The Government Will Default on Its Debts

The Government Will Default on Its Debts
Economics / Great Depression II
Nov 02, 2009 - 08:01 AM
By: Gary_North


The governments of every major nation are going to default on their debts. There are two relevant questions: (1) How? (2) When?

Establishments around the world all deny this. They have gained power and wealth by means of the expansion of government. They have justified their success by insisting that the government-business alliance is the only way to establish economic growth and economic security for the masses. This claim rests on a more fundamental claim, namely, that an unhampered free market is destructive of economic stability and will inevitably lead to economic depression.

The Establishments are universally Keynesian. John Maynard Keynes' book, The General Theory of Employment, Interest, and Money, was published in 1936. It defended in theory what all Western governments had been doing in practice for at least five years, namely, running huge deficits. Keynes became as close to an academic high priest as any modern scholar ever has. He was the apostle of national government debt. His ideas today are more influential than they were at his death in 1946. We live in the age of Keynes.

I can think of only one major Establishment figure who has broken with the Establishment on the question of the great default: Peter G. Peterson, who was the chairman of the Council on Foreign Relations until 2007. He now runs the Peter G. Peterson Foundation, which focuses on the looming bankruptcy of the U.S. government. More than any other person of influence, he has warned of the bankruptcy of the Medicare/Social Security programs and their equivalents in the West.

Peterson a decade ago said that he had spoken with the major leaders of the West about the impossibility of funding these social programs. They all told him the same thing: "I will not be around at that time." In short, kick the can.

VOTE NOW, PAY LATER

Politicians lie. Voters believe. This is the great symbiotic relationship of democratic politics.

For older Americans, a single mental image above all others illustrates this perpetual relationship. It is their memory of the annual Sunday cartoon in the cartoon strip, "Peanuts," which was the most widely read cartoon strip – and therefore the most widely read anything – in the United States for at least three decades. The annual cartoon featured two children: the ever-mendacious Lucy, whose hand supported an upright football on the ground, who encouraged the ever-trusting Charlie Brown to run at the ball and kick it. He always believed her. At the last moment, she would pull the ball away, and Charlie would fly into the air, then land on his back. What changed each year was her argument on why she would not pull the ball away, and her final remark to Charlie, as he lay flat on his back. She thought he was stupidly naïve. He was. She always took advantage of him. Her philosophy was clear: "Never give a sucker an even break."

This scene is repeated every other November in the United States, when voters go to the polls. "This time, it will be different," cry the Congressional candidates. Then, for the next two years, they pull the ball away.

The only thing to top this exercise in mendacity in the United States is the testimony to each house of Congress delivered by the Chairman of the Federal Reserve System. Not even the President's annual State of the Union address tops this performance.

The voters never learn. Congress never learns.

The coin of the political realm is the promise. Not money, not power: the promise. Politics sometimes looks like prostitution, with money at the center. This is an illusion. The voters do not come to Congress demanding money. They demand faithfulness. Congress is to the voters what a philanderer is to a mistress. He may shower her with presents, but the presents have meaning to her only because of the promise. "I plan to divorce my wife. It's just a matter of working out the details." She likes the presents, but she believes the promise: "You can trust me. We'll grow old together." She thinks the presents are forever.

He borrows the money to buy her the presents. When interest rates rise, she will find out just how reliable his promises have been.

This is the heart of modern democracy. Politicians promise undying faithfulness. Voters believe them.

The first political campaign I can remember was the 1952 Presidential election. I recall only one event clearly. It was a singing group at the Democrats' national convention. They sang the following:

They promise you the sky.
They promise you the earth.
But what's a Republican promise worth?

Then came the chorus:

Don't let 'em take it,
Don't let 'em take it,
Don't let 'em take it away!

Eisenhower was elected. Both houses of Congress went Republican. This had not happened since 1928. It would not happen again until 2000. They didn't take it away. They added more.

The great advantage of political promises is that the politicians who make them will not be in office when the bills come due. The benefits are immediate: votes. The costs are deferred. The supply of promises increases.

These promises rest on assurances. "Treasury debt will continue to have a AAA rating." "Treasury debt is backed by the full faith and credit of the United States." "There is no alternative to the U.S. dollar as a world reserve currency." "We owe it to ourselves." "Deficits don't matter." "Inflation is under control."

With the exception of Austrian School economics, every major school of economic thought believes in at least four of these assurances. Keynesians believe all of them.

So, the supply of promises increases. So does the magnitude of these promises. For as long as investors buy the Treasury debt and the GSE debt (Fannie and Freddie), there will be no reversal of this process.

The advent of the day of reckoning is easy to describe: (1) the upward move of Treasury interest rates, or (2) the upward move of prices in response to the Federal Reserve System's expansion of its balance sheet – monetary base – to hold down rates.

Then will come the wail of the aging mistress: "But you promised!" Indeed, he did, but a younger mistress has come along, and she wants the presents that he had promised the first one. When lenders start tightening up, a philanderer has to pick and choose among his mistresses. Old ones lose.

But what of the faithful wife? When will she finally wise up and divorce the lying SOB?

I am writing this report for her.

WHY DEFAULT WILL COME

You know about the unfunded off-budget liabilities of the Social Security and Medicare programs. If you don't know the numbers, go here.

You know about the size of the on-budget Federal debt. If not, go here.

You presumably know about the size of the officially estimated deficits in the on-budget account: at least $900 billion a year until 2019. If not, go here.

Voters are oblivious. They do not care about anything beyond their next paycheck. Investors are oblivious. They do not care beyond the next quarterly report. Congress is oblivious. They do not care beyond the next election.

Am I saying that Congress has a longer-term perspective than investors? Yes. But why? Because investors believe two things: (1) the existing price of any asset reflects the best judgment of the smartest investors; (2) they will be smarter than all these other investors when it comes time to sell and buy gold.

The average American faces his day of reckoning on the first of every month. Congress faces its day of reckoning in November of even-numbered years. Investors do not believe that they, individually, will ever face a day of reckoning. They think they are smarter than the smartest guys in the room, or else they think Ben Bernanke is, and all those other FED economists are, who will see the crisis coming next time and will take steps to evade it.

Congress also thinks that the FED's economists will find ways to evade the day of reckoning.

Investors and politicians are united. They trust the ability of central banks to evade the costs of political promises. This has been true since 1694, when Parliament granted a monopoly over money to the Bank of England. Parliament wanted a lender of last resort. That was what the head of the Bank of England promised.

The political promises of every nation rest on faith in central banking. The politicians and the investors are united in a confession of faith. This confession of faith rests on an assumption: with fiat money, there can be a free lunch, indefinitely. Every school of economic opinion except the Austrian School also affirms this.

There is a problem with this confession. It is not true. There is no such thing as a free lunch. Fiat money is counterfeit money. It does not create wealth. It destroys wealth.

Congress has promised money. It has also promised wealth. Congress will default on at least one of these promises.

We are back to my original two questions: (1) How? (2) When?

Default has four major forms. We need to consider all of them.

1. OUTRIGHT DEFAULT

This scenario assumes that the central bank refuses to buy the government's debt. This has not happened since 1694.

At some point, the government will not be able to find buyers at low interest rates. Rates will rise. The economy will sink into a depression. Revenues will decline. Expenditures will rise. The government will not be able to pay all of its obligations. So, it will raise taxes. The depression will get worse. Revenues will again fall.

Investors will know that the government is likely to default. No credit-rating service will have the courage to downgrade the government's debt, but rates will rise as if they had. The government will reach the day of reckoning. It will default on all of its debts.

