged to overtake the United States as the world’s leading economy by 2010.

The plan was to boost investments in information technology, accelerating integration of European energy, transportation, telecommunications and other markets, aiming for an employment rate of 67 percent and making labor markets more flexible.

Four years on, “the overall picture … is mixed,” Prodi told the European Parliament where he formally unveiled the survey’s findings.

The EU “member states do not seem to realize that 2010 is around the corner. Four years after Lisbon it is clear that we are going to miss our midterm targets,” he said.

According to the EU head office, employment was stagnating at 64 percent and that for the 55-64 age group the rate was only 40.1 percent.

Among other things it blamed inadequate use of information and communication technologies, insufficient investments in research, innovation, education and training and a still fragmented EU home market that grows to 25 nations in May.

France, Germany and Italy top the list of nations failing to make the required economic and labor law reforms, said Prodi, while Austria, Luxembourg, Denmark, the Netherlands, and Sweden have done best,

The Commission criticized resistance to a single EU patent — crucial to quickly bringing new products and services on the market — or EU-wide criteria for professional standards.

“The worst of all is the lack of leadership the report highlights in EU member states,” said Paul Hofheinz, president of the Lisbon Council, a Brussels-based research institute.

“Everyone knows what needs to be done. But unless Europe acts now, there won’t be much of an economy left to reform.”

Ireland, which now holds the EU’s rotating presidency, wants to breathe new life into the so-called Lisbon Agenda.

UNICE, the umbrella organization of European employers federations, urged Ireland to ensure the EU leaders “commit themselves unambiguously to deliver economic reform” and cut red tape that stands “in the way of making Europe the most competitive economy in the world.”

The Commission report said the EU’s productivity growth rate_ now between 0.5 and 1 percent — was far below the U.S. rate of 2 percent. “Lower labor productivity per hour worked now represents 40 percent of the difference in GDP (news - web sites) per capita between the EU and the USA,” the report said.

It put Europe’s per capita economic output at 72 percent of that of the United States, a gap “illustrates the need to stimulate market integration, business dynamism, and investment, particularly in knowledge.”

The report did not mention the fall of the dollar against the euro in recent months. The rising value of the euro is hurting European exports and slowing the continent’s economic recovery.

The Commission criticized France and Germany for running budget deficits over 3 percent of gross domestic product in violation of the ground rules for the shared currency.

Across the 12-nation euro-zone, “the average nominal budget deficit worsened further in 2003 to 2.7 percent of GDP,” said the Commission report.

It pointed to growing pension responsibilities. “Long-term sustainability of public finances, particularly in view of the aging population, is not yet secured in about half the member states,” the report said.

The report, a first estimate by Eurostat (and thus may be heavily revised), shows some large differences between countries. Overall, the largest increases were in Ireland (1.5%), Spain (0.7%) and Portugal (0.6%), with the smallest in Germany (+0.01%), Denmark and Greece (0.3%).

Live births increased over the post-war low recorded in 2002, reaching 4.03 million. The highest rate was in Ireland (15.5 per 1000 inhabitants, or 1.5%) and France (12.7 per 1000), while Germany (8.6), Greece (9.3) and Italy (9.4) saw the lowest. Deaths rose to 3.74 million as an aging population outweighed longer life-expectancy per person. The highest rate was in Germany (10.4 per 1000 inhabitants) while the lowest was in Ireland (7.4). Ireland thus had the highest rate of natural increase (8.1 per 1000 inhabitants), while Germany saw a natural decrease (1.8).

However thanks to migration, which accounted for 3/4 of the total population increase, no EU country saw a fall in population. Contrary to British tabloid myth the UK did not account for a disproportionate number of migrants, the leader Spain took 23% of all the net migration, Italy 21%, Germany 16% and the United Kingdom 10%. In terms of per inhabitant Ireland, Portugal and Spain led the way.

Overall then Europe’s population is growing, but unevenly and certainly not rapidly. Things however could be worse -- half of the Acceding countries saw their population fall, in particular Latvia (-0.6%) and Lithuania (-0.5%).

Probably not, you might say, but in two areas it will have an effect, both because diesel cars are around 25% to 35% more fuel efficient than their petrol counterparts.

First, in terms of meeting Europe’s international environmental commitments, diesel reduces emissions of carbon dioxide, carbon monoxide and hydrocarbons compared with petrol-engined cars roughly in proportion to the lower amounts of fuel burned. Conversely they increase emissions of soot, though new regulations and cleaner fuels should help here and these are a local, not international concern.

Second, in burning far less fuel they reduce huge Europe’s reliance on imported oil (diesel cars are much more fuel-efficient), much of which comes from those political unstable middle-eastern countries we hear so much about.

Both factors should become increasingly important as the upward trend in diesel demand shows little sign of slowing, with traditionally apathetic diesel markets such as the UK seeing some of the fastest growth. Growth has been fuelled by Europe’s expensive fuel costs, which make more economic diesel engines substantially cheaper to run, and technological advances which have reduced the gap in performance between diesel and petrol-engined cars. For example, you can now get a Golf GTI diesel .

It’s also interesting in that it seems to me a rare example of technologies diverging across the globe. Diesel accounts for less than 1% of US car and light-truck sales, and only a little more of those in Japan and China. International environmental considerations matter less in the US (and soot emissions standards are tighter), but concerns over dependence on Middle Eastern oil might play better. A study by the Department of Energy noted that a 30% diesel share of new car sales would cut US oil imports by 350,000 barrels a day. Nevertheless I wouldn’t hold your breath.

I’m not an expert on the media and business sectors in other countries, but given what’s happened in Italy with Berlusconi’s consolidation of the media, does the Czech Republic simply have a bad reputation? What about France, which is hardly a model of transparency with its history of outrages at the intersection of politics and business?

Truth be told, I think the Czech Republic is still worse off in this regard than other countries. For one things, high-level corruption is more or less tolerated here -- even expected, on some level. At least Berlusconi’s shenanigans have captured the attention of the outside world.

It’s been known for years that most of the officer caste, if given its druthers, would prefer a smaller, all-volunteer professional army. Conscripts show all the symptoms of short-timer’s syndrome from day one. And understandably so, for their time is short indeed. Just when they have learnt to polish their boots properly, they are demobbed. They simply aren’t in the army long enough to be trained up to any useful level of deadliness. How much better (goes the military’s thinking) if the money and time spent on conscripts were reallocated to longer-term volunteer soldiers.

With the end of the Cold War, the gleam in the generals’ eye grew brighter. The fatherland being safe from the bolshevik hordes at last, surely an all-volunteer army was now the sensible thing? Yet there was a problem. The enormous popularity of conscientious objection had been a boon for the health care industry. Whole regiments of long-haired unpatriotic wastrels descended upon hospitals to empty bedpans, push wheelchairs and the like. And they came cheap: Zivis are paid in line with soldiers (i.e., pretty close to nothing). The German health care system had come to rely heavily on this large pool of cheap workers. Given Germany’s enormous cost of labour (especially the non-wage component), replacing Zivis with ’real’ workers would be a crushing burden. If the army were to do without conscripts, the hospitals would have do without their Zivis. And that (I’d comfortably assumed) would never happen.

