Terry Smith Straight Talking

Today Programme - France and America

I appeared on the Today Programme (fast forward to 1hr 18m 14s) this morning. The main topic was France. It is amazing how France is viewed as being alongside Germany in terms of economic standing, dispensing advice and judgement to the peripheral countries in the Eurozone crisis when in fact it has far more in common with those countries than is does with Germany. In particular:

• France’s public debt was 79% of GDP at the end of 2011 and is expected to rise to 84% this year and 86% next year

• The French public sector accounts for 56% of GDP - 10 points higher than Germany - and tax revenues are 51%

• France has run a current account deficit for 10 years which now stands to be almost €100 bn by the end of the year, and its export performance is worsening: its share of Eurozone exports has fallen from 17% a year ago to just 13%. It now exports less than Holland which has 16 million people compared with 63 million in France

• Unemployment in Franc e is over 10% despite it being almost impossible to make anyone redundant, compared with under 7% in Germany

• France is uncompetitive: its average hourly wage rate is €34 compared with €30 in Germany and €20 in Spain. Surveys of competitiveness continually show that France is in a poor position: the World Economic Forum shows France in 21st position versus Germany in 6th place; and the Institute of Management Development has France in 29th place behind - in Europe - Austria, Belgium, Denmark, Finland, Germany, Ireland, Luxembourg,  the Netherland, Norway, Sweden, and the UK. In other words it is closer to the peripheral countries in this respect than the core of the Eurozone

• President Francois Hollande’s actions so far are precisely the opposite of that sage advice about what to do if you find yourself in a hole: he has raised taxes to 75% on earnings over €1m at a  time when London is already the sixth largest city for French population, and reversed an earlier planned increase in the retirement age from 60 to 62. His Labour Minister has said ‘The main idea is to make redundancies so costly it’s not worth it.’ That will really help the cause of structural economic reform and labour mobility in a  country where firing people is already a near impossibility

• France already lost its triple A status on its debts in January so we cannot say we weren’t warned but this seems to have been forgotten

• Even the IMF which is run by a French woman has warned that the French economy needs ‘a comprehensive programme of structural reforms’ and deeper spending cuts rather than tax increases

Sooner or later the market is going to figure out that France is in a mess and getting worse with dire consequences. French pride makes it unthinkable that it will leave the Euro but staying in will cripple it given the lethal combination of an inability to devalue its currency or to achieve competitiveness through deflation of wage rates.

I was also asked on Today whether we should worry about the US ‘fiscal cliff’. The answer is Yes and No: the so-called fiscal cliff, or the forced increase in taxes and cuts in spending which will occur next year if the President and the Republican controlled House of Representatives cannot reach agreement is in some respects a red herring . As usual in this crisis, if you take the news coverage and commentary at face value, you might believe that if they can reach agreement then all the attendant problems will be solved. Sadly that is not so. The US will have to raise taxes and cut public spending whether they can reach agreement or not. It is going to go over a fiscal cliff anyway.

The Great Depression - Fact v Fiction

As some of my readers may have seen, I recently wrote an article for the Independent in which I discussed the lessons learned from the Great Depression and the Wall Street Crash. In the piece I argued that whilst history often paints the US’ recovery as a picture of Keynesian success, the truth is that many of the measures implemented, including Roosevelt’s much lauded New Deal failed to stimulate the economy. In tackling the current economic crisis, we have to learn from history if we are not to repeat its mistakes, but we will learn nothing if the experiences of history are heavily edited to suit political agendas and prejudices. Too often I hear the so-called Keynsians and others of the “borrow and spend” persuasion saying that all the lack of economic recovery despite the massive stimulus of deficit spending, zero interest rates and QE demonstrates is that we need to do more of the same.  There is of course another possibility , as the economic history of the Great Depression suggests.
 
The full article is included below.

The Great Depression - Fact v Fiction
 
The philosopher George Santayana said, "Those who do not remember the past are condemned to repeat it."
 
