Frederick Forsyth's open letter to the German Chancellor

I'm a bit late with this but it's good to have it on the blog, both for those who may have missed it and as a matter of record.

Frederick Forsyth, author of some thundering good reads and Express colunmist, has penned an open letter to the German Chancellor, Angela Merkel. Couldn't have put it better myself; this should be a mandatory read for Cleggites and their ilk.

"Dear Madame Chancellor, 

PERMIT me to begin this letter with a brief description of my knowledge of, and affection for, your country.

I first came to Germany as a boy student aged 13 in 1952, two years before you were born. After three extended vacations with German families who spoke no English I found at the age of 16 and to my pleasure that I could pass for German among Germans.

In my 20s I was posted as a foreign correspondent to East Germany in 1963, when you would have been a schoolgirl just north of East Berlin where I lived.

I know Germany, Frau Merkel, from the alleys of Hamburg to the spires of Dresden, from the Rhine to the Oder, from the bleak Baltic coast to the snows of the Bavarian Alps. I say this only to show you that I am neither ignoramus nor enemy.

I also had occasion in those years to visit the many thousands of my countrymen who held the line of the Elbe against 50,000 Soviet main battle tanks and thus kept Germany free to recover, modernise and prosper at no defence cost to herself.

And from inside the Cold War I saw our decades of effort to defeat the Soviet empire and set your East Germany free.

I was therefore disappointed last Friday to see you take the part of a small and vindictive Frenchman in what can only be seen as a targeted attack on the land of my fathers.

We both know that every country has at least one aspect of its society or economy that is so crucial, so vital that it simply cannot be conceded.

For Germany it is surely your automotive sector, your car industry.

Any foreign-sourced measure to target German cars and render them unsaleable would have to be opposed to vetopoint by a German chancellor.

For France it is the agricultural sector. For more than 50 years members of the EU have been taxed under the terms of the Common Agricultural Policy in order to subsidise France’s agriculture. Indeed, the CAP has been the cornerstone of every EU budget since the first day.

Attack it and France fights back.

For us the crucial corner of our economy is the financial services industry. Although parts of it exist all over the country it is concentrated in that part of London known even internationally as “the City”.

It is not just a few greedy bankers; we both have those but the City is far more. It is indeed a vast banking agglomeration of more banks than anywhere else in the world.

But that is the tip of the iceberg. Also in the City is the world’s greatest concentration of insurance companies.

Add to that the brokers; traders in stocks and shares worldwide, second only, and then maybe not, to Wall Street. But it is not just stocks.

The City is also home to the “exchanges” of gold and precious metals, diamonds, base metals, commodities, futures, derivatives, coffee, cocoa… the list goes on and on.

And it does not yet touch upon shipping, aviation, fuels, energy, textiles… enough. Suffice to say the City is the biggest and busiest marketplace in the world.

It makes the Paris Bourse look like a parish council set against the United Nations and even dwarfs your Frankfurt many times.

That, surely, is the point of what happened in Brussels. The French wish to wreck it and you seem to have agreed. Its contribution to the British economy is not simply useful nor even merely valuable.

It is absolutely crucial. The financial services industry contributes 10 per cent of our Gross Domestic Product and 17.5 per cent of our taxation revenue.

A direct and targeted attack on the City is an attack on my country. But that, although devised in Paris, is what you have chosen to support.

You seem to have decided that Britain is once again Germany’s enemy, a situation that has not existed since 1945.

I deeply regret this but the choice was yours and entirely yours. The Transaction Tax or Tobin Tax you reserve the right to impose would not even generate money for Brussels.

It would simply lead to massive emigration from London to other havens. Long ago it was necessary to live in a city to trade in it.

In the days when deals can flash across the world in a nanosecond all a major brokerage needs is a suite of rooms, computers, telephones and the talent of the young people barking offers and agreements down the phone.

Such a suite of rooms could be in Berne, Thun, Zurich or even Singapore. Under your Tobin Tax tens of thousands would leave London.

