Great Britain or Little England?

ASKED to name the European country with the most turbulent future, many would pick Greece or Italy, both struggling with economic collapse. A few might finger France, which has yet to come to terms with the failure of its statist model. Hardly anybody would plump for Britain, which has muddled through the crisis moderately well.

Yet Britain’s place in the world is less certain than it has been for decades. In May 2014 its voters are likely to send to the European Parliament a posse from the UK Independence Party, which loathes Brussels. Then, in September, Scotland will vote on independence. In 2015 there will be a general election. And by the end of 2017—possibly earlier—there is due to be a referendum on Britain’s membership of the European Union.

Britain could emerge from all this smaller, more inward-looking and with less clout in the world (and, possibly, with its politics fractured). Or it could become more efficient, surer of its identity and its place in Europe and more outward-looking. Call them the Little England and Great Britain scenarios.

The incredible shrinking nation

In many ways Britain has a lot going for it right now. Whereas the euro zone’s economy is stagnant, Britain is emerging strongly from its slump. The government has used the crisis to trim the state. Continental Europeans are coming round to the long-held British view that the EU should be smaller, less bureaucratic and lighter on business. There is even talk of deepening the single market in services, a huge boon for Britain.

London continues to suck in talent, capital and business. Per person, Britain attracts nearly twice as much foreign direct investment as the rich-country average. That is because of the country’s history of openness to outsiders—a tradition that has mostly survived the economic crisis. Although the British are hostile to immigration, they excel at turning new arrivals into productive, integrated members of society. Britain is one of only two EU countries where fewer immigrants drop out of school than natives. (Its most worrying neighbourhoods are white, British and poor.)

But this could all fall apart in the next few years. The most straightforward way Britain could shrivel is through Scotland voting to leave the United Kingdom next September. At a stroke, the kingdom would become one-third smaller. Its influence in the world would be greatly reduced. A country that cannot hold itself together is scarcely in a position to lecture others on how to manage their affairs.

The referendum on the EU was promised last year by the prime minister, David Cameron, in a vain attempt to shut up the Little Englanders in the Tory party and ward off UKIP; Ed Miliband, Labour’s leader, may well follow suit. If Britain left the EU, it would lose its power to shape the bloc that takes half its exports. And, since Britain has in the past used that power for good, pushing the EU in an open, expansive, free-trading direction, its loss would be Europe’s too. To add to the carnage, the plebiscite could break up the Conservative Party—especially if Mr Cameron fails to get re-elected in 2015.

Britain could also become more isolated and insular simply by persisting with some unwise policies. As our special report this week shows, the government’s attempts to bear down on immigrants and visitors are harming the economy. Students, particularly from India, are heading to more welcoming (and sunnier) countries. Firms find it too hard to bring in even skilled workers, crimping the country’s ability to export. Mr Cameron has made some concessions: it is now a bit easier to get a British visa in China, and he backed down on a mad plan to demand large bonds from visitors from six emerging markets, lest they abscond. But Britain’s attitude to immigration is all wrong. It erects barriers by default and lowers them only when the disastrous consequences become obvious.

No Europe, no Scotland, split party—nice one, Dave

The shrinking of Britain is not preordained. In a more optimistic scenario, Britain sticks together and stays in Europe, where it fights for competitiveness and against unnecessary red tape. British pressure gradually cracks open services markets, both in the EU and elsewhere, creating a bonanza for the country’s lawyers and accountants. Britain becomes more tolerant of immigration, if not in love with it. It even stops bashing its biggest export industry, financial services.

The difference between the Little England and Great Britain scenarios is leadership. Mr Cameron should start by changing the thing over which he has most control: immigration policy. A more liberal regime would boost business, help balance the nation’s books and shrink the state, relative to the size of the economy. Immigrants, especially from eastern Europe, produce far more than they consume in public resources. Both Mr Cameron and Mr Miliband know this, but they are cowed by widespread hostility to the influx.

Europe is another issue where they should try to lead public opinion, not cravenly follow it. Mr Miliband’s policy is unknown. Mr Cameron has lurched alarmingly, sometimes saying Britain is committed to reforming the EU for the good of all, at other times threatening to leave if unspecified demands are not met. The first course is the astute one—both less likely to lead to a calamitous British exit and more likely to succeed in making the union more liberal.

On Scotland, Mr Cameron and Mr Miliband are on the side of Great Britain. But it is a decision for Scots. Although a Caledonian state could more or less pay its way to begin with, assuming that it was able to hold on to most of the North Sea oil- and gas-fields, that resource is drying up. An independent Scotland would be too small to absorb shocks, whether to oil prices or to its banks. And the separatists cannot say how the country could run its affairs while keeping the pound. For their own sakes, Scottish voters should reject their political snake-oil.