Every institution that has government debt in its portfolio will suffer a loss. Its share price will fall. The depression will get worse. Insurance companies will be hit hard. The largest banks, which swapped their toxic debt with the FED at face value in late 2008 will find that they own the most toxic debt of all.

Foreign central banks will refuse to buy any more American Treasury debt. Technically, their portfolios fall to the extent that they held Treasury debt. Then those governments must decide. Should those banks be allowed to inflate to overcome these losses?

The inverted pyramid of debt will topple. The great default will produce the great depression. Unemployment will rise. Depositors will finally go to their ATMs to draw out currency. The banks will default: no withdrawals of currency.

The division of labor will contract. Everyone will get much poorer.

Because a default on all Treasury debt would have such widespread consequences – immediate consequences – economists have argued that this will not be allowed to happen. The central bank will buy the debt. But if it does, at some point it must stop buying or else create hyperinflation. Hyperinflation has the same consequence as default and deflation: a contraction in the division of labor.

I know of only one economist who predicts an outright default: Jeffrey Rogers Hummel. On August 3, 2009, he published an article on the free market site, Library of Economics and Liberty: "Why Default on U.S. Treasuries is likely." His argument is simple: the only alternative is the Zimbabwe option: hyperinflation.

He goes through the numbers. He makes an impressive case. He does not discuss the level of interest rates that would bring on the crisis, but at some point, the Treasury will have to offer high rates unless the FED intervenes.

He says that the welfare state is going to die, all over the world. I think he is correct. I am not convinced that outright default is likely – not before much higher price inflation arrives.

The strategy of the FED is the same as the strategy of Congress: kick the can.

SELECTIVE DEFAULT

Hummel admits that selective default is a possibility. I think it is more than a possibility. I think it is likely. He writes:
The Zimbabwe option illustrates that other potential outcomes, however unlikely, are equally unprecedented and dramatic. We cannot utterly rule out, for instance, the possibility that the U.S. Congress might repudiate a major portion of promised benefits rather than its debt. If it simply abolished Medicare outright, the unfunded liability of Social Security would become tractable. Indeed, one of the current arguments for the adoption of nationalized health care is that it can reduce Medicare costs. But this argument is based on looking at other welfare States such as Great Britain, where government-provided health care was rationed from the outset rather than subsidized with Medicare. Rationing can indeed drive down health-care costs, but after more than forty years of subsidized health care in the United States, how likely is it that the public will put up with severe rationing or that the politicians will attempt to impose it? And don't kid yourself; the rationing will have to be quite severe to stave off a future fiscal crisis.

The rationing will have to be severe. The promises will not come true.

INFLATION

There are two forms: mass (up to 50% per annum) and hyper (the sky's the limit).

Mass inflation seems more likely over the next decade. If the world's central banks can coordinate the expansion of money, thereby funding the national welfare states, the public will not be able to escape. They will pay the inflation tax.

The ways around this are limited to investing in real goods: commodities, small farms, used goods stores, small-town real estate. Not many people will see this in time. Of those who do, few will take action. These escape hatches are for people who are hedging against default. The average voter has no financial reserves. Of the 20% who do have reserves, 80% will be stuck in conventional investments. They will believe the Establishment's Keynesian line. "The government can fix it if you just hang on."

Inflation means the erosion of money. It means a hidden default on the political promises. Why hidden? Because the politicians will blame speculators. They will not blame the Federal Reserve for having bankrolled their promises.

CONCLUSION

Ultimately, it is either the great depression or the Zimbabwe option. Ludwig von Mises called this the crack-up boom. It means the destruction of money and the collapse of the division of labor. It would mean devastation.

I think central banks will at some point refuse to fund governments any longer. They will bail out the largest banks instead. Foreign politicians may force hyperinflation on their central banks, as agents of the government. But as long as the Federal Reserve System maintains its selective independence, it will not adopt hyperinflation as a policy. That would not be in the interest of the largest banks. It would also not be in the interest of central bankers. Their retirement promises would die.

Gary North [send him mail ] is the author of Mises on Money . Visit http://www.garynorth.com . He is also the author of a free 20-volume series, An Economic Commentary on the Bible .

http://www.lewrockwell.com

Diamo respiro all'economia italiana

Diamo respiro all'economia italiana

http://www.italiafutura.it/gw/producer/producer.aspx?t=/accadedomani/documenti/dettaglioprogetto.htm&id_progetto=544

EU's Almunia on new economic forecasts

Thomson Reuters

HIGHLIGHTS-EU's Almunia on new economic forecasts

11.03.09, 06:13 AM EST

BRUSSELS, Nov 3 (Reuters) - The following are comments by EU Monetary Affairs Commissioner Joaquin Almunia at a news conference on Tuesday after the European Commission issued new economic forecasts for the euro zone and European Union.

Europe's economy will rebound next year from a deep slump and accelerate in 2011, the Commission said, paving the way for major deficit cuts across the 27-nation bloc from 2011 at the latest.

On Greek budget deficit:

'With the information available and with the revising of previous figures of the Greek deficit, it is obvious that effective action was not adopted during the past months by the previous government.

'So we will be obliged to go to the next step of the deficit procedure. Our first procedure will be presented next week.'

La sterlina brixtoniana comprerà un futuro più luminoso?

La sterlina brixtoniana comprerà un futuro più luminoso?

di Leo Hickman - 02/11/2009

Fonte: Come Don Chisciotte [scheda fonte]




Il mese scorso il movimento delle Transition Towns (Città di Transizione) ha lanciato una valuta ideata al fine di promuovere il commercio locale e creare coesione tra le comunità

Ha tutte le caratteristiche di una difficile domanda da pub quiz: cosa hanno in comune il poeta dub Linton Kwesi Johnson, lo scienziato ambientale James Lovelock, l’attivista dei diritti civili dei neri Olive Morris e il comico Chris Morris, con David Bowie, i Clash, Harold Macmillan e Sharon Osborne?

I più perspicaci tra voi avranno capito che questi personaggi hanno vissuto a Brixton nel sud di Londra, ma la risposta più astuta è che sono stati tutti in corsa per comparire su una delle nuove banconote di Brixton, la valuta locale che verrà lanciata ufficialmente domani sera alla Lambeth Town Hall. Durante l’evento saranno rivelati i risultati di un sondaggio online per determinare chi fossero le celebrità locali più popolari, assieme all’aspetto delle banconote da 1, 5, 10 e 20 sterline brixtoniane. Circola voce che i collezionisti siano senza fiato dall’eccitazione.

La sterlina brixtoniana è la più recente valuta locale lanciata nell’ambito della Transition Towns Network, un movimento globale in rapida crescita che sprona le comunità locali a “reagire alle sfide e alle opportunità poste dal picco del petrolio e dai cambiamenti climatici". Il movimento – essenzialmente una riformulazione della filosofia della permacultura degli anni Settanta, che verte su autosufficienza, sostenibilità e lavoro con la natura – ha avuto inizio a Kinsale nella contea di Cork nel 2005 e da allora si è diffuso in tutto il pianeta, dagli U.S.A. alla Nuova Zelanda, passando per il Cile e l’Italia. Persino Ambridge, il paesino fittizio della soap opera radiofonica The Archers in onda su BBC4, si si è iscritto l’anno scorso.

Lo scopo, a Brixton, è “sostenere le ditte locali incoraggiando il commercio e la produzione”, afferma il team di volontari che ha passato lo scorso anno a preparare l’introduzione della sterlina brixtoniana nell’economia locale. “Si tratta di una valuta complementare che funziona fianco a fianco – e non al posto – della sterlina britannica, da usare nelle attività commerciali indipendenti del luogo”.