This would not help Brussels, it would simply help destroy the British economy.

Your conference did not even save the euro. Permit me a few home truths about it. The euro is a Franco-German construct.

It was a German chancellor (Kohl) who ordered a German banker (Karl Otto Pohl) to get together with a French civil servant (Delors) on the orders of a French president (Mitterrand) and create a common currency.

Which they did. IT was a flawed construct. Like a ship with a twisted hull it might float in calm water but if it ever hit a force eight it would probably founder.

Even then it might have worked for it was launched with a manual of rules, the Growth And Stability Pact. If the terms of that book of rules had been complied with the Good Ship Euro might have survived.

But compliance was entrusted to the European Central Bank which catastrophically failed to insist on that compliance.

Rules governing the growing of cucumbers are more zealously enforced. This was a European Bank in a German city under a French president and it failed in its primary, even its sole, duty.

This had everything to do with France and Germany and nothing whatever to do with Britain.

Yet in Brussels last week the EU pack seemed intent only on venting its spleen on the country that wisely refused to abolish its pound.

You did not even address yourselves to saving the euro but only to seeking a way to ensure it might work in some future time.

But the euro will not be saved. It is crumbling now. And since you have now turned against my country, from this side of the Channel, Madame Chancellor, one can only say of the euro: YOU MADE IT, YOU MEND IT."

Euro Exit; An Elegant Solution

Markets have been preoccupied all week with how the trauma in European debt markets will be resolved. Will Germany capitulate from their hard line stance and allow the ECB to print, or will France capitulate and be drawn in to stronger German led political union? Meanwhile, the Southern European members are being squeezed hard as global investors derisk their exposure throughout the Euro zone with a commensurate deterioration in trust and confidence. There is at this point, little clarity about the outcome. 

One enquiring mind has popped up with an elegant solution. Mark Tinker at Framlington Asset Management, and occasional contributor, takes the lead, 

“My tone is somewhat light hearted, but the intent is very serious. 

An obvious analogy is China and the US. We know that China, as a manufacturing nation, has pegged its currency to the US, an economic zone running a large current account deficit and has benefited to the extent that there are regular calls to have it named as a "currency manipulator". The resulting capital account surplus of China was then recycled through the debt markets of the US as Germany's has been through the convergence trade in the Euro zone. Is not Germany then guilty of exactly the same thing as China? If we agree that it is so, then should we not expect Germany to float the DM in the same way as China will float the RMB? 

Germany should with immediate effect re-denominate all assets into a new DM, which would almost certainly appreciate rapidly against the "Old" euro, probably by around 25%. It could then do as the Swiss have done and make it quite clear that it will target a new informal peg of around 120 (hence my flip comment about pegging itself to the Swiss Franc). This would then enable a lot of the capital currently hiding in bunds to flow back into the eurozone and relieve the liquidity crisis there, for

that is the real issue in Italy and Spain, a fear of a Euro break up meaning a 25% haircut in all assets. 

The German population would love to have the DM and the Bundesbank back and while the Eurozone would have slightly higher yields than now, so long as the ECB makes it clear that ultimately it will print to guarantee repayment of principal - as every other sovereign nation can - there is no reason why their bonds should trade worse than, say the UK. 

The euro survives, just with Germany now in the same position as the UK and Sweden, in Europe but not the Euro. The only losers are German Banks with assets now denominated in a depreciated currency, but as we know, the solvency issues of Greece, Portugal and Ireland are more than accounted for in Banks balance sheets already. This was never a solvency crisis, it has been a liquidity crisis triggered by fears of a currency crisis. Remove Germany and all your problems are solved. If they won't leave, then the other 26 should vote them out.” 

One can only hope that this cracking originality in approach also catapults Mr Tinker to the front of the pack for consideration in the Wolfson Economic Prize which will be awarded “to the person who is able to articulate how best to manage the orderly exit of one of more member states from the European Monetary Union.” With a prize of £250,000 we can simply be certain that his will not be the only entry!