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Tuesday, 8 May 2012

Batang Kali massacre: British soldiers admitted unlawful killings

Lawyers for relatives of those who died in the 1948 mass killing disclose soldiers' accounts given during police interviews in 1970
Relatives of Malaysian rubber plantation workers killed in Batang Kali arrive at the high court
Loh Ah Choi (L), Chang Koon Ying (C) and Lim Ah Yin (R), relatives of unarmed Malaysian rubber plantation workers killed in Batang Kali in 1948 arrive at the high court. Photograph: Kerim Okten/EPA

Scots Guards soldiers admitted unlawfully shooting dead 24 Malaysian villagers then covering up the massacre, the high court has been told.

Calling for an official inquiry into the mass killing during anti-insurgency operations in 1948, lawyers for relatives of the victims disclosed for the first time the soldiers' accounts given during police interviews.
The statements were taken in 1970, when the then Labour government ordered an investigation into the deaths.

Six of the eight soldiers interviewed under caution by detectives corroborated accounts that the villagers had been unlawfully killed, Michael Fordham QC, counsel for the Malaysian relatives, told the court.

One member of the Scots Guards platoon, Alan Tuppen, maintained that a sergeant had said beforehand: "The (villagers) were going to be shot and we could fall in or fall out."

William Cootes, another soldier, told detectives he saw as another sergeant "motioned to (a) youth to run and then he shot him".

George Kydd, also a member of the Scots Guards patrol, recalled in 1970 that: "The bandits were then shot but I'm sorry I must tell you the truth, they were not running away.

"There was an inquiry later on and I've got to go along with this, we were told before going in to tell the same story, that is that the bandits were running away when they were shot … I don't remember who told us to tell this story but it was a member of the army."

The police investigation was launched after a newspaper carried some of the soldiers' accounts of what had happened 22 years earlier.

The probe was abruptly cancelled, however, in June 1970 after the Conservatives won the general election.

An internal police report by Detective Chief Superintendent Frank Williams, who led the police investigation, contradicted official explanations that there was insufficient evidence.

His report, disclosed to the high court, said: "At the outset this matter was politically flavoured and it is patently clear that the decision to terminate enquiries in the middle of the investigation was due to a political change of view when the new Conservative government came into office after the general election."

Relatives of those killed in Batang Kali, who have twice petitioned the Queen, are challenging the government's continued refusal to hold an inquiry into the incident.

Judicial review of the decision will continue until Wednesday.

Judgment is expected to be reserved.

The Ministry of Defence and Foreign Office maintain that it is too late for lessons to be learned from any inquiry and that most of the witnesses are no longer alive.

Agony of British Massacre Victims' Descendants in Batang Kali, Malaysia

They want proper closure and compensation.

 The Batang Kali killings have been compared with the My Lai massacre, which prompted outrage over the U.S.military campaign in Vietnam

NOTHING can shatter one’s world as much as the brutal murder of a loved one. The tragic account of beheaded headman Lim Tian Swee is one that still remains fresh in the memory of son Lim Kok – even 64 years after the horrific massacre that took place on Dec 21, 1948, in Batang Kali, Selangor.



Lim Kok was about nine years old when he received news from other villagers that his father had been decapitated and his head thrown into the river.

“My father was working as headman of a rubber tapping estate – which was managed by a distant granduncle – who paid salaries to the workers and looked after their welfare,” says Lim, 73. “He was my family’s sole breadwinner. Life became tough for us all after father was gone. My mother had to seek the help of friends and relatives to raise the rest of us. I was sad, yet I was also too little to understand any fear that came from the implications of my father’s killing.”


Chong Koon Ying at her father’s grave.
 
After the murder, Lim, who is the eldest of he children, went to stay with the granduncle in Kuala Lumpur where he studied. His mother, however, stayed behind in Ulu Yam Baru to look after her other children. The granduncle helped subsidise Lim’s living expenses and studies and the boy would return on and off to Ulu Yam Baru to see his mother and siblings.