Alimentando questo senso di localismo e orgoglio civico caratterizzato da grande visibilità, gli organizzatori sperano di mostrare che per le comunità che fanno affidamento su se stesse non solo è possibile prosperare, ma anche essere meglio preparate di fronte alle incombenti minacce ambientali e alle risultanti pressioni sociali. Tuttavia, una cosa è lanciare una valuta del genere in cittadine benestanti sede di mercato come Totnes in Devon, Lewes in East Sussex e, proprio lo scorso finesettimana, Stroud in Gloucestershire; tutt’altra cosa è tentare una misura tanto audace nel cuore di uno dei più estesi e variegati ambienti urbani del mondo.

Dove iniziano e terminano, a Londra, i confini e le identità locali, sempre che esistano veramente? E come si convince la miriade di comunità e gruppi etnici a partecipare all’idea di una valuta locale, per non parlare delle molto più nobili ambizioni relative al picco dell’olio e al cambiamento climatico?

Tim Nichols, coordinatore del progetto della sterlina brixtoniana, si è trasferito nella zona un anno fa dopo aver portato a termine un master universitario in Svezia sull’adattamento ai cambiamenti climatici. Egli stesso ha dovuto affrontare un certo grado di adattamento e ammette che, come “bianco della classe media”, ha trovato difficile rivolgersi ad alcune delle ditte locali per proporre l’idea della sterlina brixtoniana.

"È necessario stabilire la fiducia con la comunità", dice Nichols. "È cruciale che siano coinvolti tutti gruppi etnici e tutte le classi sociali; non vogliamo che ci sia un ‘noi’ e un ‘loro’. Ma la valuta è un buon modo per introdurre il concetto di Transition Towns in una comunità. È qualcosa di concreto e facile da capire, un po’ come il far parte di un circo segreto".

Ma si tratta di rafforzare i legami della comunità e stimolare l’economia locale, oppure di diffondere il messaggio ambientalista? Entrambe le cose, dice Nichols. "Vogliamo che trasmettere l’idea di localismo, che è al cuore dell’idea di Transition Towns. Tutte le altre idee e questioni dovrebbero derivare naturalmente da questa".

Convincere la comunità brixtoniana dei negozianti e dei venditori nei mercati – che si può dire siano ciò che ha dato a Brixton un’identità così forte – non è sempre stato facile. "Abbiamo davvero faticato per portare a bordo i venditori dei mercati; sono la nostra linea del fronte. Uno dei nostri primi sostenitori ci ha detto che i Giamaicani sono naturalmente scettici, così ci siamo dati da fare per convincerli dei meriti della sterlina brixtoniana, visitando certe ditte fino a quattro volte. Ora hanno aderito esercizi come il Blacker Dread Records, un noto negozio di musica in Coldharbour Lane, ed è stato importante per noi perché il proprietario è molto influente nella comunità locale. Non siamo ancora arrivati ai parrucchieri, però. A Brixton si ha l’impressione che ci sia un negozio di parrucchiere ogni due persone, quindi è cruciale raggiungere questo punto di svolta.

"Una delle principali preoccupazioni dei negozianti è finire col trovarsi con un sacco di banconote in eccesso. Così abbiamo organizzato due punti di cambio a Brixton, uno dei quali sarà Morley's [un emporio a conduzione familiare]. Lewes e Totnes ci hanno anche consigliato di parlare alle ditte dell’impatto sui libri mastri e sulla contabilità. 'Non rimanere senza contanti' è il loro maggiore suggerimento. In un mondo ideale vorremmo vedere i dipendenti pagati almeno in parte in sterline brixtoniane".

Ecco come funziona il sistema: ogni qualvolta si acquisti un prodotto o un servizio da una ditta che aderisce all’iniziativa, al cliente viene offerta l’opportunità di ricevere il resto in sterline brixtoniane. Questi soldi possono essere spesi presso qualsiasi altro esercizio partecipante in alternativa o in combinazione con sterline britanniche. Rimanendo a Brixton, le banconote in teoria contribuiranno a stimolare il commercio locale e ridurre l’affidamento su economie “esterne”. Alcuni esercizi partecipanti si sono già impegnati ad offrire sconti a chi pagherà in sterline brixtoniane.

Una domanda che sorge spontanea, non solo a Brixton ma in qualsiasi comunità che introduca una propria valuta locale, riguarda le attività criminali: come impedire ai falsari di mandare all’aria l’intero piano? Transition Towns Brixton ha speso 2.000 sterline per il design e la stampa delle banconote, che saranno disponibili in tagli da 1, 5, 10 e 20 sterline. La maggior parte di questo importo è stata pagata da ditte e organizzazioni sostenitrici, come il Lambeth Council e Morley's in Brixton High Street, che in cambio vedranno il loro nome riportato su alcune delle banconote.

"Abbiamo investito in carta anti-contraffazione", dice Nichols. "Le nostre banconote sono sicure quanto quelle della Banca d’Inghilterra; le banconote hanno ologrammi e strisce di sicurezza. E abbiamo stampato tantissime banconote da 1 e 5 sterline, perché vogliamo che la valuta sia il più possibile liquida in modo da scoraggiare il crimine".

‘Le banconote sono già state offerte ai collezionisti su eBay’

Oltre alla minaccia del crimine, Totnes e Lewes hanno riferito problemi di “fuoriuscite” dovute ai soldi trattenuti dai cacciatori di souvenir. “Su eBay, ai collezionisti sono già state offerte le banconote”, dice Nichols. “Per evitare questo fenomeno, abbiamo già previsto un pacchetto di banconote destinate ai collezionisti, per accontentare quel mercato”.

L’idea della sterlina brixtoniana risuona ben al di là di Electric Avenue, Atlantic Road e Brixton Hill, e sarà osservata da vicino da tutti coloro che sono interessati a migliorare la convivenza tra comunità nei centri storici.

“Si è sempre alla ricerca dei legami che uniscono le persone”, dice Harris Beider, professore presso l’Institute of Community Cohesion a Coventry ed ex consulente dell’unità sull’emarginazione sociale del primo ministro. “è importante edificare la base economica e il capitale sociale di tutte le comunità. Se la sterlina di Brixton sarà in grado di contribuire all’integrazione, non può essere che una cosa positiva. E se riuscirà ad ottenere l’effetto moltiplicatore locale [il numero di volte in cui il denaro circola all’interno di una comunità], anche questo sarà positivo”.

Ma Beider mostra anche qualche preoccupazione. "Gli organizzatori devono dimostrare alle diverse comunità di Brixton in che modo l’iniziativa assisterà l’interazione sociale. In iniziative come questa, la comunità nera talvolta percepisce un certo zelo missionario da parte delle comunità bianche. Verranno coinvolte le caffetterie caraibiche, come la leggendaria Negril in Brixton Hill?” [La pagina Facebook di Brixton Pound dice che lo è.]

“La sterlina brixtoniana potrebbe essere il catalizzatore tanto dell’interazione quanto dell’emarginazione. La comunità nera la percepirà come liberali bianchi di classe media che si fanno le loro cose? Se condotta in modo non corretto, potrebbe fare da cuneo tra le comunità. La coesione in una comunità è una questione di creare spazi e valori condivisi. Il piano delle sterline brixtoniante avrà bisogno che la comunità nera vi partecipi, altrimenti sarà visto come un’attività dei bianchi”.