We are in the sixth year of the financial crisis which started in 2007 and experiencing problems which are reminiscent of the Great Depression with faltering economic growth, high unemployment, deflation, and a badly damaged and still shaky banking system. It’s therefore unsurprising that commentators and policy makers would look to that period for lessons on what to do and what to avoid. However, what we need in order to learn from the Great Depression, is a firm grasp of what happened then.  Most commentary I hear or read is along the lines of: The Great Depression was triggered by the Wall Street Crash, itself the result of laissez faire capitalism. The Depression was deepened as a result of the failure of governments to adopt what would come to be called Keynesian techniques to stimulate demand and by adherence to the Gold Standard. It was only when Franklin D. Roosevelt took office and implemented the New Deal that America began to recover from the Depression as these Keynesian methods stimulated demand.
 
Sadly this version of events owes more to myth than reality. Firstly, the idea that laissez faire free market policies were the root cause of the Crash and subsequent Depression is far removed from reality. In fact Herbert Hoover who preceded Roosevelt as President until 1932 was criticised by FDR for ‘reckless and extravagant spending’ and ‘thinking we ought to control everything in Washington’, and he introduced the Smoot-Hawley Tariff in 1930 which stopped many imports. The dramatic contraction of the money supply by the Fed which began in 1929 and the rise in interest rates from 1928 helped to cause and then exacerbate the impact of the Crash. This was not simply a failure of capitalism or free markets. It had a lot of help from the government. The Hoover administration was interventionist, not laissez faire, and its interventions caused problems and made matters worse.
 
But surely all this changed after FDR said, ‘We have nothing to fear but fear itself’ (which was not original-it was a phrase borrowed from 19th century writer Henry Thoreau)?  Roosevelt announced spending of $10 billion when government revenues were $3 billion p.a., and government spending rose by 83% between 1933 and 1936 whilst Federal debt rose by 73%.
 
Simultaneously many measures were implemented which were a drag on economic activity. The Social Security Act which introduced a minimum wage kept many unskilled workers out of the labour market. The Agricultural Adjustment Act produced the destruction of crops and cattle. The National Recovery Administration or NRA created a massive bureaucracy which increased the cost of doing business significantly: shortening hours and raising wages. Night work was banned. 500 NRA codes were introduced governing production of articles ranging from lingerie to lightning rods. So-called “cut throat” pricing was banned - a tailor was sent to jail for pressing a suit for 35 cents instead of the NRA mandated 40 cents.  How these anti-competitive and bureaucratic measures were supposed to promote activity is a mystery. The net result was that industrial production dropped by 25% in the six months after the NRA came into effect.
 
Simultaneously, Roosevelt’s Civil Works Administration (CWA) engaged in employment of masses in some perfectly pointless activities such as researching the history of the safety pin and using balloons to frighten birds away from public buildings. When the CWA became the Works Progress Administration similar nonsense continued such as cataloguing ways of cooking spinach. In a foretaste of our times WPA workers were also used to collect Democratic Party campaign contributions. So was born the idea of a “client” class dependent on the state who would automatically vote for the party giving the handouts. The parallel with today’s loyal Labour following in the public sector, the North of England, Scotland and Wales is obvious.
 
Far from ending the Great Depression, such measures served to prolong it-preventing the workforce from seeking real jobs and diverting resources to politically motivated projects.
 
They were accompanied by a series of anti business and “soak the rich” tax provisions. The top marginal rate of income tax was raise first to 79% then to 90%, personal tax exemption was lowered to just $600 p.a., estate tax went up to 70% and gift tax to 52.5%. Corporate taxes were also raised with surtaxes for undistributed profits.
 
Unsurprisingly the economy slumped back into Depression in 1938 and the stock market halved again from 1937-38, which can hardly have been the result of laissez faire capitalism. FDR acolytes claim this was due to the Supreme Court outlawing the NRA and premature attempts to cut spending and balance the budget. But it is estimated that the reduction which resulted from this was only about 1% of GDP which was far too small to cause the problem-just as austerity cannot now be the cause of the UK’s problems because there hasn’t been any yet. Government spending has continued to rise inexorably since the coalition took office.
 
By the time war broke out in 1941, unemployment was still 17%. Hardly a triumph for two presidential terms of Keynesian policies.
 