And yet now it looks as though it will happen. I wonder whether the minister was signalling something more than just the end of conscription. The German government has embarked on attempts to reform the labour market. It would like to make workers cheaper to hire and easier to fire, and to make unemployment a less attractive prospect than it is now. Thus far its efforts have been desultory, its proposed reforms less than revolutionary. But can it have in its eye a day when bedpan emptiers are easy to find and cheap to employ?

- - - - -

Not if a couple of state governors have their way. As Der Spiegel reports, the Ministerpräsidenten of North Rhine-Westphalia (SPD) and Saxony-Anhalt (CDU) now speak of replacing conscription with a year’s compulsory civil service for everyone, male and female alike. Their suggestion has not, however, been greeted with applause. Most parliamentarians feel it would be unconstitutional, and a Bad Idea in general to boot. The FDP (liberals), as one would expect, have their knickers in a twist at the notion. Even some in the Union, who aren’t so happy about an end to conscription, don’t like the idea of replacing it with universal compulsory civil service. Most surprisingly, perhaps, is the reaction from the Greens, who wish to encourage voluntarism but are dead set against compulsion. The Greens might come over all fascist on matters of nuclear energy and non-returnable beer cans, but they do have a quirky liberal strain that shows itself from time to time.

Although the full report won’t come out until tomorrow, Schmidt has said that Germany’s charities, hospitals and municipalities should be prepared for an end to their use of young men doing national civilian service. This service (Zivildienst) allows young men who object to military service to fulfill their legal obligations if they are drafted. The service provides a wide range of cheap labor in everything from retirement homes to disaster sites.

The announcement that the cabinet is preparing for the end of civilian national service means that it is setting the stage for an end to the draft as a whole. Once the civilian service goes away, compulsory military service will end, and sooner rather than later. The end could come through a court challenge - conscientious objectors, of which there are many in Germany, would not be treated equally by a law compelling only military service. There’s no way it would pass constitutional muster. (The Greens already believe that the draft touches so few people that it is already unconstitutional.) The end of the draft could also come through action from the cabinet, if Schroeder and company want to expend the political capital.

Angelika Beer, co-chair of the Greens and one of the party’s defense experts, draws the obvious conclusion: “Anyone who looks at the situation without preconceptions can see that the draft has not future.” (The quote is from the FAZ of January 13, but similar thoughts are here, in German only.)

Sooner, rather than later, Germany will have an all-volunteer, professional army that is designed for rapid global deployment, trained for peacekeeping, and intended for anti-terror and nation-building missions.

This is the shoe that’s been waiting to drop since the end of the Cold War. Germany will no longer tie its defense resources to territorial defense, weekend warriors, draftees with nine-month terms of service, and forces structured to stop the Sovs at the Fulda Gap.

In and of itself, this long-expected but oft-delayed change would have serious implications for the architecture of European security. Another process, and another political declaration increase its significance.

First, the process: American troops are moving out of Germany, slowly but surely. This has been true since the fall of the Berlin Wall, and the drawdown is continuing. From the Pentagon’s point of view, the job in Germany is done, and bases in Germany are both more expensive and less effective than bases in other parts of Europe further east. At one level, this is still very good news: Germany is not a security problem, for itself, for Europe or for the world. That’s far and away the more important point. On the other hand, the loss of hundreds of thousands of points of contact between Germans and Americans means that the two countries are more foreign to each other than they were a decade and a half ago, especially at the working level in foreign and security affairs.

As a simple practical matter, security problems in Europe are in the Balkans, possibly in Belarus, in the Causcasus, and possibly in the Aegean. NATO and American bases in Poland, Hungary and Romania are closer to the problems. They’re also less expensive to operate, and they’re useful in integrating new alliance members. (Once upon a time, bases in Germany played this role, too.) This process is slow, but certain. Taszar may never reach the size of Ramstein; Constanta may never be as important as Gaeta, but their relative importance will grow.

Second, the declaration: Gerhard Schroeder’s assertion on the campaign trail in 2002 that the key decisions about German foreign policy would be taken in Berlin - not, by implication, in Brussels, in Paris or in Washington. That assertion ended any chance of German engagement in Iraq, and Schroeder’s approach was viewed positively at home and more broadly in Europe. But the declaration, as I recall it, was much more open-ended. It was positive in signalling further normalization of Germany’s foreign policy, but it clearly creates greater uncertainty both within the NATO alliance and the EU’s efforts at a common security and defense policy. A more assertive Germany turned down the White House first, but in the years to come it’s also likely to turn down the Elysee or Berlaymont.

It’s not often that a minister for family, senior citizens, women and youth reshapes European security. By telegraphing the arrival of a all-professional, all-volunteer German military, that’s exactly what Renate Schmidt has done.

… For what the Eurosceptics are defending most ardently is exactly what Hayek attacked repeatedly, the idea that it was a healthy state of affairs for national governments to have exclusive control over the currency. One characteristic remark from 1976 is this, that “Practically all governments of history have used their exclusive power to issue money in order to defraud and plunder the people”.

And whereas Hayek famously proposed the denationalisation of money as the solution to this problem, that’s not a subject that British Conservatives have ever been interested in seriously exploring, whether in Government or Opposition. They have preferred to live in the worst of all Hayekian worlds (short of state socialism, I suppose): national governments controlling national currencies (and, of course, no Conservative Chancellor, 1979-1997, sought to entrench Bank of England independence).

It’s true that Hayek was something of a sceptic about European monetary union. He wrote this in 1978, for example, that his private money scheme was

“both preferable and more practicable than the utopian scheme of introducing a new European currency, which would ultimately only have the effect of more deeply entrenching the source and root of all monetary evil, the government monopoly on the issue and control of money”.

But as Otmar Issing makes clear in this interesting essay [pdf], from which I’ve excised the above quotations, Hayek saw the virtues of something like the present arrangements. Here he is again, again in 1978:

“It may still be true that, if there were full agreement as to what monetary policy ought to aim for, an independent authority fully protected against political pressure and free to decide on the means to be employed in order to achieve the ends it has been assigned might be the best arrangement. The old argument in favour of independent central banks still has great merit.”

So what’s curious about Conservative Euroscepticism on this account, then, is that it’s the feature of European Monetary Union which makes the whole shebang most acceptable to people who think along Hayek’s lines -- the relative independence of the Central Bank from national governments, and indeed from the central political institutions in Brussels -- which they anathematise in the highest degree, with all the rhetoric about sovereignty, and unelected bankers, and not being able to throw out the people on the board of the ECB if they’re messing things up. In short, they take a stand against Hayek alongside Schumpeter’s vision of democracy -- a world of élite politics in which, from time to time, the people get the chance to throw the rascals out (if the rascals haven’t sufficiently confused them ahead of time about what the best course of action might be).