Veduta dal mercato di Brixton di Jon Henley

Brixton Wholefoods in Atlantic Road è, in apparenza, il tipo di posto da cui ci si aspetterebbe un completo sostegno alla sterlina brixtoniana. Vende (come suggerisce il nome) cibi macrobiotici, spezie esotiche, frutta e verdura biologica, oli per l’aromaterapia e candele del commercio equo e solidale, dentifricio al 100% naturale, detergenti ecologici, tutto. E la sua vetrina è di fatto una bacheca per Ie iniziative locali, traboccante di cartoline che pubblicizzano lezioni di terapia alternativa e poster dei Verdi. Quindi è scioccante sentire l’uomo (ovviamente barbuto) dietro al bancone scartare l’intero piano come inutile, provinciale e, peggio ancora, affettato. “Non ne vedo il senso, a parte forse come trovata di marketing”, dice Tony Benest. “Non mi piace il modo in cui promette di fare la differenza per Brixton. E proprio non mi piace il modo in cui gli organizzatori stanno dicendo ai negozianti che porterà benefici alle loro ditte e ai clienti che avranno dei begli sconti. Come funzionerà, esattamente?”

Un po’ oltre sulla stessa strada, al O Talho, negozio portoghese di macelleria e specialità gastronomiche, Manuel Fernandes dice che il piano "sembra una buona idea, tenere il denaro nella comunità. Ma quando ci pensi, diventa complicato. Disorienta troppo. I miei clienti vengono da ogni parte, persino da fuori Londra. Cosa ci guadagnano loro?"

L’uomo dietro al bancone del negozio di pesce Marsh's non vuole dire il suo nome, ma dice che “in questo periodo è già abbastanza difficile incassare denaro in senso stretto, figuriamoci denaro fittizio”. E dietro alla sua bancarella, Stephen Victor, mercante a Brixton da 20 anni, ritiene che è “semplicemente non realistico”.

A quale scopo, chiede Victor, servirà davvero la sterlina brixtoniana? “Una volta, 15-20 anni fa, la gente veniva a Brixton perché non trovava ciò che voleva da nessun’altra parte. Dovevano venire qui. Adesso puoi trovare quello che ti serve per cucinare caraibico in qualsiasi supermercato, e la gente non viene più a Brixton. Questo posto ha bisogno di una reale rigenerazione, che ci si spenda denaro sul serio, non di una sua valuta”.

L’opinione di Victor trova eco in tutto il mercato: “è denaro di monopolio”, afferma un uomo che dice di chiamarsi Wazobia. “Non voglio averci niente a che fare”. Indica la sua merce in esposizione: yam, platano, patate dolci. “Come pago i miei fornitori con denaro che si può spendere solo a Brixton? Non ci guadagno niente, amico”.

I sostenitori del piano ammettono che i venditori del mercato di Brixton saranno probabilmente gli ultimi a convincersi delle sue virtù. “La loro è un’attività basata sul contante”, dice Maynard Eziashi, direttore del The Lounge Bar and Eaterie, che ha aderito per essere tra le prime ditte ad accettare le nuove banconote. “Ma io cercherò di sicuro di pagare i miei fornitori al marcato in sterline brixtoniane. È per forza una buona idea, per incoraggiare a fare acquisti localmente, e tenere il denaro qui a Brixton. Non è che stiamo rifiutando la sterlina britannica. E se non altro, chi viene da fuori e ha sterline brixtoniane ha maggiore probabilità di tornare a spenderle!”

Secondo Karen Salandy, direttrice del negozio di articoli da regalo e galleria The Diverse, “farà vedere alla comunità locale che noi facciamo davvero affidamento sul fatto che spendano i loro soldi da noi. È un’idea grandiosa; noi di certo useremo le sterline brixtoniane, non c’è dubbio”. Potrebbe anche, spera, “attrarre più negozi di qualità a Brixton. Non ce ne sono abbastanza al momento. Morley's è a bordo, e questo è davvero un buon inizio”.

Al Brixton Wholefoods, tuttavia, Benest ritiene che Morley's sia a bordo solo “perché la loro concorrenza è nel West End. Per loro ha senso in un certo modo. Ma questi piani sono stati progettati per piccole comunità rurali che effettivamente producono. Nessuno produce nulla a Brixton. Siamo in un mondo multiculturale e multirazziale. Questo è un negozio ecologista, ma la gente vuole poter comprare succo di frutta brasiliano; così è come stanno le cose. Se al supermercato costa meno, è lì che la gente va”.

La sterlina brixtoniana, ritiene, “è un po’ provinciale. Un po’ affettata. Mi fa pensare alla serie televisiva The League of Gentlemen, hai presente? ‘Non fare la spesa in nessun altro luogo, perché su quella via ci sono i draghi’. Non farà la differenza per niente e per nessuno. Solo più lavoro per i miei dipendenti, che non sono affatto interessati ad essere pagati con essa".


Fonte: www.guardian.co.uk
Link: http://www.guardian.co.uk/environment/2009/sep/16/will-brixton-pound-work
16.09.2009

