A Case Of The Vapers

National Review Online, December 26, 2013

What was it again that Mencken once wrote? Google, enter, click. Ah yes, it was this: “Puritanism: The haunting fear that someone, somewhere, may be happy.”

On Thursday, the New York City Council made room in its legislative agenda — it was also busy commissioning a study on polystyrene foam — to pass by a vote of 43–8 (that lopsided majority an indicator of idiocy afoot) a measure that will, once Mayor Bloomberg signs it (oh, he will) shortly prohibit the vaping (that’s the word) of e-cigarettes anyplace where smoking is now banned in Gotham, bars, restaurants, offices, parks, the beach, you name it. Technically speaking, the ban will take effect as an amendment to the city’s Smoke-Free Air Act. That e-cigarettes do not emit any smoke was an irrelevance.

To vape is to inhale a vapor from a plastic facsimile of a cigarette, battery-powered, bought for $10 at a local store, and good, it is claimed, for 400 puffs. The business end is fashioned to look like a filter. In another nod to nostalgia, the tip typically glows as the user inhales. It’s not the real thing, nothing like. Plastic is neither leaf nor paper. It holds no memories of that old bar down on the Lower East Side, that conversation once upon when. There’s no tobacco, no combustion, none of the warmth, none of the evocative transience, none of the mouth-feel of cigarette or cigar, and it looks just a bit dumb. Walk into Rick’s with an e-cigarette and Rick would laugh. Then again, Bogie died at 57.

Whatever the aesthetics of e-cigarettes, as nicotine-delivery systems go, they are a lot safer than the cancer sticks of old. There’s no carbon monoxide, no tar, very little, in fact, of tobacco smoking’s carcinogenic stew. To be sure, the Food and Drug Administration has detected tobacco-specific nitrosamines (a carcinogen) in the e-cigarette cartridges that contain the treats to come. A 2009 study revealed about the same quantity of TSNAs in cartridges as might be found in a nicotine patch, a total about one-nine-hundredth of the level found inside Joe Camel. The vaper (I know, I know) will inhale an even smaller portion, a tiny fraction of a minuscule amount. Furthermore, TSNAs were the only carcinogens detected in this study. Boston University’s Dr. Michael Siegel, a 25-year veteran of tobacco-control work (and a Centers for Disease Control alumnus), has noted that smokers of conventional cigarettes may inhale maybe 40 other carcinogens, not to speak of “thousands of [other] chemicals.”

It is true that at the end of November a study by Holland’s National Institute for National Health (RIVM) triggered a few headlines like “Dutch sound alarm about possible risks of e-cigarettes” (Reuters), but within the body of that Reuters story there was this: “The institute said it was concerned about a lack of evidence on the possible health effects of e-cigarettes…”

As a reminder: Don’t know is not the same as know.

The RIVM did note that the dread nicotine was involved and referred to reports of nausea and throat irritation by some users. Indeed, it recommended (Reuters writes) that “as a precaution [e-cigarettes] should not be used by pregnant women or in the vicinity of children.” For a health warning nowadays, this is on the mild side. The scientific concerns it reflects are not enough to justify a heavy-handed ban of the type now headed New York City’s way.

But what about the antifreeze? This substance, more happily associated with autos than lungs, has seeped into the e-cigarette debate, setting up a scare or 50. The truth is that the FDA found some diethylene glycol — an important ingredient in antifreeze — in just one of the cartridges surveyed in the 2009 study, a dismaying result but almost certainly a rogue finding. E-cigarettes generally do contain, however, a base of propylene glycol to “hold” the nicotine and any added flavoring. Propylene glycol is used in antifreeze, but as a kinder, gentler alternative to its rough diethylene cousin, particularly when there is any danger of contact with food. As is explained in the compound’s Agency for Toxic Substances and Disease Registry toxicological profile (September 1997), “the [FDA] has classified propylene glycol as ‘generally recognized as safe,’ which means that it is acceptable for use in flavorings, drugs, and cosmetics, and as a direct food additive.” Move along, there’s nothing to see here.

As an alternative to propylene glycol, some e-cigarettes use vegetable glycerin as their base. This common food additive will affect their taste, but not your health.

And so far as the ingredients lurking in an e-cigarette are concerned, that ought to be about it. This is not, of course, a reason for arguing that research on these products should cease, or that stricter quality control should be opposed. Nor is it a claim that e-cigarettes are risk-free. They may, for example, inhibit lung capacity, at least temporarily. Beyond that and those pesky TSNAs, there is also the matter that most e-cigarettes will (as the astute folk at the RIVM had noticed) be used to deliver nicotine, a potentially addictive substance — albeit one that has been given up by tens of millions. Then again, much of nicotine’s famously powerful addictiveness can be attributed to the fact that it is being delivered via tobacco, a medium with naturally occurring monoamine oxidase inhibitors that seem to have a great deal to do (it’s a long story) with the difficulty of quitting smoking. Divorced from its leafy accomplice, nicotine is not that addictive, nor under those circumstances is it, to quote John Britton, who leads the tobacco advisory group for Britain’s Royal College of Physicians, even a “particularly hazardous” drug.

What about secondhand smoke, butcher of innocents, enricher of laundries? E-cigarettes give off little or no odor, and, although the research is still at an early stage, the health risks of secondhand vaping likely rest somewhere between zero and infinitesimal.

Considering all this (Dr. Britton has been quoted as saying that if everyone switched over to e-cigarettes it could save “millions” of lives), the medical world ought to be cheering the swift rise of a hugely safer alternative to demon tobacco. E-cigarettes are, so to speak, catching fire. In the U.S., sales are expected to hit $1 billion in 2013, twice the total of a year ago. That’s still only about 1 percent of the total spent on tobacco products, but it says something that Altria Group Inc. (parent company of Philip Morris USA), Reynolds American Inc., and Lorillard Inc. (which paid $135 million for blu eCigs in 2012) have all entered this market. Non-U.S. e-cigarette sales have been expanding rapidly too, reaching an estimated $2 billion in 2012.

But e-cigarettes have given tobacco’s fiercer foes, well, the vapors. Brazil, Norway, and Singapore have banned them. Others have imposed strict controls, including the prohibition of vaping in public places. Some British railway companies have exiled vapers from their carriages on the carefully considered grounds that they make other passengers “uneasy.” Such stupidities are not, as New Yorkers now know, confined to abroad. Their city is by no means alone. A growing number of America’s politicians, bureaucrats, and other nuisances are on the offensive against e-cigarettes. Thus bans similar to that now looming over New York City have already been introduced in New Jersey and Utah, states that would not normally agree on very much.

There are some legitimate concerns. There is a wide range of e-flavors, some of which, cherry crush, say, or chocolate (I’m not sure — on many grounds — about maple bacon), might appeal to a younger set. Meanwhile the anxious RIVM frets (according to Reuters) that e-cigarettes “might be attractive to young people because of bright colors, flashing lights and jewelry-like appearance.” Dutch e-cigarette design must have taken an exotic turn.

Such worries could be addressed by prohibiting the sale of e-cigarettes to minors, but that would not have been enough for New York councilman James Gennaro, a key promoter of the ban (and also a sponsor of legislation that recently increased the minimum age for buying tobacco in New York City to 21), who wants us all — of course he does — to think of the children. He worried (the New York Times reported) “that children who could not differentiate between regular and electronic smoking were getting the message that smoking is socially acceptable.” Combine the RIVM with Gennaro and the message is clear. E-cigarettes are a menace when they look like cigarettes. And they are a menace when they do not.

Other objections — that e-cigarettes might act as a gateway to the real thing (in reality, they are more likely to represent an exit from it) or that they might reglamorize smoking — are feeble stuff. This suggests that the real agenda is driven by the precautionary principle run amok, or, ominously, by something darker still.

And that something is not the prospect of the loss of valuable tobacco tax revenues (although that will not have gone unnoticed by some of those looking to bring vaping to heel). What is at work here is, at least in part, altogether more profound, and more disturbing, than that. The campaign against tobacco began with the best of intentions, but it has long since degenerated into an instrument for its activists both to order others around and to display their own virtue. And with that comes an insistence on a rejection of tobacco so absolute, so pure, that it has become detached from any logic other than the logic of control, the classic hallmark of a cult. So mighty is the supposed power of this anathematized leaf that anything — even when tobacco-free — that looks like a cigarette or provides any approximation of its pleasures is suspect.

It’s too much, of course, to expect any respect these days for the principle that adults should be left to decide such things for themselves, but the chance that the e-cigarette could save an impressive number of lives should count for something. Europe’s sad snus saga suggests that that might not necessarily be so. For generations Swedes have taken a form of oral tobacco, a snuff known as “snus,” cured in a way that sharply reduces its TSNA content. Snus is available in the U.S., land of dip and chaw, but, within the EU, where no such tradition exists, it can be sold only in Sweden. Taking snus is not without risk, but it’s far less harmful than smoking. Its popularity in Sweden, especially with the guys, goes a long way to explaining why that country has Europe’s lowest incidence of lung cancer among men. It has been estimated that introducing snus elsewhere in the EU could save some 90,000 lives a year, but the EU’s capnophobic leadership has rejected the idea. Anti-tobacco jihadists are quite content, you see, to accept that the perfect can be the enemy of the good.

As America’s vapers are now finding out.

Note: This article updates “Vaper Strain,” an article that appeared in the September 2, 2013 issue of National Review.

