- The FT has news that London’s position as the dominant global financial hub is slipping, with the UK capital now tied with New York for top spot in the latest rankings. Elsewhere Barry Eichengreen and Kevin H. O’Rourke examine the latest economic data comparing the present crisis with the Great Depression across a range of indicators (including global output, world trade, and equity markets). Robert Shiller, meanwhile, explains the difficulties of using past experience to predict the course of the current crisis.

- European Geostrategy suggests that EU security and defence policy is like a jazz band and explains why a White Paper providing a “grand strategy” is needed. EUobserver, meanwhile, has news on the emerging shape of the European diplomatic service – its structure and staffing – as member states gear up to secure the important EEAS secretary general post.

- Elsewhere, Constanze Stelzenmüller takes an in-depth look at the travails of German security policy, offering insights into how it might evolve. Highlighting the lack of strategy, she argues that “fundamental decisions regarding German security policy have been repeatedly forced into the Procrustean bed of moral necessity, domestic imperatives, or the demands of external alliances.”

- Finally, over at openDemocracy, Andy Yee explores the “hedgehog’s dilemma” between China and the West, highlighting a gradual acceptance of different core values. TIME magazine, meanwhile, assesses the slow progress toward democracy in Hong Kong and the possible wider implications from Beijing’s perspective.

[Updates below: Maybe ergot, maybe not. The CIA's obsession with acid.]

After ‘Duke of Edinburgh asks female sea cadet if she works at a strip club’, the most popular story on the Telegraph website at the moment accuses the CIA of having secretly fed LSD to the villagers of Pont-Saint-Esprit in France in 1951.

It’s a serious accusation. Not only would this be chemical warfare against an ally (or quasi-ally at least), the Telegraph tells us that five people died and ‘dozens were interned in asylums’ after the ‘quiet, picturesque village in southern France was suddenly and mysteriously struck down with mass insanity and hallucinations.’

The timing of the story is very odd. It is based on an obscure book by HP Albarelli, which was published in 2008 and is now out of print in the UK.

[Albarelli has been in touch to say that the book is newly published, despite showing as 2008 on Amazon UK. According to his publisher, TrineDay, the book was out November 2009.]

Albarelli’s theories are dismissed out of hand by Steven Kaplan, the Goldwin Smith Professor of History at Cornell University and a noted bread expert (yes, really).

Kaplan has also written a book about Pont-Saint-Esprit, in French, entitled Le Pain Maudit. He was not interviewed by the Telegraph, however, but he made the following comment to France 24:

I have numerous objections to this paltry evidence against the CIA. First of all, it’s clinically incoherent: LSD takes effects in just a few hours, whereas the inhabitants showed symptoms only after 36 hours or more. Furthermore, LSD does not cause the digestive ailments or the vegetative effects described by the townspeople…

It is absurd, this idea of transmitting a very toxic drug by putting it in bread. As for pulverising it [for ingestion through the air], that technology was not even possible at that time. Most compellingly, why would they choose the town of Pont-Saint-Esprit to conduct these tests? It was half-destroyed by the US Army during fighting with the Germans in the Second World War. It makes no sense.

Now maybe Albarelli is right and Kaplan is wrong, but you’d think the Telegraph would make some effort to talk to Kaplan before publishing a story that has gone around the Internet like wildfire.  It’s not as if Henry Samuel, the Telegraph France correspondent, wasn’t aware of Kaplan’s work.

After all, parts of his article bear an extremely suspicious resemblance to a review of Kaplan’s book, published by the New York Times in 2008.

Here’s the NYT:

What became a national disaster began on Aug. 16, 1951, when the inhabitants… were suddenly stricken by frightful hallucinations of being consumed by fire or giant plants or horrid beasts.

A worker tried to drown himself because his belly was being eaten by snakes… A man saw his heart escaping through his feet and beseeched a doctor to put it back in place. Many were taken to the local asylum in strait jackets.