So what did pull America out the Depression? The Second World War? America’s involvement in the War was unique. It did not join the War until two years after it started allowing America to benefit from the rearmament of the Allies as the ‘arsenal of democracy’ to quote FDR. Even when it entered the War, it suffered none of the destruction of assets and infrastructure which the other Allies did other than the attack on Pearl Harbour and so had all the benefits in terms of demand from rearmament and none of the disruption suffered by other combatants.
 
The War was then followed by the Truman administration which was far less anti-business than FDR’s had been. This combination of factors was the cause of recovery.
 
We have to learn from history if we are not to repeat its mistakes, but we will learn nothing if the experiences of history are heavily edited to suit political agendas and prejudices. We need to be told the truth.

Hayek v Krugman

Interesting editorial from Allister Heath in City A.M today which I commend to you.

I think he is right. There is a fatal conceit at the heart of the political elites (I prefer the term clique as “elite” suggests some competence) who are running the UK, the EU, and the USA today that their political will can overcome the laws of economics. They are about as likely to be able to repeal the laws of physics as they are the laws of economics with their never ending conveyor belt of new legislation and regulation, summits and new acronyms (EFSF, ESM, LTRO) for flooding the world with more of the currencies they are attempting to devalue. I can sense it every time I hear one of them as I did yesterday when I was on Radio 4 with Sir Howard Davies and heard him express the wish for the UK to still join the Euro – interview here.

Surely in any other area of human endeavour someone confronted with the evidence of the damage wrought by the policies they had supported, as we are daily with the Eurozone disaster/farce, would have the good grace and common-sense to remain silent. But they have no such sensibilities.

The same is true of the economic policies now being pursued. Allister Heath is also right - whilst there is plenty to fear in the economic and social disaster which we are experiencing and that is the inevitable consequence of this clique’s policies, we should view this as a necessary evil in which the laws of economics are stopping their folie de grandeur from continuing.

BBC Radio 4 Today Programme, 7 June 2012

I was interviewed by Evan Davies on the BBC Radio 4 Today programme together with Sir Howard Davies, former head of the FSA. The subject was the Eurozone crisis and in particular the plight of the Spanish banks. You can listen to the interview here and read the full transcript here;

A few points which did not come out in the interview are that when asked where we are with the Eurozone crisis one blindingly obvious but unspoken point is that it has not been solved. This would come as a surprise if you believed the outpouring of EU politicians, bureaucrats and commentators over the past two years where a seemingly endless (18 I think) series of EU summits and pronouncements have been greeted as solving the crisis. It clearly has not been solved. I mention this because you need to bear it in mind when you hear the next pronouncement on the subject.

We were followed on Today by an interview with the Chancellor George Osborne who was asked what the UK can do to protect itself from the Eurozone crisis. The answer of course is not much. Like many other questions which are posed about the possible “solutions” to the financial crisis it seems to presuppose that there must be some way of protecting ourselves from any fallout. There is not other than to ensure that we do not send  any more money to Europe, directly or via the IMF, which can be wasted on the spurious “bail outs” which are really a case of sending good money after bad.  But the other assumption in this question which I would query is that the collapse of the Euro must automatically be bad.  History is littered with examples of currency unions and pegs which have been dissolved without fatal economic consequences to the participants. On the contrary, they are often better off when an economically unviable and/or poorly structured union is dissolved. I suspect pro Euro prejudice which leads to this question and in fact our economy may be in far more danger from attempts to prop it up than from its dissolution.

Austerity v Growth

I have appeared recently on Newsnight, ITV News and BBC News talking about the debate over austerity v growth.

I also appeared on Robert Peston’s BBC2 programme about the Eurozone crisis - The Great Euro Crash.

These appearances were prompted by the Eurozone crisis coming back into focus, and in particular by a period of a week in which the Dutch government fell; elections in Greece failed to produce a government, and in particular failed to produce a consensus which supported the austerity measures which Greece had agreed to as part of its last bailout deal; and the socialist candidate Francois Hollande defeated the incumbent Nicholas Sarkozy to become President of France. Clearly the electorates are rejecting austerity. It has now led David Cameron to start making supportive noises about Monsieur Hollande’s call for policies to support growth. It seems strange to scramble to align oneself with a soundbite. But then I’m not a politician.

The appearances were also a result of the publication of the latest piece of research by my colleague Dr Tim Morgan – Blowing the Whistle on UK Austerity.