Yes, Conservatives Can Be Godless Too

Politix, December 8, 2013

Reading the jubilant response on the left to the news that Pope Francis appears to be one of them (the truth is much more complicated than that, but the lefty label will do for now), it’s easy to detect a strong note of Schadenfreude: God bites (conservative) man.

The argument runs like this: Right-wingers are forever proclaiming how devout they are, so how awkward for them that the leader of the largest Christian denomination has been badmouthing the free market.

Yes, that’s snarky, simplistic, and there are plenty of rebuttals available (for example, Christianity is an exuberantly syncretic faith, with room for multiple interpretations of its founder’s reported teachings). But judging by what some of my fellow rightists have been saying there is undeniably some – how shall I put this – discomfort on display.

Not where I’m concerned. My lack of any religious conviction – not a scrap, since you asked – may make for trouble with St. Peter at some future date, but, as the punch-up over the pope continues, it’s a plus. I don’t have a god in this fight.

And that surprises people. To be sure, it’s well-known that the Ayn Rand crowd casts a cold eye on the idea of a deity, and there’s a widespread suspicion that those wacky libertarians will believe in anything or nothing, but, as for the rest, well, religious right. There’s something to that, of course: Many conservatives are indeed religious, but this is frequently as much a matter of culture as it is of ideology.

America is a religious country, and so traditionalists (and conservatives are by definition traditionalists) tend to be religious, a tendency that has been sharpened – and made much more visible – by the way society has been changing since the 1960s. Half a century ago you would not have noticed the religious believer who was opposed to same-sex marriage, because back then “everyone” was (if they thought about it at all).

But the idea that it is essential philosophically for conservatives to be religious believers is nonsense. Dig around a bit, and you will discover quite a few here in America who have declared that they are not (although none of them – how odd – hold significant elective office). Look across the Atlantic (I am British-born) and you will find many, many more.

Godless conservatives however are rarely anti-religious. They often appreciate religion as a force for social cohesion and as a link to a nation’s past. They may push back hard against religious extremism, but, unlike today’s “new atheists” they are most unlikely to be found railing against “sky fairies.” Mankind has evolved in a way that makes it strongly disposed towards religious belief, and conservatism is based on recognizing human nature for what it is.

That means facing the fact that gods will, one way or another, always be with us. They may not be real, but their followers will be. What they believe matters.

And how they treat those who don’t matters even more.

Vaper Strain

National Review, September 2, 2013

As I write, I am vaping — yes, that’s the word — inhaling an odorless vapor from a plastic facsimile of a cigarette, battery-powered, bought for $10 at a local store, and good, it is claimed, for 400 puffs. The business end is fashioned to look like a filter. In another nod to nostalgia, the tip glows as I inhale. It’s not the real thing, nothing like. Plastic is neither leaf nor paper. It holds no memories of that old bar down on the Lower East Side, that conversation once upon when. There’s no tobacco, no combustion, none of the warmth, none of the evocative transience, none of the mouth-feel of cigarette or cigar, and it looks just a bit dumb. Walk into Rick’s with an e-cigarette and Rick would laugh. Then again, Bogie died at 57.

Whatever the aesthetics of e-cigarettes, as nicotine-delivery systems go they are a lot safer than the cancer sticks of old. There’s no carbon monoxide, no tar, very little, in fact, of tobacco smoking’s carcinogenic stew. To be sure, the Food and Drug Administration has detected tobacco-specific nitrosamines (a carcinogen) in the e-cigarette cartridges that contain the treats to come. A 2009 study revealed about the same quantity of TSNAs in cartridges as might be found in a nicotine patch, a total about one-nine-hundredth of the level found inside Joe Camel. The vaper (I know, I know) will inhale an even smaller portion, a tiny fraction of a minuscule amount. Furthermore, TSNAs were the only carcinogens detected in this study. Boston University’s Dr. Michael Siegel, a 25-year veteran of tobacco-control work (and a Centers for Disease Control alumnus), has noted that smokers of conventional cigarettes may inhale maybe 40 other carcinogens, not to speak of “thousands of [other] chemicals.”

But what about the antifreeze? This substance, more happily associated with autos than lungs, has seeped into the e-cigarette debate, setting up a scare or 50. The truth is that the FDA found some diethylene glycol — an important ingredient in antifreeze — in just one of the cartridges surveyed in the 2009 study, a dismaying result but almost certainly a rogue finding. E-cigarettes generally do contain, however, a base of propylene glycol to “hold” the nicotine and any added flavoring. Propylene glycol is used in antifreeze, but as a kinder, gentler alternative to its rough diethylene cousin, particularly when there is any danger of contact with food. As is explained in the compound’s Agency for Toxic Substances and Disease Registry toxicological profile (September 1997), “the [FDA] has classified propylene glycol as ‘generally recognized as safe,’ which means that it is acceptable for use in flavorings, drugs, and cosmetics, and as a direct food additive.” Move along, there’s nothing to see here.

As an alternative to propylene glycol, some e-cigarettes use vegetable glycerin as their base. This common food additive will affect their taste, but not your health.

And so far as the ingredients lurking in an e-cigarette are concerned, that ought to be about it. This is not, of course, a reason for arguing that research on these products should cease, or that stricter quality control should be opposed. Nor is it a claim that e-cigarettes are risk-free. They may, for example, inhibit lung capacity, at least temporarily. Beyond that and those pesky TSNAs, there is also the matter that most e-cigarettes will be used to deliver nicotine, a potentially addictive substance — albeit one that has been given up by tens of millions. Then again, much of nicotine’s famously powerful addictiveness can be attributed to the fact that it is being delivered via tobacco, a medium with naturally occurring monoamine oxidase inhibitors that seem to have a great deal to do (it’s a long story) with the difficulty of quitting smoking. Divorced from its leafy accomplice, nicotine is not that addictive, nor under those circumstances, to quote John Britton, who leads the tobacco advisory group for Britain’s Royal College of Physicians, is it even a “particularly hazardous” drug.

What about secondhand smoke, butcher of innocents, enricher of laundries? E-cigarettes give off little or no odor, and, although the research is still at an early stage, the health risks of secondhand vaping likely rest somewhere between zero and infinitesimal.

Considering all this (Dr. Britton has been quoted as saying that if everyone switched over to e-cigarettes it could save “millions” of lives), the medical world ought to be cheering the swift rise of a hugely safer alternative to demon tobacco. E-cigarettes are, so to speak, catching fire. In the U.S., sales are expected to hit $1 billion in 2013, twice the total of a year ago. That’s still only about 1 percent of the total spent on tobacco products, but it says something that Altria Group Inc. (parent company of Philip Morris USA), Reynolds American Inc., and Lorillard Inc. (which paid $135 million for blu eCigs in 2012) have all entered this market. Non-U.S. e-cigarette sales have been expanding rapidly too, reaching an estimated $2 billion in 2012.

But e-cigarettes have given tobacco’s fiercer foes, well, the vapors. Brazil, Norway, and Singapore have banned them. Others have imposed strict controls, including the prohibition of vaping in public places. Some British railway companies have exiled vapers from their carriages on the carefully considered grounds that they make other passengers “uneasy.” Such stupidities are not confined to abroad. A growing number of America’s politicians, bureaucrats, and other nuisances are on the offensive against e-cigarettes, including — if recent reports are true — New York’s nanny-in-chief, Michael Bloomberg. And he won’t be the last.

There are some legitimate concerns. There is a wide range of e-flavors, some of which, cherry crush, say, or chocolate (I’m not sure — on many grounds — about maple bacon), might appeal to a younger set, but such worries are best addressed by prohibiting sales to minors. Other objections — that e-cigarettes might act as a gateway to the real thing (in reality, they are more likely to represent an exit from it) or that they might re-glamorize smoking — are feeble stuff. This suggests that the real agenda is driven by the precautionary principle run amok, or, ominously, by something darker still.

Cynics might point to the loss of valuable tax revenues as the motive, but there’s much more to it than that. The campaign against tobacco began with the best of intentions, but it has long since degenerated into an instrument for its activists both to order others around and to display their own virtue. And with that comes an insistence on a rejection of tobacco so absolute, so pure, that it has become detached from any logic other than the logic of control, the classic hallmark of a cult. So mighty is the supposed power of this anathematized leaf that anything — even when tobacco-free — that looks like a cigarette or provides any approximation of its pleasures is suspect.

It’s too much, of course, to expect any respect these days for the principle that adults should be left to decide such things for themselves, but the chance that the e-cigarette could save an impressive number of lives should count for something. Europe’s sad snus saga suggests that that might not necessarily be so. For generations Swedes have taken a form of oral tobacco, a snuff known as “snus,” cured in a way that sharply reduces its TSNA content. Snus is available in the U.S., land of dip and chaw, but, within the EU, where no such tradition exists, it can be sold only in Sweden. Taking snus is not without risk, but it’s far less harmful than smoking. Its popularity in Sweden, especially with the guys, goes a long way to explaining why that country has Europe’s lowest incidence of lung cancer among men. It has been estimated that introducing snus elsewhere in the EU could save some 90,000 lives a year, but the EU’s capnophobic leadership has rejected the idea. Anti-tobacco jihadists are quite content, you see, to accept that the perfect can be the enemy of the good.

As America’s vapers might be about to find out.