And here’s the Telegraph:

On August 16, 1951, the inhabitants were suddenly racked with frightful hallucinations of terrifying beasts and fire.

One man tried to drown himself, screaming that his belly was being eaten by snakes… Another saw his heart escaping through his feet and begged a doctor to put it back. Many were taken to the local asylum in strait jackets.

The details that are not from the Times (“An 11-year-old tried to strangle his grandmother. Another man shouted: “I am a plane”, before jumping out of a second-floor window, breaking his legs.”) come from this French blog post from Monday this week .

It presumably prompted the paper suddenly to jump on Albarelli’s conspiracy theory (and yes – it’s a fairly close translation):

Un gamin de 11 ans, Charles Granjhon, tente d’étrangler sa mère… Un homme saute du deuxième étage de l’hôpital en hurlant : “Je suis un avion.” Les jambes fracturées, il se relève et court cinquante mètres sur le boulevard avant qu’on puisse le rattraper.

Questions for the Telegraph’s editor:

1. Did Samuel read Albarelli’s book or speak to him? [Albarelli says he wasn't called by the Telegraph.]
2. Did he speak to Kaplan or any other sources?
3. Does he accept that the Telegraph plagiarized the Times?
4. And shouldn’t he set the bar a little higher before publishing stories of this type? (more…)

It’s no wonder the markets are raising questions about UK public finances – neither of the main parties has anything approaching a clear message on fiscal tightening.

From Labour, you get blithe assurances on taxes. Liam Byrne didn’t quite ask us to read his lips yesterday when promising no new tax increases, but he might as well have done. Carl Emmerson from the Institute for Fiscal Studies was unimpressed:

I cannot see how the Government can promise to not affect front line services when you look at the scale of the cuts they have got to plan for.

Liam Byrne is talking just about the first four years and after that there will undoubtedly have to be more pain and that is likely to be tax rises or even greater public sector cuts.

But the Tories are not in the clear either. I was baffled by William Hague’s recent speech at the Conservative Party Spring Forum. Half way through his speech, he lays out the Tory pitch to the undecided voter:

And to those who say they do not know what the Conservatives will do, let us tell them. We will cut the spending that cannot go on and the borrowing that leads to ruin.

So what follows? Here are all the commitments Hague makes that will cost money:

(i) Cutting taxes on business to give the UK the ‘most competitive’ tax environment in the G20

(ii) reversal of Labour’s planned national insurance increase

(iii) abolition or reduction of inheritance tax

(iv) two year freeze on Council tax (despite promises of the ‘biggest ever’ transfer of power to Councils)

(v) stamp duty abolished for first time buyers (despite unsustainable prices in the housing market)

(vi) more university places and apprenticeships

(vii) nursing care in their homes for the elderly.

And here are all the commitments is the only commitment that will clearly save money (though not much):

(i) Scrap ‘a large slice’ of expensive quangos.

And voters are supposed to be convinced this adds up to “vision of a Britain restored.”

Both parties need to convince the electorate they can get Britain back on its feet (the slogan I’d advise either to run their campaign under). But as Martin Wolf argues in today’s FT, at the moment it’s shaping up to be an election that both sides deserve to lose.

Just to press on with the Daily Mail vendetta for a tad longer, the superb Will Tooke has caught the ‘newspaper’ in another piece of fakery. This time, taking liberties with James McKie, the war hero who threw a grenade back at the Taliban.

I saw the grenade come over hit Captain Kerr on the back of his body armour and land between me and him, about a foot away from me, right next to him.

Instinctively, Captain Kerr dived, tried to get away from the grenade, but there wasn’t a lot of room. He ended up on top of me, away from the grenade.

I dived forward, picked up the grenade and threw it off the roof. It detonated half way down in the alley, two feet away from us, with most of the frag going into the wall…

When I saw the grenade there, I thought, I hope it doesn’t hurt too much.

(Do watch the whole interview with McKie – it’s quite extraordinary.)