So, to restate the puzzle: on the whole, the people we call the classical liberals were among those most keen to limit the powers of governments through various remedies: free markets, entrenched legal protections, charters of rights, the gold standard, the separation of powers, and so on. Yet often (perhaps not always) the politicians who claim to be most inspired by this tradition consistently oppose the institutions which actually do restrict the powers of government in order to protect citizen rights, price stability, and so on.

So to pose the question: Why is it that, when push comes to shove, so many Conservative politicians show their colours as Hobbesians and Schumpeterians and sovereignty fetishists and Little Englanders, and so on, rather than engaging more constructively with the classical liberal tradition by which they claim, from time to time, to be inspired?

Now all of this is extraordinarily interesting. Not least for us Europeans, since anyone over here in Europe knows that this kind of thing has been an issue for years in our employment numbers. The Netherlands, which allegedly had a 2% official rate, but notoriously had a real rate of anything from 5% upwards depending on how you interpret the stats, had very substantial numbers of people on disability allowances.

This phenomenon is obviously partly demographic: as your workforce gets older more people are liable to become disabled, and as Lerxst points out with medical advances more people survive who may not have perfect health. But it can also be encouraged by employers who want to practice ’age churn’ and political administrations who want to ’mask’ existing unemployment. It is in this context that I don’t see the practical viability of all these policy pronouncements about easying the demographic impact by encouraging higher participation rates among older workers: their existing employers don’t want them, and they don’t want to do the low paid jobs (see Japan here) that they are offered.

Incidentally, as a European, I’d like to personally protest about all the mud that is thrown at us about our welfare states. Unfortunately most of our welfare states are going to disappear in their present form because our demography makes them unsustainable, not because they weren’t nice things to have in their day. Now it turns out that US job numbers have been being massaged all through the 90’s…now come on, let’s not try and have our cake and eat it. A little less hypocrisy please!

The reality is that we didn’t have a mild recession. Jobs-wise, we had a deep one.
The government reported that annual unemployment during this recession peaked at only around 6 percent, compared with more than 7 percent in 1992 and more than 9 percent in 1982. But the unemployment rate has been low only because government programs, especially Social Security disability, have effectively been buying people off the unemployment rolls and reclassifying them as “not in the labor force.”

In other words, the government has cooked the books. It has been a more subtle manipulation than the one during the Reagan administration, when people serving in the military were reclassified from “not in the labor force” to “employed” in order to reduce the unemployment rate. Nonetheless, the impact has been the same.

Research by the economists David Autor at the Massachusetts Institute of Technology and Mark Duggan at the University of Maryland shows that once Congress began loosening the standards to qualify for disability payments in the late 1980’s and early 1990’s, people who would normally be counted as unemployed started moving in record numbers into the disability system — a kind of invisible unemployment. Almost all of the increase came from hard-to-verify disabilities like back pain and mental disorders. As the rolls swelled, the meaning of the official unemployment rate changed as millions of people were left out.

By the end of the 1990’s boom, this invisible unemployment seemed to have stabilized. With the arrival of this recession, it has exploded. From 1999 to 2003, applications for disability payments rose more than 50 percent and the number of people enrolled has grown by one million. Therefore, if you correctly accounted for all of these people, the peak unemployment rate in this recession would have probably pushed 8 percent.

The point is not whether every person on disability deserves payments. The point is that in previous recessions these people would have been called unemployed. They would have filed for unemployment insurance. They would have shown up in the statistics. They would have helped create a more accurate picture of national unemployment, a crucial barometer we use to measure the performance of the economy, the likelihood of inflation and the state of the job market.

The recent fuss about headscarves that pupils may not wear (in France), and that teachers (in Germany) and court clerks (in Holland) - after years of deliberations - may finally wear, reminds me of a tale divorce lawyers are fond of repeating. Often, when a couple has reached an agreement after long and painful negotiations, all hell breaks loose over who will get some item of limited importance, like a tea kettle. It becomes the vessel in which all the festering resentment is invested. Similarly, headscarves are chiefly the vessel of a profound struggle over the future character of Europe, as well as similar struggles in many other societies, from Japan to Canada.

What is revealed in the conflict over the headscarves is the feeling among Europeans that the essence of their identity, moral culture and tradition is assailed by immigrants.

A group of academics, public officials and others from across Europe, in discussions where I served as chairman, formulated a new approach to this problem. We called it diversity within unity. It is best illustrated by the image of a mosaic, which has pieces of different shapes and colors but also a shared framework that may itself be reordered. There are some basics that should be viewed as sacrosanct, but other cultural and social differences should be not just tolerated but welcomed as enriching.

The nervousness of European majorities is not hard to understand. When several families from a faraway land move in next door, they give the neighbors pause. There is no sense in denying that many immigrants treat women and children, the law, and much else in ways we find troubling. Some of that conduct is not just different, but wrong.

Under the framework of diversity within unity, immigrants who wish to become members of European national communities (or the European Union, for that matter) must accept certain basics. They must be willing to respect human rights, the democratic form of government and the law; learn the prevailing languages; and accept both the glory and the burdens of existing national histories.

But assimilation in its pure form, demanding that immigrants become indistinguishable from the rest of society, is unnecessarily homogenizing. If immigrants buy into the basics, there is no reason to protest if they eat and dance differently or pray to different gods. In reality, as anybody benefiting from the much improved cuisine in London over the last generation will tell you, these differences can make for improvement.

At the same time, we supporters of diversity within unity utterly reject the multicultural notion that we should abolish societal identities to accommodate the sensibilities of the newcomers.

No society can flourish unless it has some shared values; nor is there any reason to hold that the human rights that we insist must be respected by people all over the world could be ignored in our inner cities, or that the democratic way of life could be treated as one option among many.

Ideally, all children should attend public schools, to ensure that they all will be introduced to the same core of shared values and that children of different backgrounds will mingle. At the same time, children should be allowed electives - amounting to, say, 15 percent of the curriculum - in which they could learn more about their cultures of origin, the languages of their parents and even their religion, as long as the teachers are fully qualified and chosen by educational authorities, not by fundamentalists.

However, since in several countries there are many private schools, as well as Catholic and Jewish schools (to which Muslim schools have now been added), a second-best approach must be considered. This requires that children of such schools regularly participate in activities with children of other schools, for instance, in sporting events or community service. And, above all, the state must maintain close supervision of curricula to verify that shared values are taught and that such schools are not turned into seedbeds of hatred against society.

Immigrants should not be given citizenship automatically, but should be expected to complete tests that determine whether they have acquired a reasonable command of the host society’s language or languages, knowledge of its core culture and familiarity with its institutions………….