City Under Siege

The Weekly Standard, July 1, 2013

Take a visit to the cyber-belly of the beast, to a website run by the European Commission, the EU’s bureaucratic core, and you will be told that “the financial sector was a major cause of the [economic] crisis and received substantial government support.” Soon it will be payback time, in the form of Europe’s new Financial Transaction Tax (FTT), set to be levied at a rate of 0.1 percent on equity and debt transactions, and 0.01 percent on trades in derivatives. It will ensure that the financial sector “makes a fair and substantial contribution to public finances.”

We’ll see. This new “contribution,” potentially much more onerous than those fragments of a percent suggest, may or may not be substantial (taxes of this type have a record of backfiring), but the revenues predicted by the commission ($45 billion or so, but the math is fuzzy) could be eclipsed by the punch that the tax delivers to economic growth.

Whether the FTT is “fair” is fuzzier still. That’s because the real objectives of the tax​—​to be introduced by 11 eurozone countries in 2014​—​have little to do with that. To start with, the FTT is about​—​dread word​—​the narrative. Problems within the banks were the immediate cause of the crisis​—​it’s not called the financial crisis for nothing​—​but working out what caused those problems is a messier matter altogether. The number of plausible suspects rivals the haul on Agatha Christie’s Orient Express. Prominent among them is something for which the commission bears a great deal of responsibility​—​the euro, a reckless, politically driven piece of financial engineering that has outdone the worst of Wall Street’s mad science. With the single currency still the focus of potentially dangerous debate, it makes sense to keep attention focused on fat cat bankers and away from Brussels’s more discreet architects of financial destruction. Similar thinking helps explain why​—​when the euro’s troubles grew too big to ignore​—​there was so much talk of dodgy markets and dark Anglo-Saxon plotting.

Sadly, in a way, not all of this was​—​or is​—​deliberate disinformation. Much of continental Europe’s leadership class​—​across the political spectrum​—​distrusts “financial capitalism” of the Anglo-American kind, a venerable suspicion that appeared to have been vindicated by the fiascos of 2008. Why there is this distrust is a topic for another time​—​Roman Catholicism, socialism, and the twists of history have all played their parts​—​but that it exists is undeniable. The idea that free markets are the least bad way of allocating resources has limited appeal in a political culture still in thrall to the notion that some authority somewhere knows best, a belief that remains the essence of what the EU stands for. This is more than a matter of philosophical disagreement. So far as Brussels is concerned, Anglo-Saxon finance is not just objectionable, it’s in the way.

The euro was an attempt to override the market. A nation’s currency is a measure of its relative economic performance. If its value falls that’s a signal to investors and, in time, a chance to restore international competitiveness. By abandoning marks, francs, lire, and all the rest, the creators of the currency union junked a useful economic tool, replacing the collective sense of the market with crude administrative fiat. France was Germany was Portugal, and that was that.

As millions of jobless Europeans know, the market bit back. But the instinct of those managing the currency union was not to revert to market discipline, but to move farther away from it. There were bans on the short-selling of certain securities, attacks on credit ratings agencies that were at last telling some inconvenient truths, and, crucially, a vow by European Central Bank president Mario Draghi to do “whatever it takes” to save the euro, a declaration buttressed by the prospect of significant intervention in the sovereign bond market. Markets are far from perfect, and some of what has been done can be justified on pragmatic grounds, but it’s not difficult to notice the direction of a broader ideological current, one that is not good news for the City​—​London’s Wall Street​—​or, indeed, American financial firms interested in European business.

That current is sweeping an increasingly burdensome, increasingly made-in-Brussels regulatory regime, expensive and rigid, into the City and beyond. Much of it is profoundly antithetical to the intuitive, principles-based, flexible, and often self-regulatory approach that has done so much to transform Britain’s financial sector into a world-beating business. That some of these rules​—​such as the new Alternative Investment Fund Managers Directive​—​will (effectively) weigh even more heavily on enterprises headquartered outside the EU is bound to damage London’s status as a global financial entrepôt, diverting business beyond the reach of Brussels.

The commission doesn’t appear to be particularly concerned where that business goes. In fact, it would probably like much of it to go away altogether. Many of Britain’s continental partners agree. And jealousy is only a part of it. The inherently unruly (markets are like that) and, to them, morally suspect financial sector is an obstacle to the ideal of a technocratic, tightly controlled Europe. Meanwhile the “island sewer” (to quote a deputy director of the supposedly serious El País, Spain’s highest-circulation newspaper) acts as a low-tax, lucrative lure for some of the continent’s best and brightest: some 300,000 to 400,000 French citizens now live in the U.K., mainly in London. Perhaps most annoyingly of all, financial services’ large contribution to the U.K.’s ramshackle economy (directly and indirectly perhaps at least 14 percent of GDP, and a badly needed export earner) helps fund Britain’s fondness for going its own way, an independent-mindedness that its European partners could do without.

But if the pie is to be smaller, that doesn’t mean that those partners don’t want a larger slice of it. National rivalries still flourish beneath that shared EU flag. The mechanism of “ever closer union” is not infrequently used by one member-state against another. It is, of course, only a coincidence that the (Frankfurt-based) European Central Bank is seeking to introduce rules that would force the relocation of clearing houses that handle euro-denominated instruments (in any significant quantity) out of London into the eurozone, to Paris, say, or, uh, Frankfurt. The U.K. is suing to prevent this, but if the currency union deepens, or banking union comes into being, there will be more of the same to come.

Taken as a whole, Europe’s financial sector will shrink further​—​even after the bloodletting of the last few years. London, as its hub, is bearing, and will continue to bear, the brunt. Jobs in the City have fallen by roughly a third and now stand at a 20-year low. In part this is natural, the product both of hard times and the necessary reconnection of the financial sector to economic reality. In part too it’s a matter of mathematics. Tougher capital requirements and more restrictive limitations on leverage (and, possibly, areas of business) are a reasonable response to some of the disasters of recent years, but they will make much of the banking sector less profitable than in the mirage years, and that’s before we begin to factor in the costs of Brussels’s wider regulatory onslaught.

The FTT adds both further insult and injury. The belated realization that the tax may be even more destructive than its supporters intended (the governor of the Bank of France has warned of the damage it could do to the Frenchfinancial sector) may mean that it will be diluted prior to its planned introduction, but two key features​—​some targeting of trading volumes and extraterritoriality​—​will remain, and both will hurt London disproportionately. The extraterritoriality is particularly galling. A trade will bear the tax even if only one counterparty is in the FTT-zone, and so will a transaction where both counterparties are outside the FTT-zone (in London and New York, say) but trading a security (a Peugeot share, for example) where the issuer is based within it. The U.K. and the United States will be acting as the collectors of a tax that hurts one of their key industries​—​and they won’t get a penny for their pains.

As if all that were not enough, the intervention of Europe’s reliably authoritarian parliament means that new caps on bonuses have recently been approved. The bonuses of bankers classified as “material risk-takers” (including anyone who earns over $660,000 a year) will be capped at one times salary, or two times with the approval of a supermajority of shareholders​—​an arbitrary diktat at odds with more subtly designed measures preferred by the U.K. The possibility that similar limits may be imposed on asset management firms (a group that received no bailouts from the European taxpayer) gave the lie to the never convincing argument that these changes are about risk control. Rather, like the Swiss referendum in March that also imposed restrictions on executive pay, they are both an exercise in collective punishment and a manifestation of the neo-egalitarianism growing on either side of the Atlantic. There is something else at play. Members of the European parliament see themselves as the continent’s elite (check out the deeply discounted tax rates that most of them pay), the vanguard of a new Europe. Earning so much less than those arrogant, unnecessary bankers maddens them: The chance to put a brake on financial sector pay is difficult to resist.

That’s more bad news for the City. The cap will​—​surprise​—​hit London hardest (that’s where most of the EU’s “material risk-takers” are to be found) and will make it a less hospitable place for the type of international business that could just as easily be located in New York, Hong Kong, or Zurich. Not only that, mandating less flexible wage structures will discourage hiring, the last thing that London needs now. And if these changes do end up crimping total compensation, that will be a blow to Britain’s cash-strapped treasury, long accustomed to raking in a good bit of that income, among other large “contributions” (to use that fashionable word) from the financial sector.

And so British prime minister David Cameron finds himself in another European swamp. All he can do about the FTT’s extraterritorial reach is protest (the United States is also objecting) and maintain a fingers-crossed legal challenge. He could (very) arguably have vetoed the bonus cap under the Luxembourg compromise, a severely eroded understanding dating to 1966, which might still permit a veto in defense of a vital national interest even where no veto power formally exists. That would have been a long shot, but Cameron didn’t even attempt it. Going to the mat “against Brussels” in defense of bankers’ bonuses would have played no better in euroskeptic Britain than anywhere else.

But one important, and generally Conservative, section of the electorate might have supported him. Traditionally nervous about political uncertainty and understandably wary about being cut off from European markets, the City’s grandees have long endorsed​—​if on occasion through gritted teeth​—​British membership in the EU. That’s not going to change quite yet, but some of them must be beginning to see that staying in an EU fixed on its current course could well be riskier than taking their chances outside. Whatever he is now claiming, Cameron is not going to be able to nudge the EU in a different direction, and he does not have the imagination to see that Britain would be better off out. Sooner or later, the City will have to confront the fact that if the EU is the problem, Cameron is not the answer.