A story that’s right up the Mail’s Straße but - as Tooke points out – there was a catch:

The problem was, the [only] picture was taken when all the action was over, and it seems [it] just wasn’t dramatic enough for the Daily Mail to match the story of intense bravery. If only there was a picture of Rifleman McKie doing the sort of high octane daring do you see in war movies, you know, like that film The Hurt Locker that just won a load of Oscars. Gosh, that would be perfect.

So what did the Mail do? They took this photo of McKie:

…purloined this one from the Hurt Locker (which pops up in Google image search)…

…and photoshopped the two together to make this doozy…

Journalism – it’s easy. If you’re shameless.

In today’s FT, William Hague underlines (again) that a new Conservative government will see the European Union as a platform for achieving progress on global issues.

With David Miliband’s enthusiasm for a G3, we’re left with robust cross-party consensus on Europe’s role as a foreign policy actor (whether it can fulfil this role is another matter).

I’m reminded of how Margaret Thatcher’s press secretary, Bernard Ingham reacted when asked, shortly after the new Tory government took office, to write a report on how the government could build public support for the European Community.

According to Robert Harris, Ingam wrote that:

A community of 250 million could achieve more than a ‘debilitated nation of 55 million, however much the latter may trade on past imperial glory‘.

Government publicity should stress this, ‘with all the instruments of the orchestra, not only central Government, reading the same score, playing the same tune and coming in on cue.’

True in 1980. Even more so thirty years’ later.

(Photo from Iain Dale.)

More disgraceful drivel from Con Coughlin, who is still employed by the Telegraph as its “executive foreign editor” (yep, there’s a story behind that job title).

Coughlin – last noted on Global Dashboard cheerleading for torture – hopes that the Queen gave South African president, Jacob Zuma, “a lesson in etiquette.”

About the only good thing that can be said about South African President Jacob Zuma’s State visit to Britain is that he might learn some lessons about how to conduct himself in public.

Just why the Labour government thought it a good idea to extend an invitation to the legendary philanderer, who loves nothing more than to prance around a stage in tribal dress waving a machine-gun, is something of a mystery…

Having been exposed to the brilliant pageantry that Britain puts on for visiting heads of state, and the quiet dignity with which the Queen conducts herself on such occasions, one sincerely hopes that the experience will give Mr Zuma pause for thought. Mr Zuma is, after all, the head of state of a country with a rich and proud history, something that should be reflected in the dignity of his office.

As if that wasn’t bad enough, Coughlin goes on to accuse Zuma of a lack of gratitude to the UK. And what should be thank us for? Nothing more than the end of white majority rule in South Africa.

Yes – according to Coughlin - ”It was Britain’s opposition to South Africa’s apartheid regime that eventually allowed his ANC freedom movement to seize power.”

Update: A good time to recall Coughlin’s track record helping MI6 plant stories in the press, and his work fuelling the rumour that Saddam was behind 9/11.

Among the many, many gems in Andrew Rawnsley’s gripping new book on Labour’s last two terms of office, students of resilience will especially enjoy his account of how the British government actually worked during 9/11. It emerges that:

- Tony Blair’s hurried journey back to London from Brighton, where he had been due to deliver a speech to the Trades Union Congress, was made not by helicopter or a 90 mph motorcade with armed escort - but by train. Blair’s Special Branch protection officers “created a makeshift area for the Prime Minister and his aides by sealing off part of a carriage with police ’scene of crime’ tape”.

- Sir Richard Wilson, the Cabinet Secretary, found out about the attacks not through being alerted by Number 10 or the intelligence services, but from his driver on his way back from lunch – and then in more detail from the car radio.

- Jeremy Heywood, Blair’s Principal Private Secretary at Number 10, then rang Wilson to say: “We’ve been told that the White House is evacuating. Should we be evacuating?” Wilson’s reply: “If you evacuate, where would you evacuate to? I think it is a good rule not to evacuate unless you have an idea where you are going to evacuate to.”

- David Blunkett, then Home Secretary, learned about the attack not from MI5 or the Home Office, but from one of his sons, who rang to tell him what he’d just seen on the news.