Tim’s research explodes the myth that the UK economy is struggling under the impact of government spending cuts. Government spending was cut by just 1.5% in 2011-12 and is only planned to fall by 5-6% by 2016-17 (so far away, who cares?). It is still over £20bn higher than government expenditure in 2008-09 under Labour. More worryingly, it is 50% higher in real terms than it was 10 years ago. As Tim succinctly puts it: what is it that the government wasn’t supplying ten years ago that we now cannot live without? The answer of course is nothing. Expenditure can be radically reduced and needs to be if there is to be any chance of closing the deficit which is currently running at over £120bn per annum and adding to the national debt which is already too high.

Such a miniscule cut did not send the UK economy back into recession-it never exited in reality (see below about the size of the stimulus which has been applied just to get it to stand still).

My stance is clear and it has been so since the onset of the financial crisis and the Eurozone crisis:

1. The debate between those who propose policies designed to promote growth and those who see the need for austerity is a sterile one for a number of reasons.

The simplest reason is that we are going to get austerity whatever people want. There is simply no source of additional money to spend to stimulate growth. The bond markets have had enough of governments who continually run unsustainable deficits. You cannot borrow your way out of a debt crisis.

Additional deficit spending funded by increased borrowing would not produce the desired result even if it were possible. So far the UK economy has been the recipient of £500bn of deficit spending, £325bn of Quantitative Easing and interest rates have been at a 300 year low for over three years. These so-called Keynesian measures (I say “so-called” because most of their proponents seem to me to have about as much grasp of Keynesian economics as they do the topography of the far side of the Moon) have not managed to get the economy growing so far, and they will not. The velocity of circulation of money has slowed-people want to pay down debt where they can. The government is also an incredibly inefficient spender (unsurprisingly as it’s not their money)-in the years prior to the recession it borrowed £2.18 for every £1 of growth. As Einstein said, to keep repeating the same actions whilst expecting a different outcome is a definition of insanity.

2. The only way to generate growth is to cut the size of public spending sufficiently to allow for tax cuts. Individuals and companies are much more efficient at spending the money they earn than the government is on their behalf, so better to leave more of it in their hands.

Yes, I do have a plan for exactly where to make the cuts.

3. With regard to the Eurozone I first predicted that Greece would leave in April 2010. I have not changed my mind.

There have been no fundamental solutions applied to correct the problems of the Eurozone. You cannot solve a problem of solvency and lack of competitiveness with liquidity and rhetoric. If you could, it would have been solved long ago.

When Greece leaves, the crisis will roll on into Portugal (I know it’s a small country but everyone seems to have forgotten them) followed by Spain, Italy, Ireland and ultimately France. Yes, the horrible truth is that financially France is a peripheral country, one of the PIIGS.

Euro break up not a disaster shock

When I was interviewed on the BBC World Service last week I questioned presenter Ed Butler's statement that disintegration of the Eurozone would be 'a total nightmare'. As I said 'I think that's accepted wisdom, but again, I think accepted wisdom is an oxymoron.  It may be that actually disintegration is better than trying to hold together something which shouldn't be held together'.

Now I have come across this report which looks at historical examples of exits form currency unions and concludes that far from being catastrophic it is relatively straightforward to achieve and beneficial.

Maybe the only people that a break-up of the Eurozone would be a nightmare for are the Europhiles who's dream would be dashed and the apparatchiks of Brussels.

BBC World Service, 24 February 2012

This morning I was interviewed on BBC World Service regarding the future shape of Europe. To put this in context, the French employers’ association, supported by The President of Medef's Ile de France region, and head of the French association of female business leaders, Marie-Christine Oghly, said it wants full political union. During my discussion I explained why such a union would undoubtedly make the situation worse.

You can listen to the full interview here (starting at 6mins 10 seconds) and a transcript of my discussion is below.

ED BUTLER (Presenter): Germany’s chancellor, Angela Merkel, has supported the idea of further European integration.  She’s demanded the strengthening of Brussels’ oversight of national budgets.  And many business leaders have in the past seen a federal European superstate as the only logical conclusion of monetary union.  But since the latest crisis, those who already had misgivings about the creation of the euro and deeper union, feel that their position has been reinforced.  One of those is Terry Smith, chief executive of his own brokerage and fund management firm, one of Britain’s richest investors, and a man who reckons it’s a time to draw a line under what he calls the “European experiment”.