A sign that it may be starting to was a high-profile event hosted last month by London hedge funder Crispin Odey and designed to introduce Nigel Farage, the leader of the uncompromisingly Euroskeptic U.K. Independence party, and a former City trader himself, to financial types. A long-term and generous, if sometimes critical, member of the Conservative party, Odey has not switched his support to UKIP, but this looked a lot like a warning shot.

Cameron would do well to pay attention. The 3 percent scored by UKIP (which up until now has principally drawn its support from the right) in the 2010 general election cost his Tories their chance of an absolute majority. UKIP is now polling in the mid-teens or higher, a feat it has managed on a shoestring. If UKIP can begin to attract City money, and the credibility that can come with it .  .  .

It’s not easy being David Cameron.

An English Spring?

National Review Online, May 13, 2013

UKIP Conference, Birmingham, September 2012 © Andrew Stuttaford

They are still there, the English of an older England, frequently overlooked, frequently looked down upon, stubbornly hitched to an unruly history too grand just to be packed away.

On May 2, in local elections in a large swath of England (and a small slice of Wales), a good number of them did what the English — a less genteel lot than Masterpiece Theatre might suggest — do when provoked too far: They pushed back hard, casting their votes for the United Kingdom Independence party (UKIP), an eccentric homebrew of euroskepticism, “commonsense” conservatism, and anti-establishment mutiny.

Let’s get some caveats out of the way. Local elections halfway through the life of a parliament (the next general election is due in 2015) have long been used to protest against whoever’s in charge, and the scale of that protest is generally exaggerated by a low turnout. The angry vote. The turnout this time was some 31 percent, not so different from the tally (35 percent) for Britain’s last elections to the EU parliament in 2009, another contest in which UKIP, not so coincidentally, scored very well.

On May 2, this understaffed (a dozen paid employees in the U.K.), underspent, under-organized party won 147 of the roughly 2,300 seats that were up for grabs, compared with, um, eight in 2009, and took in around 23 percent of the vote, up from, well, no one was really counting last time round. It was (very) arguably the most sizeable surge by an outsider party since the Normans unexpectedly entered government in 1066. Labour topped the popular vote with 29 percent, the Conservatives followed with 25 percent, and their Liberal Democratic coalition partners trailed with 14 percent.

Now some more caveats: There were no elections in either Scotland — where voters dance to a very different tune — or the greater part of Labour-dominated Wales, or in most of England’s larger cities. This was an electorate that skewed right, something that helps explain the discrepancy between national polls (where UKIP has been scoring, not unimpressively, in the low-to-middle double digits) and the result of the May 2 vote.

And yet, something is going on.

The turbulent years that followed UKIP’s founding in 1993 are simple enough to decode: There’s the crankiness of obsessives at odds with conventional wisdom, and the infighting (long a UKIP trademark) that marks countless clusters of the opinionated. All the same, it is a measure of British unhappiness with Brussels that this odd little group took 7 percent of the poll in the 1999 elections to the EU parliament, when it was little more than the flag for an idea that no “respectable” party would embrace: Britain’s exit from the EU.

Five years on, UKIP had made little progress on the domestic front, but its share of the British vote in the 2004 elections for the EU parliament rose to 16 percent. Glory was followed by farce, a regular presence in the UKIP story, when one of its new MEPs and easily its most prominent face, a former Labour MP turned talk-show host, attempted to take over the leadership in a putsch that ultimately failed. He then quit the party. The voters were more loyal. In the next EU elections (in 2009), the 16 percent stuck with the only party willing to respond fully to the discontent that the supposedly euroskeptic Tories were too nervous to harness.

Much-derided Conservative “splits” over the EU (in reality a genuinely principled debate) had left the Tories with a reputation for feuding that proved to be electoral poison for the better part of two decades. This was made all the more deadly by the way that Tory unease over the EU was used by the Conservative party’s opponents to reinforce its reputation as an asylum for reactionaries with no place in the bright new Britain that Tony Blair was building. David Cameron had to do away with that caricature if he was to have a chance of returning the Tories to power. With little subtlety and some success, that’s just what he did. Climate change was in; “banging on about Europe” was out. As for UKIP, they were “fruitcakes and loonies and closet racists, mostly,” a dishonest and condescending jibe that played well — as it was designed to — with Britain’s metropolitan opinion-formers, but came to symbolize Tory carelessness with a right wing that, Cameron calculated, had nowhere else to go.

But that was before prolonged economic crisis drained the public’s confidence in a political class long known to be out of touch, but now seen to be out of its depth. The euro’s long agony and the EU’s increasingly  overt evolution into a nascent superstate have only helped reinforce the idea that those fruitcakes might have a few things right after all.

Britain has never been a hotbed of enthusiasm for the Brussels project, but it is striking to see some recent polls showing a majority in favor of U.K. withdrawal from the EU, a finding almost unthinkable just a few years ago. Tough times can force voters to confront reality, however uncomfortable. And in modern Britain there may be less to keep them reined in than in the past. Many Brits have become alienated from their country’s political process (a process that has, of course, been drained of much of its meaning by the intrusions of Brussels), an alienation bolstered by their all-too-justified suspicion of elite consensus, most strikingly, perhaps, in the area of immigration. UKIP’s much tougher line on immigration is a major element in its support.

Immigration has been a contentious topic in the U.K., as elsewhere in Europe, for over 50 years, but there is now a real sense that Britain has lost control of its borders, not least as a result of EU rules. With very little in the way of genuine popular consent, an island nation marked by only gentle shifts in its ethnic balance for centuries is being radically and rapidly transformed by an influx that accelerated dramatically during the Blair years. For a long time, to express much more than the faintest concern over this was to risk being dubbed, well, to recycle an insult, a “closet racist” or worse. An academic study splashed across the British press shortly before the May elections predicted that the “white British” would become a minority of the population in the second half of this century, a status that they have lately achieved in London. Extrapolation can be an extremely unreliable tool, but data such as this help explain why many Britons believe that there has been too much change too soon.

The U.K. is not a country familiar with populist revolt. Both the Labour and Conservative parties have traditionally been broad enough churches to accommodate within their ranks populist strains of Left and Right respectively. Since the Blair and Cameron modernizations, that may no longer be so true as it was. Even so, any insurgent party in Britain still has to contend with another formidable obstacle: the electoral system. It’s not by chance that, until now, UKIP had notched up real success only in EU elections, which operate under a system of proportional representation. Domestically, elections are first-past-the-post, a set-up that squeezes smaller parties, and one that presented euroskeptics with a very specific problem. Voting for UKIP rather than the mildly euroskeptic Tories risks handing victory to the Conservatives’ far more europhile rivals on the left. UKIP took only 3 percent of the vote in the 2010 general election, but even that was enough to cost the Conservatives some 20 seats and a clear majority. An even better UKIP result  in 2015 will almost certainly hand the keys of 10 Downing Street to Labour, with consequences that many potential UKIP sympathizers would detest.

Persuading them to risk voting for UKIP nonetheless is going to take more than the accumulated discontents of recent years, but if anyone can pull that off, it will be Nigel Farage, UKIP’s leader, who has emerged as one of the most effective politicians Britain has seen for a long time, and without whom the result of May 2 would have been an impossibility.

Comes the hour, crumbles the euro, crashes the economy, comes the man. A smoker who enjoys a drink or three, Farage is a charmer and a chancer, an ebullient and eloquent speaker with a quick wit, a nice line in self-deprecatory humor, and a public persona that is the jaunty, Jack-the-Lad antithesis of Britain’s increasingly pharisaical political class. Farage can do anger when he has to, but he is a revolutionary who does not take himself too seriously. A clever operator, perhaps, but a back-of-the-envelope administrator, reassuringly contradictory qualities that have only added to his subversive appeal. As the Daily Telegraph’s Tim Stanley put it, people voted for UKIP “partly out of anger and partly for a laugh.” It was, he concluded, “a very British revolution.”

More a warning shot than a revolution, I reckon, and distinctly more English than British. But, whatever the future holds, the next few months are likely to be tricky for UKIP, which will now find itself subject to closer scrutiny than ever before. That may prove an uncomfortable experience for some of its newly elected councilors, political novices who may find themselves hopelessly out of their depth or burdened with résumés that won’t look so good under the media microscope. Even in the run-up to the election, it was evident that UKIP did not have the resources to properly screen its candidates. There will be more embarrassments to come.

Meanwhile the party will keep working on building its support from the bottom up, local election by local election, trying to establish the grassroots networks without which it has little chance of winning many (or any) seats in the Westminster parliament, playing the retail politics — opposition to a contentious high-speed railway here or an unwanted wind farm there — that is already contributing to UKIP’s appeal. And the outreach to what Farage often refers to as “patriotic old Labour” will continue. That’s an effort that is already coloring the agenda of a self-described libertarian party that has always had its (to return to that lazy adjective) populist elements (the emphasis on immigration control and law and order, say, and, more recently, opposition to same-sex marriage) and has now dropped its earlier commitment to a flat tax that allowed it to be smeared as too soft on the rich. There will be further nods in a leftward, statist direction, as UKIP’s mood music — that’s the best way to describe its program — shifts. It may be less of stretch than might be assumed. Even some of the former Tory voters who now support UKIP are perhaps better understood here in the U.S. as being (very) roughly equivalent to the Reagan Democrats of old, with all that that entails.

