Research papers
The company has issued a number of major thoughtpieces. Most notably the company issued papers on the UK’s risks and exposures to the financial mechanisms of the EU in 2012, and, in 2013, on the SEPA project as a prime example of the unresolved issues of what the EU is attempting to achieve.
However, to this last point, the UK government still refuses to acknowledge that the guarantee is joint and several: the arrangement is a last-man-standing one where all guarantors could be asked to pay the entire amount. The UK government records the liability on the same percentage as the UK’s normal share of the EU budget, or around 9%.
Instead it was calculated in 2012 as EUR48 billion of drawn funds under the European Financial Stabilisation Mechanism (lent to Ireland and Portugal for up to 30 years) and up to EUR50 billion through the Balance of Payments Facility, all of which is currently undrawn but is available to EU Member States to assist them on their convergence path to the Euro.
It tells the story of SEPA from its inception, from the misapprehensions that framed it from the start, and how it fell into the arms of vested interests. SEPA was part of the Lisbon Agenda, the objectives of which had long since disappeared into the long grass, nevertheless its realisation became an idee fixe.
Eventually the European Parliament passed a regulation dictating the information technology means that free legal persons must use for going about their lawful occasions, and succeeded in converting 19 mature, stable and highly automated and efficient national payments markets into 19 unstable, immature and fragile ones, all using ISO20022 XML at least in the interbank space.
This has added to the cost of payments to the economy, if one adopts the standard 5-year discount of upfront investment costs. There are no benefits so far. The SEPA aim was to reduce the cost of payments from 3% to 1% of GDP, supposedly to emulate the USA.
In the author’s view SEPA was pursued long after its rationale had fallen away.
SNP afraid of exposing Scotland’s credit rating – but it must, and expose the real future for an independent Scotland
In February 2015 the company followed up with an analysis of the new powers for Scotland recommended by the Smith Commission and detailed in “Scotland in the UK: An enduring settlement”. These recommendations seek to convert the ‘vows’ made by Cameron, Clegg and Miliband a few days before the vote in order to sway the Scottish referendum result. The company concludes that these extra powers represent de facto independence and give the SNP the best of all worlds (now that the oil price has dropped to US$50-a-barrel), while perpetuating the unfair distribution of public expenditure around the UK and allowing the SNP to spend and borrow at the risk of the rest of the UK.
You will find a summary of the paper below, and the full version:
breakThis topic cannot be addressed without reference to the mechanisms of sovereign debt, central bank money, collateralisation of central bank loans, and payment systems.
The company issued a research paper on the fault lines within the SNP’s argumentation, and this received national publicity, inter alia on the BBC and in the Times and the Daily Telegraph.
The conclusions of the report were taken up and echoed by numerous prominent Scottish businesspeople, including from Standard Life.
You will find a summary of the paper below, and the full version:
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The response is below – and its burden was that just putting services out to tender and altering Vocalink’s ownership were formulaic changes which, even if enacted, might not bring about meaningful change.
Vocalink’s owners have anyway taken the wind out of the PSR’s sails, by proposing to sell out to Mastercard – the owner of one of the UK’s other regulated payment systems – thereby putting a dominant market share of card payments (LINK plus Mastercard) into a single hand.
There is a Competition Law objection to that transaction, and a financial one: why would Mastercard pay £700 million for an enterprise whose business is planned to move onto a New Payment Architecture – in line with the UK’s Payment Strategy – where there may not be a central infrastructure?
The resulting figures had become more worrying since 2012. Under the EU’s Multi-annual Financial Framework the UK’s maximum possible loss had escalated to €1.2 trillion.
In addition the ECB was valiantly attempting to reflate the Eurozone economy by financing private banks against collateral of questionable quality.
Lastly the EIB had dramatically increased its normal lending, with Spain and Italy the main takers of funds, and had instituted a new Enron-style fund to lend even more into new projects of questionable economic value.
In terms of the analysis of which EU Member States were putting most into the hat and which were taking the most out, the UK was the 2nd biggest putter-in and the 2nd smallest taker-out, after Germany: in sum the UK contributed €1.3 trillion of funds and guarantees, in order to get €30 billion of loans back, a very unequal bargain.
The consultation further asked whether the measures taken by the PSR so far, since its creation, had made any positive difference.
The company’s answers to these two questions were simple: No and No.
And actually it wasn’t even that good: while the PSR was doing its thing, the level of provision had deteriorated further, and threatened to reduce even more thanks to the implementation of Ringfencing by the four providers of Indirect Access.
