Another weird day has passed. But all days at Davos are weird. One never knows what is going on, except for the fact that, wherever one is, one would be far better off somewhere else.
The highlight of yesterday evening was the opening address of President Nicolas Sarkozy of France. The speech is so classically French as to be a caricature of itself: bombastic, high-flown and verbose, it addresses a vast range of contemporary challenges, around the grand theme of moralising and containing capitalism. Yet, I have to admit, there is much in it with which I find myself in agreement.
“Purely financial capitalism is a distortion, and we have seen the risks it involves for the world economy. But anti-capitalism is a dead end that is even worse.”
Again, “In just one year, we have a genuine revolution in mentalities. For the first time in history, the heads of state and government of the world’s 20 largest economic powers decided together on the measure that must be taken to combat a world crisis. They committed themselves, together, to adopting common rules that will radically change the way the world economy operates … Now, however, they must be implemented”.
Mr Sarkozy made really good assault on everybody’s favourite target – the bankers: “That those who create jobs and wealth may earn a lot of money is not shocking. But that those who contribute to destroying jobs and wealth also earn a lot of money is morally indefensible.” When the French and the US governments agree on something like this, we know we are in a new world.
Fortunately, Mr Sarkozy also said plenty of things I can still happily disagree with. He believes, for example, that it is easy to distinguish between lending to entrepreneurs and speculating on markets. But a loan is itself a speculation and a speculation may indirectly finance an entrepreneur. Life is not that simple.
Again, as I have heard repeatedly over the past 39 years, France is calling for a new Bretton Woods – a world of fixed exchange rates: “We cannot put finance and the economy back in order if we allow the disorder of currencies to exist. Exchange rate instability and the under-valuation of certain currencies militate against fair trade and honest competition.”
Ironically, the French president is complaining about what some economists have dubbed “Bretton Woods II”. Indeed, the principal source of disorder has been the Chinese fixed exchange rate, not the floating rates. France wants it both ways – fixed rates, but also ones that may be adjusted in line with “employment and purchasing power”.
Well, if that is what France wants, I know where it needs to start – inside the eurozone where real misalignments are now massive. There can be no more powerful example of the conflict between the French desire for fixity of currency values, now total inside the eurozone, and the French desire for control over real exchange rates, now impossible inside the zone. But nothing can be done about it. It is about time the Europeans really started worrying about internal imbalances and distortions of internal competitiveness.
Even so, he is right on the really big issue. The disorder created by China’s decision to peg its exchange rate to the dollar is considerable. The Chinese simply refuse to recognise the problem or their responsibilities. When pushed, they argue that they are still a developing country with a gross domestic product per head that is about the hundredth, if countries are ranked by real incomes per head. But they also constantly remind us that China is a very big country. A very big country full of people with modest incomes has an enormous impact on the world. China must recognise and respond to this reality – and soon. If not, the open world economy may not survive.