Britain once ran the world. Since the collapse of its empire, it has occasionally wanted to curl up and hide. It can now do neither of those things. Its brightest future is as an open, liberal, trading nation, engaged with the world. Politicians know that and sometimes say it: now they must fight for it, too.

Nazi Looted Art

BERLIN — The mysterious discovery of 1,400 artworks apparently collected by a German dealer under the Nazis continued to ripple disturbingly through Germany and the art world on Sunday, prompting reports of a deal with Hitler’s propaganda chief and calls for Germans to do more to return lost works to Jewish heirs.

The Bild newspaper reported on Sunday that the dealer — an art connoisseur named Hildebrand Gurlitt who supported artists banned by the Nazis but also dealt in stolen art with Hitler’s propaganda chief, Joseph Goebbels — arranged with Goebbels in 1940 to pay 4,000 Swiss francs for 200 pieces of “degenerate art,” the Nazi term to describe many modernist European works.

In southwestern Germany, meanwhile, the police said they had recovered 22 “valuable” artworks after a call from someone who gave an address just outside Stuttgart to go there and retrieve them.

Deidre Berger, head of the American Jewish Committee in Germany, called on the German government to move decisively to clear up ownership questions surrounding the art.

“It is a disgrace that laws are still in existence that justify injustice,” Ms. Berger said in a statement, referring to Nazi-era laws that leave the ownership status of some confiscated art unclear. She also noted the poignancy of having the art come to light as Jews gathered in Berlin this weekend to commemorate the 75th anniversary of Kristallnacht, the beginning of Hitler’s murderous persecution of the Jews.

Paris Match published what it said was a photograph of Hildebrand Gurlitt’s son, Cornelius, who reportedly kept the 1,400 works stashed for decades in a Munich apartment belonging to his family. A neighbor of Mr. Gurlitt’s in Salzburg, Austria, confirmed that the picture was that of the elderly man.

Der Spiegel magazine also reported receiving a typewritten and signed letter last week from Cornelius Gurlitt that listed the return address as the same apartment where the art was found. In the letter, the writer praised “your spiritually rich and nobly minded” magazine, but asked that the Gurlitt family name no longer be mentioned in it.

The large trove of art was discovered by authorities in February 2012, but became public knowledge only in recent days, stunning the art world and setting off a scramble to establish ownership. Authorities have publicly identified just a handful of the works.

In its report on the Gurlitt-Goebbels contract, Bild included a list of the 200 works that were to change hands, including ones by, among others, Picasso, Chagall and Gauguin.

After World War II, Hildebrand Gurlitt reported that most of his collection and all of his inventory had been destroyed in the 1945 bombing of Dresden. Twenty to 25 works listed as belonging to him were included in an exhibition that toured the United States in the mid-1950s. He died in a traffic accident in 1956.

The police in the southwestern state of Baden-Württemberg said on Sunday that they had received a call from a resident of Kornwestheim, about six miles north of Stuttgart, which sent officers to a house there on Saturday, where they recovered 22 artworks.

The police did not identify the caller, but Bild named the man as Nikolaus Frässle, the brother-in-law of Cornelius Gurlitt. The police said that the caller had said that news reports led him to fear for the safety of the works. The police took the works “to a safe place,” the statement said. Bild said Mr. Frässle was married to Cornelius Gurlitt’s sister, identified in official archives as Nicoline Benita Renate Gurlitt, who was born in Hamburg in 1935, three years after Cornelius. Bild said she had died but provided no further details.

The contract with Goebbels listed Hildebrand Gurlitt as living in Hamburg at the time. At some point during World War II, the family moved to or near Dresden, and fled farther south to Bavaria as the war was ending.

The elder Gurlitt was interrogated by the Allies, and his collection — listed as a few hundred works — was kept until 1950, when it was returned to him. The origins of those pieces — and of the far larger cache found in the Munich apartment of Cornelius Gurlitt — is unclear. German authorities have said that research is needed before they can publish a list, but museums and the heirs of collectors who were stripped of their works by the Nazis have urged swift action to return artworks to their rightful owners.

The Sunday edition of the Frankfurter Allgemeine newspaper, meanwhile, reported that a painting by Max Liebermann, one of the few of the 1,400 works to be publicly identified, was listed in Germany’s official databank for art seized by the Nazis. The piece, depicting two men riding horses on a beach, is sought by the descendants of David Friedmann, who had been a sugar refiner in Breslau, a former German city now known as Wroclaw in Poland.

Northern Ireland and the UK

IT IS almost a year since riots hit the streets of Belfast last December. They were caused by a motion to limit the number of days Britain's Union Jack flag flew on Belfast City Hall.Severe rioting lasted for two months and seemed to centre on the tricky question of why Northern Ireland, composed of six north-eastern counties in Ireland, is part of the United Kingdom. The Northern Irish have their own flags, culture and international sports teams, but do not live in an independent country. Why?