“Thanks to some funds and assistance from this granduncle too, we managed to provide my father with a proper burial according to Buddhist rites ... even if the head could not be traced.”

Lim returns to the burial ground every year to offer prayers to his father during Qing Ming (a festival during which people pay respect to their ancestors).

He is one of four descendants who left Malaysia for London to attend today’s judicial review test case to hear a proper investigation into the massacre by British soldiers of 24 unarmed villagers at Batang Kali in 1948.

Wong Then Loy was just a child when he helped his father collect the victims’ bodies for burial.

“My only wish is for the trial to grant us sufficient compensation and a proper apology for the misdeed that was unleashed against the 24 people.

“Coming back to Batang Kali is a grim reminder of the suffering and misery that we had to endure and the poverty that my siblings, especially, had to grow up with – after all these decades, we are hopeful that fairness and justice will prevail,” he said before leaving for London.

Ulu Yam Baru village headman cum the Action Committee Condemning the Batang Kali Massacre chairman Chin Fo Sang recalls listening to stories of how the villagers were rounded up and divided into five different groups before being executed. “After they were all killed, some of the bodies were left by the riverside and others placed in groups inside plantations.”

Chin, 64, was only about two months old when the episode unfolded back in December 1948. Many of the tales were related to him by his parents, relatives and villagers much later.

The clear gentle waters of the river into which Lim’s father’s severed head was thrown belie the horror swept away by torrents of time. The head, says Chin, was washed down to a Malay village where it was discovered by horrified local women. “They threw it back into the river and it was never seen again. This is why till today, Lim’s father is without a head,” says Chin.

That serene-looking river is where Lim Kok’s father’s head was thrown into.
 
Chin leads us back a short distance away where a single wooden house stands amidst thick foliage and shrubs mixed with a few banana trees. “This is the site where the first victim, Luo Wei-Nan, was executed. The story goes that the soldiers herded him here before shooting him in the back. The bullet penetrated through the body and left such a gaping puncture that his internal organs all spilled out,” Chin says softly, the horror still clear in his voice.

Chong Koon Ying was 11 when her father Chong Man was shot. “We heard a lot of gunshots – the booming noise they made – but we were not allowed to see what happened. I could see thick smoke billowing about right after, though.

“Later, a lorry whisked all the women and children away and we were not allowed to even go back to our houses to collect any of our clothes or belongings.

“We were left homeless overnight after our village was set ablaze. Some people who saw us seated aimlessly on the streets (in the nearby town they had been taken to) took pity on us and found us a decrepit house for shelter.

“Because there were so many families cramped into one small space, the children had to sleep on the floor while my mother slept seated on a stool.”

Choking with emotion, Chong says she was married off at 16 while her siblings had to be given away for adoption as her family had nothing to survive on.

“We had to be split up when food and everything else became scarce,” says Chong, now 73. “I tried finding my sister but to no avail. And when I found my brother, he was badly beaten up. I could never forget how my heartbroken mum died when she found out.”

Chong who is now living in KL, having shifted after her marriage, says her children and grandchildren have been told of this savage murder that tore families apart and left traumatised women and children incapacitated.

“What else can I ask for now except for cash compensation. My parents are gone; at the very least, monies should be paid for the hardships and our pain, although no amount can bring them back.”

There is an interesting story surrounding the last surviving witness to the massacre, Tham Yong, who died in 2010. Her fiance was one of the 24 shot dead while his brother was the victim who fainted and happened to survive the massacre. Tham Yong later married him and son Chong Nyok Keyu is now taking up the fight following her passing.

Another witness is Wong Then Loy who was just eight when he helped his dad to collect the corpses, a week after the massacre.

“The bodies had rotted, some had dried up; some even had huge maggots crawling out,” recalls Wong, 73. “As a kid, I wasn’t afraid of seeing the worms since I was used to following my father deep inside the jungle before we were chased out to stay in the new villages.