- Although the Cabinet Office’s Civil Contingencies Secretariat had been created to deal with national emergencies after the fuel protests a year earlier, all its staff were away at a team-building session in Yorkshire.

- The entire staff of the Cabinet Office Overseas and Defence Secretariat was en route to a meeting in Herefordshire – and had taken all the keys to their offices with them.

- And to top it all, the Cabinet Office telephone system – which had been installed the previous week – then crashed altogether.

Rawnsley’s conclusion: “Had terrorists or a foreign power planned an attack on Britain, there would rarely have been a better time to strike than on 9/11.”

I’m rather fond of David Miliband’s blogging and twittering. But his initial tweet in response to the news of Michael Foot’s death hit the wrong note:

Michael Foot led a remarkable life. I remember meeting him on the Tube in the 80s; for a famous speaker he really listened.

Erm… This is doubtless an unfortunate mash-up of well-intentioned thoughts.  The Foreign Secretary’s next tweet – about Foot’s hatred for apartheid – was back on the mark.   But it’s always a good idea not to insert oneself into tributes to others…

Yesterday, I was at the wonderful Gresham College for a seminar on housing – I posted some highlights earlier. But here’s a lightly edited version of my talk.

It explores the risks posed by the UK’s partially deflated housing bubble and sets out some radical options for reform (elucidated in more detail in the Long Finance paper from the talk is drawn).

And for those of you don’t know Gresham, I recommend Michael Mainelli’s brief history…

Sir Thomas Gresham (1519 to 1579) traded cloth and linens between England and the Low Countries at a time when Cambridge and Oxford had a duopolistic hold on higher education in England. A Cambridge man himself (Caius College), if Gresham’s skippers had visited an Oxbridge College they would, at best, have had the door of a college opened to them and then been laughed at in Latin for their ignorance.

If you’re going to backstab some one properly, do it from the front. Sir Thomas died of apoplexy in 1579 bequeathing one moiety of the Royal Exchange to the Corporation of London and the other moiety to the Mercers’ Company, charging them with the nomination of seven Professors to lecture in Astronomy, Divinity, Geometry, Law, Music, Physic and Rhetoric. He required the lectures to be in Latin and, horror horribilis, English. In effect, Sir Thomas, who pursued monopolies himself, used his will of 1575 anti-monopolistically to crack the Oxbridge oligopoly by bribing seven professors to give lectures to the public, in English.

Gresham College is about ‘new learning’. Sir Thomas felt strongly that the ‘new learning’ should be available to those who worked – merchants, tradesmen and ships’ navigators – rather than solely gentlemen scholars. In the 17th century, the Royal Society was founded to explore “natural philosophy”, new learning through experimentation. So, it is no surprise that the Royal Society was founded and housed at Gresham College for half a century (1660 to 1710) and numbered among its associates Gresham Professors Petty, Boyle and Evelyn.

Just how did this ridiculous competition between right and left to pose as a victim become so tediously commonplace?

Take this pathetic drivel from Iain Martin, the Deputy Editor of the Wall Street Journal Europe, headlined Will the Left Be Generous on Passing of Thatcher?

Rightly it’s heartfelt tributes all round to Michael Foot. He was, as Michael Gove remarked on the Daily Politics, a great British patriot…

But it does make one wonder whether the left will be generous with its tributes to Margaret Thatcher when, as it must eventually, that sad day comes? You only need to ask the question to know the answer.

For a start – ‘passing’ is what you do with wind. People die. And who cares if some people are nasty about Maggie when she dies? She was the Iron Lady, not some porcelain idol. Her record – for good or ill – will speak for itself.

I gave a talk at Gresham College yesterday, drawing on my paper for the Long Finance Foundation on risk and resilience in the UK housing market.

Also on the panel was Channel 4’s Economics correspondent, Faisal Islam. He had a couple of great quotes. This from Gordon Brown’s first budget speech in 1997 (click through to admire the retro styling of the last 1990s Treasury website):

For most people the acquisition of a house is the biggest single investment they will make. Homeowners rightly expect their investment to be protected by sensible policies pursued by Government.

