The euro - It is all about trust

The euro dominos are lined waiting to fall; first Cyprus then Greece then perhaps Finland. Where will it end?

Banking is all about trust. Even well run banks cannot survive a loss of trust. I give an example of the safest bank I know. Our local Building Society is mutually owned with a long standing place in the community; it is managed prudently and only lends to people who can afford to repay and then only against property where the loan taker has provided a substantial deposit. It has about £500 million in deposits from local people and a similar amount in mortgages on local properties. It also has around £30 million of other assets. There is no reason not to trust this bank but it does not have the cash paid in by its depositors. The cash has been recycled back into the economy as loans on property. If a rumour circulated that people took seriously, and they tried to withdraw their money, the cash reserves would soon be empty.

In Cyprus, trust in the entire banking system has collapsed and it will take months or years to be rebuilt. Contrary to speculation in the press, the big foreign investors had plenty of warning that this was coming and a wall of money left the Island before the banks closed. It is now Cyprus residents, small businesses and other local organisations that are caught up in this. It is no defence that they managed their own affairs prudently; if trust has gone everyone suffers.

Here is my analysis based on three assumptions:

1. People no longer trust Cyprus banks.

2. People will increasingly come to realise that the return of the Cyprus pound is the only credible solution.

3. People would rather have euros than have their savings converted into Cyprus pounds.

People with accounts outside the island will transfer electronically as much money as the rules allow out of the Cyprus banking system. Resident of Cyprus will withdraw their maximum daily allowance each day in cash (currently €300). In this case, cash kept under the bed really is a better investment than keeping it in the bank. No one with any sense will pay money into the banking system.

Let us say that the EU central bank shipped €5 billion in cash to Cyprus overnight (as widely reported). The population of Cyprus is a little more than one million. That means a demand for €300 million per day. In 17 days the €5 billion will have been paid out. Will another €5billion be sent from Frankfurt? That would give Cyprus another two weeks.

The bankers and politicians in Cyprus will have daily reports of the cash exodus and plan the shift to the Cyprus pound. I would hope the plan is already quite advanced and that the printing presses at De La Rue have already been set in motion to produce the new notes.

Cyprus will become the model for trouble euro zone countries. Greece will be watching closely and be the first to follow. The next domino to fall is a tough call but the surprise choice which I plump for is Finland. The prudent Finns may baulk at the prospect of paying for more bailouts and take the exit before they are presented with the next bill.

Cyprus Triggers Collapse

 Who would have thought that tiny Cyprus would be the trigger that finally explodes the euro?

The euro was conceived at a time when economic globalisation was seen as the way of progress and the Washington consensus was the recommended package of economic policy foisted onto countries by the IMF. This era is drawing to a close as countries begin to understand that macroeconomic stability comes from taking back national control under the policy of ‘proximization’. [1] [2]

The euro was always more a political project than an economic plan. The idea that countries with vastly different cultures and circumstances could be shoehorned into a single currency was a non-starter. The fact that the euro has survived as long as it has is testament to the difficulty in dismantling it. The only reason it still holds together is because taking it apart would be worse. That is how it is seen from Brussels, but what is the view from Cyprus?

I don’t see Cypriote politicians worrying at rejecting the Troika’s plan to impose a tax on bank deposits. They have little to lose; although their creditors have much to lose. As one of their politicians mentioned on News Night this evening, they can start printing the Cyprus Pound if the EU does not lend them yet more money. When Cyprus shows the way, other much bigger countries will follow.

Cyprus will default on its international debt and leave the euro before opening its banks. It could be a week or more before this becomes clear, but I see no other sensible way forward. This will lead of course to turmoil and bankruptcies in the short-term but Cyprus will soon find that it has cleared a way ahead. Tourists will come flooding back as the Cyprus Pound dives. Cyprus is too small to lead directly to collapse outside its borders but it will set an example.

When the Greeks see that there is a credible way to leave the euro and start on a new road, they may also rush to default and exit. Would Italy and Spain be next?

Go Cyprus. Go; show the way.

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[1] McManners, P.J. 2008. Adapt and Thrive: The Sustainable Revolution. Reading: Susta Press.

[2] McManners, P. J. 2010. Green Outcomes in the Real World: Global Forces, Local Circumstances and Sustainable Solutions. UK: Gower.

‘Recycling’ is not Sustainable

 The Ecobuild trade show was a glimpse into one aspect of a more sustainable future but when I look at the glossy show guide on its way into the recycling box I wonder whether we are any further forward. What were the show organisers thinking in producing thousands of these thick tomes? A slim program is all anyone needed to navigate the show and those with smart phones would not even need that. We are not thinking sustainability across every aspect of society, but poking around with small changes at the margins.