“Of course, I also didn’t know exactly what had happened except that they were dead bodies. My father related to me the stories later while I also gathered bits of excerpts from wives of the deceased and some neighbours.”

His father helped to engrave names on the tomb stones after the dead had been identified by their relatives. Some remained unidentified and unclaimed so they were buried together in one plot – Wong recalls some of these were young men, barely 20.

“The poorer families could not afford coffins so their loved ones were buried without any, while some others made the funerary box by nailing planks together,” he remembers.

The original victims are long gone, but the voices of these departed souls have certainly not been silenced. Their next-of-kin are determined to secure justice for this massacre that took place in the jungle a whole lifetime ago.

Representing them are four claimants at today’s judicial review application in London: Chong Nyok Keyu, Loh Ah Choi (nephew to the first victim to be shot, Luo Wei-Nan), Lim Kok, and Wooi Kum Thai.

By MARTIN VENGADESAN and LIM CHIA YING
star2@thestar.com.my

This article, together with a video documenting the Batang Kali massacre site and interviews with the descendants, can be downloaded from The Star Apps’ May 2 issue.

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Batang Kali massacre by the British: justice for the dead!

More than 60 years after British troops killed 24 villagers at Batang Kali, Selangor, the case against the soldiers is going to be heard in the British courts today. 

IN 1948, the Malayan Emergency was just heating up. The country may have been weary of four brutal years of Japanese occupation during World War II, but the brief post-War dominance of the Communist Party of Malaya (CPM) was clearly at odds with the desire of the British authorities to reclaim a territory whose raw materials would help rebuild Britain itself.

By 1948, this had erupted into an undeclared war that would be waged until 1960. British forces sought to subdue the Communists, who had gained a degree of popularity for their resistance towards the Japanese. It didn’t help that in China, Mao’s Communist Party was on the verge of defeating the Kuomintang nationalist party.

Uneasy lie the dead: This cemetery in Batang Kali, Selangor, is where about half of the massacred victims were buried.
 
It was against this backdrop that the 7th Platoon of G Company, of the second battalion of Scots Guards unit of the British Army, belied its centuries-long reputation for honour. On Dec 12, 1948, under the leadership of Sgt Charles Douglas, the Guards surrounded a rubber estate near Batang Kali, Selangor. Looking for Communist guerillas who habitually moved in and out of the local population, they shot and killed 24 ethnic Chinese villagers before razing the village.

The next day, The Straits Times carried a report stating “Scots Guards and Police were today reported to have shot dead 25 out of 26 bandits during a wide-scale operation in North Selangor.” It called the killings the “biggest success as yet achieved in one operation in Malaya since the Emergency began.”

It was a bold-faced lie. The troops may have been acting on false information or may have panicked but there is little doubt that many innocent people were killed. Worse still, the incident was hushed up, only surviving as whispers through time.

There were, however, some survivors. One man fainted and was presumed dead, while some women and children of the men killed lived to tell the tale. According to them the Scots Guards had separated the men to be interrogated before the situation turned into a rampage of indiscriminate shooting.

This lush green spot is where dark deeds took place 64 years ago today.
 
“At the time we didn’t hear much,” recalls Prof Emeritus Tan Sri Dr Khoo Kay Kim. “We just heard some rumours. I would not call it the norm, but no doubt there was tension. What happened at Batang Kali was part of the complexity of society which can lead to such tragic situations. It is almost unavoidable in times of conflict and when there is hatred between ethnic and territorial groups. I see it as a conflict of cultures.

“From what I understand, they were innocent men. But the Chinese may well have reacted in a peculiar way that would have seemed suspicious to the British, who were paranoid and ignorant of local ways. The British always had problems with the Chinese community.

“That is why Governor Sir Shenton Thomas tried to come up with a programme to Anglicise the Chinese, but they were not easily controlled. At that point (in 1948) the Chinese were under the influence of the leftists and the secret societies. They were themselves enemies and in some ways it mirrored the conflict in China between the Kuomintang and the Communist Party.”