I am determined that as a country we never return to the instability, speculation, and negative equity that characterised the housing market in the 1980s and 1990s. Volatility is damaging both to the housing market and to the economy as a whole.

So stability will be central to our policy to help homeowners. And we must be prepared to take the action necessary to secure it. I will not allow house prices to get out of control and put at risk the sustainability of the recovery.

When Brown spoke, the average house cost £75k  - about £10k above the early 1990s nadir. A long long boom was just beginning. Prices would peak in February 2008 at an average of… £232k!!!

In other words, Brown promised not to let house prices spiral out of control and then allowed them to treble, during a period when household disposable income increased by only 30% or so.

The second quote is a more recent one – from Mervyn King, the Governor of the Bank of England. Last month, Faisal asked King whether the current re-inflation of the housing bubble was sustainable. Prices are currently only around 7% below their peak and seem overvalued by every measure.  Only cheap money – pumped into the markets by the government – and very low interest rates is keeping the market afloat.

Isn’t the market going to deflate very rapidly once government funding is withdrawn? King’s response:

No one can forecast asset prices, so I don’t think you can predict that asset prices will fall back. I don’t see why that should in and of itself lead to a change in asset prices, because we all know this problem is there and that’s already reflected in to current asset prices.

As Faisal points out, this shows confidence in the efficient market hypothesis that is breathtaking given a global financial crisis that was driven by an asset price bubble. In King’s fantasy world, buyers know that there will be much less credit available in the future – so this concern is already included in current market prices.

King’s insouciance – and Brown’s negligence – both beggar belief.

It’s taken as a given here in the UK that Brits wield little influence in Europe. But apparently – not. According to the Guardian, an FCO-led coup is under way:

Germany is planning to stop what it sees as a British campaign to dominate European foreign policy-making under Lady Catherine Ashton, the Guardian can disclose.

Amid growing criticism across the EU of the performance of Baroness Ashton of Upholland, the EU’s new high representative for foreign and security policy, Berlin and Paris are alarmed at the prominence of British officials in the new EU diplomatic service being formed under Ashton.

A confidential German foreign ministry document analysing the creation of the EU’s new diplomatic service, seen by the Guardian, has concluded that Britain has grabbed an “excessive” and “over-proportionate” role…

The French contend that the inexperienced Ashton is being schooled in policy-making by the Foreign Office. Diplomats and officials in Brussels also see Britain’s hand in one of Ashton’s first appointments, made last week. She named Vygaudas Ušackas, a former Lithuanian foreign minister and ambassador in London, as the EU’s special envoy to Afghanistan. He was widely seen as the UK’s favoured contender after Britain withdrew its own candidate because it secured the post of Nato envoy in Kabul.

The Germans are also increasingly unhappy at what they see as the erosion of their influence and being cut out of decision-taking.

MEP and internet superstar, Daniel Hannan is up in arms at what he sees Barack Obama sucking up to ‘Peronist Argentina’ on the Falklands.

“When matters last came to a head,” he writes, “Ronald Reagan had no difficulty backing Margaret Thatcher: the Gipper knew who America’s friends were.”

Of course, it wasn’t nearly as simple as that, as I am sure Hannan (a huge Thatcher fan) knows well. Michael Moynihan (no foe of Hannan’s, by the way)  sets the record straight:

Before the British took military action in 1982, the Reagan administration was, to the consternation of the British foreign office, very much on the fence and, initially, wedded to the neutrality position… In a letter to Thatcher, Reagan said that his government would take a neutral position on the matter—again, causing great anger—but would come out in favor of its ally if the Argentinians decide to start shooting…

It was only a communications error that prevented the United States from abstaining, rather than vetoing, a United Nation Security Council resolution calling for a ceasefire—which Britain strenuously opposed.