Ah, I almost forgot about the headscarves. Unity within schools could be easily provided if all children wore uniforms with a small national - or European Union - emblem, in addition to any article of religious symbolism, if the children choose one. The notion that such token expressions would offend others will exist only as long as the underlying issues remain unresolved.

Investigators raided Bank of America’s offices in Milan on Friday morning in a further extension of their probe into Parmalat after two partners of accounting firm Deloitte were formally placed under investigation………

Investigating magistrates also extended their net on Thursday to include Luca Sala, a former Bank of America official who resigned last summer to become a consultant to Parmalat.

Underlining the reputational threat posed by Parmalat, Grant Thornton on Thursday night expelled its Italian business from its global network. The unit had audited up to 49% of Parmalat’s assets.

Grant Thornton, a medium-sized firm, is desperate to limit the fall-out from the Parmalat affair.

David McDonnell, head of Grant Thornton International, said it had “lost confidence” in its Italian business, two of whose partners are in jail.

“Grant Thornton [Italy] has been unable to provide sufficient assurances or access to the appropriate information and people in an acceptable timeframe,” he said……

Magistrates in Parma also placed under formal investigation Angelo Ugolotti, a Parmalat employee whose duties involved overseeing the group switchboard. Mr Ugolotti appears to have been used as a front man on the board of up to 30 group subsidiaries.

The Ansa news agency reported Mr Ugolotti had no knowledge of his additional positions, and said he would now seek back pay.

In Luxembourg a magistrate said investigations had been opened into possible money laundering by Parmalat.

The Community Party of Bohemia and Moravia is the only party of its kind east of the former Iron Curtain that is “unreconstructed,” which is basically a code word for saying that it’s never completely renounced its totalitarian past, as every other party in the region has. This is the main reason former president Vaclav Havel, who was intermittantly jailed under the pre-1989 Communist regime, refused ever to speak with the Communists when he was president, and it’s the reason no other party will enter into any sort of agreement with them on the Parliamentary level. To this day they are political pariahs, despite the fact that today they are the second-most popular party, with poll numbers exceeding those of the ruling Social Democrats (fraught with infighting but holding onto power), second only to the Civic Democrats (ODS), the party of vocally anti-EU Czech president Vaclav Klaus. (As the Communists’ program is pretty ill defined, this is generally interpreted mainly as a protest vote.)

All this could change if Grebenicek steps down. Deputy leader Jiri Dolejs “is keen to modernise the party” and says Grebenicek is one of the reasons no other party will deal with them.

There’s been a lot of talk in Czech political circles about whether it’s not time to start dealing with the Communists as though it’s a normal political party, and emotions run pretty high on this topic, understandably.

Oddly enough, the Communists and Klaus’s ODS -- ostensibly at opposite ends of the political spectrum -- come together on at least one big issue -- their anti-Brussels position. Indeed, this is precisely why the Communists supported Klaus for president, effectively providing the swing vote that sent him to the Castle last March.

So the rehabilitation of the Communists would not simply shake up the Czech political scene, it would completely change the country’s official position vis a vis the EU. New elections are not planned until 2006, however, and the Social Democrats are thought likely to hold onto power until then.

Further down, note this interesting new item: “A march by around 50 monarchists through the centre of Prague on Tuesday is featured in several dailies. Many of the marchers carried yellow and black flags featuring images of Emperor Franz Josef I.”

But lets step back a bit. Let’s go back to the origins of the euro, and part of its raison d’etre. I think it is difficult to avoid here the hard reality that part of the thinking behind the launching of the euro (in addition to the abolition of transaction costs and internal exchange rate risk) was getting a piece of the action that the Americans were perceived as having. You see during more years than it’s worth remembering, the United States has been able to pay for its imports by exporting little pieces of paper known as dollars. We were, as it were, on a dollar standard.

It has been able to do this, not simply because petroleum transactions were denominated in dollars, but because some other countries, and particularly some key Asian ones, were running trade surpluses, and the relevant central banks decided to hold their reserves in dollars.

Then along comes the euro, with the unspoken agenda of in some way replacing the dollar as the international reserve currency. Nothing wrong with that in principle, at times in the nineteenth century there was bitmetallism: a gold and silver standard in parallel. Now all of this might well have run sweet and smoothly had history been a linear process where all thing get to move in one direction only. Unfortunately life, at least economic life, isn’t that simple.

Nations, and economies with them, rise and fall. You only have to look at the last century and do a comparative study of Argentina and Japan to see the sort of thing that can happen.

Now one of the problems with sending out all these dollars and euros (and perhaps it is worth noting that each and every one of them was conventionally signed on the reverse face with a declaration by the central banker to pay the bearer on demand, a declaration which now I take the trouble to look has been conveniently ommited on the euro notes: in their haste this eventuality was obviosly not foreseen) is that it represents a declaration of faith in the idea that economics is a game played out in abstract state space. It is curious indeed to note that many of the best known criticisms of standard neo-classical theory revolve around the question whether market mechanisms unaided reach an optimum output solution. This is an interesting, but IMOH secondary question. There is a much more interesting one which comes from the classics but which has somehow got lost in the wash: whether economics is a game played out in historical time, with evolutionary processes entering as part of the backdrop - is the game structured by meta parameters which lie outside the game (the so called exogenous variables). And what if one of these is our own species reproductive dynamic - our demography. We don’t have any problem whatsoever with this when it concerns the ecological dynamics of other animals, but somehow we are rather retiscent to look carefully at our own behaviour in the reflective mirror.

Well maybe it’s time to start doing this. Because maybe those dynamics are about to make their presence felt. Where for example are the Argentinas of today, and where the new Japans? Well it isn’t too hard to see that, at least in relative terms, Europe and the US are on the way down, whilst China and India are evidently on the way up. So what this means is a major relative re-alignment in currency values. Now this could be unproblematic - if done gradually enough - and if one (or now both) of the downward adjusting currencies weren’t the measure of value of all the others. So here it’s not a particular that’s being corrected, but the measure itself.

The realisation that this was always going to be a problem isn’t new: the American economist Paul Davidson gave a presentation to the G23 finance ministers in 1999 suggesting that it was time to do something about this, a suggestion which he tells me was well received in January, and forgotten in March. Well the problem just came back to haunt us.

So what is happening now, well…….. egged on by all the euphoria about new global powers and outsourcing controversies, a realisation is dawning that the dollar must come down (in fact, that it was ever so high was already a symptom of the problem waiting to happen. The situation is also complicated even further by the quantity of liquidity in the system, all that money waiting to find an investment need. This is not a chance occurence, but must have some relation or other with all those boomers topping-up the pension funds in anticipation of the retirement to come.). But in the coming down there must be a going up, here is the problem. So up goes the euro, in a way which clearly bears no relation to any known economic fundamental. All because of this damned reserve currency business.