Traduzione per www.comedonchisciotte.org a cura di ORIANA BONAN

INDEC(en)T: L'UE finanzia un piano orwelliano

	L'UE FINANZIA UN PIANO "ORWELLIANO" Postato il Lunedì, 02 novembre @ 06:00:00 CST di davide
	DI IAN JOHNSTON telegraph.co.uk L’UE finanzia un piano “Orwelliano” di intelligenza artificiale per monitorare la gente in cerca di “comportamenti anormali” L’Unione Europea sta spendendo milioni di sterline per sviluppare tecnologie “Orwelliane” progettate per scandagliare internet e le immagini delle telecamere a circuito chiuso in cerca di “comportamenti anormali”. Un programma di ricerca quinquennale, chiamato Project Indect, punta a sviluppare programmi informatici che funzionino da “agenti”, monitorando e processando informazioni da siti internet, forum di discussione, server, reti peer-to-peer e perfino singoli computer. Tra gli obiettivi principali c’è la “rilevazione automatica di minacce e comportamenti anomali o violenza”. Project Indect, che ha ricevuto quasi 10 milioni di sterline di finanziamento dall’Unione Europea, coinvolge il Servizio di Polizia dell’Irlanda del Nord (PSNI) e gli scienziati informatici dell’Università di York, oltre a colleghi di altri nove paesi europei. Shami Chakrabarti, direttore del gruppo per i diritti umani Liberty, ha descritto l’introduzione di queste tecniche di sorveglianza di massa come un “passo sinistro” per qualsiasi nazione, aggiungendo che su scala europea diventa particolarmente agghiacciante. La ricerca Indect, iniziata quest’anno, arriva mentre l’UE prosegue nell’espandere il suo ruolo nella lotta al crimine e al terrorismo e nella gestione delle migrazioni, aumentando il suo budget in questi settori del 13,5% fino a quasi 900 milioni di sterline. La Commissione Europea chiede una “cultura comune” nell’applicazione delle legge, da diffondere in tutta l’UE, e l’addestramento di un terzo delle forze di polizia – più di 50 mila unità nel solo Regno Unito – in materie europee entro i prossimi cinque anni. Secondo il think-tank Open Europe, la crescente enfasi sulla cooperazione e la condivisione dell’intelligence vuol dire che molto probabilmente le forze di polizia europee avranno accesso a informazioni sensibili in possesso della polizia britannica, incluso il database dei DNA. Ci si aspetta anche che il numero dei cittadini britannici estradati in base al controverso mandato di arresto europeo possa triplicare. Stephen Booth, un analista di Open Europe che ha collaborato alla stesura di un dossier sull’agenda europea di giustizia, ha detto che questi sviluppi e progetti come l’Indect sanno di “Orwelliano” e alimentano seri dubbi sulla libertà individuale. “Queste a mio avviso sono tutte cose piuttosto preoccupanti. Questi progetti implicherebbero una grossa invasione della privacy e i cittadini devono chiedersi se l’UE dovrebbe investirvi le loro tasse”, ha dichiarato. “L’UE non ha un sufficiente equilibrio di poteri e non ci sono prove che qualcuno abbia mai chiesto “ciò è davvero nell’interesse dei cittadini?”. Miss Chakrabarti ha detto: “Schedare intere popolazioni al posto di individui sospetti è un passo sinistro per qualsiasi società”. “È già abbastanza pericoloso a livello nazionale, ma su scala europea diventa particolarmente agghiacciante”. Secondo il sito ufficiale del Project Indect, avviato quest’anno, gli obiettivi principali del progetto comprendono “sviluppare una piattaforma per la registrazione e lo scambio di dati operativi, l’acquisizione di contenuti multimediali, la gestione intelligente di tutte le informazioni, la rilevazione automatica di minacce e il riconoscimento di comportamenti anomali o violenza”. Si parla della “creazione di agenti assegnati a un monitoraggio automatico e continuo di risorse pubbliche come siti web, forum di discussione, reti utenti, server, reti peer-to-peer e singoli computer, per costruire un sistema online di raccolta di informazioni di intelligence, sia attivo che passivo”. Il sito web del dipartimento di informatica dell’Università di York spiega nel dettaglio come il suo compito sia quello di sviluppare “tecniche linguistiche computerizzate per la raccolta di informazioni e apprendimento dal web”. “Il nostro focus è sulle nuove tecniche di word sense induction, risoluzione dell’identità, estrazione dati sulle relazioni, analisi dei social network e sentiment”, si legge. Un altro progetto di ricerca finanziato dall’UE, denominato “Adabts” – la rilevazione automatica di comportamenti anomali e minacce in luoghi affollati – ha ricevuto circa 3 milioni di sterline. La base del progetto è in Svezia, ma tra i partner c’è il Ministero degli Interni britannico e BAE Systems. L’obiettivo è di sviluppare modelli di “comportamenti sospetti” per rilevarli automaticamente utilizzando telecamere a circuito chiuso (CCTV) e altri metodi di sorveglianza. Il sistema analizzerebbe il tono della voce della gente, il modo in cui i corpi si muovono e traccerebbe gli individui nelle folle. Il Dott. Jorgen Ahlberg dell’Agenzia svedese di ricerca della difesa, coordinatore del progetto, ha detto che il sistema aiuterebbe semplicemente gli operatori di CCTV a rendersi conto di quando stanno per arrivare i problemi. “Di solito la gente non inizia a picchiarsi da un momento all’altro”, ha detto. “Prima litigano e si spingono. Non è esattamente “Oh, vi state spingendo, dovreste essere arrestati”, ma è giusto per allertare un operatore che sta succedendo qualcosa. “Se si tratta di un centro commerciale, puoi mandare una guardia di sicurezza nelle vicinanze e probabilmente certe cose [le risse] non succederebbero”. Open Europe ritiene che le informazioni raccolte da Indect e altri sistemi del genere potrebbero essere usati da un ente poco conosciuto, il Joint Situation Centre dell’UE (SitCen), che si sostiene essere “effettivamente l’inizio di un servizio segreto dell’UE”. I critici hanno detto che potrebbe evolversi nella “CIA d’Europa”. Il dossier spiega: “Il SitCen è stato fondato inizialmente per monitorare e valutare eventi e situazioni mondiali per 24 ore al giorno con un focus sulle regioni a rischio di crisi, terrorismo e proliferazione di armi di distruzione di massa. Comunque, dal 2005, il SitCen è stato utilizzato per condividere informazioni anti-terrorismo. “Un ruolo più ampio del SitCen dovrebbe preoccupare perché l’ente è avvolto da una totale segretezza. L’espansione di quello che in effetti è l’inizio di un “servizio segreto” dell’UE desta interrogativi fondamentali sul controllo politico negli stati membri”. Il commissario Gerry Murray, del PNSI, ha detto che il principale ruolo del suo servizio sarebbe di verificare se il sistema, che a suo dire potrebbe operare a livello nazionale o europeo, possa essere uno strumento utile per la polizia. “Gran parte del progetto è [al momento] molto accademico e scientifico. I nostri budget si stanno riducendo, le nostre risorse umane anche e stiamo cercando tecnologie informatiche che ci aiuteranno nei prossimi cinque anni a ridurre il crimine e combattere le gang criminali”, ha dichiarato. “All’interno del Project Indect c’è una tavola etica di cui si terrà conto: se è permesso dalla legislazione del paese che lo userà, chi lo controlla e se è conforme ai diritti umani”. Ian Johnston Fonte: www.telegraph.co.uk Link:http://www.telegraph.co.uk/news/uknews/6210255/EU-funding-Orwellian-artificial-intelligence-plan-to-monitor-public-for-abnormal-behaviour.html 19.09.2009 Traduzione per www.comedonchisciotte.org a cura di LUCA PAOLO VIRGILIO

HOW UAE SALARY IS CONSTRUCTED

HOW UAE SALARY IS CONSTRUCTED


The very fact that the UAE is 80 per cent expatriate makes the concept of salary different to most countries in that people's needs are somewhat different, and it would be safe to say that the worker here is more transient than permanent. Without going into the fine print of UAE Labour Law, we look at salary composition from your perspective so that you know what is normal to expect when receiving your contract or negotiating your package. The days of the UAE as a hardship posting are numbered. Dubai and Abu Dhabi are places where people elect to come to live due to the benefits of tax free living, diversity of life and year long sun. A stint in a different part of the world is also of great benefit to your CV.

What one needs to understand about coming to work here is that, despite your circumstances, the reason why you should be employed here is because you bring skills to the table and that is what you are being compensated for. Having said this, if you are willing to take a certain salary, you can work away with minimal skills. Having an undergraduate degree is not necessarily a prerequisite for getting a job, but it is what differentiates white collar from blue collar, and indeed attested degree certificates form part of the recruitment process in many firms.

The real expat package, which was an all bells and whistles package still exists, but is no longer so prevalent. You still do get a number of companies posting employees for a stint in the UAE for anything up to 5 years and compensating them accordingly. The reason why they have to do that is that there is no one who understands their current business and has the skills and ability to apply that to a new environment, in a growing, dynamic country.

We have tried to break down the components of salary to give you a basic understanding of what to expect when trying to negotiate your contract

Basic Salary
This is obviously the main component of your compensation package and is paid monthly. Other components of your compensation may be based on this amount, such as annual bonus, for example.

