“It became necessary to destroy Cyprus to save it”

By Peter Hoskin
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Huzzah! Cyprus has been saved! Eurozone finance ministers announced last night that they had agreed on a €10 billion bailout deal for the stricken island. The main feature of the package is the death of a bank: Laiki, the country’s second-biggest bank, will be divided into “good” and “bad” parts, with the former eventually being merged into the larger Bank of Cyprus. Deposits under €100,000 will be guaranteed. But any uninsured deposits over that sum will be hit to the collective sum of €4.2 billion. This is being reported as a strike on mega-rich Russians with Cypriot bank accounts, but is that wholly true? I’d like to hear more about the affected parties before reaching conclusions.

In any case, this is, to some extent, positive news for everyday savers in Cyprus. Their money has been spared – and so has the Bank of Cyprus, the survival of which was not always certain. And it’s good news, too, for the Eurocrats, for three main reasons. First, as most of the pain is being suffered by individuals, it’s a deal that’s likely to be politically acceptable in countries such as Germany. Second, for a similar reason, there is unlikely to be market panic across Europe about the idea of further expensive bailouts. And third, all this has been achieved without taking Cyprus out of the currency union, which – although it may not have had much effect by itself – could have raised the prospect of wider break-up. The euro staggers on.

But is it all a good news story? Hmm, perhaps not. As Pawel Morski explained in an excellent post on Saturday:

“There are four shocks happening at once; the bog-standard austerity shock; the trauma of bank withdrawal controls; the wealth shock; and the structural shock of wiping out the financial sector. The bailout bill is certainly going to get a lot higher too, as a larger amount of debt is piled onto a smaller economy.”

All of which means that Cyprus and its people face years of financial grief. It reminds me of what a US major is supposed to have said about Ben Tre during the Vietnam War: “It became necessary to destroy the town to save it” – except, from the perspective of Brussels, Cyprus may not even have been saved. There’s still the possibility that the country will voluntarily leave the Eurozone in order to do what Daniel Hannan recommends: devalue its way to growth.

Jeb Bush and AEI's Arthur Brooks call on US Republicans to focus on the poor

By Tim Montgomerie
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Here's a good analysis of the challenge facing the US Republicans (and British Conservatives for that matter)...

"Why hasn’t the Republican Party been able to construct a program of its own, in which the American people can have confidence? I would suggest two reasons. First, the party has never fully reconciled itself to the welfare state, and therefore has never given comprehensive thought to the question of what a conservative welfare state would look like. Second, because of their close historic association with the business community, Republican leaders tend to think like businessmen rather than like statesmen, and therefore bumble their way through their terms in office."

Interestingly it was written in 1976. By Irving Kristol, in an essay entitled The Republican Future. It's quoted in a perceptive piece by Matthew Continetti.

Does the age of the piece mean that Republicans/ Tories should ignore its recommendations or recognise their persistence?

For Arthur C Brooks, President of the American Enterprise Institute, and former Governor Jeb Bush the answer is "recognise their persistence". In two separate OpEds for the Wall Street Journal both men call the Republicans and conservatives to a moral mission.

The only grown up candidate in Italy's general election won just 10% of the vote

By Tim Montgomerie
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Here's your quick summary of Italy's election result.

In fourth place with about 10% of the vote was the current prime minister - the free market, fiscally responsible (ie pro-austerity) Mario Monti.

In third place, winning about a quarter of the vote, is the completely insurgent Five Star party of the foul-mouthed stand up comic Beppe Grillo. He cannot stand for parliament himself because of a manslaugher conviction dating from 1981.

In second place with about 29.2% of the vote is Silvio Berlusconi's centre right coalition. Sex scandals, dodgy business deals and a record of policy failure in government haven't prevented Mr Berlusconi from winning three times as many votes as the markets' favourite candidate, Mr Monti.

And in first place, by the narrowest of margins, is a centre left bloc. Pier Luigi Bersani's left-leaning parties won 29.5%.

If Moody's downgraded Britain they and international markets are going to love this.

Reaction abroad to Cameron's Europe speech

By Paul Goodman
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I'm grateful to the Foreign Office for their note with these quotes, which I have cheerfully plundered.

Germany

Angela Merkel, Chancellor: "Germany, and I personally, want Britain to be an important part and an active member of the European Union... We are prepared to talk about British wishes…and we must find a fair compromise. We will talk intensively with Britain about its individual ideas but that has some time over the months ahead."

