Kenneth Clarke data protection speech

Ministry of Justice
26 May 2011

Europe is in danger of making the wrong choices on new data protection rules, Secretary of State for Justice Kenneth Clarke said.

Speaking at the British Chamber of Commerce in Belgium, Mr Clarke reiterated the UK Government's commitment to restoring civil liberties, citing the Government's achievements in scrapping ID cards, and working to end the misuse of anti-terrorism stop and search powers.

He stressed that collecting data in the interests of national security must not come at the expense of UK citizens' basic freedoms, particularly the right not to have their personal data treated carelessly or even fall into the wrong hands.

The Justice Secretary also warned, however, that collecting data sensibly and sharing it safely across borders is a crucial part of efforts to tackle international crime and protect our security, and is entirely consistent with ensuring strong standards of data protection.

The EU is currently reviewing its data protection rules and Mr Clarke's speech made clear the Government's belief that it must be up to all Member States to decide the details of when to use and share data to keep their citizens safe – particularly in detecting crime and preventing terrorism. He also warned Member States of the dangers of unnecessarily prescriptive rules in this area.

Kenneth Clarke said: 'Imposing an inflexible, detailed data protection regime on the whole of the EU, regardless of the peculiarities of different cultures and legal systems, carries with it serious risks.

But he added: 'I am optimistic that there's a common sense solution on this. Our experience in the UK is that security, freedom and privacy are possible.'

While in Brussels, the Justice Secretary also met UK Members of the European Parliament and discussed data protection issues.

The speech is available to download in full here.
See also comment by Chris Pounder on the Amberhawk blog.

ECJ opinion of Advocate General in OFCOM v Information Commissioner

On 10 March 2011, an opinion was delivered by Advocate General Kokott in OFCOM v Information Commissioner, which the Supreme Court referred to the Court of Justice for a preliminary ruling on the issue of how the public interest balancing test in the Environmental Information Regulations should be approached when two or more exceptions to disclosure are engaged:

The courts of the United Kingdom disagree as to how this balancing exercise is to be undertaken where several interests deserving of protection are simultaneously undermined. Is each exception to be addressed separately, by considering whether the interest served by it or the public interest served by disclosure prevails (the view taken by the courts at the first two instances and by a minority of the judges of the Supreme Court submitting the reference for a preliminary ruling)? Or can the interests served by different exceptions be combined and then together weighed against the public interest served by disclosure (view taken at third instance and by the majority of the Supreme Court)?

The Advocate General backed cumulation and the view of the majority of the Supreme Court:

Contrary to the view expressed by Sweden and the Information Commissioner, the use of the term ‘interest’ in the singular does not preclude a cumulation of several interests...

Nor does emphasis on the particular case in which the balancing exercise is to be carried out proscribe cumulation. As argued by the United Kingdom, the more obvious interpretation is that the term ‘in the particular case’ means that it relates to the specific decision that is pending on the disclosure of information. 

Furthermore, the breakdown of interests meriting protection into different exceptions does not preclude their cumulation. As convincingly argued by the United Kingdom, these exceptions are not always clearly distinguishable from each other. Indeed, the interests meriting protection sometimes clearly overlap.
...
Consequently, the answer to the reference for a preliminary ruling should be that where a public authority holds environmental information, disclosure of which would have some adverse effects on the separate interests served by more than one exception under Article 4(2) of the Environmental Information Directive, but it would not do so, in the case of either exception viewed separately, to any extent sufficient to outweigh the public interest in disclosure, the directive requires a further exercise involving the cumulation of the separate interests served by the two exceptions and their weighing together against the public interest in disclosure.

The Court will now deliberate and its judgment will be pronounced shortly. Advocates generals opinions are not binding on the Court but are followed in the majority of cases.

Taming the CAP monster

At last, European governments have begun to tame the Common Agricultural Policy. There was a time when this insane subsidy for farmers would spin out of control, consuming ever increasing amounts of public expenditure.

If you will pardon the pum, recent reform efforts have bourne fruit. In euro terms, expenditures on financial support to agriculture has been flat since the mid 1980s. Over the last five years, expenditures have actually fallen in nominal terms.

The CAP continues to consume about 80 billion euros a year. This number is still far too high. Nevertheless, the recent fall in expenditures shows that even the most deeply entrenched subsidies can be dismantled if the political will is there.

The slow tragic death of Germany

Germany is slowly dying. In 2010, it produced just eight children per 1000 of the population, while 11 Germans per thousand passed away. In absolute terms, the German population has started to shrink despite significant inward migration flows.