Prof Datuk Dr Shamsul Amri Baharuddin laments the tragic loss of life. “At the time the British would have had their own people on the ground. But informers can make the biggest mistakes, sometimes even on purpose. It is possible that the informer didn’t like these people. In this case, it is likely that the British acted on wrong information.

This is apparently the tombstone of the first victim, Luo Wei-Nan.>
 
“It is difficult to be an informer/undercover agent because both sides will crucify you. In fact in the 1940s, the leader of the Communists, Loi Tak, was a triple agent, a Vietnamese who worked for the Japanese and the British while leading the CPM!

“The conditions of war generates different dynamics, which we can still see today in Afghanistan and Iraq where there are many vendetta killings and economic killings done under falsified circumstances.”

Leon Comber played a critical role in the formative years of the Malaysian police force’s Special Branch and spent many years countering the Communist insurgency. The author of Malaya’s Secret Police, 1945-1960: The Role Of The Special Branch In The Malayan Emergency has no light to shed on the Batang Kali incident but does concede that, at the time, there was much mistrust between the Chinese community and the British.

Comber had come over to Malaya as part of the re-occupying forces that took over as the Japanese surrendered. In 1946 he was appointed to the police force in Malaya. He served as OCPD (Officer in Charge of Police District) KL South; at that time KL was divided into north and south zones for policing.

The Emergency was a savage war in which an estimated 12,000 people died. Did Comber ever have to do anything he was ashamed of?

File photo from May last year when four claimants, (from right) Wooi Kum Thai, Loh Ah Choi, Lim Kok and Chong Nyok Keyu announced that they had been granted funds by the United Kingdom Legal Service Commission to take their case to British courts. Today, the four are in London for the beginning of their case.
 
“Personally I didn’t, nor did I order any men under my command to do so. But I certainly heard rumours about dubious interrogation techniques. Apparently the head of the Special Branch, Richard Craig, issued a pamphlet which referred to undesirable methods of obtaining information. I was taken aback when I heard that. But if my fellow colleagues knew anything, they kept it to themselves.”

Indeed, secrecy was very much the order of the day as the colonial government maintained strict control over the media to ensure that only their viewpoint got through to the people. Little was known at the time of the Malayan Emergency’s many flash points like the standoff in Bukit Kepong, Johor, on Feb 23, 1950, between police officers and Communist guerillas that ended with more than 20 fatalities on each side. Across the pond, on Dec 3, 1949, the British governor of Sarawak, Sir Duncan Stewart, was stabbed to death by teenage Malay nationalist Rosli Dhobi.

A few years after the Batang Kali massacre, the Briggs Plan was put in place to win the hearts and minds of the local population. Devised by General Sir Harold Briggs shortly after his appointment in 1950 as the Emergency’s director of operations, the plan comprised the forced resettlement of rural Chinese population into “New Villages” where education, health services and homes with water and electricity were provided. Even as the Emergency continued and news remained tightly controlled, the Batang Kali massacre reared its ugly head from time to time. Soon after the incident, in 1949, an investigation by the Attorney General, Sir Stafford Foster-Sutton, concluded that the villagers would have escaped with their lives if not for the soldiers opening fire – yet, no action was taken.

In fact, only the soldiers themselves were questioned as witnesses; no villager was asked for testimony. The cover-up echoed that of another British colonial massacre in Amritsar, India, in 1919 when Colonel Reginald Dyer ordered the shooting deaths of hundreds of unarmed Indian civilians.

Following the My Lai massacre in the late 1960s during the Vietnam War, when US troops unable to distinguish friend from foe slaughtered all the villagers in My Lai, the Batang Kali incident was revisited by British newspaper The People. Then British Secretary of State for Defence (from 1964 to 1970) Denis Healey set up a team to investigate the incident. But the case was soon dropped for “lack of evidence”, despite statements made from former members of the patrol that made it clear they had been ordered to lie about the killings during the 1949 investigation.