We are getting our piece of the action alright, I only hope we’re going to like it.

So what can be done. Well……… again as I suggest at the begining of this post the rise does seem to have halted today. Trichet is letting it be known he might intervene, and the market is ’reflecting’. Well he may try to stop the rise, but if setting currencies values was that easy central banking would be a doddle - and if you are in doubt on this, please ask the Japanese who are currently spending a fortune, more or less, in vain. Sure the markets will pause for thought, but it seems unlikely that the downward drift of the dollar will be staunched.

This is because behind all of this there lies another unspoken problem (as if we didn’t have enough already!): the real, or perceived, deflation threat. And here matters get well and truly interesting, because there is a kind of seismic divison with a very peculiar line up. On the one side there is Krugman and the ECB who are essentially warning about the looming inflation, on the other is Ben Bernanke, Alan Greenspan, Stephen Roach and yes, little ol’ me. And unfortunately it is impossible to make any sense whatsoever of all this without understanding this backdrop. I guess this must count as one of the most difficult ’calls’ in recent times, and it is one which really must leave the layperson feeling very economically challenged indeed.

Bernanake, Greenspan, Roach and me (we will stand and await reinforcements) clearly think the deflation is the real risk.

This is where Bush’s crazy tax cut really comes in like a billion dollar note pinned to the inside of the Fed’s waistcoat, just for a rainy day. It fits the need like a glove. Of course this wasn’t the original plan……

But the looming monster-tax-cut is focusing everyones eyes - including K’s - on inflation, which is exactly where Bernanke and Greenspan want them to be. (Incidentally my feeling is that Bush is essentially irrelevant here: they are calling the shots down at the Fed). In a way it’s a nice inversion of a set of proposals made recently by IMF economist Gauti Eggerston: only instead of the central bank becoming prisoner of the mad government as he suggests - the mad government is giving everyone the impression of being in control, while the pupeteer (not Malkevitch this time but Greenspan) is really pulling the strings.

What I am trying to say, is that while the US position is far from comfortable, it does seem to be sustainable at a price: since they are not afraid of inflation they can happily keep printing money till the cows come home.

Did I mention that all this pleasure has a price: well yes it does, and it is we in Europe who are destined to pick up the tab. This is where it can all end in tears. Where is the ceiling? $1.40, $1.50? You tell me, but somewhere out there there is a limit, and we are just about to go and give it a test.

Of course, some of you will say, couldn’t this all be sorted out by the various parties acting like gentlemen and sitting round a table to iron things out: well maybe it could, but please remember that other wild card which is lying around on the table: Iraq. Are the European leaders in the present environment in any position to ask the US for a favour, a favour which might mean that it is the US and not Germany which enters deflationland first. I ask you: think again.

Incidentally, the real Bernanke speech you need to read is here. In it you will see among other things, that the Fed even had plans to control what is known as the yield curve, in an attempt to keep long rates below a given threshold. Are they doing this, well they wouldn’t be telling us, now would they?

Anyway this is where you can see what really might be going on. Of course it isn’t in the references to Bernakes other speech, the one he made last week, and which has caused so much confusion in the markets. IMOH if it has caused confusion there is one good explanation: it was meant to.

Now I apologise to those of you who have come this far and are not economists, and I apologise equally to those of you who are and still aren’t with me. These are what they are: my opinions. Now go and check them out with the facts.

This article appears of part of my guest column in the Money Files.

[Update by David: Welcome, visitors from Brad DeLong’s blog! You might want to read Edward’s longer followup post too (as well as the rest of our humble blog.)]

Portugal is set to put recession behind it this year with 0.75 percent growth, however the recovery will be less strong than previously thought, the Bank of Portugal said.

“The weak growth predicted for 2004 owes itself fundamentally to another expected moderate decline in internal demand,” it said in its twice-yearly economic outlook. The bank had estimated in its last outlook issued in June that the Portuguese economy, one of the European Union’s smallest, would grow 1.0 percent this year, after after a contraction of about one percent in 2003.

By comparison, the European Central Bank last month predicted the economy of the entire 12-nation eurozone would grow between 1.1 and 2.1 percent this year. The Portuguese central bank predicted domestic demand would drop between 0.5 and 1.0 percent this year as government spending cuts and low consumer confidence caused by rising unemployment continued to take their toll.

The fall in domestic demand was highlighted on Monday when Portugal’s national association of auto dealers reported sales of new cars had plunged by more than 15 percent in 2003 over the previous year to the lowest level in 14 years. But the fall in domestic demand would be made offset in 2004 by a sharp rise in exports caused by an expected recovery in the global economy, the bank said.

“The upturn in the world economy, and the European economy in particular, were definately confirmed at the end of 2003 and they should go forward this year, which explains the assumptions for growth which were adopted,” it said.

The bank predicted exports would grow between 4.75 and 6.75 percent this year, after rising 3.0 percent last year.

The bank predicted exports would rise further in 2005, between 6.0 and 9.0 percent, helping economic growth to pick up in 2005 to 1.75 percent. Despite the improved economic outlook, Portuguese unemployment, which stood at 6.3 percent of the workforce in the third quarter of 2003, would continue to rise this year before stabilising in 2005, the bank said.

However, inflation would become tamer easing into a range from two to three percent this year from 3.3 percent in 2003. Portugal, a nation of just over 10 million people and one of the European Union’s poorest members, struggled last year through its first recession since 1992. The Paris-based Organisation for Economic Cooperation and Development estimates the Portuguese economy contracted 0.8 percent last year, giving Portugal the worst performance of the OECD’s 30 members

You see the easy course of action here is to simply shrug your shoulders and say: well the US had Enron, now we got Parmalat, so what! And in part you would be right. (Interesting detail how yet another of the big Marquee accounting names is stuck right in the middle, they must all now really have earned themselves a reputation for ’quality’). I mean, after all, isn’t the word from the other side of the pond that virtually nothing has happened, that everything has been taken in its stride. Well yes, and no. I think sometimes we can get too cynical, and cynicism normally breeds complacency, which in the end just defends the status quo.

Anyway, our focus should definitely be on this side of the water, on what is happening here and now, and what kind of response we are seeing. Well, Italy has hurriedly amended its bankruptcy laws - apparently to ’safeguard’ jobs, although what that might mean in this context is anyone’s guess. The Italian government has also been pressuring Brussels to waive rules on state aid (and in a way it’s difficult to see after Alstom how they can turn a deaf ear to the plea for help, I mean what we have seen time and time again is a Commission breathing fire and then turning ’flexible’ so there seems little reason to imagine that this is going to change: the ECB is another box of tricks altogether, and I have a forthcoming euro post which will touch on this).