The German birthrate is shocking. According to the CIA, it ranked 219th out of 223 countries. Only Italy, Japan, Monaco and Hong Kong recorded lower birth rates. Even child hating Britain manages to produce 12 children per 1000.


The rapidly diminishing German birthrate is also evident in its age distribution. Only 13.7 percent of the German population is 14 under, while over 20 percent of the population is older than 65. The latter percentage can only increase with time. Currently, the median age of a German is about 44. In the case of German females, the median age is a fraction below 46.

Germany is a country that made an extraordinary cultural contribution to the world. It is a land of Beethoven, Goethe, and Kant. Yet the prevailing culture in Germany today seems inimical to procreation. Germany is withering away, and to me at least, this is an appalling prospect.

Good bye Axel Weber and Kevin Warsh - you will be missed

Yesterday, Paul Krugman took another step on his journey from esteemed academic to banal journalist. In the New York Times, he produced a short and nasty piece on the departure of two highly respected central bankers, Axel Weber of the Bundesbank and Kevin Warsh, of the Federal Reserve.

Here is what Krugman had to say:

I have to say that Axel Weber has bowed out of the race for ECB head gracefully; but this isn’t really about the person, it’s about the views. And I am therefore glad to hear both that he won’t be taking the job, and that the reason he bowed out was that euro-area leaders didn’t share his hard-money views. Tightening in Europe in the face of continuing very high unemployment and low core inflation is a very bad idea.

In a somewhat similar vein, I wish Kevin Warsh all the best in his future career — and I’m glad to see someone who believes that both monetary and fiscal policy should tighten to head off fears the market doesn’t even have off the Fed board.

Not a bad few days for future policy prospects.

The departure of Weber is real loss. If he had been appointed as head of the ECB, there was a strong chance he would have remodelled the bank on the lines of the old Bundesbank. The focus would have been on price stability and not on the current ECB fiscal obsession of bailing out weak peripheral members of the Eurozone. When Trichet leaves the ECB later this year, eurozone members will have a hard time finding a replacement that could have matched Weber.

Likewise, Warsh didn't buy into Bernanke's policy of quantitative easing and purchasing crappy mortgage assets from US banks. He believed that these actions would do little to resolve the growing economic difficulties of the US economy.

Still, Krugman seems happy. There are now fewer cautious voices within monetary policy circles, both in Europe and the States.

Can we have our money back, please....

The German banks want their money back. At least, they want to get it out of other EU countries. Since the crisis began, German banks have reduced their claims i.e. loans to other Europeans by 385 billion euros.

Don't worry, the money seems to be returning very rapidly to Germany.

Germany - the beast is back

What is going on in Germany?

In the third quarter of last year, the German economy expanded 0.7 percent, and clocked up an annual growth rate of almost 4 percent. By recent historical standards, this was an impressive growth rate. In the previous 20 or so years, average quarterly growth was just 0.3 percent. So while the British economy shrinks, Germany is back on the steroids.

It does help to have a strong, competitive and innovative export sector. Sadly, the UK gave this away in the early 1980s, when Thatcher needlessly wrecked our manufacturing sector.

However, the surge in German growth raises a tricky question for the ECB. The eurozone economy has bifurcated. The centre seems to be hightailing it out of the recession. The periphery remains encased in a debilitating financial crisis. Moreover, eurozone inflation is picking up quickly.

Time for a rate hike? Recently printed German numbers say yes. Numbers coming out of the periphery say no.

A song for Italy

Capital is mobil-ay
and it can go away....

Recovery and catastrophe; a two track eurozone

The German economy is definitely showing signs of life. The IFO business climate index hit 110.3 points in January. It is now at its highest level since since it started recording business sentiment 20 years ago. France and Belgium also produced similar positive results in recent business surveys.

The IFO index is a survey based measure of economic activity. German enterprises are asked how they feel about their world, and these views are ranked in an index. Therefore, the IFO survey is a leading indicator of economic activity.

The Eurozone economies are now on two quite different tracks. In the centre, the recovery is well underway. However the periphery is excluded from the recovery due to a pernicious mix of banking sector and fiscal crises.

Eurozone debt restructuring: What is to be done?

The Eurozone periphery - Greece, Ireland, Portugal, Spain, Italy and Belgium - are tottering on the brink. Their governments have accumulated too much debt, and their capacity to repay these debts is in doubt.