Still later, in 1992, In Cold Blood, a BBC documentary was aired about the killings, making it obvious that a travesty had occurred, not just with the killings but with the cover-up that followed. Journalists Ian Ward and Norma Miraflor also painstakingly put together Slaughter And Deception At Batang Kali (Media Masters, 2009), another work that endorses this viewpoint.

MCA Public Services and Complaints Department head Datuk Seri Michael Chong became involved with the case during the filming of In Cold Blood.

“It is not only me who is fighting this case,” he says. “Over the years many fought it. Even (Malaysia’s first Prime Minister) Tunku Abdul Rahman fought it before independence. But when I came to it in 1992 it had been forgotten. All the time there had been a ding-dong and finally after a change of government in the UK, the case was closed.

“In late 1992, a group of BBC journalists came down with a few ex-Scot Guards who were all in their 70s or 80s. They were not involved in the massacre but had been asked by their Commanding Officer to help with the post-massacre clean-up. They came and asked the villagers to remove the bodies. After so many years they felt bad.”

Chong was outraged by the injustice and decided to act. “Along with the lawyers Vincent Lim and Datuk Lim Choon Kin, I took an interest. We went to see the place and met the survivors. In 1993 we called a press conference and, with the victims’ descendants, we lodged a police report in Batang Kali.

“After that, we drafted a letter to Her Majesty the Queen to investigate this old case and seek for justice. We went to see the then High Commissioner, H.C. White, and were given assurances that the letter would be passed to her. Meanwhile, we also worked with the police. I was cautioned by the Malaysian police not to stir up this sentiment.

“To be very frank, some leaders also asked me why I wanted to bring up this old matter. They neither supported me or were against me at first. But later on they gave me their moral support.

“For me, this has never been about the publicity. I just want justice for the victims. I want the British Government to recognise and admit that such an incident happened. They were all shot in the back of the head from a close distance. This is cold-blooded murder. They were never Communists, but simple rubber-tappers. They were not even sympathisers.”

Eventually, through the perseverance of people like Chong, the British Government relented and agreed to hear the case.

Lawyer Quek Ngee Meng is part of a new generation of Malaysians who feel that there is no statute of limitations on justice.

“Back in 2004 my father, the late Quek Cheng Taik, used to visit the hot springs in Ulu Yam near Batang Kali to treat an illness. He used to go from Serdang to that area and eventually bought a house in Ulu Yam. He listened to the stories of villagers.

“It is still a talked-about topic there more than 60 years on. Those killed were from Ulu Yam. If you go there you won’t miss the cemetery. Every Qing Ming (a day to pay respect to one’s ancestors) they go back.

“They still feel it. It is still a stigma. The official account says they were suspected of being bandits. When we followed the case, we found a lot of cover-ups.”

But what can be accomplished after so many years?

“I think the first thing is an admission and an apology” says Quek. “The victim’s families also lost their bread-winners so we are also seeking compensation.

“Over here there are still about five witnesses to what happened. In Britain some soldiers are still alive. I think there are more than 10 on the British side. There are many who have passed away in Malaysia, most recently Tham Yong in 2010. But we documented their testimony.

“When pursuing this case, the famous human rights law firm Bindmans backed us and were willing to procure legal aid. Before they (the United Kingdom Legal Service Commission) granted us that aid, though, they checked that we needed the funds. They also checked if there was any merit in the case. Their estimate is a 50% to 60% chance,” says Quek.

Today and tomorrow, the team in London will be applying for a judicial review to quash the earlier decision by the British Government not to investigate the tragedy.

Quek says incidents like Batang Kali were not necessarily unique at the time. “There are many other cases of injustice during the Emergency. You must understand, this was at a time when the British thought all Chinese were Communists. The Chinese had to prove they were not Communists.

“But even in such circumstances you must follow the rule of law. If they are identified by informers they should have been detained and questioned. But they were not.”