Accommodation
While the trend is moving to paying all cash packages, there are still a number of companies who provide actual accommodation in lieu of housing allowance. The housing allowance component is to compensate you for the rent of the accommodation that you take. This is usually paid monthly and more and more does not actually cover the actual rent, due to the significant increases in cost of housing in recent years. Furthermore, despite the allowance being paid monthly, landlords usually require payment of rent on an annual, bi-annual or quarterly basis. This may require you either having the cash upfront or taking a loan for the amount payable, and so interest would increase the actual cost to you. For those that receive accommodation in lieu of housing allowance, this is paid for by the company, and covered to a limit. This, of course, is significant considering the rising cost of housing and will only start to settle at some point about 2008 when housing supply starts to meet the ever growing demand of workers. If accommodation is taken above the limit, the employee would pay the difference, either in cash upfront to the employer or landlord, or is taken monthly from the employee's salary. Some firms even offer a shifting grant to cover the costs involved in moving home if your rent is increased, although this is usually offered once every 4 years, if at all. Finally, there may be an option of accommodation or cash, and some companies force one of the options dependant on certain criteria

Transport Allowance
Companies provide transport allowance to cover general traveling considerations to and from work and inclusive of travel with regard to work. Significant other travel on behalf of work would be covered by a separate per diem policy, mission allowance or paid expenses. For more senior staff, there may be a car allowance either in provision of a car to a certain level or an allowance for purchase of a car depreciated over two to four years, along with a fuel allowance. The cars are either linked to status of position or to tasks undertaken. For example, sales jobs may require that you have a car to travel between certain pitches, whereas a director may need to display a certain status indicative of position, and have to be seen driving a new Mercedes. Some companies make it a requirement for you to have your own car already and as part of the job requirements and compensate you accordingly for petrol used at around the 60 fils per Kilometre.

Utilities
To cover the cost of water and electricity, some senior employees receive a utility allowance or a payment of actual bills. This is, on occasion, applicable to telephones, both land and mobile, as well.

Education Allowance
Due to the nature of the education system, some payment could be made to cover education of the employee's children. This could be limited by number of children, location (i.e. only UAE based children) or nationality. So typically, you could receive fees coverage of 2 or 3 children to a maximum limit of, say, 10,000 Dhs per child per year, provided that they study in the UAE. Of course the range is wide with this, from nothing at all to unlimited children with full fees paid. This all depends on the employer. It is worth noting that adopted children are neither covered here nor recognized as legitimate within the confines of the UAE, however, this is increasingly being ignored.

Furniture Allowance
While this allowance used to be more of a norm, it is less and less prominent, and provided more at a senior level, if at all. The amount is usually paid as a one off lump sum on engagement, to be repaid on a depreciation level of four years, if the employee was to leave during this time. Some companies pay this amount on a monthly basis, with no repayment required and some pay it every four years. (It may also only be applicable for those on a transfer basis to the UAE for a period of time. However, in this instance, staff are sometimes provided with furnished accommodation)

Bonuses
It is more usual than not for companies to offer bonuses, even some of the Dubai Government companies such as Dubai Holding, for example. However, bonus specifics are usually not stated in contracts. Bonuses are essentially wide ranging, from performance related bonuses linked to your own meeting of specific objectives to company wide schemes. In some cases, both are applicable. However, it is never safe to assume that you will receive a certain amount unless it is explicitly stated. In some instances only senior staff at director level and above will receive a bonus. Again, this all depends on the company - and the calculation of set bonus versus performance could be linked to basic salary or gross salary. Typically, if a performance related bonus is offered, it would be linked to a multiple of basic salary, from one time for average performance to three times for over performance of objectives. To be safe, assume in your calculations you will receive nothing, and then any bonus will be just that, a bonus!

Vacation Allowance
This is sometimes known as Annual Ticket and after a year of service allows you travel to back to your home country or point of origin as defined by your passport. Most companies pay this in some form, but in different ways. The different options are as follows: a cash allowance based on a set rate; the payment of the actual ticket; whether the rate used is certain level of IATA economy or business (for reference there are numerous levels of IATA; whether it is a peak, off peak or average rate); whether you receive a set predetermined amount; whether your family is covered. A typical allowance would be cash in lieu of tickets at payment of standard IATA covering spouse and up to three children, assuming the spouse does not already receive payment from another employer. Also, different rates and criteria could be used for different levels of the organization.

Insurance
Everyone receives the standard government healthcare, but many companies opt to provide some private coverage to either the employee or the employee's family with some level of restriction. In some cases a premium would be paid by the employee on use of a doctor or medical service. With regards to life insurance, more and more companies are offering this at different amounts relative to monthly basic salary, anything from 1 to 3 years.

Holidays
The typical number of days holiday that companies give are 30 days, which could be inclusive or exclusive or some public holidays and weekends. For example, if you were to take two weeks holiday and were to leave at the end of one week, you may have to include the middle weekend as part of your holiday entitlement. What you thought of as 10 days off, may have to be counted as a 12 day holiday. This needs to be checked specifically in your contract. However, holidays can range anything from 25 to 60 days and it would not be untypical to receive 40 days leave. Many people take these holidays in one batch during the year, often during the summer periods when it is very hot, though increasingly, due to set manpower plans, people are splitting up their holidays, as per usual Western practices.

End of service Benefit
Since there is no real retirement system per se, the labour law states that an end of service benefit must be paid after a year of service. This is usually 21 days a year after you have worked a year which rises to 30 days for any additional year above that. Some companies pay more than this, and typically at 30 days per year. This is usually based on basic salary, though can include other allowances as part of the calculation.

Starting and Ending Service
Usually you are covered for coming here and returning, by means of a ticket. Above this, some companies pay for extra elements, including shipping of items, and tickets for the families. Obviously, if you do not return home after you finish your job, then this is not applicable.

In sum
We have tried to give you an outline of what you might expect, but, of course, each company is different and you would need to check each of these points separately. Do not be surprised if you only receive a couple of the elements listed. What we have done is covered all the elements so that you can getter a fuller picture.

There may be other benefits or allowances that some companies provide such as health clubs and share options but our foremost intention is to provide the main information that will help you to ask the right questions if you are offered a position to really determine your total compensation package, and decide whether moving your family here is the move for you. Our advice would be to go into detail and clarify each point, especially if the contract is a translation of a set Arabic contract. Flexibility with regards to negotiating contracts is now more accepted but do not be surprised if you can not get them to budge. Just be clear what you are signing, because once your contract is signed you are more or less bound by the agreement.

Some additional notes
Not all companies will pay all the allowances. Indeed, some companies will provide just an all in cash salary, with no break down of allowances, while others will break down the basic and allowance element. The percentage split between the fixed cash elements of basic salary and allowances is usually around 60 to 40.

Remember, companies are different and will provide their compensation differently. Some industries pay higher than others and similar jobs in different companies can pay disparate amounts. The Oil and Gas sector pays the highest, with some areas of banking also offering high salaries. Senior positions at multinational companies offer some very high wages.

For UAE Nationals, the breakdown of the allowance element is important as the housing element, along with some UAE specific elements (such as social, child and cost of living) could play a part in their pension contribution. This make up is different for each emirate, and for government companies compared to the private sector.

Very few companies offer payment in currency other than UAE Dirhams as a matter of policy. Companies that are likely to even consider this option are multinationals or for those positions that involve significant travel away from a UAE base.

Overtime is usually applicable only at very junior levels despite UAE Labour Law stating a rate of 1.25 for extra hours worked up to maximum amount.

Most companies have a grading structure although there are some that pay perceived salaries depending on experience or who referred you! That's proper wasta.

EU: THE CURIOUS CASE OF THE "FRAUD-BUSTING" KALLAS

THE CURIOUS CASE OF THE 'FRAUD-BUSTING' EUROPEAN COMMISSIONER

April 17, 2008 |

London Miscellany
February 2008

Ashley Mote examines the chequered past of the Estonian EU Commissioner Siim Kallas, now responsible for the EU's fight against fraud.

One of the strangest coincidences that occurred when the present European Commission was appointed in 2004 was the selection of two former communists, from two of the smallest new member states, to control and manage the entire European Union budget between them for the next five years.

You may not believe in coincidences, especially when over 100 billion euros a year are involved. Many well-placed observers in Brussels at the time didn't either, especially sceptical MEPs.