In my mind the oustanding question here is not how Parmalat could have happened, but whether the Italian state itself is simply one big Parmalat. When the FT reporter tells us that a spokesman for Mario Monte was of the opinion :

”that, in light of our May 2000 decision, the measures adopted by the Italian government will not contain fiscal advantages which put state resources at risk,”

we might well ask why state resources will not be put at risk. The reason, I suspect, would be because of some rather dubious off-balance-sheet practices, rather like the so-called ’one-off measures’ which have enabled Italy to avoid technically breaching the 3% deficit limits from time to time. What really would be interesting here would not be merely an investigation of the Parmalat problem, but rather an independent audit of the entire Italian public finance structure.

You think I’m joking? I’m afraid I’m not. Of all the eurozone states, the Italian one has the financial system which is most likely to default first. Public debt is already over 100% of GDP, and to this you need to add all the private debt accumulated in recent years if you want to get a true picture of Italy’s vulnerability.

Speaking to a Brusssles conference on European ageing held in March last year, EU economics commissioner Pedro Solbes had this to say:

”Our conclusions are worrying. On the basis of current polices, a clear and unequivocal risk of unsustainable public finances exists in at least half of EU Member States”.

Well if such conditions exist in at least half of the EU states, then surely Italy will be in the forefront of the defaulters. An index of vulnerability risk presented at the same conference placed Italy in 11th place out of twelve countries considered (with only Spain in a worse position), and had the following to say:

”The high vulnerability group includes three major continental European countries that all face a daunting fiscal and economic future: France , Italy, and Spain. Their poor Index scores can be attributed, in varying degrees, to severe demographics, lavish benefit formulas, early retirement, and heavy elder dependenceon pay-as-you-go public support. It is unclear whether they can change course without severe economic and social turmoil. Italy has scheduled big reductions in future pension benefits, but only after grandfathering nearly everyone old enough to vote. France and Spain have yet to initiate any significant reform of elder benefit programs…….Italy has scheduled deep cuts in future benefits that raise its public-burden rankingbut only at the expense of impoverishing its future elderly”.

And it isn’t only on public debt and ageing that Italy scores badly: productivity improvements are notoriously amongst the lowest in the EU, uptake on the internet (unlike the mobile phone) is comparatively low, and where oh, where are all the Italian bloggers?

At another conference - this time on demography and replacement migration - held by the UN, it was argued that maintaining the 1995 dependency ratio in Italy means:

”A total of 120 million immigrants between 1995 and 2050 would be required to maintain this constant ratio, yielding an overall average of 2.2 million immigrants per year. The resultant population of Italy in 2050 under this scenario would be 194 million, more than three times the size of the 1995 Italian population. Of this population,153 million, or 79 per cent, would be post-1995 immigrants or their descendants.”

Obviously immigration on such a scale is impossible to conceive of, but remember this was considered what was needed to maintain the relatively favourable conditions of recent years (when, I will remind you Italy has gotten itself into debt to the tune of over 100% of GDP). But this was assuming the rest of the world would remain the same, which we can now clearly see will not be the case. The rise of China and India means that global realingnment is about to happen, and this will worsen Italy’s problems not improve them.

So, summing up, this is why Parmalat is more than just a scandal: it is a symbol of a society whose way of doing things has run into deep trouble. Reforming Italy was and should have been possible in the heady days of the 80’s and 90’s with a relatively young and stable society and the wind behind them. That todays Italians are ready, willing and able to do now what they have not had the strength to do before seems unconvincing to say the least. So I leave you with one thought: this last year the Italian economy struggled to achieve a growth rate of under 1%, are we witnessing the end of economic growth Italian style. Is what we have lying out there in front year after year of negative growth (or contraction) as a declining labour force, sub par productivity and increasing taxation of those in employment make job creation an ever more difficult process? Will young Italians one day be forced to leave their country in search of work to support their parents and grandparents just like those Bulgarians we presently have in our midst?

Two senators want to forbid headscarves at school

BRUSSELS Two senators from the majority coallition, Anne-Marie Lizin (Socialist) and Alain Destexhe (Reform Movement), have submitted a proposed resolution that asks the federal authorities to adopt legislation forbidding insignia that demonstrate relgious allegiances, both in schools and in the civil service.

Anne-Marie Lizin hopes that the Senate will set up an ad hoc commission to debate this delicate question on the basis of the proposed resolution.

For Alain Destexhe, the debate is closed and the time to act is now, as per the position of [Belgian] French Community [Government], the opinion of the Centre for Equal Opportunity,and various Belgian and foreign political declarations, excutive orders, reports and recommendations. For the Reformist senator, we need to ask ourselves what it means to live together in Belgium in the 21st century.

It is a question of the defense of the freedom of conscience and the compatibility of different freedoms in the public domain - a view which has produced some reservations in the government and in schools. School must be a place where a critical spirit is instilled as well as where universal values are promoted, the senator adds.

For Anne-Marie Lizin, “headscarves are a form of pressure placed on individuals in the name of religion.” The senator from Huy believes that we must urgently pass legislation in support of the equality of the sexes and to assist Muslim women in every country where they refuse inferiority.

The two parliamentarians are acting alone. The Socialists and the Reform Movement alike have not released any statements on the headscarf issue. The Socialist Party president, Elio Di Rupo, has claimed that it is an inopportune moment to debate this question, considering the upcoming elections. But, according to Alain Destexhe, “not discussing it before the election will only help the brown-shirts and the far right.”

The governments of Europe have, for the most part, caught on to the idea that the government has no place in the people’s bedrooms. It seems, however, that they still think they have a place in the people’s wardrobes. Just what is it about the headscarf that makes people like Jacques Chirac want to join the fashion police? There are fashions that annoy the hell out of me, but by what possible logic are headscarves more offensive than, say, big hair? Is there any way in which headscarves are more oppressive to women than mini-skirts?

What is it about headscarves that makes European politicians insane? I doubt that Al Qaeda could do more to unhinge the French government than this issue has. Is it, perhaps, a secret weapon designed to turn western governments into gibbering idiots that monitor women’s fashions?

This debate is fairly new in Belgium. It is far more advanced in France. There, not only do they intend to abolish headscarves, but also yarmulkes and visible crosses. Perhaps I missed the memo, but when exactly did it become cool to prove you aren’t really anti-Muslim by targeting orthodox Jews at the same time? As for people who wear crosses, if these sorts of laws are passsed, I will bet that the number of Christians prosecuted in France will be well within what I can count on one hand.

In Belgium, this sort of proposal is even more hypocritical. At the university I attended, the Katholieke Universiteit Leuven, there was a cross hanging in every classroom. Will the Belgian state be passing legislation requiring their removal as well as the elimination of the word “Catholic” from the names of the country’s two largest and most elite universities? Many Belgians study in the state supported Catholic school system, which is widely believed to offer superior education. Will all the Catholic schools become state schools? Will they be getting rid of catechism classes?