In May 2014, there will be new EU parliament elections, a contest in which on current form UKIP could possibly come top, boosting its momentum still further. But for now attention will revert to the impact that the party’s surge will have on the Tories. The results of the May 2 vote contained scraps of bad news for Labour and the Liberal Democrats, but it’s the Conservatives who are looking at catastrophe in the 2015 general election. David Cameron’s earlier attempts to head off the UKIP challenge — most notably his implausible promise of an improbable referendum on EU membership — have failed. Now the Tories have to try something else. It may be a far tougher line toward the EU (good luck with getting that taken seriously), and, although this comes with considerable electoral risks of its own, it may be a lurch to the right.

Who knows? What it will be is desperate.

Cyprus Sinking

National Review, April 3, 2013 (April 22, 2013 issue)

It says something about the lunatic calculus of Europe’s monetary union that the Republic of Cyprus, a slice of a Mediterranean rock known mainly, if not always fairly, for sunshine, no-questions-asked banking for murky Russian money, and a history of ethnic conflict, has shared a currency with Germany for the past five years. And it says perhaps even more that in 2010 and mid-2011 its two largest banks passed EU-wide “stress tests” that, revealingly and not so revealingly, hugely downplayed the risks that banks were running with their holdings of government bonds. And, yes, those two Cypriot banks had a lot of government bonds — Greek-government bonds — and a great deal of other business in the hard-pressed Hellenic Republic besides. Wait, there’s more: Together those two banks in 2011 had assets equivalent to over four times Cyprus’s GDP. Overall the country’s banking sector had assets that amounted to more than eight times GDP. What cannot go on, won’t. By the second half of 2011, Cyprus was in the grip of a growing financial crunch.

After securing an emergency loan of € 2.5 billion from Russia, Cyprus’s former AKEL government (“Communists,” but not really) turned belatedly, in June 2012, for help to the bailout-hardened troika of the European Commission, European Central Bank, and IMF. Negotiations dragged. It took the election of the new center-right president, Nicos Anastasiades, in February finally to break the logjam. Anastasiades had a clear mandate to agree to structural and budgetary reforms of the type that the troika was looking for, but he balked at demands that depositors with Cyprus’s banks share in the pain. The longer-term consequences for Cyprus’s banking sector, a mainstay of his nation’s economy, would, he knew, be disastrous.

That was not something that worried Angela Merkel. She was said to have said that Cyprus “must realize its current business model is dead.” Helping out the banks in an offshore tax haven was never a proposition likely to appeal greatly either to the chancellor herself — no friend of international finance at the best of times — or to German voters. They are due to go to the polls in September. After years of bailouts that they never liked and that were designed to rescue a currency that they never wanted, there was an obvious danger that coming too generously to the aid of an oligarchs’ playground would be a handout too far. And so Germany played a major role in insisting that any bailout be accompanied by a “bail-in” that would shift a good part of the cost of a rescue onto depositors with Cyprus’s banks.

The Cypriots caved. The euro-zone nations and the IMF would together provide € 10 billion in new loans, but depositors in Cyprus’s banks would have to chip in too, a grim first in the grim history of the euro-zone bailouts. Deposits of over € 100,000 would be subject to a one-off tax of 9.9 percent. Then came an additional, dangerous twist. Depositors with less than € 100,000 would also be taxed — in their case, at 6.75 percent, a levy that made nonsense of the understanding that, within the EU, such smaller deposits are meant to be insured. That breach of faith could easily be seen as an unsettling precedent, especially elsewhere in the euro zone’s troubled periphery.

The Cypriot leadership probably chose to penalize the smaller fry in this manner because they worried that taking too much from the high rollers risked damaging what was left of Cyprus’s offshore-banking business, but it created such an uproar — on the island and beyond — that its overwhelming rejection by the Cypriot parliament a few days later came as a surprise to no one.

It was back to the drawing board. What emerged on the second go-round a few days later was structured somewhat more sensibly. Bank deposits of less than €100,000 are protected, but Cyprus’s second-biggest bank, Laiki, will be restructured out of existence, quite possibly wiping out all uninsured deposits on the way. Its larger rival, the Bank of Cyprus, has been rescued, but this will come as cold comfort to its major depositors, who are likely to end up taking a shellacking so brutal that there will be little to choose between their fate and that of their counterparts at Laiki.

The good news was that this kept the troika committed to the €10 billion loan. That would, said Anastasiades, be enough to stave off bankruptcy. More modest than most euro-zone politicians, he did not claim that his particular chapter of the currency union’s interminable crisis was over, merely that it had been “contained,” an idea echoed by the fact that draconian “temporary” controls on the movement of money out of the country have been put in place. Even so, the president was being too optimistic. The banking sector is shrinking rapidly. Many other businesses have been badly damaged by the calamities of recent weeks and are now facing the prospect of operating in a near-siege economy — conditions that are, in addition, unlikely to attract the foreign investment that Cyprus will now desperately need. Making matters worse still, money will leak out, despite the controls. GDP will contract sharply, perhaps by as much as 20 percent over the next couple of years. Unemployment will soar.

With the economy in free fall and government debt-to-GDP set to rise to some 140 percent after the bailout, it will take a miracle for Cyprus to avoid a return to the begging bowl — a miracle so far-fetched that even Cyprus’s most senior cleric, Archbishop Chrysostomos II, cannot believe in it. The influential archbishop, admittedly long a strong nationalist, is urging abandonment of the euro, which would trigger the nation’s outright default. That won’t happen for now. Anastasiades has pledged to stick with the single currency. A majority of his fellow citizens are probably behind him in that, at least for the moment, for reasons that are easy to guess. A reversion to the Cypriot pound would mean a devaluation that would wipe out much of what’s left of the republic’s shredded savings, threaten massive inflation, and further disrupt an economy that has already lost its bearings. But the argument is not all one way: There’s a decent case to be made that an eventual exit from the single currency would, for all the pain, be the best possible way of repricing Cyprus back into the global economy. This is a debate that is far from closed.

In any event, the most intense phase of the Cypriot storm appears to have subsided for now, but it has left the euro zone even more battered than before. The two most dangerous threats to the survival of the currency union in its current form are a massive bank run and voter revolt. The disaster in Nicosia has made both more likely.

Let’s start with the banks. Depositors throughout the currency union have now been given a sharp lesson. Deposits above € 100,000 are riskier than they had previously assumed, a message reinforced by a series of comments from various euro-zone leaders who in the wake of the Cyprus deal, despite some hemming and hawing, made it clear that a new template is being put in place. Large depositors, bondholders, and other sources of wholesale money to a euro-zone bank are being warned that they should expect to take a hit if that bank runs into trouble. Properly tweaked, that’s a good principle — moral hazard and all that — but, with confidence in the euro zone and its often undercapitalized banks still shaky, now was not the moment to assert it. That was especially so in a week that had seen the introduction of strict controls on the free movement of capital — supposedly temporary (time will tell; precedents are not encouraging) — within a currency union that had allegedly consigned such restrictions to history.

This will mean that banks seen as vulnerable (or banks located in countries seen as vulnerable) will find it even more difficult — and more expensive — to attract funds. (Well, would you deposit more than € 100,000 with an Italian bank?) This is a perception that feeds upon itself, and, in the right wrong circumstances, can easily set the stage for panic. Even those with (supposedly insured) deposits below € 100,000 will have been left uneasy by those few days in which it appeared that the euro zone’s leadership was prepared to go along with a deal in which smaller depositors took a hit. Since then, there have been repeated reassurances that such deposits are safe. Protesting too much? Just maybe, and there’s no getting away from one uncomfortable truth: Those insured deposits are guaranteed at the national level, not by the euro zone as a whole. A guarantee is only as good as the guarantor. Insured depositors in Greece have, therefore, to hope that, in the event of a crisis, the Hellenic Republic is good for the money, or at least for a third bailout.

One possible, partial response to that part of the problem would be to institute a deposit-insurance scheme jointly guaranteed by all euro-zone members, but that would risk inflaming the source of the second great threat now stirring within the euro zone: democratic politics. One reason that deposit insurance has not expanded beyond national borders is the suspicion, most notably in Germany, that signing up for a broader European scheme would be signing yet another blank check, something that would be not only bad housekeeping but a quick way to antagonize the voters. The bailouts have long been unpopular among the electorate in the euro zone’s (reasonably) solvent north, but the eurofundamentalism of most of its political class has meant that, despite some heroic efforts in Finland, this sentiment has done little to derail the trainloads of cash and commitments heading toward the currency union’s embattled periphery.

That’s not to claim that relatively frugal sorts such as Chancellor Merkel have enjoyed making the handouts. They have not. The tough line that they are taking on Cyprus and, by extension, on banks throughout the euro zone is clearly intended to show that there are limits to their generosity with their taxpayers’ money and to the risks that they are prepared to take with their voters’ patience. In a recent poll, some 26 percent of German voters said they “could imagine” voting for a party that was opposed to the single currency. In late February, a new, achingly moderate center-right party, Alternative für Deutschland, was formed to appeal to just such voters. AfD won’t win, but if it takes even a few percentage points in September’s vote, it could make the election rather closer than Mrs. Merkel would like. She won’t want to give AfD any more ammunition than she has to over the next few months, which is just another reason to think that the next bailout drama (keep an eye on Slovenia) may be even uglier than the last: Bank depositors in the euro zone’s other struggling regions will, doubtless, be watching carefully — and anxiously.