Our local rubbish collecting system works on a two-week rota. In Week 1, the black wheelie bin for general rubbish is collected. Week 2 is recycling week. The green wheelie bin is for garden and kitchen waste; a green box for bottles; a green box for paper; and a green bag for tins and plastic bottles. Most people make the effort to sort their rubbish as required by the system, with some more diligent than others, but the greater system of which this is part is deeply unsustainable.

 If we create the right framework, appropriate processes and behaviours will evolve which will make rubbish obsolete. McManners 2008

Running society so that there is no rubbish is entirely feasible but the supply chain is radically different; and radically better from all viewpoints except the corporate view of companies that survive on making the unnecessary packaging which is an integral part of the current ‘”efficient” supply system.

Current recycling is a poor attempt to green up a deeply unsustainable system. The system can be descried as ‘cradle-to-grave’, with the recycle centre and land-fill as the grave. We know how it should be. Bottles should have a deposit for return and re-use; food should be packed in returnable systems or in biodegradable packaging; all items should have their end-of-life designed into them at point of manufacture; many sale transaction should become service delivery models.

This better system can be descried as cradle-to-cradle. Every item of ‘waste’ becomes an input into a production process. The biodegradable stream can produce energy and compost for agriculture; the technical stream is processed into new products (but only after a number of refurbishment and repair cycles). Why do people take pride in putting a big pile of recycling outside their house? People just do not know how much better the system could be and have little chance in their own sphere of influence to change the system - but it is clear that the system must be changed. Stand up to be counted.

JOIN THE SUSTAINABLE REVOLUTON

McManners, P.J. 2008. Adapt and Thrive: The Sustainable Revolution. Reading: Susta Press

Ambushed at Ecobuild

Ecobuild is a major trade show being held at ExCeL in London’s docklands to showcase green building technologies. It is not clear why Marks and Spencer (M&S) chose to be featured, but the company will now regret ever getting involved after being ambushed over their sustainability claims. The ambush occurred at the end of the day’s big event, Joanna Lumley in conversation with Jonathan Dimbleby. M&S have appointed Joanna Lumley as their worldwide ambassador of Plan A, described as ‘the eco and ethical programme which aims to make M&S the world's most sustainable major retailer’.

M&S has earned respect amongst many sustainability professionals for leading the way with a program of initiatives to improve the sustainability of the company, and have done this in a way that has also improved the bottom line. A group of M&S executives hovered around the back of the hall, concerned perhaps that their ambassador might stray from her script. They need not have worried; she spoke with passion about the need to show more respect for the environment and remembered to plug what M&S are doing through the activities of Plan A. Her knowledge of sustainability might have been flaky but as one of our most likeable actresses we forgive her that.

Jonathan Dimbleby chaired the session with aplomb and Joanna Lumley was engaging, entertaining and good value for the fee M&S pay her. However, it should have been obvious that such a well-orchestrated PR event was risky.  The audience is not in the pay of M&S and two questions were particularly difficult. One lady asked the M&S ambassador why M&S doesn’t do what it preaches, cutting the clothes that people donate, preventing their reuse, and taking action to make out-of-date food inedible rather than donating such food to the needy. The other questioner asked why M&S do not stock fair-trade goods. Did the people asking the questions have their facts right? Perhaps so, perhaps not, but they were clearly genuine people with genuine views; the damage was done.

Appointing a celebratory will get you noticed, but using a celebratory to communicate how sustainable you are, runs the risk you will be accused of ‘greenwash’ . It is better to do a great job of sustainability and let the PR take care of itself than do a great job of PR and have your inadequacies exposed.

Enough is Enough

‘Real action requires us to recognise the limits to growth … But we must act now…’

These are words in the final paragraph of Enough isEnough, a book by Rob Ditez and Dan O’Neill.  How do we build a sustainable economy in a world of finite resources? This is the biggest challenge of our age and time is short. If this was a game of football we would be two goals down and approaching half-time. The game isn’t lost but we need to get back in the dressing room and work out if we play for the win, or accept defeat. The problem is we have one pitch and one opportunity. If we lose the ‘game’ to save the planet, it would be many thousands of years before nature recovers ‒ and humans may not be part of it.

 Rob Ditez , Dan O’Neill are advocating a steady-state economy,  the route that Herman Daly has espoused for over 40 years. In the 1970s we had all to play for and if we had listened we could have a stable and sustainable economy by now. But we adopted the game plan of economists wearing blinkers arguing for economic globalisation. It has been a great play down the middle but we lost a couple of goals through forgetting about what really matters. Economic globalisation is like fielding a team with all forwards but no mid-field or defence. In the scramble for the ball, a lot of mud gets kicked up but we let the environment and economic stability get around the back and bury our aspirations in the back of our own goal.

If the first half of the game was about growing and consuming that has left us with terrible legacy of environmental degradation and an unstable global economy. That is two goals down. To fight back we need to rein back consumption and live better lives. It is not more we need but ‘enough’.