What is to be done? There are two options; fiscal austerity and debt restructuring. The first requires deep cuts in expenditures, and higher taxes. The hope is that this strategy will cut the fiscal deficit, and gradually lead to a reduction in public sector debt levels.  Lower public debt might also reduce long term interest rates and help sustain economic growth.

The second is a debt default. Governments would no longer repay the full value of the contracted debt. The burden of adjustment will fall on creditors and not on the general public. Painful austerity would be avoided. Governments would not have to explain to their electorates why taxes have gone up and social services have deteriorated. However, public sector creditworthiness would suffer, which would lead to higher long term interest rates and possibly lower growth.

Here are four perspectives on the debate. First up, John Makin, who suggests that the Eurozone economies are in an untenable position, where further austerity efforts only serve to increase debt levels.

"There are several insolvent countries along Europe's periphery. Their debt levels are unsustainable in a specific sense. Attempts to reduce their debt-to-GDP ratios by cutting deficits actually have increased the ratio of debt to GDP by slowing growth for countries with an already high—over 100 percent—debt to gdp ratio."

Laurence Kotlikoff thinks default is the lesser of two evils:

"I think each of the PIIGS should do a careful fiscal gap analysis to understand if the present value of their projected spending can be covered by the present value of their projected taxes assuming normal borrowing rates. If the answer is no and the required fiscal adjustments are far beyond what can be achieved, then restructuring the debt is inevitable. And doing so sooner rather than later makes sense. Paying creditors, say, 50 cents on the euro may suffice, but it will come at a real cost in terms of higher borrowing rates for decades to come."

Harold James casts the issue in moral terms:

"The principle of not reneging on public debt is deeply intertwined with the development of legal security, representative government, and modern democracy. The experience of wartime inflations and de facto defaults in the 20th century made the theme of responsible finance a crucial part of a new European consensus. A foundation of the European integration process was a recognition of the importance of a stable currency to political legitimacy."

Paul Seabright argues that the Eurozone periphery are too deep in debt for moral considerations to play any part in the debate:

"It has long been evident that, barring a miracle economic recovery, some countries in the euro zone were going to default on some part of their sovereign debt. It has also long been evident that an orderly debt restructuring would be vastly preferable to a disorderly default triggered by a market panic. Unfortunately politicians have perceived their interests as lying in the perpetuation of the belief that restructuring could be postponed, and indeed had to be postponed at all costs because it would threaten the very existence of the euro."

Neither option looks terribly appealing.

Eurozone inflation creeps above the two percent target in December.

In December, the Eurozone inflation rate crept above the 2 percent target. Higher food and energy prices were the primary reason for the above target out-turn. However, if these items are extracted from the Eurozone CPI, then inflation was broadly flat at around 1 percent

The Eurozone is facing an existential crisis. The Irish and Greek governments are unable to finance their fiscal deficits and are now dependent on EU financing. Nevertheless, the crisis has not derailed the ECB and its efforts to maintain price stability. Over the last two years, it has maintained a consistent track record keeping inflation under control. This stands in stark contrast to the sorry efforts of the Bank of England. With lamentable regularity our central bank has failed to meet its inflation objective.

While the ECB's consistent and credible commitment to keeping prices stable means that it is in a better position than the Bank of England to deal with the growing threat from rising food and fuel prices. True, this may seem like cold comfort when the Eurozone itself is threatening to fall apart. Nevertheless, the stability of the Eurozone would be in further doubt if inflationary pressures were higher.

Nevertheless, inflation momentum is growing. The ECB faces the same uncomfortable trade-off as the Bank of England. Should it raise rates to keep inflation under control, or should it maintain low rates to protect the Eurozone banking system?

Third time lucky

For the third time in less than a year, a eurozone member state is on the brink of a bailout. Portugal is about to fall. Today, the governor of the Portuguese central bank finally admitted what everyone else already knew - the country needs external assistance.

A grim pattern has now emerged within the eurozone. In the spring, Greece first paved the way. Before Christmas, Ireland traced out the same sorry steps as Greece. Now, it is the turn of Portugal.

Here is the eurozone crisis roadmap. The journey starts when a vulnerable member state cultivates a serious short-term fiscal difficulty. Financial markets react to this difficulty by raising the costs of government borrowing. Credit rating agencies begin to perceive the growing probability of a crisis and start to downgrade sovereign debt. Despite these howling signals from a market, the government is slow to understand the dangers that are about to befall the country.

