I am hugely reassured to hear that, in this era of global crisis, British diplomats are focusing on the really important issues:

An agreement has been signed to bring two giant pandas to Edinburgh Zoo, the first to live in the UK for 17 years.

The deal was signed at Lancaster House in London by the Royal Zoological Society of Scotland and the Chinese Wildlife Conservation Association.

It was witnessed by Deputy Prime Minister Nick Clegg and Vice Premier of China Li Keqiang.

Tian Tian and Yangguang, a breeding pair born in 2003, will be under the custodianship of the zoo society.

The project represents the culmination of five years of political and diplomatic negotiation at the highest level and it is anticipated the giant pandas will arrive in their new home as soon as a date is agreed.

The Chinese government is said to charge around $2m a year to rent a pair of pandas. Apparently though, “the Giant Panda Project will be funded through sponsorship, offering unparalleled opportunities in terms of international corporate, commercial and diplomatic relationships between China and the UK.”

Happy days.

The crux of the matter is in who bears the risk of currency fluctuations. The FCO spends most of its money overseas, so its costs rise when the pound is weak, fall when it is strong.

Historically, the Treasury has evened this out through the Overseas Price Mechanism. The FCO was given money in sterling and, if it found that this was worth more than expected overseas, it gave money back to the Chancellor. If  the settlement was worth less than expected, it was given sufficient extra funds to enable planned activity.

In the mid 2000s, the tide was in the Treasury’s favour, with £5-14 million a year being returned by the FCO, but in 2007/08, the pound began to weaken and HMT had to pay the FCO £1.5 million or so.

The Treasury didn’t like this, so it abolished the price mechanism and left the FCO to deal with an increasingly feeble pound. The result was carnage. The FCO lost £100m in 2008/09 and the same again in 2009/10.

According to the Foreign Affairs Select Committee:

The FCO has lost around 13% of the purchasing power of its core 2009–10 budget as a consequence of the fall of Sterling. We concur with the National Audit Office, that the withdrawal of the Overseas Price Mechanism and the subsequent fall of Sterling have had “a major impact on the FCO’s  business worldwide”.

We note that the budgetary transfers which the  FCO has made to try to help cope with the hit have absorbed all of the Department’s contingency reserve at the Treasury in both 2008–09 and 2009–10, and we conclude that this represents an unacceptable risk to the FCO’s ability to perform its functions.

So today’s announcement that currency risk is being passed back to the Treasury is a big coup, no? Certainly, the new ‘Foreign Currency Mechanism’ will give greater certainty to FCO staff, but the re-introduction comes at a time that is highly disadvantageous to our diplomats.

Look at this graph showing the pound’s value against a basket of currencies. Currency risk was dumped on the FCO just as the pound was about to begin a long, hard fall. It’s now been taken back by HMT at what looks like the currency’s trough.

Worst case for HMT, the pound’ll bump along the bottom. Best case, it’ll strengthen and they can demand a big fat cheque from William Hague. It’s the first rule of markets – sell high, buy low – especially when you want to turn the screw on your next-door neighbours.

In our report, we observe that while foreign policy and global issues barely got a mention during the general election campaign, it’s a racing certainty that the new coalition won’t have the luxury of ignoring them in government. As we’ve argued before, globalization is in the midst of what we term a ‘long crisis’. As an open economy and society, Britain is especially exposed. The government’s international workload is about to increase, perhaps dramatically. And given the need to reduce the deficit, it’s going to find itself stretched to the limit.

All this means, we think, that the government needs to work to upgrade and reform all aspects of its international programme. For one thing, that means making clear strategic choices – specifically, we think, seeing Britain’s international agenda through three overlapping lenses:

- First, national security. For us, this is about the direct threats to Britain, within a relatively short timescale – 5-10 years or so. It should not be about the longer-term or non-security risks like climate, scarcity or global economic risks. While we very much welcome the coalition’s creation of a National Security Council and appointment of the UK’s first National Security Adviser, we argue that if it tries to cover the whole of foreign policy, then we’ll be back to a storyline we know all too well: the urgent crowds out the essential, and preventive action gives way to fire-fighting.

- Second, global risks and the global system. We have to look at these issues separately from national security, we argue. For one thing, the amount of risk that’s tolerable in each is totally different. Any failure on the national security front can be disastrous. On global system issues, on the other hand, you have to take risks if you want to get anywhere – to be a venture capitalist, not a bank manager.

- Finally, fragile states. National security is fine as a lens when you’re looking at countries where the UK actually has troops deployed, like Afghanistan. But it’s the wrong lens for looking at places like Nigeria – where the challenge has much more to do with taking a long-term, political economy based approach to questions of governance, resilience and ‘development diplomacy’.

What does all this mean in practice?

A dramatic overhaul of the Foreign Office’s London HQ, for one thing – turning it into something that looks a lot more like the Cabinet Office (with at least half of senior policy posts filled from other government departments, and a lot more recruitment from outside government too), so that it can finally be the department for global issues that it should have become years ago.

A much tighter focus on fragile states at DFID, too – which we argue should close down its offices in ‘good-performing’ countries like Tanzania in favour of putting its aid through partnerships with other donors, or the multilateral system, and focusing its staff much more heavily on the really difficult cases. It’s staff, not cash, that’s DFID’s scarcest resource, so that’s what it needs to prioritise. (Did you know that DFID has only 2,586 people – to the Foreign Office’s 14,549?)

Plus a bunch more recommendations besides – including more ambassadors for issues (like we already have on climate and arms control), a tighter focus on the alliances and networks that could really magnify UK influence (especially the EU, G20 and NATO), a much bigger role for Parliament in foreign policy, and – perhaps the farthest reaching change of all – allocating budgets to strategies rather than departments, on the basis of first-principles reviews of UK objectives, capabilities and performance on the 3 areas of national security, global systems and fragile states.