The company only responded on a few points, where its expertise and knowledge of the point were such as to completely contradict the recommendations in the strategy.
But then 20+ “experts” and a Cecil-B-DeMille cast of thousands had worked on it and supported it. In fact now we are in a position where so many market participants have been strapped in front of this particular cart that there is no-one left out there who can voice opposition.
Deutsche Bank has been the High Priest of the EU’s policy of creating a single financial market and a single payments area: the bank has invested heavily and then seen the EU legislate to knock away any revenue potential from these banking businesses brick-by-brick.
Banking is now a zombie business in the EU, with obligatory investments but no sources of returns, and also the inevitability of generating a book of bad loans, especially if the bank operates in the Eurozone periphery countries, as Deutsche does.
The plight of Italy is very dangerous to the bank, and the plight of the bank is very dangerous for the EU financial mechanisms that have large exposures to Deutsche: the European Central Bank and the European Investment Bank.
Those exposures could result in calls for extra cash from the UK, and Deutsche in the UK is a gilts market-maker and important payments and lending bank.
The detail of its Qualitative Easing programme, though, points to a new European banking crisis. Eurozone National Central Banks fund one another, and they all fund their local commercial banks, against collateral that is either of poor quality or represents the same credit risk as the loan it is meant to collateralise.
Underneath it there is economic stagnation, disguised by the lend-and-spend policies of the European Investment Bank.
The ECB’s programmes are essentially circular and aimed at keeping the system liquid – able to pay its obligations when they fall due by having debtors lend money creditors for the same creditors to pay the same debtors. No obligations are allowed to go “Past Due”, but the cost is an ever-increasing pile of IoUs issued by 23 or 24 countries in favour of 4 or 5 (Germany, Netherlands, …but with any luck not the UK).
The legislation has removed any economic basis for investing in the payments business, whilst supposedly attracting new entrants and fostering new services, who will earn their returns from where?
This would all be funny if these interventions did not add up to an unmitigated disaster and misallocation of resources, and if the UK had not had to invest significantly in processes that have as their main objective the shoring up of the euro, which we are not part of.
Not only that, but the legislation has enabled terrorists – if they have the most basic permit to be in an EU Member State – to get a bank account and transmit money in Euro around the EU without needing to put their own or that of the beneficiary in the payment, thus bypassing controls designed (at huge cost) to counter the financing of terrorism and to combat money laundering.
Multinationals are working in tandem with the governments of the smaller EU Member States – Ireland and Luxembourg in the forefront – to book their UK sales revenues into European bases in those countries, pay next-to-no-Corporation Tax here, and staff their UK supply chains with low-skill, low-wage labour. The high-value jobs and the majority of the spending goes to the Member State where the European base is located.
Those Member States have constructed aggressive tax regimes to attract multinationals, whose business models major on nebulous royalty and intercompany charging, and on construing their UK operation as being an agent, acting “on behalf of” their European base to sells its goods and services.
The same business models that have been assessed as yielding only £500 million in UK taxes now and £5.6 billion in spending, could in future yield £10.3 billion in taxes and £15.8 billion in spending – increases of approximately £10 billion in both taxes and spending. The taxes equate to 17% of the UK’s public spending deficit of £60 billion and the same amount as our annual net cash contributions into the EU. Leave the EU and cut the deficit by 33%.
The Dutch B.V. company style and the Netherlands’ wide network of beneficial Double Taxation Treaties are the bedrock of their approach. It is supplemented by a mantra of “I’d rather have 2% of something than 100% of nothing” applied on a grand scale to taxation matters.
The sham processes of demonstrating that management control of the B.V. is being exercised from the Netherlands, the addition of the Swiss layer of the Dutch/Swiss sandwich, and allowing one Dutch bank in particular to dress up intercompany loans as bank loans and bypass UK controls on deduction of debt interest against tax: all these practices and more add up to an institutionalised and nationalised assault by the Netherlands on the UK’s tax base.
This is a prime example of the predatory tax practices by our “EU partners” that Brexit will put an end to.
The good news is that, when we step out of the Treaty on the Functioning of the European Union, we step out of all the liabilities relating to the cash budget, debts and guarantees of the EU itself, and are no longer obliged to be shareholders in the ECB or EIB: we can have our shareholdings cancelled in exchange for our taking over the EIB’s loans to ourselves, a zero-sum exercise.
We can step out completely from these liabilities, and we must do so and quickly. The EU, ECB and EIB – acting individually and in concert – are taking the most enormous risks and in huge quantity to bail out the Eurozone, and on our credit card.