If you think the answer is like hell they will, you’re almost certainly right. Belgium suffered through painful debates about religion and education in the 50’s and 60’s, and reopening those questions by banning the appearance of religious allegiance is probably not going to happen here. In France, however, I can’t be sure.

I know I can’t be the only person who finds this whole argument over the defence of secularism and universal values to be a complete crock of shit. Is it even marginally plausible that Chirac, Raffarin and the RPR-UDP are really worried about defending secularism and women’s rights? French unemployment is hovering around 10%, and the biggest issue facing the government is what girls wear to school? Really, even George W. Bush knows better than to mess with freedom of religion issues.

I really don’t see how anyone can think either that all the girls who wear headscarves are oppressed or that the ones that are will be less oppressed by the interdiction. How, exactly, are mesures that will keep the most oppressed Muslim girls out of school altogether supposed to help liberate them? Belgian schools are notoriously lax in enforcing truancy laws, so there is no chance that the state is going to go and round up girls who won’t go to school if they can’t wear headscarves. And the spectre of French police running around dragging girls out of their homes and tearing off their headgear in the streets - even Chirac isn’t going to go there.

Had the French right proposed to teach girls in the public schools about their social and political rights, were they planning to build shelters for mistreated Muslim women, had they proposed spending money on TV campaigns directed at religious minorities to reinforce women’s rights - then I might have believed that the French government really cared about the equality of women in Islamic communities. But for now, this is about an unpopular government with unpopular policies pandering to the lowest elements of society in order to distract people.

It is my hope that these kinds of laws will never be passed, and that if they are passed, that national courts will strike them down. Failing that, I hope the European Court of Human Rights will do its duty. But in the meantime, I hope that French students will take matters in their own hands. This sort of hypocritical nonsense is just begging for some civil disobedience. I suggest that French students make headscarves, yarmulkes and big crosses the fashion accessories for 2004. Make sure that no kid is cool if they don’t wear something religious. Use that teenage hatred of authority to actually accomplish something.

If you want to convince Muslim women to adopt French values about the place of women, taking away the distinctiveness of the headscarf by having everyone wear one is a far, far better way to go about it.

The thing that bothers me most, however, is the direction this debate about “what it means to be French” (or Belgian, or European, or whatever) is taking. This kind of discussion almost never happens in Canada, where we have far more of these kinds of issues. Some years ago, there was a similar sort of fuss in the old country about Sikh turbans. There are two incidents from that era that come to mind. In the first, a Sikh student was prevented from taking a chemistry class because the safety rules forbade flammable headgear. Instead of kicking the kid out of school and forcing Sikh boys to take off their turbans, the school procured flame-resistant materials so that the student could safely do his chemistry labs.

But, the second incident is more revealing. Sikhs have a strong tradition of employment in the police and armed services, and it didn’t take too long after Sikhs started arriving in Canada in large numbers before one enrolled in the RCMP academy - the training school for Canada’s federal police. The RCMP have a very specific and moderately famous dress code - a code that specifies what kind of headwear Mounties can have. Rather than block SIkhs from becoming Mounties, the RCMP preemptively changed its dress code. Their solution was ingenious. Rather than creating an exception for Sikh Mounties, they added to the dress code a specification for an official RCMP turban, made of blue cloth held together with a maple leaf pin. This was an important statement. It said that being Sikh is not only compatible with being Canadian, but that there are and should be institutions distinctive to Canadian Sikhs. It proposed that there is a Canadian way to be Sikh.

That is what is missing in European debates about Islamic communities. The idea that there is some conception of Frenchness, Belgianness or even Europeanness to which immigrants must comply is an idea that deserves to be consigned to oblivion. Instead, governments ought to advance the idea that just as Arab Christians are still Arabs, and that Christians in the Middle East have distinctive institutions that are different from those found in Europe, European Muslims need to have distinctive institutions of their own too. Institutions which are at once Islamic and European, which are not necessarily shared by their non-Islamic neighbours but which aren’t shared by their extra-European brethren either, will do far more to advance the cause of a common identity than social integration at gunpoint ever will.

Having now drawn an analogy between Aryan nationalism and Laughland, I should point out that Laughland is not, as far as I can tell, an anti-Semite and certainly isn’t a Nazi sympathiser. His target is the European Union - an idea which he first claims draws substantially on Nazi political ambitions, then claims to derive in large part from German national ambitions, and finally that fits Russian designs on Europe from the communist and post-communist eras.

I had purchased this book expecting an anti-European screed, and in this respect I was not disappointed. I had hoped, however, to find in it a real history of pan-European projects. I was hoping it might go beyond merely Nazi projects for European unity but that it might also have covered the pan-Slavic movement, the Napoleonic programme for Europe, various Catholic federalist ideas, communist discussions of European unification and perhaps even others that I don’t know anything about. A good discussion of these movements, with names, dates and footnotes, and comparisons between them and contemporary pan-Europeanism would have been interesting and useful to me. This, however, is not what Laughland wrote about.

Instead, we are treated to the same sort of guilt by historical association that Stormfront advances. Laughland’s biggest fans on the ’Net are quite clear on what he is saying: The EU is the Nazi programme for Europe under a different cover. Laughland specifically denies this. He says that “the point is not to suggest that the European idea was inspired by the Nazi and their allies.” Laughland is not that nuts. There is, as he claims, a significant continuity, all over Europe, between the ruling elites of the Nazi era and the ruling elites of the post-Nazi era. He is hardly the first to remark on this. But, to make this the first section of his book and to use it as the cornerstone for the construction of a case against Europe is akin to making a case against multi-lane freeways because they too were a Nazi programme, and many of the post-war road-builders in Europe were trained and inspired by Nazi civil engineers, or simply were the same people as built Hitler’s roads.

Actually, placing this section at the beginning of the book is suspicious for other reasons. Laughland builds a much better case later on that German ideas about European unification draw on a far older, pre-Nazi tradition dating back to the Holy Roman Empire and encompassing Bismarck’s programme for German unification in the 19th century. Germany was not a unified political entity until 1870, but its unification was preceded by a series of treaties covering social and economic integration, as well as a sort of “Allemagne à deux vitesses” where some German states were more closely integrated than others. The section on Nazi plans for Europe would have made a good deal more sense as historiography had he placed it in chronological order with his larger discussion of German unificationism. But, this would have diminished its dramatic effect. It would have suggested not that Europe is a continuation of Nazi plans, but that both present and Nazi pan-Europeanism are themselves part of an older middle-European political tradition - one which has had very substantial positive effects. German power and economic growth were both advanced substantially by unification, and I am hard-pressed to find any support for the idea that German unification meaningfully diminished German liberalism. Nowadays, even the highly inequitable Austro-Hungarian Empire has its revisionist supporters, who see in it a reservoir of modern, liberal ideas whose disappearance harmed its former subjects more than it helped them.