Ireland became part of the United Kingdom in 1801. But Ireland’s sectarian divisions, which had opened up during religious wars in the 17th century between Protestants and Catholics, were exacerbated by economic problems in the 19th century. Britain’s shift to free trade from the 1840s onwards mainly benefited the industrial north-east of Ulster, where Protestants made up a majority of the population. But the rest of the country, which was more reliant on agriculture, suffered badly from falling global food prices and the Irish Famine of 1845-50. The result was the rise of Irish nationalist movements, drawing much of their support from the Catholic south, which wanted a new Irish Parliament and to re-introduce protectionist measures. When William Gladstone, then Britain’s prime minister, proposed Irish legislative independence (called Home Rule) in 1885, the north-east exploded with sectarian rioting against his proposals. Ulster Protestants feared that “Home Rule means Rome Rule”, thinking they would lose the religious and economic freedoms they enjoyed as part of the United Kingdom by becoming a minority in a mainly Catholic Ireland. When the rest of Ireland gained independence as the “Irish Free State” in 1922, north-east Ulster did not want to join them. The British government was forced to partition the six most north-eastern counties of the new Irish state to form Northern Ireland, in fear that Protestant civil unrest in Ulster would otherwise turn into a civil war against the new state.

Northern Ireland has since witnessed severe sectarian violence between its Protestant majority and its Catholic minority, particularly during the "Troubles" of 1968-98. The Good Friday Agreement, signed in 1998 sought to end that. The Republic dropped its claim to the North and London declared the status of Northern Ireland would be determined by wishes of its people. The deal was broadly a success, but friction has continued sporadically since then. Yet most people in Northern Ireland still seem to want to remain part of the United Kingdom. A BBC poll earlier this year suggested that just 17% of people in Northern Ireland want to leave the United Kingdom. Economic reasons may partly explain this. The Northern Irish economy has outperformed the rest of Ireland since 2007 and living costs are lower than in the south. According to a study last year by CEBR, an economic consultancy, Northern Ireland enjoys a net subsidy of 29.4% of its GDP each year from Britain, resulting in a better welfare state than in the south. While health care in the north is free under the NHS, a trip to the doctor costs most people up to €75 ($100) south of the border. Northern Ireland's (selective) grammar schools are highly regarded, though some of its other schools are bad.

The greatest threat to Northern Ireland’s place in the United Kingdom now comes from outside Ireland rather than within it. If Scotland votes for independence in a referendum due to be held in September 2014, what would happen to Northern Ireland? Its historic ties are to Scotland more than to England or Wales, but Scottish nationalists have thus far shown no interest in inheriting the province from the United Kingdom. Scottish independence might yet make Northern Ireland’s constitutional status a touchy subject again.

Stagnation in Russia

STAGNATION has a particularly unpleasant resonance to the Russian ear, conjuring up memories of the ossified gerontocracy of the Brezhnev era. But with year-on-year GDP growth at just 1.2% last quarter and growth in investment and industrial production nearing zero, stagnation seems to be the most apt description of the Russian economy. Speaking at an investment forum last month, Alexei Ulyukayev, the economic-development minister, paraphrased an old joke: “Practically, there is no economic development,” he said, “but the economic-development minister is here in front of you!”

Throughout the 2000s, the Kremlin funnelled profits from oil and gas into the rest of the economy, largely through state-led investment projects and increases in wages and pensions. Consumption soared. Spare industrial capacity left over from the Soviet era meant that firms did not have to invest to produce more. They could simply unlock capacity that had been sitting unused.

That model is now outdated. According to the World Bank, the Russian economy “could be running very close to its maximum capacity”. Manufacturing is slowing and private consumption is also starting to cool, despite higher levels of household credit, unemployment of only around 5% and wage growth.

High prices for hydrocarbons will not solve this, because the economy has now “adapted” to expensive oil, says Natalia Akindinova of the Higher School of Economics. Future growth will require investment in new technology as well as gains in efficiency and labour productivity.

Yet state-driven investment is tapering off as big projects such as the preparations for the Winter Olympics in Sochi near completion. Private investment is flat. Relatively high wages mean that Russian firms struggle to compete on price.

The trouble is that Russian businesses cannot compete on quality either, since they are not investing in technology and equipment. This is related to the uncertainty of the business climate and the attractiveness of imports thanks to the strong rouble. According to a survey by the Gaidar Institute, 43% of businesses say they have kept investment levels static and another 33% have invested even less than they did last year.

The lack of opportunities has led to capital flight. This amounted to $48.2 billion in the first three quarters of the year, as firms took their savings abroad. An underdeveloped financial system offers no efficient way to channel surplus savings to the small and medium-sized businesses that need them.