Both Dalia Grybauskaite of Lithuania and Siim Kallas of Estonia were educated and learned their politics in the Soviet Union. Both were later politically active under the communist regimes in their own countries before the USSR collapsed. Siim Kallas was a member of the communist party from 1972 to 1990.

Now, Mrs Grybauskaite controls the EU's budget and Mr Kallas is responsible for its administration, which includes the apparent fight against fraud and corruption.
This brings us to the point. Mr Kallas has a curious past in the matter of money management. By the end of this story you may find yourself wondering why such a man was made a Commissioner in the first place - worse, why the president of the Commission, Manuel Barroso, then appointed him to supervise the outflow of funds.
In 1992, barely three years after the fall of the Berlin wall, Siim Kallas, then aged 43, was already the head of the Bank of Estonia. Indeed he had previously been in charge of the state-owned bank's administration during the Soviet regime, when the application of strict international banking rules was not always observed to the letter and Kallas depended on KGB support for survival.

In the spring of 1992 Estonia received 11.4 tons of gold from the Bank of England. It was - and always had been - Estonia's property. On 17 June 1940, it had been shipped to London for safe-keeping as the situation in the Baltic states deteriorated fast and occupation became a certainty.

Estonia's government-in-exile made a gentleman's agreement with the then British government, which was upheld by successive administrations. The gold would be at their disposal and returned only to a free and independent Estonia. Indeed, the British never recognized the occupation of Estonia by the Soviet Union.

In the spring of 1992, the gold held in Britain for 52 years was safely returned to its rightful owners - the people of Estonia. It was then put to good use by a young and ambitious Estonian government. They would re-launch their own currency.

The gold was crucial in the creation of the new kroon. Former Soviet slave states were still using the Russian rouble. Even if they liked the idea, they lacked the courage and the necessary reserves to support a new currency. The return of such an immense asset to Estonia, now worth many times its original value even after inflation, made such an adventurous proposal viable. The venture was a great success. The kroon quickly became serious money. The Estonian economy boomed. Over the next few years the country became a potential Hong Kong of the north.

Of course all that came to an abrupt halt when Estonia joined the EU in 2004. Nowadays the Bank of Estonia has to buy euros with its reserves every time it prints kroon. But the European Central Bank in Frankfurt does not have to buy kroon in return. The net effect is to move Estonian wealth into the Eurozone, which Estonia is obliged to join when the European Central Bank decides its economy is ready.

This little technicality has a name - seigniorage. The American Federal Reserve practised the same mischief on 'dollarised' countries for years - and probably still does. But we digress!

Siim Kallas, as head of the Bank of Estonia, presided over this daring currency reform and quickly became one of the best known figures in public life in Estonia.
Why things then went so spectacularly wrong remains a mystery to this day, but for the word 'greed'.

Using the gold as collateral, in 1993 the Bank of Estonia secretly arranged the transfer via a third party of US$10m to a Swiss bank (1). It was part of a contract in which - it was later alleged (2) - the bank was supposed to receive highly improbable dividends from oil trading.

The precise details of this contract - if that is what it was - remain shrouded in ambiguity to this day. Indeed, it took several years for even basic information to emerge in Estonia, let alone anywhere else.

We know that the bank was not, in fact, the beneficiary of income generated by the $10m. We know that the anonymous beneficiaries had given no guarantees for the safe return of the capital to the Bank of Estonia. We know they did not bear any of the attendant liabilities. So when the money disappeared, along with all the income it had supposedly generated, the people of Estonia had been defrauded.

Details of this scandal only seeped out three years later, and it took a further four years before the very same Siim Kallas found himself in the dock on charges relating to these events.

By that time, he had long since left the Bank of Estonia to found the Reform Party, a new group in Estonian politics. It soon became part of the ruling government coalition and Kallas was installed in the Estonian government as Minister of Finance, no less.

In September 1998, Siim Kallas and his advisor Urmas Kaju (of whom more later) went on trial for investing public money without the authority of the Council of the Bank of Estonia. They were further accused of causing material loss to the people of Estonia by attempting to divert interest from the investment. They were also accused of theft and Kallas of misusing his position.

According to the magazine Central European Review
Kallas was convicted on the charges. But the convictions were overturned on appeal, bar one charge of providing false information which was referred back to the lower courts.

Then, according to the same source reporting on 30 October 2000, the four-year criminal case against Kallas finally came to a close when the lower court acquitted him of the one outstanding minor charge.

Unusually, the prosecutor in the case Andres Ãœlviste then attempted to re-open the prosecution, on the grounds that Kallas had provided the auditors of the Bank of Estonia with false information. But Estonia's chief prosecutor, Raivo Sepp, overruled his deputy, took over the case and ended it. Sepp defended his controversial decision by claiming that he trusted the Estonian judicial system's judgements in bringing this long-running case to a conclusion.

The former Estonian MP and doctor of law Ando Leps has written at length about this case (3). He claims that Kallas was at the centre of money problems at the Bank of Estonia before the accusations that led to a trial, and that he had previously depended on KGB support.

It must have been a considerable help to Siim Kallas that his representative throughout this lengthy legal process was the high-profile lawyer Indrek Teder, who just happened to be the law partner of Märt Rask, then Justice Minister in the Estonian government and chairman of the Estonian Supreme Court. By a happy coincidence, Rask was also a member of the Reform Party, of which Kallas was then the leader.

Retrospective rumours
Some years later, a prominent lawyer in Estonia, who had taken no part in any of these events, found himself at a meeting with one of the leading police investigator Rocco Ots throughout the Kallas case.

The police officer was only too glad to analyse the Kallas case to a lawyer not involved at the time. Leaving aside the strength of the evidence itself, he heavily criticized the way in which various hearings had been conducted. Rocco Ots criticized the evaluation of evidence at every level. He went so far as to say he thought the whole court process corrupted.

In Estonia there is a time-limit on bringing prosecutions to court. Several years had already passed before investigations began in earnest, so investigators had little time to complete the gathering of evidence. Unsurprisingly, Kallas' Reform Party, now a part of the government, was able to exploit this lack of time. It was spectacularly slow in answering questions and providing information. The Reform Party also tried to explain away all the public interest and investigations as political theatre.

Nonetheless, valuable evidence was accumulated, including important computer-disks relating to the case, only for them to be rejected as inadmissible evidence.
There were serious doubts in the prosecution's mind about motivation. According to the investigator Rocco Ots, the main objective of Kallas and his associates was to seize the interest from the investment for their own ends and later return the money to the Bank of Estonia. In which case, what happened to the original capital and where did most of the interest go?

Another version of these events suggested that the stolen money was 'invested' in the interests of the state in an Estonian oil business. This explained its disappearance, even if it then raised questions about the ownership of the shares. This version at least had logic on its side. Oil had been one of the most profitable businesses in Estonia for many years, servicing Russian sales of oil reserves worldwide.

The police investigator Rocco Ots also described events when an official Estonian police delegation visited Switzerland to collect evidence of the misappropriation of Estonian public funds. Despite being alerted to the arrival of the Estonian police, the Swiss police failed to meet them.

The visitors eventually found their Swiss counterparts, who claimed to the astonishment of the Estonian police that, some days before, another Estonian delegation had visited and taken away all the evidence. The Swiss police claimed not to know who the first group were, except that they purported to have authority to collect and remove all material evidence.

It has been suggested since by people close to the case that the only credible explanation is that the earlier visitors were from the Estonian secret service. Were they acting on the instructions of someone involved in the defence?

The decision of the Prosecutor General to stop the appeal for a re-trial and refuse a renewal of the investigation astounded the investigating team.