Die Welt: "Our Continent needs a rethink. Germany finds different answers than France, but France should also seek and find new answers for itself instead of resting on its Grande Nation laurels. What does the EU want to be? Will it continue to grow ever larger – or grow up and learn not to tar all nations with the same brush? In view of the excessive bureaucracy, unscrupulous debt-making, lack of transparency and democracy, it is not “more Europe” that we need but a Europe with well-defined contours... Britain’s scepticism, its non-conformism and its liberalism were always the engine for Europe. Nothing is final. What is needed today is a German-British axis. It is now a question of Europe’s future, not its past."

France

Pierre Moscovici, France's Finance Minister: "It’s for the British people to decide what they think… Britain is a distinctive member of the European Union…who asked for a rebate, which still exists, and who isn’t part of Sechengen, but at the same time is extremely useful on common foreign and security policy. ...The European spirit is also about respecting diversity.  Europe is united in its diversity.…like the President of the Republic, I support both a united Europe but also a “differentiated” one, which means some members can go faster than others.

The Netherlands

Frans Timmermans, Foreign Minister: "The EU must be reformed. The Netherlands and the UK are in agreement on that point. To overcome the crisis and achieve sustainable growth, the flaws in the euro must be mended, the internal market must be enhanced and free-trade agreements must be concluded with the US and Asian countries. The member states need to institute the necessary reforms, and Brussels will have to tighten its belt and work more efficiently. The UK and the Netherlands are allied on almost all these issues. This is why we want to keep the British on board in the EU."

Mark Verheijen, spokesman on Europe for the governing Liberal party. “We want a Europe that remains limited to its core tasks. He [Cameron] is framing the debate sharply,” he said.

Ireland

Lucinda Creighton, Minister for European Affairs said after the speech that there were "no surprises" in the PM's speech. Creighton said that it was now up to the British people to decide on their future relationship with the EU. She noted that the speech's reference to strengthening the single market and the need to be competitive were principles that "we all agree with". She said she hoped an in-out referendum in Britain would lead to a "more balanced and reasonable debate", adding "Our experience of referendums has been very positive, in that they really engaged people in the issues".

Eamon Gilmore (Tanaiste) said yesterday evening that it “would be better for us all” were the UK to remain in the EU. He went on to say that “We’re very close neighbours. We are now very good friends. We share a shared responsibility for the peace process in Northern Ireland and I have said publicly and I repeat here: Ireland wants to see the United Kingdom as a fully engaged committed member of the EU.”

Denmark

Pia Olsen Dyhr, Minister for Trade and Investment: “I’ve listened with interest to Cameron’s speech this morning. The UK is a great market for Danish business and the UK is a good ally on the issue of free trade – not least trade agreement with 3rd countries. Therefore it is important to continue to keep the UK close to the EU”.

Czech lands

Petr Necas, Prime Minister: "The scepticism of the British public is understandable... British voters’ feelings of remoteness from EU elites in Brussels are right... EU competitiveness is a Czech priority as well. The Czech Republic has no interest in the UK leaving the EU and it wants to see the UK as a part of the EU’s future."

Sweden

John Fredrik Reinfeldt, Prime Minister: "Of vital interest for Sweden that UK remains in EU".

Hungary

Enikő Győri, Europe Minister: More and more European citizens are sceptical about the EU truly representing the interests of the people “and they often feel that the decisions are made too far away from them and over their heads”, therefore the Union has to regain their trust.

European Commission statement: "This is an important contribution to the democratic debate on Europe in the United Kingdom. It is for the British Government and people to set out what they feel is the best approach to the UK's place within the European Union. The Commission welcomes the Prime Minister's unequivocal statement that he wants Britain to remain in the European Union. The EU is a Union based on the democratic will of its Member States. The Commission has been consistent in stating that, provided Britain wants to remain in the European Union, it is very much in the European interest - and in the UK's own interest - for Britain to be an active member at the centre of the European Union.  The UK brings a great deal to European integration and has positively shaped European policies from the deepening of the single market, to enlargement, to climate and energy policy, to keeping Europe open to the world and developing new trade opportunities. Following the speech, the internal debate will hopefully focus on the substance of the current relationship and will allow for a well-informed assessment of how working through Europe impacts on the UK's influence on global challenges."

Thirteen thoughts on the future of American conservatism

By Tim Montgomerie
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The American Commentary magazine has just published a collection of answers to the question, "What Is the Future of Conservatism in the Wake of the 2012 Election?"