The Kremlin seems to have decided to put those who rely on state munificence at the head of the queue. Regional governments were forced to raise salaries at the expense of their investment budgets. A country of 140m people, Russia has 20m state-sector workers and 40m pensioners. The Duma recently passed a law that calls for what is technically a temporary confiscation of $7.6 billion in individual pension savings, but which many fear may be used to plug the growing hole in the pay-as-you-go portion of the pension system.

Mr Putin has discussed using the National Welfare Fund to pay for infrastructure projects such as a high-speed railway between Moscow and Kazan, which may provide a short-term jolt for the stagnating economy. So far the central bank has resisted pressure from some inside government and business to lower interest rates. That is wise: the real problems in the economy are not monetary but structural. Any loosening of monetary policy, says Ms Akindinova, is “more likely to stimulate inflation than growth”.

Mr Putin has also made a show of his goal to move Russia up the World Bank’s annual “Doing Business” rankings. Early results are impressive: Russia advanced 19 slots, to 92nd place this year, largely by cutting red tape. Russia improved more in this year’s report than any of its BRICS peers, but it was also the only one to see GDP growth slow significantly. Further progress to reach Mr Putin’s stated goal of 20th place by 2018 will require profound reforms to the courts and law enforcement, which would meet resistance with powerful constituencies inside the ruling system.

Even without meaningful structural reform, Russia’s low government debt and high reserves mean that the state could buy itself a minimum level of social—and thus political—stability for some years to come. But it will be more vulnerable than ever to outside shocks. The oil price at which Russia can finance budgeted spending without borrowing has increased from just $34 a barrel in 2007 to above $100 for the years ahead.

More than anything, says Natalia Orlova of Alfa Bank, the hazard of stagnation is the “lost opportunity” to make the economy more robust. For the time being the price of oil remains high, but it could fall with increased shale-oil production in America and new oil provinces in Africa. A large downward lurch would leave the Kremlin with less freedom to act than it has now. The good news for Russia, says Ms Orlova, is that Mr Putin does not need to spend a lot of money to make the financial system more efficient or the state’s role in the economy less heavy-handed; but the bad news, she adds, is that he has to embrace “a new idea of how to structure the economy”.

French MP Stabbed

Bernard Reynes, an MP in the Bouches-de-Rhone region, was attacked in front of the town cemetery in Chateaurenard, of which he is mayor.

Two other politicians were also hurt before the attacker was detained.

Neither the UMP conservative opposition MP nor the others are believed to have life-threatening injuries.

Like other countries, France marked the 95th anniversary of the end of World War One on Monday with solemn commemorations of its war dead.

According to Le Figaro, the attacker in Chateaurenard was "mentally unbalanced". He is said to be aged about 30.

The two other people hurt in the attack, which took place at 11:10 (10:10 GMT), are an assistant mayor for education and a local councillor.

In another development, police in Paris made 70 arrests when protesters booed President Francois Hollande during an Armistice Day ceremony at the Tomb of the Unknown Soldier on the Champs-Elysees.

Far-right activists and anti-austerity demonstrators jeered the president as his motorcade travelled along the famous avenue to the Arc de Triomphe.

Cries of "Hollande resign" and "Hollande, we don't want your law", referring to a planned levy on heavy goods vehicles, could be heard.

Among the French flags being waved was a Breton flag. The western region of Brittany has been at the centre of "Red Bonnet" unrest over the levy in recent weeks.

Organisers of the protests in Brittany distanced themselves from the gathering on Monday, which had been promoted through social media, AFP notes.

An engineering marvel to link Europe and Asia through Istanbul

ABDUL MEJID I, the Ottoman’s 31st sultan, had a dream. Reigning between 1839 and 1861, the determinedly Western-leaning sultan envisaged the construction of a submerged tunnel under the Bosphorus Straits connecting Asia to Europe. A French architect duly came up with a blueprint. But a dearth of technology and cash stood in the way.

The sultan’s dream is now coming true, 150 years later. The world’s first sea tunnel linking two continents will be inaugurated on October 29th, marking the 90th anniversary of the founding of Ataturk’s Republic. Stretching over 76km (47 miles), and with 1.4km of it laid at the bottom of the sea, the $3 billion “Marmaray” rail system will “eventually link London to Beijing, creating unimagined global connections” boasts Mustafa Kara, mayor of Istanbul’s Uskudar district, where the tunnel comes out.

Sweden's education system falling behind

A NEW study from the Programme for International Student Assessment (PISA) will land on the desks of policymakers around the world next month. It will make sobering reading for political leaders in many countries. In Sweden Jan Bjorklund, the education minister, is prepared for poor marks too.

The triennial study by the OECD, a think-tank, measures the reading, maths and science proficiency of 15-year-olds. In the first study, in 2000, Swedish pupils performed a lot better than those in most other countries. But even as the country’s schools inspired imitators elsewhere, their results have deteriorated. In 2009 Sweden’s overall score fell below the OECD average. Other rankings show a similar trend.