Little wonder the police were convinced long before Kallas' acquittal that members of the government, and the Reform Party, were taking all measures to undermine the case, better still stop it altogether.

One prosecutor, who was working in the office of the prosecutor general when the Kallas case was in the courts, now believes that Raivo Sepp was personally threatened. Certainly attempts were made to bring criminal charges against him, but they led nowhere and few thought the accusations credible.

Meanwhile, there was palpable tension within the prosecutor's office, and bonuses were stopped. Yet, once the Kallas case was dropped, the bonuses returned and an extra payment arrived at Christmas.

Throughout this long and sorry tale, Siim Kallas was advised by a close associate, Urmas Kaju. At least one prominent Estonian businessman has confirmed recently that Mr Kaju approached him during the early 1990s with an invitation to join in what the gentleman concerned now believes to have been the very same $10 million scam. In his case, another bank was also to be involved - the Northern Estonian Bank. He declined the invitation, and doesn't regret it. But he can't help wondering whether his business life in Estonia might not have been a great deal more successful if he had agreed. He suspects that the Northern Estonian Bank held the accounts into which the $10 million and the proceeds disappeared, and thinks they probably hold them to this day. But as we shall see, other evidence suggests it was stolen before ever being returned to any bank in Estonia. Urmas Kaju was an alcoholic who had a serious car accident in 1996 (4). He still lives in Estonia.

Given all these circumstances it is quite extraordinary that the Estonian government never invited Interpol to help with enquiries. None of the main characters were ever interviewed by Interpol. The newly formed Europol has taken no interest either, despite being set up precisely to deal with cross-border organized crime in Europe.

Bank 'management'
We now know, from his own account of these events (5) that it was Urmas Kaju, Kallas's advisor at the Bank of Estonia, who opened the account in Switzerland, on the basis of a private placement agreement. The funds were then transferred by yet another Estonian bank, Põhja-Eesti Pank (PEP). Later those funds were withdrawn by unidentified persons and disappeared without a trace.

PEP has justified its actions by saying that the transaction was prepared by the management of the Bank of Estonia. The contract that formed the basis of the ill-fated investment was signed by a representative of the Bank of Estonia (Kaju himself, authorised by Kallas), and the details for the money transfer were received directly from the Bank of Estonia.

The private placement agreement was the formal banking basis for PEP to make a transfer of $10 million dollars to a Swiss bank, for one year and a day. In order to receive the funds, the recipient was supposed to submit a guarantee from a reliable independent credit institution (with at least AAA rating), to ensure the return of at least the same amount after the term specified in the agreement.

Urmas Kaju has since claimed (6) that Delaware companies with offshore accounts had been opened to receive the interest payments on the 'investment'. He further claims that the supposed involvement of oil traders was to hide the high profit potential, and also to encourage the Swiss to think such a transfer a perfectly ordinary transaction between major banks.

According to Kaju, the false references to oil were quite believable. Most of the money in the oil business between Russia and the rest of the world then moved through Swiss bank
accounts, and still does. So an account opened for such purpose would not draw any particular attention among dozens of the same kind. Indeed, many of these other legitimate accounts would routinely involve much larger sums.

Enter two other characters in this extraordinary plot. First is Abram Sher, an Estonian businessman who served time during the Soviet era for illegal currency speculation. He helped set up the Bank of Estonia scheme, acted as mediator and made sure the first few interest payments arrived on time. Then, suddenly and without warning, he declared that the money had 'disappeared' (7)

This brings us to Sher's contact Victor Schiralli. Schiralli is a doctor-at-law, but Kaju describes him as a small-time Sicilian crook - "the type you could find in the lobbies of most hotels in Zurich"? (8). He survived by posing as a financial intermediary. Later it was discovered that the Sicilian was not intermediating for anyone. Instead he and Sher gave the post-Soviet bankers their first lesson in capitalism. They exploited a technical gap in a money transfer order prepared by inexperienced banking staff in the Baltic. In vulgar terms, they pickpocketed a thick wad from a yokel just arrived in town. And the yokel was Peeter Vähi, president of Põhja-Eesti Pank. Before his appointment he had had no professional experience of banking, except as a customer. He had previously sold Soviet Lada vehicles to Belgium.

PEP was created in the aftermath of an earlier banking crisis, largely to cover the tracks of the money lost by the Bank of Estonia to the Vne_ekonombank of Moscow. The survival prospects of the credit institution were so much in doubt that Siim Kallas personally invited Peeter Vähi to manage it.

In his new position, Vähi was similarly convinced that the new central authority - the Bank of Estonia - would know and control everything. And, in any case, he owed Kallas a big favour. He was a soft touch at both ends of the deal.

After Vähi had been handed an authorising document from Switzerland and separately received $10 million from his new 'superior', the former car dealer probably did not dare to consult even with the specialists of the money market department of his own bank. Instead he handled the paperwork himself - and screwed up.

Vähi assumed that Kallas, his boss, knew what he was doing. Having received from Vähi, their boss, the order to transfer the funds, the dealers at PEP processed the order. They assumed that Vähi knew what he was doing.

Thus the money for this adventure was readily lent by the Bank of Estonia to another Estonian bank, PEP, which was not unusual. But it simultaneously transferred the liability to return the loan in due course to a third party. Thus PEP became liable and it is virtually certain that the president of PEP did not fully understand the position he was now in. The Bank of Estonia had overstepped its own rules, but now apparently had clean hands.

Greed, ignorance and incompetence
So, in the end, we are left with a prima facie fraud based on an explosive combination of greed, ignorance and incompetence. Those in the know did not fully understand, and those who understood said nothing.

All the evidence suggests Kallas and his cronies allowed greed to overwhelm both their judgment and their knowledge. It was a daring and dangerous illegal adventure for which they had no expertise. They merely had access to the opportunity.

The Swiss account should have been opened with the condition that the $10 million could be withdrawn from the account only by a person presenting a guarantee from a third bank with reliable AAA rating. This guarantee was never demanded or presented. Instead the money was simply stolen from Põhja-Eesti Pank by small-time crooks with connections in Switzerland.

Since independence, Estonia has sadly grown accustomed to political scandals and lies. It seems that the Estonian voter is somewhat indifferent when one of his elected leaders is accused of being a cunning fraudster, corrupt or incompetent. Quite possibly he is seen as a combination of all three.

The only villain who comes out of this with any credit - even by his own warped standards - is Victor Schiralli, the Sicilian opportunist who found a way to remove $10 million from a Swiss bank account and walked clean away. To this day there is an arrest warrant out for him. His eventual arrest may even open the Kallas case again.

Meanwhile, Siim Kallas, the greedy and incompetent former head of the Bank of Estonia, now spends his time in Brussels - would you believe - fighting fraud and corruption in the EU which - as the EU itself admits - currently costs taxpayers over €2 million a day.

This is why nothing much has changed on that front since his appointment in 2004, and nothing much is likely to change while he is in office.

(Ashley Mote in an independent MEP for South-East England who has researched EU financial mismanagement over many years. Since his election in 2004 he has had a seat on the European Parliament's Budget Control Committee.)

Footnotes

(1) Eesti Pank: Persoonid ja saladused. Author: Urmas Kaju. Tallinn 2003 p. 145
(2) Ibid p. 140
(3) Kesknädal. 06.12.2000
(4) Eesti Pank: Persoonid ja saladused. Urmas Kaju. Tallinn 2003
(5) Ibid pp. 139-141
(6) Ibid
(7) Ibid p. 145
(8) Ibid p.140

See also: OLAF CAN'T INVESTIGATE THE ECB EURO-SEIGNIORAGE SCANDAL