Understanding developments in the European crisis has become rather like Kremlinology, trying to figure out the meaning of subtle changes in wording, and rearrangements of the Politburo on the podium for May Day parades. In particular, Mario Draghi of the ECB goes back and forth, sometimes suggesting that the ECB will do what nearly everyone else can see is minimally necessary to the survival of the euro (namely, print lots of them, and use some to buy EU government debt, as was done by the Fed and the Bank of England). At other times, though, it’s as if Jean-Claude Trichet is doing a ventriloquist act.

In one respect, todays EU agreement was anything but subtle. The fact that the Eurozone countries and those aspiring to join them were prepared to go ahead without the UK (and a few others) suggests that they have something serious in mind. But what – the announcement is pretty much a restatement of the Growth and Stability pact, and under present circumstances, the deficit targets can only be seen as aspirational.

Applying one of the approaches that used to be standard in Kremlinology (not necessarily a reliable one, then or now) I’m going to assume that the EU leaders are acting with some sort of coherent goal in mind and work from there. In particular, I’m going to assume that everyone who matters now recognizes the need for a big monetary expansion and the use of newly created money to resolve, or at least stabilize, the debt crisis.Read More »

Sausages, legislation and the Draft Basin Plan

Bismarck is supposed to have said that for the sake of digestion and peace of mind, one should never watch the process by which either sausages or legislation is made. Certainly that’s true of the Draft Basin Plan released by the Murray Darling Basin Authority a few days ago.

What was supposed to be an evidence-based analysis aimed at determining sustainable outcomes was derailed by poor communications and legalistic processes. The botched release of the Guide to the plan last year produced an outpouring of fear and outrage among irrigators who were repeatedly told that their water allocations would be “cut”. The Government rapidly abandoned the process and engaged in the political bargaining that has produced a new plan, of which the most prominent feature is a proposed environmental water allocation of 2750 gigalitres (or perhaps less) well below the 3000 to 4000 GL suggested in the Guide as the minimum necessary for a sustainable outcome.

The process by which this outcome was reached wasn’t pretty and, unsurprisingly, no one is happy about it (I had my dummy-spit a fair while ago). But, considered as a political compromise, the outcome isn’t all that bad. If the 2750 GL total holds, the environmental allocation will be around 25 per cent of the median flow – that’s comparable to what the Snowy got in the deal brokered by Craig Ingram in 2009. It’s a lot better than seemed possible even seven years ago, when politicians could barely agree on measures to return 500 GL, and a suggestion of 1500 was ruled out of court before it was even studied.

Thanks to the Water for the Future program, something like 1700 GL of average flow has already been (re)purchased from irrigators who have been happy to sell. If the government pursues this path, they could declare victory in a few years time and abandon the costly boondoggles involved in subsidising supposedly water-saving engineering projects.