So, we can dismiss Laughland’s historical case - his tainted source - as of no more significance than the Khazar hypothesis about the origins of Eastern European Jews. It may have some genuine value as history, but has no genuine significance in understanding present-day issues. It is completely beside the point. That European unity was once advanced by Hitler, and to suggest that one of its major motivators is a German desire for peaceful borders and neighbours with neutralised military ambitions is entirely irrelevant to current debates about the European Union. What, precisely, is wrong with a German policy of peaceful borders and neighbours without military ambitions? When it is realised by force of arms, a great deal is wrong with such a programme, but when realised through institution building in Brussels?

Laughland could have stopped there, but reading his book one has the sense that he realises how weak his historical case against Europe is and how much it really draws on guilt by association. So, he presses on to advance an anti-European thesis which rests on political philosophy. This effort is not to his credit.

Indeed Laughland has done me a service with his political case against Europe, one which amply compensates for his failure to provide me with the historiography of European unity I had expected to buy. He eliminates the need for me to construct a strawman to make a pro-European case. He is opposed to the EU because it undermines exactly the things I oppose: the nation-state, a balance of power as the main force to keep the peace and national governments as the final source of all political authority. Indeed, he is genuinely rare among political theorists in defending the nation-state as a universal and essential institution, when the mainstream in both the history of nationalism and in political science sees it as a contingent institution which came into being to meet certain needs in certain times and places and may be passing away for the same essentially pragmatic reasons.

Laughland’s case is built atop three pillars which he claims are essential to the establishment and maintenance of liberalism: the sovereignty of the nation-state, the rule of parliaments, and sound money. Each one is in turn either undesirable, inadequate, or positively mystical. I remind my American readers that “liberal” in Europe does not mean “liberal” in the US. Except for the UK, a party that labels itself as liberal is closer to what Americans would call “fiscally conservative.” Arguably, the European usage has a longer pedigree.

What Laughland means by sovereignty is not the notion that states should be free to act as they see fit. Instead, it is a rather mystical property which he admits may not reflect actual power. He views sovereignty as a purely philosophical construct: Political acts should carry the authority of a state, and that authority is what sovereignty is. The notion that those acts may be restrained by extra-national authorities and agreements is, to Laughland, entirely irrelevant to sovereignty. Having extracted from sovereignty any conception of power, it is difficult to see what the point of sovereignty is. Philip K Dick once claimed that reality is that which, when you stop believing in it, isn’t is still there. In this sense, it’s hard to claim that Laughland’s sovereignty is a real thing.

What is truly bizarre in The Tainted Source is the transition from history to political argument. The two are utterly disconnected from each other. Laughland is opposed to the undemocratic power of central banks, but favours an effective currency based on the gold standard. He is opposed to dirigisme, which he rightfully attaches not to some strange French authoritarian streak but to vesting authority in powerful executives. But, he sees the solution not in establishing and empowering more democratic institutions in the EU but in abolishing any EU authority apart from its member governments. Although no mention is ever made of the structure of US government, I can’t see how anyone can hold the views Laughland has without disdain for the American state.

The arguments for sound money are equally dubious. It reads as if it have been cut and pasted from the Mises Institute website. Instead of a single, flexible, fiat currency, Laughland advocates a gold standard which fixes the exchange rates. He points out that it served much of Europe through centuries, but seems to have missed the vicious boom-and-bust cycle of 19th century European economies, nor that since the partial abandonment of gold in the early part of the last century, economic growth has been vastly greater in most of the world. The idea that gold has “intrinsic value” - the core of his defence of metal money - is not much more than an intermittently fashionable superstition. Gold has a few industrial uses, but otherwise is nothing but shiny metal.

There is so much wrong with Laughland’s revisionist history of nationalism that I’m not quite sure where to start. To claim that communism is to blame for the recent Balkan wars, rather than fingering nationalism as the culprit, is completely unsupported. Furthermore, he is the first person I have encountered to identify as the cause of WWI a British failure to make plain its intent to defend Belgium. He defends Georgia as a state that wants nothing but to be free of meddling Russian, but never mentions the Abkhazians or the South Ossetians who want to be free of Georgia. He points to Russian duplicity in the separatist movement in Transnistria, of which there is plenty, but then claims that there are more Russians and Ukrainians in the rest of Moldova and that the Gagauz minority hasn’t made any waves - neither of which is exactly true. There are more Slavs in the rest of Moldova, but in Transnistria they are a majority, and the Gagauz also declared independence from Moldova, however, they didn’t have Russian support.

None of the real problems of nationalism are ever addressed. On one page, he claims that a common language is essential to nationhood, and on another claims that Belgium’s problems with dual nationalisms would not exist if Belgium didn’t have a “culture of dependency.” The magic link between people and land - why an ethnic nation should be empowered to lay claim to a piece of territory - is never clarified.

He even castigates the British government for accepting an EU programme designed to help island areas overcome the economic difficulties that their geography entails. His logic is that Britain is, of course, an island. Ergo, being an island is no barrier to success. Of course, neglected in this account is that Britain is only 21 miles from the continent, that it is the largest island in Europe and one of the largest in the world, and that it has some 60 million people on it - all benefits that even Ireland, much less Corsica or the Balares, don’t enjoy.

Laughland ridicules the notion that integration is a good political tool for forcing states to meet modern standards of behaviour, using Russia’s efforts to join the Council of Europe and to gain a seat at NATO as examples. He’s right, in part, but his examples say more about Russia than about the political programme of EU expansion. Russia is a large nation, one far less tied to Western Europe than, for example, Poland is. His discussion of sovereignty ignores the simple reality that small industrialised states can not avoid economic dependency, and that dependency at once motivates economic unions and empowers them. It is fear of being cut-off that makes Poland far more likely to remain a parliamentary regime with strong human rights protections than Russia. At the same time, what is a complete mystery to Laughland - why nations would sign their sovereignty away - becomes clear in the same context. Belgium has adopted the Euro because a seat at the ECB gives it at least as much control over its own currency as it had when the Bundesbank effectively set Belgian interest rates without regard for Belgian interests. States join the EU because they estimate the tangible gains to exceed the largely symbolic costs. They may be wrong in that assessment, but if so, Laughland certainly makes no mention of it.

Opposing the EU in the name of liberalism, as Laughland does, is really very pointless. It is little more than fetishism for the WWI-era ethno-linguistic republic. The EU has plentiful flaws, the worst probably being a lack of democratic responsibility to the people rather than to the constituent governments. But, if the protection of freedom is to be the goal of political institutions, the nation-state has a pretty tattered record. The EU hasn’t been around that long, but I am unaware of any act of genocide or ethnic cleansing that can be laid at its doorstep, and I can think of many instances of protection of minority rights and personal freedoms that can be attributed to it. How many of Europe’s nation-states can make the same claim?

Addendum:I should note that Chris Brooke over at Virtual Stoa reviewed The Tainted Source when it first came out and has done a much more through job than I have.