Quek makes a final point about the upcoming trial. “We made a lot of progress with the (British) Labour Government, but since the Conservative-led coalition took power, they have not been so straightforward with us.

“They have made a lot of representations using technical points trying to claim that it was the Selangor Government who had jurisdiction and we should take action against the Sultan instead of them!

He adds that, “This is a landmark case with an individual suing the British Government, and I am looking forward to the trial.”

It remains to be seen if justice will indeed finally be served.

By MARTIN VENGADESAN and LIM CHIA YING
star2@thestar.com.my


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Batang Kali British Massacre Victims have a legal respite

Families of Batang Kali massacre victims finally have legal respite

KUALA LUMPUR: Descendants and families of the 24 civilians who died in the “Batang Kali massacre” of 1948 during British rule finally have a legal respite.

In an unprecedented breakthrough, the families, through their lawyers, will get a chance to argue their case in the British High Court next week.

We want the British government to clear the names of the families. -Tan Hai Kee
 
The judicial review test case on the alleged brutal killings of the unarmed rubber tappers by British soldiers has been fixed for Tuesday and Wednesday.

Action Committee Condemning the Batang Kali Massacre adviser and founder Tan Hai Kee said the hearing would be fully funded by British taxpayers.

“It will be a significant breakthrough for Malaysian civilians and NGOs in challenging the British Government's decision.

“We want the British government to clear the names of the families, as the tappers were branded as bandits and communist insurgents,” he said after a briefing and prayer ceremony at the Kuala Lumpur and Selangor Chinese Assembly Hall yesterday.

On Dec 12, 1948, about a dozen elite Scots Guards went into a village in Batang Kali and separated women and children from the men. They then allegedly executed all but one of the men who pretended to be dead.

Some of the bodies were later decapitated and their genitals smashed. The Guardsmen claimed the victims were armed and tried to escape but the committee countered that this was a cover-up.

The committee submitted a petition to the British government twice, first in March 2008 via the High Commission and another in November 2010 addressed to Queen Elizabeth II.

The first petition sought an apology and compensation of £80mil (RM393mil) but Tan said monetary gain was not the main issue.

By REGINA LEE
regina@thestar.com.my


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Monday, 7 May 2012

The euro crisis just got a whole lot worse

Jeremy Warner
With Europe plunging back into recession and unemployment soaring, Francois Hollande, the French president elect, is calling for growth objectives to be reprioritised over the chemotherapy of austerity. 

Riot policemen lead away a right-wing protestor holding a placard reading
Riot policemen lead away a protester holding a placard reading 'Let's get out of the Euro' during May Day demonstrations in Neumuenster, Germany Photo: Reuters

Angela Merkel, the German Chancellor, has meanwhile continued to insist that on the contrary, Europe must persist with the hairshirt. What's needed is political courage and creativity, not more billions thrown away in fiscal stimulus. Stick with the programme, she urges, as the anti-austerity backlash reaches the point of outright political insurrection.

Hollande and Merkel are, of course, both wrong. What Europe really needs is a return to free-floating sovereign currencies. Only then will Europe's seemingly interminable debt crisis be lastingly resolved. All the rest is just so much prancing around the goalposts, or an attempt to make the fundamentally unworkable somehow work.

The latest eurozone data are truly shocking, much worse in its implications both for us and them than news last week of a double-dip recession in the UK.

Even in Germany, unemployment is now rising, with a lot more to come judging by the sharp deterioration in manufacturing confidence. For Spanish youth, unemployment has become a way of life, with more young people now out of a job (51.1pc) than in one. In contrast to the US, where the unemployment rate is falling, joblessness in the eurozone as a whole has now reached nearly 11pc. Against these eye-popping numbers, Britain might almost reasonably take pride in its still intolerable 8.3pc unemployment rate.

There is only one boom business in Spain these days – teaching English and German. No prizes for guessing where these students are heading.