But while politicians in the euro zone’s north have to contend, for the most part, only with the threat of voter revolt, those in the periphery have to contemplate dealing with far tougher opposition. If parliamentary approval for the final memorandum of understanding that seals the deal is required, there may be some sweaty interludes in Cyprus (the parliament’s speaker has already signaled his opposition), but the best guess must be that Cypriots are likely to be too traumatized to do anything but go along with the terms of their rescue for now. But the spectacle of their pauperization will not play well with their kin in Greece, already radicalized by years of slump and increasingly hostile to the idea of sticking with the painful austerity that many of them regard (not always completely incorrectly) as self-defeating. That austerity is the price of continued support from the north, not least because, without it, voters in Finland and elsewhere would likely finally say that they had had enough. Rock, meet hard place. For now the somewhat unwieldy Greek coalition government is sticking to the troika’s script, but its leaders can read the opinion polls — and their message of growing anger — as well as anyone else. Meanwhile, in Italy the success of Beppe Grillo’s insurgent (and anti-austerity) Five Star Movement (M5S) in the February elections has led to political paralysis. At this writing, there is still no government in Rome, and the prospect of new elections cannot be ruled out. M5S continues to ride high in the polls. The humiliation of Cyprus will be unlikely to have hurt its case. Meanwhile, Silvio Berlusconi’s PDL, itself deeply skeptical of the troika’s agenda, is also polling well. In the aftermath of the Cypriot deal, Italian bond yields rose, and Italian bank shares fell.

To repeat myself, if you had a deposit in an Italian bank, what would you do?

Tick tock.

Just Say No

National Review Online, February 14, 2013

Have we just witnessed a cynical attempt to induce an old ally to sacrifice itself for the benefit of the United States? Possibly: Foreign policy is not for the morally squeamish.

Look no further than Philip Gordon, the U.S.’s assistant secretary of state for European and Eurasian affairs. In January, Mr. Gordon hurled himself into Britain’s contentious debate over the EU with the observation that America viewed the U.K.’s continued participation in that wretched union as “essential and critical to the United States.” This did not play well with Blighty’s euroskeptic hordes, a crowd all too willing to suspect that Uncle Sam takes John Bull for granted. An indignant Nigel Farage, leader of the insurgent euroskeptic United Kingdom Independence party (UKIP), snarked that, as the U.K. had rejected the Americans’ suggestion that it might lend a hand in Vietnam, the U.K. would also “say no to them over the EU.”

Undeterred, Barack Obama waded into the controversy a week or so later, releasing some comments shortly before David Cameron was due to deliver a much-anticipated speech on Britain’s role in the EU. The timing was intended to stiffen the back of a prime minister under immense domestic political pressure from his euroskeptic critics. The president began softly enough, politely underscoring “America’s close alliance with the United Kingdom,” but then came to the point: The United States values “a strong U.K. in a strong European Union.” Following Cameron’s speech, that message was echoed by Joe Biden, never a man afraid to repeat the words of others, during the course of a visit to Europe earlier this month: “We believe the United Kingdom is stronger as a result of its membership [in the EU]. And we believe the EU is stronger with the U.K.’s involvement.”

On one level, that was not so far from what Cameron had ended up saying. In his speech, he called for a reformed, “leaner, less bureaucratic union . . . with the single market at its heart,” a union open for business with the rest of the world, a decentralized union that would return powers to its member states but that would have room within it for a smaller group of countries on a pathway to “much closer economic and political integration,” but no sin bin for those who did not. If that is a vision in any way connected with reality, the State Department ought to be able to relax.

Of course, it is not. Fears among the EU’s leadership (alluded to by Cameron in his speech) that a restructuring on the lines he proposed could lead to the union’s unraveling will mean that it will never take place. If Britain is to loosen its ties to Brussels, it will have to do so on its own. That would involve persuading all the other 26 EU countries to go along (since changes to the EU treaty require unanimity). That’s not going to happen either.

No matter, Cameron has guaranteed British voters a referendum once his implausible negotiations for an impossible deal have been concluded. It will, he explained, be “a very simple in or out choice. To stay in the EU on these new terms; or come out altogether.” So would that be something for the White House to worry about? Not really. The Conservative manifesto for the general election, due in 2015, will include a promise to hold a referendum. But here’s the catch. The Conservatives will almost surely not win that election, for any number of reasons that we don’t need to go into now.

Even in the astounding event of a Tory victory, what then? Doubtless there would be an elaborate pantomime of negotiation — there is still a large constituency within the EU (including, most importantly, Germany) that would like the Brits to stay in — and doubtless a few crumbs of concession would be tossed Cameron’s way. Indeed there were sections in his speech where the prime minister already seemed to be signaling his willingness to find a way to accept them. For older Britons, this brings back memories of the 1975 referendum that rubber-stamped a cosmetically “renegotiated” deal with the precursor to the EU. And a rerun of that would probably be what they would get.

Disregard the polls currently showing that a majority in the U.K. would opt for Brexit (yes, that’s the term). That’s just venting. Given their druthers, because of anxiety about what lies outside, reinforced by skillful scaremongering (and there’s been quite a bit of that lately), most Brits would prefer to remain within the EU, albeit one that is less intrusive. The nature of the EU — an “ever closer union” — means that that is not on offer. But presented with a prettily packaged excuse to avoid confronting that unpleasant reality, and battered by warnings from the great and the good of the supposedly hideous implications of quitting, the British electorate would almost certainly stick with the devil it knows.

So Cameron’s gambit is highly unlikely to get anywhere, let alone lead to Britain’s escape from the EU, and yet the Obama administration still seems oddly concerned. In part this may be a feint, aimed not at London but at Brussels, Berlin, and Paris, crafted to demonstrate to a bloc of some consequence that the Brits might be euroskeptic but their cousins across the pond most definitely are not.

And in part it may be caution. Cameron is right: “Democratic consent for the EU [within the U.K.] is now wafer thin.” If the Labour party were to shift in a more euroskeptic direction, the political equation would change dramatically. Despite electoral logic and some tentative maneuvering, that’s not likely for now. The party’s leader is firmly in the Brussels camp. But its supporters are rather less so. All things considered, the White House may have thought that spreading a little of what euroskeptic blogger Richard North has dubbed FUD (fear, uncertainty, and doubt) over the consequences of a Brexit might be a sensible preemptive step.

More than that, the EU is in a tense, febrile state. The underlying structural failings of its monetary union, combined with a nutty determination to dig that hole still deeper, may well force the countries of the euro zone (and perhaps others) into a degree of integration that will, however much they might try to avoid it, necessitate amendments to the EU treaty. Those will be amendments to which the Brits will have to give their assent (unanimity, remember). At that moment, whatever the fate of Cameron and his referendum, the U.K.’s relationship with the EU will be up for discussion. As matters now stand, it is, to put it mildly, unlikely that the country will opt to join any inner core, but, by spreading a little FUD in advance (with more, unquestionably, to come), the U.S. is obviously trying to contribute to the creation of a climate of opinion within Britain that will prevent the U.K. from wandering too far from the heart of Brussels’s realm.

And as to why the administration should try to do this, well, that (if it is thinking straight) is where the cynical sacrifice of an old ally would come in. The EU is fundamentally anti-American. Designed as a counterweight to American power, it is a project that, lacking any genuine positive identity of its own, defines itself by what it is not. What it is not, its grandees like to emphasize, is America. Economically, the ideas of its founders were rooted in central planning at home, and, in dealings with the outside world, mercantilism. But British membership (and the example set by the success of Thatcherite reforms within the U.K.) has helped nudge the EU on a somewhat different (but not irreversible) course, more open to free markets and free trade and thus more to Washington’s liking (for instance, talks on a U.S.-EU free-trade deal are set to start in June). Similarly, Britain has acted as a brake on the construction of a common — and overarching — EU foreign policy that would, almost by definition, make the union an increasingly awkward partner for the U.S.

The problem is that the EU’s original suspicion of free enterprise has never disappeared, and hard times have given it fresh life. There are clear signs that Britain can only block so much for so long (the evolution of EU financial regulation is just one harbinger among many of trouble to come). The trudge toward a common foreign policy continues. Nevertheless, so long as the Brits stay relatively close to the center of the EU’s decision-making, there remains a decent chance that Brussels’s more damaging initiatives can be diluted, delayed, or derailed. Seen from an American viewpoint, there is thus a brutal logic to convincing the U.K. to hang in there, even if, from a British angle, it makes no sense at all.

But what if the White House is not looking at this question in the coldly Machiavellian way that Americans have a right to expect? One alternative interpretation of Obama’s effort to insert himself as a counselor into Britain’s unhappy European marriage is that his administration is still in thrall to the Cold War calculation that regarded (Western) European unity as a strategic good in its own right, an obsolete notion kept alive today by intellectual laziness in Washington and, somewhat more legitimately, by an appreciation of the genuinely useful role played by the EU in the transformation of the post-Communist part of the continent. It’s a mindset that has led successive White Houses — Republican and Democratic — to view the EU’s progress toward that ever closer union with insouciance, or even, sometimes, enthusiasm. A more tightly unified EU, gushed Condoleezza Rice back in 2005, would be a “positive force.” Maybe the Obama administration has simply succumbed to this delusion, and cannot grasp why Britain would not wish to sign up for the ride.

Then again, there could be a yet more troubling explanation. Does Obama look across the Atlantic to Brussels and rather like what he sees, an entity developing in a supranational, “progressive,” environmentally correct, corporatist, and technocratic direction that is not so far removed from his own agenda for this country? If he does — and it’s not so far-fetched an idea — he won’t have much sympathy for a bunch of what he doubtless sees as “bitter” Brits clinging to what’s left of their independence.

