Freezing tyrants’ assets is easy, but how much will we send back to Tripoli?
‘Queen freezes Gaddafi family assets’ says a headline. That’ll teach the unhinged Libyan dictator to compare himself to our blessed monarch, as he did in one of his recent rants. But for all the spin about an emergency Privy Council meeting at Windsor Castle on Sunday (I’m imagining the Duke of Edinburgh popping in to say, ‘Do hurry up, dear, Top Gear’s started’), I’ll be interested to see just how much loot is eventually liberated from London accounts and returned to whoever forms a legitimate new government in Tripoli.
Precedents are not encouraging. Our bankers remain more reluctant even than the Swiss to open suspect safe-deposit boxes. The gnomes of Zurich and Zug have taken substantial steps to clean up their reputations as custodians of dirty money, and have been quick to use a law requiring identification of ‘beneficial ownership’ to sequester anything that might carry the fingerprints of the Mubaraks of Cairo or Mr and Mrs Ben Ali of Tunis, as well as the Gaddafi circus.
A landmark case was that of the Nigerian president Sani Abacha, who salted away billions of his country’s oil revenues. In 2006, eight years after Abacha’s death, the then finance minister of Nigeria told the Independent that Switzerland had ‘set the example’ by returning $500 million. But what about Britain, land of fair play and financial rectitude? ‘Our president has raised it many times with prime minister Blair. Eventually he returned $3 million.’ The rest, apparently, ‘went somewhere else… while all the discussion was going on’.
The enduring signal
The good news is that this is not an oil spike. The very bad news is that we might be heading for one. Since its low point below $40 in December 2008, the barrel price of Brent Crude rose steadily for two years as demand picked up, taking it to what might be regarded as a ‘normal’ level of $80, then accelerated past $110 as unrest spread across north Africa and the Middle East. But the gradient still looks relatively smooth compared with the spike in the summer of 2008, when speculators drove the price briefly to $147. If Gulf sheikhs totter and the House of Saud looks threatened, that’s the way it will go again. Some analysts are even talking about a doubling from today’s level — and that means it’s time to call in Andrew Oswald.
Professor Oswald of Warwick University was the author, in the 1990s and early 2000s, of a series of papers on the relationship between oil spikes and recessions. He plotted 50 years of oil prices against US unemployment data and found a striking relationship: spikes were invariably followed (with a short time-lag) by recessions. But by 2006, when oil had more than doubled after the Iraq war but global growth was advancing apace, the Oswald thesis was out of fashion. The post-industrial west was becoming less dependent on oil and much smarter in developing alternatives, argued ‘new economy’ bulls; and China, where our manufactured goods now come from, can run forever on cheap coal and cheaper labour.
But then came the 2008 spike, immediately followed by the deepest recession in living memory. Oil was not the proximate cause of the downturn, which was all to do with a gross excess of credit, but it was as accurate a signal as ever. So keep an eye on the oil-price graph, and remember the professor. He has moved on to work in the fashionable field of ‘emotional prosperity’ — of which we could all be enjoying a lot less if the Arab Spring no one predicted heralds the double dip pessimists feared. ‘We’ve had a lot more than oil to worry about recently,’ Oswald told me when I tracked him down this week, ‘but a rising oil price remains an enduring signal of trouble.’
Here’s Enda
The outcome of the Irish election — wipe-out for Fianna Fail, held responsible for the country’s spectacular bust — can have come as no surprise to anyone except possibly Enda Kenny, the Fine Gael leader who is Dublin’s longest-serving parliamentarian and has now become the oldest person to be elected Taioseach for half a century.
Kenny is known as an amiable fellow, untainted by scandal. But he ducked out of sight during last year’s financial crisis (‘Where’s Enda?’ was a popular catchphrase) and ‘the case against him’, according to a former minister who claims to like him personally, is that he is ‘uninspiring, a poor orator, has limited understanding of the economy, is wooden, lightweight, weak and indecisive’. The broadcaster Vincent Browne (on whose programme Kenny has refused to appear) was even pithier when he suggested the best thing Kenny could do for Ireland would be to ‘lock himself in a dark room with a revolver and a bottle of whiskey’.
But the most worrying things said of Kenny since the election are that he is ‘an enthusiastic European’ who ‘boasts of a good relationship with German Chancellor Angela Merkel’ — and that he is determined to renegotiate the €85 billion bail-out agreed with the EU and IMF last November. The stinging interest cost of the rescue loans, averaging 5.8 per cent, loomed large in reactions to the bailout. But to win a concession, Kenny would almost certainly be forced to concede in return an increase in Ireland’s ultra-low 12.5 per cent corporate tax rate, which has underpinned its strong record of inward investment — and which came under attack from Mrs Merkel only last week.
What Ireland needs is not atonement through craven EU conformity, but a gradual rebuilding of economic self-confidence which would engender timely repayment of the bail-out loans and the possibility of returning to the capital markets on non-punitive terms. To get there, as the old Irish joke goes, you wouldn’t want to start from where Ireland is now — but maintaining competitive advantage as a low-cost gateway to Europe for high-tech American companies is essential to recovery. Enda will deserve everything his detractors are waiting to throw at him if he trades away that advantage just to please Angela.
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