The answers focus on American conservatism but they're not irrelevant to our future, here in Britain. I've observed a number of big themes from reading the symposium and have summarised them below.  You can purchase the whole collection for $4.95, here.

I will begin by noting that not all of the contributors to the symposium were negative about the health of conservatism or even convinced that conservatism needed to change very much at all. Roger Kimball was notably unwilling to be dragged into despondency by the presidential election result. Voters, he argued, will turn again to Republicans and to conservatives when it is clear that Obama, liberals and the Democrats had failed. And they will fail, he insisted. Quoting the economist Herbert Stein's dictum that "that which cannot go on forever, won't" Kimball declared that reality augured well for conservatives because "reality is conservative". Margaret Thatcher would agree. "The facts of life," she said, " are conservative".

Reinforcing the Kimball/Thatcher analysis numerous contributors pointed to Democrat-dominated states that were in advanced stages of the liberal statist experiment and were increasingly dysfunctional. "Democratic strongholds such as California, Illinois, and New York are doing everything that they can," writes Paul A Rahe, "to show us the future as they envisage it and to demonstrate that it does not work." Republicans had to contrast these states with the plurality of states that they still governed and which - like Texas - were outperforming the US average. Artur Davis worried about this wait-for-the-other-guys-to-mess-up tactic, however. "While conservatism has endured," this ex-Democrat noted, "it’s worth pointing out that in my lifetime, voters have tended to turn Right primarily in reaction to liberal failure or disarray – the freefall of the 1960s, the ineptitude of Jimmy Carter, the excesses of Democratic Congresses in 1994 and 2010." In this Davis is largely right. Conservatives win 'rescue' elections - we win when the other side has failed and a 'clean up job' is necessary. That Romney didn't win last year was doubly worrying, therefore. We don't normally win in good times - such as the 1990s and noughties. Voters prefer Left-leaning parties in those times. We need to work harder at defining a positive image for ourselves if we are to be serious contenders at all elections.

Narrow defeat for Merkel's CDU in Lower Saxony points to close federal election

By Tim Montgomerie
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CDU candidate David McAllister played on his Scottish roots

The CDU had been expected to lose control of Lower Saxony for some time and, yesterday, by the narrowest of margins it did lose control of this North West German laender. It turned out to be a much closer contest than expected, however.

The low CDU expectations in these regional elections had been rooted in fears that the CDU's FDP partners were unlikely to cross the minimum 5% threshold and the SPD opposition had been performing competitively in opinion polls. Two things then changed. The popular CDU candidate in Lower Saxony - the half-Scottish David McAllister (read about him here) - urged some of his supporters to lend their votes to his FDP junior coalition partners. This political blood transfusion seemed to work and up to 100,000 Christian Democrat voters ended up tactically in the Free Democrat column - ensuring it more than passed the 5% threshold. The other factor that made the election surprisingly competitive were repeated gaffes from the recently confirmed German-wide leader of the SPD, Peer Steinbrueck. He has made repeated gaffes since becoming his party's candidate for Chancellor - including a foot-in-mouth suggestion that he'd like a bigger salary if he was elected to Germany's top job.

For the first time in a decade Lower Saxony is now expected to be governed by an SPD-Green coalition with 69 seats to the outgoing CDU-FDP coalition's 68 seats.

Chris Gatenby and Isaac Levido: Previewing election year in Australia

Chris Gatenby has previously worked for Policy Exchange and is a Conservative Party activist. He is currently Vice President of Australian Liberals Abroad UK and writes in a personal capacity. Isaac Levido is an Australian who has recently moved to London from Washington DC, where he worked with Republican Senate campaigns before advising on Congressional and electoral politics at the Australian Embassy.

The passing of 2012 ushers in the most welcome of junctures for long-suffering Australian conservatives: a federal election year. Prime Minister Julia Gillard’s minority Labor Government has been in an election losing position since early 2011 and, according to the Newspoll published by The Australian, ended 2012 in the same place they started it. They face an intimidating eight point (54%-46%) two-party preferred deficit to the Liberal/National Opposition led by Tony Abbott. If this outcome were translated into votes Abbott would be elected Prime Minister in a landslide.

The PM formed a minority government in 2010 by securing the support of just one Green MP and three Independents. This razor-thin majority means the Government needs to gain seats to have any certainty of remaining in power; a massive task for Gillard given the polling headwinds Labor faces. 