But whatever the reasons Messrs. Obama, Biden, and Gordon had for saying what they did, from the British perspective it is clear what David Cameron’s response should be. He should pay absolutely no attention.

Cameron and the Euroskeptics

The Weekly Standard, February 11, 2013

David Cameron leaves things late. Leadership by essay crisis, it has been called, a nod to procrastination by generations of students. But his belated response to the mounting political turmoil over Britain’s membership in the EU​—​a speech proposing an in/out referendum​—​won’t save him from disaster in the 2015 general election.

Some early responses were encouraging​—​outrage from EU parliamentarians, a disapproving Obama administration, cries of good riddance in France, and, according to one grandee, “shock” in Davos​—​but British voters were not so easily taken in. Polls showed the Conservatives trailing Labour by a little less, mainly on the back of a few percentage points grabbed from the euroskeptic United Kingdom Independence Party, but Cameron’s speech was no game-changer. UKIP still stood at around 10 percent. UKIP, which largely draws its support from the right, took just 3 percent of the vote in 2010, but that was enough to cost the Tories some 20 seats​—​and an overall majority.

That’s the math forcing Cameron to call for a referendum he had always opposed. With his own (largely euroskeptic) Conservatives mutinous, UKIP polling in the teens, the economy faltering, and 2015 drawing closer, something had to be done. Cameron’s calculation was straightforward. With no other establishment party (for now) backing a referendum, and with UKIP (thanks to Britain’s first-past-the-post system) having little prospect of winning a parliamentary seat, let alone forming a government, the Tories are tempting euroskeptics with the only chance of the in-or-out showdown for which they have been pining. By contrast, voting UKIP in 2015 would divide the euroskeptic vote, help (europhile) Labour and the (euromaniacal) Liberal Democrats, and risk throwing that opportunity away.

The referendum timetable has been organized to underline that point. Nothing much will happen for now. Instead, Cameron will go to the polls in 2015 with a request for a mandate “to negotiate a new settlement with our European partners.” Once those negotiations have been concluded there will be a “referendum [in 2017, most likely] with a very simple in or out choice.” The referendum is thus dependent on Cameron’s reelection: Vote for him, or the nation-state gets it.

That so many UKIP supporters have yet to be won over is, to a degree, a reflection of the way the party has become an expression of broader popular discontent with the liberal status quo. UKIP is “about” more than the EU. But there’s something else: On closer inspection Cameron’s proposal looks less than convincing, and that’s even if we ignore the fact that his chances of victory in 2015 are on the order of a snowball in hell, or Romney in California.

There is a credible way for the U.K. to exit the EU (it involves Article 50 of the EU’s Lisbon Treaty; I’ll spare you the technicalities), but Cameron’s “negotiations” are not it. Anything involving the repatriation of enough powers to impress enough euroskeptics would need a new treaty to be agreed on by each EU country, a tall order for reasons that are both practical (there are currently 27 member states) and philosophical. The EU is driven by the idea of “ever closer union,” a process that only moves in one direction. Once a competence has been transferred from the national level to the EU it cannot​—​must not​—​be handed back. Were Britain to win an exception to this principle, it would make a shambles of what the EU is meant to be. “Europe,” warned the EU’s prominenti, is not “à la carte.” Britain was either in or, well, the rest was left unsaid by just about everyone other than the French.

Cameron understands this. He has framed his proposed negotiations​—​they should be part of a wider effort to create “a leaner, less bureaucratic union”​—​in a way designed to address this concern. If the broader Brussels menu could be made more attractive, Britain would need fewer special orders. Given the rhetoric in Berlin (sometimes), Stockholm, Prague, and elsewhere in the EU’s north and east in favor of Britain’s more free market tack, this is an approach that ought to make sense.

But talk is cheap. When it comes to actually doing something to reduce the Brussels deadweight, the EU’s more economically liberal governments typically fall silent, still in thrall to the European dream to which most Britons​—​who were told they were joining a “common market”​—​have never subscribed. And when Cameron asks for support for a less dirigiste treaty, that dream (or nightmare) will stand in his way. For once negotiations start, where will they end? After all, the EU’s electorates are restless, and profoundly divided about what they want from “Europe.”

Within hours of Cameron’s speech, a leading member of Angela Merkel’s party was talking darkly about the dangers of opening “Pandora’s box,” a comment then echoed across the continent by a cast of characters that included the finance minister of the crumbling Hellenic Republic, Pandora’s repeatedly bailed-out basket case, sternly warning of the dangers of renegotiations, a performance that would suggest that chutzpah as well as cynic is a word with roots in ancient Greek.

Cameron may be gambling that the euro’s problems will force that box open regardless. National politicians sucked into the eurozone’s drama will keep trying to bypass the need for treaty revision and its awkward requirement of unanimity (as they did with the 2012 Fiscal Compact, which is formally a side-agreement) in their efforts to fix the currency union. But the far deeper integration that this repair work must eventually entail (and for which the Brussels bureaucracy is pushing) cannot be achieved without it. Amending the treaty would require British consent, and that could be Cameron’s moment. The U.K. would never be expected to opt into any EU “core,” but the price of doing nothing to impede its formation ought to be agreement to the sort of looser association that most Brits would anyway prefer over a clean divorce.

That’s how this story could work out, but it relies on improbable contingencies, stretched assumptions, and tightly crossed fingers. Many euroskeptics​—​even if they could be persuaded that Cameron has a shot at victory in 2015​—​would not regard that conclusion as a happy ending. What they want is a clean break. What they fear is that even the half-decent second-best solution​—​a looser association​—​will not be what it could be thanks to David Cameron. He may be frustrated by the EU, but he doesn’t have the imagination to risk anything approaching separation.

What, I suspect, they anticipate is that he won’t even get that chance, that the eurozone will struggle on as is, and that Cameron will be thrown a few scraps at the end of pantomime negotiations, which he will then declare to have been a triumph. This will set the stage for a referendum in which a misled, there-is-no-alternative British public will vote for the “yes” for which Cameron has already declared​—​an odd thing to do ahead of any negotiations​—that he will campaign “heart and soul.” That is not the language, and these are not the scenarios, designed to reassure euroskeptic hearts, minds, or even souls in time for 2015.

Czy Warto Wrócić Do Dyskusji O Wprowadzeniu W Polsce Euro?

Forbes Polska, February 1, 2013

Polska powinna trzymać się z dala od strefy euro. Europejski Bank Centralny nie znalazł bowiem recepty na politykę monetarną, która respektowałaby interesy wszystkich jej członków. Polska, pozostając poza unią walutową, pozwala swojemu bankowi centralnemu prowadzić politykę monetarną i kursową, która odpowiada na jej specyficzne potrzeby. Nawet jeśli nie zawsze okazuje się skuteczna, to przynajmniej w ogóle istnieje.

Euro było i jest polityczną próbą zignorowania ekonomicznej, kulturowej i demokratycznej rzeczywistości, aktem pychy, który może wydawać się znajomy tym, którzy żyli w komunistycznym ustroju. Jeśli unia monetarna siedemnastu (lub więcej) państw ma mieć jakiekolwiek szanse na prawdziwy sukces, to musi się wiązać z zacieśnianiem budżetowym o wiele głębszym, niż członkowie Eurolandu byliby obecnie gotowi poprzeć. Przy bezlitosnej logice wspólnej waluty nie pozostaje im obecnie nic innego, jak trwać w niej w jej obecnym kształcie. Zresztą prawdopodobnie zanim Polska spełni warunki przystąpienia do strefy euro, będzie ona już istnieć w nowym kształcie. Wierzyć, że ieodpowiadające przed nikim elity technokratyczne, lojalne tylko wobec siebie i swoich własnych wizji, zapewnią Polsce dobrobyt, byłoby szaleństwem.

This piece was written as part of a debate on whether Poland should join the euro. And no, I don’t speak (let alone write) Polish.  Please see below the original English text that I submitted to Forbes Polska. I am told that the two versions are very much alike….

One size does not fit all. In a currency union encompassing very different economies, the ECB has long found it impossible to manage a monetary policy that is “right” for everyone. It could never accommodate Poland, developing at a pace that reflects both the rhythms of the European economy and profound structural change. With Poland outside the currency union, the Polish Central Bank can run a monetary and exchange rate policy designed for Poland’s distinctive needs. It may not always succeed, but the ECB would not even try.

If signing up for the single currency would be bad for Poland’s economy, it would be worse for its democracy.  The euro was—and is—a political attempt to override economic, cultural and democratic reality, an act of hubris that may sound a little familiar to those who once lived under communism. If a monetary union of 17 members (or more) is to have any prospect of genuine success it will have to involve far closer budgetary integration than the Eurozone’s voters are now willing to endorse, but the relentless logic of a shared currency may leave them (as they see it) no choice other than to go along. ‘Forced’ unions are generally unhappy, unstable and unproductive, but the chances are that, by the time that Poland is eligible to join, this tighter Eurozone will be in place.

It would preserve the rituals of democracy, but they would be without meaning. As Václav Klaus has observed, there can be no European democracy without a European demos. Instead the old nation-states will become provinces in a realm managed by an unaccountable technocratic elite that owes loyalty only to itself and its dreams. To believe that this would ensure the continent’s (or Poland’s) prosperity or, for that matter, security is madness.

Poland should stay out.