TERRY SMITH: It’s tempting in the crisis that we’ve had for the last few years, and particularly the eurozone crisis, that, for a number of people, when asked what the solution is, to say “more Europe”.  I rather suspect, though, that it’s highly probably that the answer is “less Europe”, because if you look for the majority of Europe – not just France, but I would include France in this comment. For the majority of countries in Europe, their membership of, certainly the currency union portion of Europe, has really been quite a problem for them.  It’s impossible, really – for Greece, certainly, Portugal, probably Spain, some of Italy, and France and Ireland – to live in a currency union with Germany, so a political union would probably make that worse.

ED BUTLER: But surely the problems of Greece arose because it wasn’t in this single political union, you could argue. If it had been, all of the accounting issues that people have talked about, all of that, that sense of Greece trading off the wealth of the northern states would not have been possible in the…

TERRY SMITH: It’s certainly true insofar as if  you’re going to have a single currency and make it work, I don’t think you can do it without political union, because in the end you have to have a single authority that guarantees the debt, and that single authority can only guarantee the debt by raising taxes.  So I think you’re right about that.  However, I would disagree that if Greece, or indeed any of the other peripheral countries which are struggling, had been in this currency union and it had a political union, it would all be all right.  I think you’re missing another bit that would have to occur for that all to be all right, which is you’d have to have the political union and the single authority to do the taxing and guarantee the debts and so on, but there’s one other thing everybody would have to accept: forever, there would be transfer payments from the rich nations – primarily Germany but also Holland and Finland – to the poorer countries.

ED BUTLER: But the paradigm of the United States, which is often talked about, isn’t it, in the context of United States of Europe, United States of America…

TERRY SMITH: Yes.

ED BUTLER: …the Americans have a great tradition of upping sticks and moving stake when things don’t work, and perhaps that’s part of the problem in Europe that we’re too cemented in our little cultural zones, and if there were that single entity, we would somehow feel freer, as workers, as businesses, to move around.

TERRY SMITH: The parallels with America don’t entirely work.  Bear in mind America basically is a country which is pretty much single language.  It’s a country where, other than the American Civil War, there hasn’t been any conflict on that continent since foundation, basically; whereas you haven’t got to go very far into Europe to find the states of Europe warring with each other.  I mean, part of the problem in the German/Greece situation now is their history.  And so it’s not quite that simple.  Engineering what you see in America would probably require some of the things that you had in America to build that.  America did have a civil war before this was accepted.

ED BUTLER: True.  But Terry aren’t you speaking here as a British-based financer and investor who will look at the eurozone and know that you’re not part of it, you’re not of it, you’re not in there.  If you were in France, if you were in Germany, would you not feel a strong sense of, “look, we have two choices. One is disintegration – which is a total nightmare – and the other is integration, which gives us some glimmer of hope”?

TERRY SMITH: I look at it as a businessman who does business in 24 countries around the world, and I spend a lot of time living outside the UK and looking at it from the perspective of America or Singapore or Zurich or wherever else I happen to be at that time.  So I don’t think I’m purely UK-centred.  When you say “if I were in that situation, wouldn’t I want this integration”, I think that the French probably want it because with it they’re in a great deal of trouble.  France has got a current account deficit which has been growing continuously since 2004.  It’s got unemployment over 10%, it’s got the highest minimum wage rate in Europe, it’s got the biggest exposure amongst its banks to the eurozone debt, and 56%/57% of the French economy is a state economy.  France is in a mess if it gets cut loose from all this. 

ED BUTLER: Right.  But if it wants to get bailed out by the Germans…

TERRY SMITH: I can understand why, but that doesn’t necessarily mean that it’s good for all the states of Europe just because it’s good for France – or indeed for the remainder of the world – to have this happen.  Just to go back to an earlier point, you said disintegration, it would be a nightmare.  I think that’s accepted wisdom, but again, I think accepted wisdom is an oxymoron.  It may be that actually disintegration is better than trying to hold together something which shouldn’t be held together.  And I would doubt that those countries around the periphery, including France… I very much doubt if those countries can survive in a union with Germany.