Speculation abounds about election timing but in all likelihood it will be held sometime between August and October. While a poll could technically be called by Gillard any day, the earliest possible date for a joint House and half-Senate election (the normal format) is 3 August, the latest being by 30 November. A good summary of the mechanics of the whole thing is available here.

We suspect both sides of politics, not least the Australian public, will be glad to leave 2012 behind them. It was a year dominated by a series of distracting scandals and acrimonious personal attacks. In a word: forgettable.

Andrew Marshall: Listen to Mutti. What Cameron can learn from Merkel and what the Conservatives can learn from the CDU.

Andrew Marshall is Managing Director of Cognito PR and Marketing, and a Conservative councillor in Camden. He writes here in a personal capacity. Follow Andrew on Twitter.

The latest polls in Germany put Merkel’s CDU (Christian Democratic Union) on 40-41%, up from 34% at the last election and more than 10% ahead of the opposition SPD.  Merkel appears in a commanding position ahead of September’s elections – and even if her new post-election junior partner is the SPD or the Greens, the policy shift will be limited.  Not bad for a party that’s been in government since 2005.  Not bad for a government that’s had to take unpopular decisions to help tackle the Eurozone crisis.  Indeed arguably the CDU, which has governed Germany for 44 of the last 63 years, is Europe’s most successful political party of the last half century.

So you might think that influential people in the Conservative Party (Lynton Crosby?) would be trying to work out whether there are any lessons to learn from the CDU.  If so, it’s being well hidden.  Many writing on this site regularly decry the CDU as part of the “declining European model”.  And for many of those who comment regularly on ConHome (the kind who use lots of capital letters and write about the “EUSSR”), Merkel is simply the enemy.  Kohl, Merkel, Delors, Chirac, Rajoy  – who cares what party they’re in,they’re all continental politicans trying to subjegate us.

Of course political culture and party dynamics are different in every country, and we should be wary of simplistic comparisons.  After all, no British politician would dare to propose the degree of decentralised market involvement we see in German healthcare.

America's (or France's or Britain's) public finances won't be solved by increasing taxes on the rich. Everyone will have to make sacrifices at some point.

By Tim Montgomerie
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THE CONTEXT...

"According to the International Monetary Fund, meeting America’s long-term obligations will require an immediate and permanent 35 percent increase in all taxes and a 35 percent cut in all benefits."

- David Brooks in the New York Times

WHAT HAPPENED YESTERDAY...

Last night the US Senate voted overwhelmingly for a package (tax details here) that involved $620 billion of higher taxes on wealthier Americans (OVER TEN YEARS) and just $15 billion in net spending cuts. David Brooks is unimpressed:

"The proposal is not a balance of taxes and spending cuts. It doesn’t involve a single hard decision. It does little to control spending. It abandons all of the entitlement reform ideas that have been thrown around. It locks in low tax rates on families making less than around $450,000; it is simply impossible to avert catastrophe unless tax increases go below that line."

Jeffrey Lord at the American Spectator summarised it neatly - The GOP caved. But their lack of strategy (noted fairly by the BBC's Mark Mardell) probably means they had to...

The Republicans likely to be hurt most if America falls off its "fiscal cliff"

By Tim Montgomerie
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There are only four days to go until America falls off the so-called fiscal cliff. Here's your guide to what's it all about...

What is the fiscal cliff? Automatic tax increases and spending cuts (especially to defence) will be triggered if President Obama and GOP leaders in Congress cannot agree a deal by the end of the year. No deal looks likely. Just before Christmas House leader John Boehner couldn't get a majority of his fellow Republicans to support his own compromise deal and his Speakership may now be in danger. Many voters are going to conclude that 'if Republicans can't even agree among themselves...'

...Neither the Democrat-controlled Senate nor the Republican-controlled House can currently agree a plan that can pass their own chamber - let alone both chambers. Technically both sides have outline* deals but the Republicans want as many spending cuts as tax rises in their proposed package. Obama and the Democrats want $300billion more in tax increases than spending cuts. See this graphic.

Where is public opinion? While the Washington Post concludes that all of the nation's politicians will lose the little esteem they have left if they can't reach any agreement most think - correctly - that the GOP has more at stake. The vast majority of Americans tell pollsters that they want politicians to compromise in the stalled negotiations to avert the fiscal cliff. Starbucks USA is even encouraging its customers to scrawl 'come together' on its red cups as a small encouragement to bipartisanship. Key findings from the latest Gallup poll are...