Read the whole thing – all comments, as ever, very welcome. We’re also doing an event on the report at Chatham House on 9 June, and will be running the concluding session of the Institute’s two day conference on Britain’s future foreign policy role on 13 and 14 July.

The new Foreign Secretary arrives for work…

UK Trade and Investment’s Mike Gavin has been caught on camera by Heydon Prowse dishing out the following advice to a company offering ‘security’ services:

“You can also use that embassy to present your company. So you can invite people to a reception or a presentation. Again, you pay for the room but it’s all arranged for you,” he said.

“There is a perception that you’re endorsed by the government because it’s a government building. Of course it’s crap, we don’t.

“All we do is due diligence to check that you’re not going to appear in theTelegraph on Sunday embarrassing the hell out of the British Government.”

He explained that in countries such as Nigeria using the embassy was the “easiest way to get everybody together”.

Prowse asked: “Because of the security situation?”

Mr Gavin replied: “No, because in places like Nigeria they love to show off that they have got this card from the British Embassy, it’s got Ambassador invites, British Government logo and they say ‘Look I’m going to a garden party’.

“It’s all bollocks, but everybody in Nigeria wants one because they want to be seen getting out of the car, going into the High Commissioner’s office. It’s all perception and that’s part of what you don’t have at the moment.”

Today, the Telegraph plumbs new depths in its vendetta against the FCO over Popegate.

Yesterday, after quoting an anonymous threat from the Vatican to cancel the Papal visit, it was forced to admit that official sources had dismissed the memo as having “absolutely” no impact on the Pope’s plans.

Instead of backing off (having made the most of what was, even without the garnish, a good story), the paper has now doubled down in a truly despicable article that:

• Outs the author of the memo,  23 year-old Steven Mulvain, as gay, based on his Facebook status. (I wonder how the paper got that information? Surely, Mulvain didn’t have a completely open profile.)
• Names Mulvain’s boss – Anjoum Noorani - printing his photo to ensure that readers are in no doubt that Noorani is (gasp) a member of an ethnic minority.
• Hassles Noorani’s mother (!) in Windsor, as if she is in any way relevant to the story.

Of course, the paper doesn’t come straight out and allege that the whole affair is a gay/Muslim plot, though that is clearly the implication. Instead, it complains that the FCO failed to put a Catholic in charge of the visit, rustling up another anonymous quote from the Vatican:

The most striking thing about the Foreign Office team has been how ineffectual they are. They have been disengaged and, frankly, clueless.

I have never had the impression that any members of the team were informed or even sensitive to the Catholic Church or Catholicism generally.

Gutter journalism.

Update: Damian Thompson throws some more paraffin on the fire:

The Catholic Church in this country is (a) not wildly enthusiastic about Benedict XVI, and (b) paralysed by political correctness. The four-strong FO team was led by a member of an ethnic minority and included a gay man. There’s nothing wrong with that: they could have done a fantastic job, particularly if the team had included a practising Catholic (perhaps from an ethnic community – they’re the ones who go to Mass these days). But they didn’t.

And there’s no evidence that any danger signals were spotted by Eccleston Square, which has delegated the papal visit organisation to the Left-wing Mgr Andrew Summersgill, a Magic Circle hardliner some of whose colleagues are heavily into rainbow coalition-style politicking. (If Summersgill had been told that the FO team included an Asian and a gay guy, I can imagine him asking why the transgendered community had been left out.)

The Foreign Office’s sick attack on the Pope: what did you expect?… My reaction is to say to the Bishops of England and Wales:

NOW do you finally understand what sort of snide, cheap and ignorant prejudice has flourished under this Government and its civil servants – wall-to-wall secularists for whom the Roman Catholic Church is at best an antiquated irrelevance and at worst a sick joke? [...]

Oh, sure, the Foreign Office says: “This is clearly a foolish document that does not in any way reflect UK Government or Foreign Office policy or views” – and, of course, most of these proposals wouldn’t have seen the light of day.

But reflect the attitudes of Brown’s government and its politically correct employees is precisely what the document does.

Tim Collard – former diplomat and, apparently, “an active member of the Labour Party”:

Predictably, the usual suspects have blown it up into an international incident. I regret to say that our blogmeister Damian Thompson has made himself look a bit of a Charlie, heading his posting “The Foreign Office’s sick attack on the Pope: what did you expect?”

No, the FCO is not institutionally secularist, Satanist or whatever: it just contains a lot of people who like taking the mickey. Chuck it, Thompson!

Perhaps, we should ask why British diplomats are having to spend their time prepping for the visit of a head of state who (i) leads a religion rather than a state (diplomatic relations are with the Holy See, not Vatican City); (ii) exerts a disproportionate influence on international organisations, especially whenever abortion, contraception or HIV/AIDS is on the agenda (denouncing the latter as a ‘true pathology of the spirit” at the General Assembly Special Session on AIDS in 2001, opposing emergency contraception for women raped in Kosovo).

According to Archbishop Jean-Louis Tauran, the principal agent of Papal diplomacy is the Pope himself, part of whose global role is to “contest systems or ideas that corrode the dignity of the person.” In practice, this means using international fora to oppose:

Delegations from certain Western countries who wish… to impose models of life that were actually the result of the propaganda of certain minorities within their societies… It will always be the duty of the Holy See to prevent the lowering of personal and social moral standards and to contribute to raising them.

No other religion enjoys the diplomatic privileges accorded to the Holy See=, with its status is yet another example of how Europe’s historical dominance skews the international system.

Maybe some brave soul in the FCO should set to work on a memo suggesting that it is time to start treating the Catholic Church like any other religious organisation…