Eventually, the penny drops. Faced with growing market pressures, the government attempts to reduce the deficit with a consolidation plan. However, financial markets remain unconvinced and bond yields and CDS spreads continue to rise. Fearing contagion, other stronger eurozone members start a whispering campaign. They privately demand that the failing member state obtain assistance from the European Commission, while publicly denying any attempt at coercion.

Finally, someone from the central bank puts the country out of its misery by acknowledging the need for a bailout. Although the denial continues for a few days within a government, eventually everyone comes to their senses and the bailout operation begins. European public money flows in, and the member state is locked out of financial markets.

Already, another country is lining up to take the place of Portugal. This time, it is Belgium, an ethnically divided country, without the government, and a massive public sector debt to GDP ratio. Beyond Belgium, we have the elephant that will break the camel's back - Italy. A country with one of the largest outstanding debt stocks in the world.

The options before the eurozone are bleak. In principle, the eurozone needs a large fiscal transfer system. Richer northern countries would have to give up a large proportion of their tax revenues and send train loads of cash south to finance the huge deficits on the eurozone periphery. Politically, this option is a non-starter. The governments of France, Germany, and the Netherlands will find it impossible to explain why they need to cut public expenditures at home in order to sustain them abroad.

Since the fiscal transfer system is not an option, Eurozone periphery countries must reduce their deficits in order to minimize their reliance on financial markets. This will mean years of extreme fiscal austerity, declining living standards and deteriorating public services.

There are, of course, two other unmentionable options. The eurozone periphery could default on its debts. The polite description for this option is debt restructuring.  However, a huge proportion of these debts are held by banks in northern Europe. A default is likely to engender a further round of banking sector difficulties where the consequences are much more serious than the last financial crisis. The shock will almost certainly rebound back onto the eurozone periphery, creating even greater fiscal and financial sector difficulties.

The final option is dissolution of the eurozone. The consequences of a euro disintegration are almost too appalling to contemplate. Trade within the Union would collapse completely, and growth would fall into a black abyss. The weaker Eurozone countries would see their inflation rates explode, as their newly minted currencies devalue. Indeed, hyperinflation cannot be ruled out.

If this latter claim seems a little rich, there is a precedent for it within Europe. At the end of the First World War, the Austro-Hungarian Empire collapsed, and with it went the Empire's single currency. The newly independent states introduced their own currencies, which rapidly hyper-inflated.

Therefore, severe fiscal austerity and a temporary bailout seems to be the least bad option. It is one that Portugal is about to embrace. It is one that Belgium will embrace shortly afterwards.

The Euro crisis - it is not all bad news

European bank regulation - full of sound and fury

For the European Commission, every crisis is an opportunity to concentrate power and diminish the authority of the member states. Today, it initiated another power-grab. This time, the target is the European financial sector. The takeover strategy is outlined in a document published today - "A Framework for Bank Recovery and Resolution".

The document proposes the creation of a European Resolution Authority. There will also be far-reaching new powers permitting regulators to seize failing banks, fire bank board members, and inflict financial losses on bank creditors. It is all Draconian stuff, but is this what the European financial system needs?

Many things went wrong during crisis and the list of villains is long. However, at the core of the crisis, there were two failures. European banks failed because they had insufficient buffers in the form of capital to absorb losses. Banks also failed because they lacked sufficient liquidity - in other words, cold hard cash. Unfortunately, the European commission's proposals are a little light in these two areas.

It is understandable why the European Commission would avoid these issues. Serious reform is painful. Forcing banks to increase their capital and liquidity levels would be costly in terms of economic growth and financial sector profitability.

Banks have a number of options for increasing capital. None of them are terribly attractive. Banks could slash dividends payments to shareholders, but that will send bank share prices southward.

Banks could boost the interest rate spread between what they charge on loans and what they offer on deposits. Depending on how they did it, this could generate one of two distasteful outcomes. If they raise lending rates, economic growth is likely to suffer. If they cut deposit rates, they will find it difficult to attract funding.

Alternatively, Banks could reduce lending in order to shrink their balance sheet in line with their existing capital levels. This would be a renewed credit crunch, again adversely affecting growth.

Increasing liquidity levels would have comparable detrimental effects on economic growth. Banks could try to books cash levels by reducing their assets and calling in loans. Banks could also move an increasing proportion of their portfolios from illiquid high interest assets to cash. Bank profitability would inevitably take a hit.

The financial sector needs to shrink, become less profitable, and more liquid. Before the crisis, Europe enjoyed a wonderful decade of rapid growth. It was, in large part, built on low interest rates, a lack of proper lending standards, and huge asset inflation. A properly constructed financial sector reform would insure that these things never happen again.