A Soviet Brigadoon

National Review Online, January 8, 2013

Sillamäe Town Hall, Estonia, August 2012 © Andrew Stuttaford

It’s not easy to surprise Toomas Hendrik Ilves, Estonia’s sharp and savvy president, but I reckon I succeeded. In September, I was in Tallinn, the Estonian capital, to interview him for National Review. In the small talk before we turned to the euro, economic recovery, Russia, the usual, he asked me where else I had been on this visit to his country. “Sillamäe,” I replied. The presidential eyebrows rose, just a bit. Maybe there was a word thrown in too, an “interesting,” something like that.

The author of the Lonely Planet’s 1994 guide to the Baltic States and Kaliningrad would have been blunter. After explaining that Sillamäe had been “built after WW II to support a military nuclear-chemicals plant,” an over-simplification that will do for now, he went on to tempt the tougher end of the tourist trade with this: “according to press reports, the plant’s waste dump contains several tons of radioactive and highly toxic wastes, surrounded only by an earth wall 10 meters wide and is already contaminating ground water and the Baltic Sea.”

It was worse than that. The waste dump, euphemistically a waste depository, was a large lagoon, a Leninist lake, toxic and vile, described by the man responsible for cleaning it up as a “uranium pond” hosting some twelve million tons of a sludge containing “uranium, heavy metals, acids and other chemicals.” A testament to Soviet environmental sensitivity, it was open to the air, set on far-from-ideal clay, encircled by a poorly constructed wall, and located just a few yards from the sea. It leaked, and the overspill after heavy rainfall added to the mess. In 1993 the International Atomic Energy Agency labeled the site a serious radioactive risk. Four years earlier the New Scientist had reported that many of Sillamäe’s children were losing their hair. The clean-up was finally completed in 2008. I was told that what’s left of the waste is buried (with other safeguards) under a man-made hill that juts out onto the Baltic shore.

“Will that do the trick?”

“Hope so.”

Where the waste is (somewhere), Sillamäe, August 2012, © Andrew Stuttaford

Other traces of Sillamäe’s strange history remain well above ground.

A three-hour trip to Tallinn’s east on a bus that will end up in St. Petersburg, this sleepy, gently-shrinking, largely Russian-speaking town of some 14,000 people is located at a point just a few miles from the Russian border — and at a moment poised somewhere between Estonia’s painful history and its infinitely more promising present. Before the war, there had been just a few houses here, and a Swedish-owned shale oil processing plant. When Estonia’s Soviet “liberators” returned in 1944, the local variety of oil shale (dictyonema argillite, in case you were wondering) interested them very much indeed. Among the minerals that lurked within it was uranium, something which Stalin had — up to then — found rather hard to obtain, but wanted very badly.

The old Swedish works had been destroyed during the war, but a new production unit — Kombinat no. 7, and a new town that was intended to support it — was built, much of it by the forced labor of convicts and POWs. The latter included many Balts caught up in the conflict between their homelands’ Nazi and Soviet invaders. More than half a century later, the facility’s new Estonian owners stripped away sheetrock in its administration building to reveal well-crafted brickwork. A section has been kept exposed as a memorial of sorts to those that worked — and died — here, often in appalling conditions. Just outside is a small Soviet-era monument to the Great Patriotic War, a war that Estonia was doomed to lose regardless of which of its totalitarian occupiers might prevail. History is a via dolorosa in this part of the world.

After the prisoners came yet more wreckage of war, those still remembered in Sillamäe as “the orphans.” As the plant — the USSR’s first fully operational uranium-processing facility — was completed, teenaged survivors of the siege of Leningrad were shipped in to be trained as additions to its workforce. Production started up, beginning with local material, but then switched to higher-grade ore shipped from all over Moscow’s empire. Some 100,000 tons of uranium were produced between 1946 and 1990 for both civilian and military use, a total exceeded in only two other sites in the whole Soviet bloc.

The town grew, but behind a cordon of secrecy, denial, and security. It slipped off and on the map. Sometimes it had a name, sometimes a code. It was a closed town. Access was strictly restricted. It was years before Estonians were allowed to work there (and only a handful did thereafter). For a while, the town was administered, not as a part of Soviet Estonia, but as an exclave of Soviet Russia itself.

There was something else that set Sillamäe apart. Narva, a larger city nearby, and once a jewel of the Northern Baroque, was brutally and slovenly rebuilt after the war as a generic Soviet settlement with a population to match. To be sure, there’s some of that in Sillamäe, but this was a town with a very special purpose. Those who controlled it understood that it would work better if its inhabitants — who included some highly qualified technical staff — were treated better than the Soviet norm. Sillamäe’s center is, I’ll say it, nice, a beautifully preserved showpiece for a Stalinist architecture that is, for once, neither botched, nor slum, nor Mordor. But in feel and former function, if not in appearance, it is also faintly reminiscent of the unsettling picturesque of the Village that housed The Prisoner’s Number Six.

Sillamäe , Estonia, August 2012, © Andrew Stuttaford

This creates a vague sense of unease only underlined by the extent to which the past still lingers on here. This must be one of the few places in Estonia where the symbols of the old regime, the hammers, the sickles, the stars, can still be seen in public, discreetly incorporated into the pale, pastel facades of the buildings of downtown. That they are still in place speaks volumes about the attitude of the locals, and, rather more reassuringly, about the self-confidence of the re-born Estonian Republic, and the relative sensitivity with which it handles the ethnic Russian minority (reduced now to perhaps 25 percent of the country’s population) that remains the most troubling relic of Moscow’s colonial rule.

2 Mere Puiestee, Sillamäe Estonia, August 2012, © Andrew Stuttaford

 
The predominant architectural style at the town’s heart is what came to be known as “retrospectivist” (yes, really), backward-looking, fortified by the reassurance of a past that predated the storms of the 20th century. Many of the buildings play with neoclassical themes. Beyond that there are stately white staircases with a touch of old Odessa about them, a neatly laid-out park, a curious statue of a man lifting, I think, a symbolic atom, a lovely tree-lined avenue, a dignified cultural center, and a fine cinema by the name of Rodina. That’s Russian for “motherland,” but whether that referred to the shared Soviet home or Mother Russia herself was never quite clear. Neither interpretation was likely to appeal to Estonians, but Estonia is a tolerant sort of place and the cinema, along with the cultural center, has enjoyed protected status for over a decade. Across the street stands the town hall, inspired by the design of a traditional Estonian Lutheran church, something that the Soviets must have thought was innocuous enough to be the subject of pastiche. The same, presumably, could be said of the nods to traditional Estonian manor houses that can be seen elsewhere in town.

Mere Puiestee,Sillamäe, Estonia, August 2012, © Andrew Stuttaford

Uranium production in Sillamäe was abandoned in 1990. Soviet rule in Estonia collapsed the next year, and Sillamäe rejoined the world. The facility, renamed Silmet, was privatized, sold, resold, and sold again. Since 2011, by which time Silmet had become one of only two centers in Europe for the processing of rare earths (elements that are crucial for a wide range of electronics), it has been owned by the U.S. mining group, Molycorp.

Atom monument, Sillamäe, Estonia, August 2012, © Andrew Stuttaford

But Sillamäe itself, adrift from time and place, a Soviet Brigadoon but forever in full view, endures. There’s a tucked-away town museum (judging by the friendly, but astonished, welcome I received from the three or four ladies who preside there, I was the first visitor for weeks). Apart from some atrocious local art and a collection of dolls that looks as if it has been curated by a serial killer, it boasts a couple of rooms that give a bric-a-brac impression of everyday life during Sillamäe’s Soviet past.

Town Museum, Sillamäe, Estonia, August 2012 © Andrew Stuttaford

Then again, wandering around town will do pretty much the same thing (if you ignore the well-stocked shops). Ethnic Russians continue to make up the overwhelming majority of the town’s population. Dreaming, perhaps, of the lost certainties of Brezhnev’s day, babushkas still wander down Mere Avenue as it sweeps grandly down to the Baltic. Lenin Avenue has gone, but there are streets named after Russian literary figures and the first cosmonaut too. Up by the bus station, there’s an imposing Soviet war memorial with flowers at its base.

Soviet war memorial, Sillamäe, Estonia, August 2012, © Andrew Stuttaford

But, despite pot-stirring by the Kremlin, and the occasional eruption (most notoriously over the removal to a less prominent place of another Soviet memorial — this time in Tallinn), time, the passing of the older generation, Estonia’s remarkable economic performance, and access to the rest of the EU have all brought a measure of live-and-let-live to relations between the country’s two principal ethnic groups. Unlike in Latvia, where the demographics are even more delicately balanced, there is no specifically “Russian” party represented in the Estonian Parliament, and once-noisy calls for the autonomy of the still hardscrabble Russian-speaking Northeast have died down. Both in Sillamäe and in Tallinn I was assured that younger Russians are at last learning Estonian (even if, understandably enough, their Estonian peers are reluctant to learn Russian, the language of their country’s former oppressor), something that may even give them something of an employment edge in a country that is in practice, if not in law, bilingual.

When it comes to this topic, David O’Brock, the engaging Ohio native (and long-time resident of Estonia) who runs Molycorp Silmet, is cautiously upbeat about what lies ahead. Almost all the workers at his factory are ethnic Russians and many, even the middle-aged and older, are studying Estonian, or other languages that could be of use in a world that now extends far beyond Moscow’s reach.

A once-closed town is opening up. And in more ways than one.