ED BUTLER: Are you betting on Europe’s future?

TERRY SMITH: I’d have a bet on Europe’s future.  I would bet that Greece is going to leave the euro.  And I would bet that it’s highly likely that then Portugal will leave the euro.  And I think it’s then reasonably questionable whether or not Spain and Italy can survive… certainly the south of Italy has got all of the characteristics of the other peripheral countries.  And I think the final frontier of this is France.  France, in this crisis, has been seen at the top table dispensing justice alongside Germany but France’s financial characteristics are far closer to the peripheral countries that are in trouble than it is to Germany.

 

Financial Times, Letter to the Editor - Should Greenspan be stripped of knighthood?

Today’s Financial Times published my letter to the Editor concerning Fred Goodwin. Here is the letter in full.

From Mr T.C. Smith.

Sir, For Fred Goodwin to follow in the footsteps of traitors, dictators and fraudsters in being stripped of his knighthood seems extreme. He did not make the decisions that produced such a disastrous outcome for the Royal Bank of Scotland alone. He shared responsibility with the board chaired by Sir Tom McKillop, and the fateful acquisition of ABN Amro was approved by the RBS shareholders. Banking is also a highly regulated industry and his actions were supervised by the Financial Services Authority, then chaired by Sir Callum McCarthy.

But if the current mood is for those in the financial services industry who received honours in those times and who made mistakes to be stripped of their titles in order to “appease” the public, as UK prime minister David Cameron suggests, surely attention should now focus on the honorary knighthood bestowed upon Alan Greenspan in 2002 for his “contribution to global economic stability”.

T.C. Smith,
Chief Executive, Tullett Prebon,
Chief Executive, Fundsmith,
London EC2, UK

BBC Radio 4 World at One Programme, 01 February 2012

Today I was interviewed on Radio 4’s World at One regarding Fred Goodwin being stripped of his knighthood.  We had a lively debate about whether it was right to take his honour away - I think not - and whether other people should have their honours stripped from them. The BBC interviewer pointed out to listeners that the RBS chairman did not receive his knighthood for services to banking and by implication it would not be appropriate for him to be treated in the same manner as Fred Goodwin. I did not have the time to point out that Anthony Blunt received his knighthood for services to art yet was stripped of it for spying. One person that clearly does stand out for scrutiny is Alan Greenspan.

Full transcript is below.

SHAUN LEY: Presenter
Well, Terry Smith is chief executive of Tullett Prebon, a money broker and Fundsmith, a fund management company.  He’s in the City now. Welcome to the programme.
What do you make of the decision to strip Fred Goodwin of his knighthood?

TERRY SMITH: Chief Executive, Tullett Prebon and Fundsmith
I think it’s deplorable.  He’s now been bracketed with traitors, dictators and convicted fraudsters.  If he did something wrong, I’d like to see some proceedings against him – civil or regulatory – and then if he is found to have done something wrong, strip him then but at the moment it looks like a deplorable, political willingness to go along with the sort of morals of a lynch mob.

SHAUN LEY:
But honours are discretionary: there’s no real criteria for rewarding them.  Why should there be any specific criteria for taking them away?  If they’re given by politicians why not allow politicians in response to public opinion, to strip them from those who’ve received them?

TERRY SMITH:
We could do that if people wish.  It would be a break with the way that this has been done in the past, of course – that’s not necessarily a bad thing – but historically, as I say, traitors, dictators and convicted fraudsters have been it so this is a complete change.  If we are going to strip them at discretion for failing though, I would like to suggest to you that the Buckingham Palace probably need a rather large cupboard for returns, because if everybody who fails has to hand back their honours there’ll be a lot.  If we take the specific case of Fred Goodwin, he didn’t make his decisions alone.  The chairman of his board and his board helped him – the chairman, by the way, was Sir Tom McKillop – and he’s in the regulated, highly regulated banking industry where the FSA basically approved what he was doing and that was chaired at the time by Sir Callum McCarthy.  So I presume if we’re going down that route, there will be a lot of other people rather than this lone individual singled out.