Hannan’s fudging gives me a chance to plug James Rentschler’s superb Falklands diary. Rentschler was the Reagan official who ended up responsible for US policy on the islands after Argentina invaded. He was nonplussed by the task:

Never heard of [the Falklands], right? Me neither at least not until last evening when Prime Minister Margaret Thatcher sent an urgent message through the Cabinet Line requesting the President to intercede with the Argies. 1800 British-origin sheepherders, pursuing a peaceful life on some wind-blown specks of rock in the South Atlantic, now targeted by Argentine amphibious assault units – who, in turn, may soon be attacked by the largest naval armada ever to steam out of British ports since Suez? Yes indeed, the thing certainly does sound like Gilbert and Sullivan as told to Anthony Trollope by Alistair Cooke. But what started out as comic opera now looks to become not only quite serious, but exceptionally nasty. The Argentines have clearly misjudged the British temper, and this guy Galtieri, speaking first in broken mafioso-type English before the State Department interpreter tactfully intervenes, sounds like a thug. (more…)

I am rather taken aback by William Hague’s claim, reported by Iain Dale, that the UK is forecast to be only the world’s 11th largest economy by 2015. Given that Britain currently ranks 6th in PPP and nominal terms, that’s quite a drop. Russia is currently 11th in nominal terms – its economy is 40% smaller than the UK’s.

Now I am very bearish about the British economy, but I also expect many other countries to face rocky times over the next decade. Not only does Hague make me look like a wide-eyed optimist, he obviously expects the UK to be alone in its economic troubles. He even mentions Italy as one of the countries he believes will prosper as the UK suffers – which strikes me as a real stretch (assuming he isn’t factoring in the Euro as a shield for the Italian economy).

Anyone know what source Hague is using for his forecast? (And just to hedge a little – it’s possible that Dale misquoted him.) You can read the full speech here.

Update: The source appears to be this analysis from the Centre for Economics and Business Research Ltd, which argued in a December 2009 press release:

In 2005, the UK was the 4th largest economy in the world. China overtook in 2006, France in 2008 and Italy in 2009. So now the official figures suggest that we have dropped to No7  (although  I still have some doubt about  the Italian figures  that are  incorporated  into  this analysis).

Projecting  forward,  the combination of economic growth and population growth, plus a likely rising real exchange rate mean that Brazil and Russia will overtake us sometime soon, perhaps in 2012. India will almost certainly overtake as well, though probably not till 2015.

But it also looks as though Canada could, if demand for natural resources continues to rise strongly, catch up and surpass UK GDP around 2015 as well. Even Australia is likely to have overtaken by 2020.

Not sure which ‘official figures’ CEBR is using though…

- As the diplomatic temperature continues to rise in the South Atlantic, Simon Jenkins suggests that the Falklands are “the Elgin marbles of diplomacy” and a “post-imperial anachronism” that should lead Britain to the negotiating table. Hugo Rifkind, meanwhile, explains why he won’t be shedding tears for Argentina’s President, Cristina Fernández de Kirchner, while The Economist highlights her failure to see the current crisis as an economic rather than a political opportunity.

- Rob de Wijk explores (pdf) the future options for NATO as it come to terms with changing geopolitics. Andrew J. Bacevich, meanwhile, cites a failure to sufficiently “reignite Europe’s martial spirit” and carve a global role for NATO in the 21^st Century as cause for the US to draw back engagement in the alliance. Let it return to its origins and “devolve into a European organization, directed by Europeans to serve European needs”, he argues.

- Elsewhere, the London Review of Books blog offers reaction to plans for the new US Embassy in London. Associated Press, meanwhile, has news of an internal State Department report criticising its media operations.

- Finally, VoxEU explores the emergence of “cloud computing” and its potential impact on our lifestyles, business innovation, and economic growth. Charles Leadbeater assesses the associated rise of “cloud culture” and the importance of guarding this new space from the overbearing influence of government and big business. Elsewhere, over at Brookings Mark Muro wonders if the rise of Amazon’s Kindle could be a “symbol of American decline”.