Hollande's opportunism in calling for a growth strategy he must know cannot be delivered looks like being answered only by intensifying recession. Maybe Mario Draghi, president of the European Central Bank, will surprise us after Thursday's meeting with a rate cut and a eurozone-wide programme of quantitative easing. But even if he did, it wouldn't fix the underlying problem, which is one of lost competitiveness manifested in ever more intractable levels of external indebtedness.
To think these problems can be solved either by fiscal austerity or, as advocated by Hollande and others, by its polar opposite of fiscal expansionism is to descend into fantasy.

By reinforcing the cycle, and thereby exacerbating the slump, fiscal austerity is proving self-defeating. Far from easing the problem of excessive indebtedness, it is only making it worse.

But it is equally absurd to believe that countries in the midst of a fiscal crisis can borrow their way back to growth. Who is going to lend with the certainty of a haircut or eurozone break-up to come?

I've been looking at the comparative numbers on fiscal consolidation, and they reveal some striking differences. The hairshirt prescribed for others is most assuredly not being donned by austerity's cheerleader in chief, Germany.

In fact, German government consumption is continuing to rise quite strongly, even in real terms, and the fiscal squeeze pencilled in by Berlin for itself for the next three years is marginal compared with virtually everyone else. Germany is requiring others to adopt policies it has no intention of following itself. What's so odd about that, you might ask?

Right to spend

Germany has earned the right to spend through years of prior restraint. It's got no structural deficit to speak of and, in any case, isn't that the way things are meant to work, with those capable of some fiscal expansionism compensating for the squeeze imposed by others?

All these things are true, but there is something faintly hypocritical about a country prescribing policy for others that it wouldn't dream of imposing on itself. Germany's supposed love of self-flagellation is actually something of a myth.

By the way, despite the rhetoric, Britain is hardly an outrider on austerity either. Now admittedly, the Coalition's plans for fiscal consolidation have been somewhat derailed by economic stagnation. We were meant to be further along than we are. But in terms of what's left to do, the UK is no more than middle of the pack.

On current plans, by contrast, the fiscal squeeze in the US, land of supposed fiscal expansionism, ratchets up substantially to something quite a bit bigger than what the UK has pencilled in for the next two years. It remains to be seen what effect that's going to have on the American recovery. Will renewed growth melt away as surely as it did in early 2011, or is it self-sustaining this time?

Back in the eurozone, the stand-off between creditor and debtor nations shows few, if any, signs of meaningful resolution. During the recession of the early 1990s, there was a famous British Property Federation dinner at which the chairman introduced the then chief executive of Barclays Bank, Andrew Buxton, as "a man to whom we owe, er, more than we can ever repay". It was a good joke, but it also neatly encapsulated what happens in all debt crises.

When the debtor borrows more than he can afford, the creditor will in the end always take a hit. The only thing left to talk about is how the burden is to be shared. The idea that you can force the debtor to repay by depriving him of his means of income is a logical absurdity, yet this is effectively what's going on in the eurozone.

When such imbalances develop between countries, they are normally settled by devaluation, which provides a natural market mechanism both for restoring competitiveness in the debtor nation and establishing the correct level of burden sharing.

Least tortuous form of default

It's default in all but name, but it is the least tortuous form of it. Free-floating sovereign exchange rates also provide a natural check on the build-up of such imbalances in the first place.

The reason things got so out of hand in the eurozone is that investors assumed in lending to the periphery that they were effectively underwritten by the core, mistakenly as it turned out. Interest rates therefore converged on those of the most creditworthy, Germany, allowing an unrestrained credit boom to develop in the deficit nations.

None of this is going to be solved by austerity. For now, there is no majority in any eurozone country for leaving the single currency, but one thing is certain: nation states won't allow themselves to be locked into permanent recession. Eventually, national solutions will be sought.

The whole thing is held together only by the fear that leaving will induce something even worse than the current austerity. This is not a formula for lasting monetary union.
By Jeremy Warner - Telegraph  


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