SEAN LEY:
I suppose I should say, just in passing, that Tom McKillop’s knighthood was for services to the pharmaceutical industry before he went to banking but I think your point is well made. 

TERRY SMITH:
Who cares what it was for?

SHAUN LEY:
Fair enough and on that basis, are you concerned that this might have an impact on the City, on the attractiveness of Britain for business, particularly this idea perhaps if you fail, which a lot of people do in business, even people who are subsequently successful, you’re going to get punished for it?

TERRY SMITH:
Yes, I think the only way to absolutely guarantee that you won’t fail, is not to try in the first place.  I think it will have a bad effect on people and I think people who either aspire to receive honours for whatever reason in their career, or those who like Stephen Hester, have taken on a job in the public sector who see that something that they were contractually received is taken away for political reasons, must surely think twice about ever taking something on like this again.  But going back to an earlier point: if we are going to take honours away from people because of their mistakes, could I suggest another one that should obviously be called into question?

SHAUN LEY:
Go on, briefly.

TERRY SMITH:
How about the 2002 honorary knighthood given to Alan Greenspan, the chairman of the Federal Reserve and the citation was “ for his contribution to global economic stability”.  I’ll believe that people are not on a witch hunt for a single man when they proceed against Alan Greenspan and strip him of his knighthood.

SHAUN LEY:
OK, Mr Terry Smith in the City: thanks very much for joining us.

The Sunday Telegraph - All Britain is isolated from is a looming eurozone disaster

I wrote an article for yesterday's Sunday Telegraph. Here is the article in full.

David Cameron was right not to agree to the proposed changes to the Treaty of Lisbon at the latest summit.
The immediate cause of this was that the other EU leaders (in reality Germany and France) refused to give the safeguards that he demanded that they would not impose regulatory and tax changes which would adversely affect the UK’s financial services sector.
He had no choice. Financial services are a far more vital part of the UK’s economy than they are of any European country.
The City provides services to a large part of the world, and financial services are our biggest sector for employment, taxes and exports.
The EU, and Germany and France in particular, envy that position. They would like to divert as much of that activity as they could to Frankfurt and Paris, hence the proposed regulations to move the markets in so-called Over the Counter Products such as foreign exchange, and bonds onto exchanges, like Deutsche Borse and Euronext.
The eurozone leaders also fear the markets because they are the last thing which holds them to account.
Because the eurozone countries are running such large budget deficits they are answerable to the bond markets which are now refusing to supply those funds.
The attempts by the EU authorities to silence the markets by devices such as bans on short selling are a clean sign of their wish to shoot the messenger, but they are ineffective whilst those market are in and regulated from London.
We are told by critics like Labour’s Douglas Alexander that this move has left Britain isolated from Europe. This might be worrying if it were not for the fact so far the Euro has proven to be an unmitigated disaster and there is nothing from this latest in the seemingly endless series of summits to suggest that this will change.
We are told that the whole point of the treaty changes was to ensure that there was some central authority which would ensure that, in future, eurozone countries cannot run up the sort of debts which they now have.
Didn’t we already have such rules in the ironically named Growth and Stability Pact enshrined in the Maastricht Treaty which were disregarded?
Introducing new rules strikes me as like the former Labour government’s approach to knife crime, which was to pass more and more legislation (in 1997 and 2007). Stabbing people was already illegal, what was required was some enforcement.
The same is true of the eurozone - already there are weasel words in the summit agreement about limiting 'structural’ deficits. When you spend more than your income, it’s a deficit. What’s a structural deficit? I suspect it’s a device to ensure there is no penalty when you exceed the limit.
The summit agreement also talks about funding a bailout fund and sending money to the IMF for them to lend to back to the eurozone. This is all circular. If you are spending more than your income, at some point you need some third party to lend you money.
And finally, neither this summit nor any of the others has even sought to address the underlying flaw at the root of the Euro: Greece, Portugal, Spain, Italy, Ireland and even France, cannot make their economies competitive in a currency union with Germany.
So all the UK is isolated from is an impending disaster: the eurozone will fragment with countries leaving and debt defaults. It is like being as isolated as a man who failed to get onto the Titanic before it sailed.
Terry Smith is chief executive of Tullett Prebon and Fundsmith