The European Commission - and European politicians generally - are reluctant to go down that road. Instead, a furious sounding but essentially vacuous set of measures offers an easier path. New agencies, rigid regulations, and government interference in the minutiae of financial sector activities - these are the policy equivalent of smoke bombs. They make a loud bang but are quite harmless.

Why the Eurozone is not an optimal currency area

What should the ECB do? Should it increase interest rates or leave them where they are?

The property market in Vienna strongly suggests that it is time for a rate increase. Home prices in the Austrian capital jumped 10 percent this year. Property price inflation is outstripping income growth; a sure sign of a bubble. Viennese property speculators need a slap in the face to bring them back to reality. Only a hefty rate hike can do that.

Dublin, on the other hand, is a housing market Chernobyl. Prices in the Irish capital are down 22 percent this year and almost 50 percent since the property bubble peak.. Here the situation is quite different. Everyone in Ireland apart from the parish priest is on a Euro-tracker mortgage. Somewhat surprisingly, Irish mortgage holders have continued to service their debts. The mortgage default rates is comparatively low. A rate hike would probably push many homeowners over the edge. This could generate a further round of banking losses.

More generally, inflation rates across Europe are picking up. The post-crisis surge of liquidity is feeding through into the real economy. Unfortunately, the Eurozone is travelling down two quite separate tracks, as the housing market of Dublin and Vienna amply demonstrate.

Rock? Hard place?

UK Government will not sign World's First Treaty on Access to Information

Press release from Access Info Europe and the Campaign for Freedom of Information
29 June 2009

Freedom of Information campaign groups today criticised the UK Government’s decision not to sign the world’s first binding treaty on access to official information. Despite the Prime Minister’s recent statement promising greater freedom of information , the Government has confirmed it will not currently sign the Council of Europe Convention on Access to Official Documents.

The Campaign for Freedom of Information and Access Info Europe said there would be real benefits if the UK signed the Convention. First, it would encourage European countries with no or weak access to information laws to introduce effective legislation. Second, it would make it more difficult for any government in the UK to weaken the UK FOI Act.

“We’re concerned that one possible reason behind the Government’s decision is that it intends to introduce new exemptions to our FOI Act, which may not be compatible with the Convention. The Prime Minister recently announced that the Government would introduce two new exemptions to the Act for cabinet documents and communications with members of the Royal Family. In both cases the information would be excluded from the scope of the FOI Act altogether for 20 years, an extremely retrograde step” said Katherine Gundersen of the Campaign for Freedom of Information.

On 24 June the UK Government stated that it “does not intend to sign the Convention at this stage” adding that it “does not rule out signing in the future”. An official statement from the Ministry of Justice observed that “The UK's Freedom of Information legislation has been a success story, providing a regime for freedom of information that is among the most open and rigorous in the world. It already goes further than the standards of the Convention in a number of areas.”

“This is clearly a spurious argument, because nothing stops any country having a higher standard than the Convention. The reluctance to sign the treaty sets a bad example for the new democracies of central and eastern Europe”, said Helen Darbishire of Access Info Europe.

Read the full press release here.
Convention on Access to Official Documents
Explanatory Report to the Convention

Mandelson gives us another reason to not vote Labour

"It is perfectly clear that the euro has been a great success in anchoring its eurozone members during this financial crisis.

Imagine where all of us would have been if it hadn't. I hope people will recognise that this represents a major vindication for the single currency.

Does it remain an important objective for Britain to find itself in the same currency as that single market in which it interacts? Obviously yes."

Lord Mandelson, speaking in Berlin, June 10, 2009

On a related topic, whatever happened to Brown's five tests for UK entry into the eurozone?

I know we are distracted....

...but there are other nasty things happening in the world. Like in Latvia for example...

From today's Telegraph:

The central bank has been burning reserves to defend the lat in Europe’s Exchange Rate Mechanism, but markets doubt whether Latvia has the political will to carry through draconian cuts in spending – or whether such a policy even makes sense at this stage.

Tremors hit bank shares in Stockholm and triggered a sharp fall in Sweden’s krona. Swedbank, SEB and other Swedish banks have $75bn of exposure to the Baltic states, and face cliff-edge losses if the pegs snap.

“Latvia may be a small country but it has vast repercussions for the region,” said Bartosz Pawlowski, of BNP Paribas. “If the currency breaks in Latvia, it is likely to break in Estonia and Lithuania as well, and perhaps Bulgaria, with effects on other countries like Romania.”

Silly money