Business blog

Although the conference dribbles on until Sunday morning, by Friday evening the tone has been set. So what is the verdict?

The mood is certainly better than last year, when the world was ending, but it is worse than at the beginning of last week. Alessandro Profumo of Unicredit acutely observed that Davos is likely to accentuate whatever mood you arrived in, rather as alcohol does, I guess. So those who arrived nervous about the economic prospects are leaving even more jittery. If you arrived feeling pessimistic, you will leave somewhere between suicidal and homicidal.

The market background has not helped. Anxiety about Greece has grown over the past three days. In the circumstances, it was strange to see both the Greek prime minister and his finance minister here. Maybe the subtext was to show that there can be no crisis if they are munching muesli in the mountains, but though some may have been reassured, more people asked who was at home minding the taverna.

I never thought I’d read myself saying this, but there are times when a man can tire of debates about macro-prudential flexing of Basel 2 capital requirements. It’s hard to believe, I know – maybe it’s the thin mountain air that does it.

Fortunately, there are other subjects of debate this year. Bill Clinton came to talk about Haiti, and many others have reflected on the difficulty of organising effective responses to a disaster, in a state which was fragile beforehand, and where much of the usual government infrastructure does not function. The normal difficulties of co-ordinating the efforts of different countries and agencies are compounded, leading Clinton to advocate a small group imposed from outside to force a common approach.

Paul Collier, author of “The Bottom Billion” led an interesting debate on fragile states, and which external interventions can strengthen them.

Does it make sense to try to impose democracy on malfunctioning countries, or can elections instead be the occasion for more conflict? He thinks the latter may often be the case and condemns the “fetishisation” of democracy in US foreign policy, in particular. It may be preferable to promote small steps to strengthen civil society. Others begged to differ, pointing to the growing numbers of well-functioning democracies, especially in the former Soviet Union, and even in Africa. The Zimbabweans here, a brave bunch led by Morgan Tsvangirai, point out that elections are not much use unless the winner actually takes power.

The African presence is much more noticeable this time. It is Davos custom for one, or perhaps a couple of countries, to be invited to show off their wares, at the final gala evening and elsewhere. This year it is South Africa’s turn, and the rainbow nation is well in evidence, its delegation led by President Zuma. I’m expecting a braai on Saturday night, overseen by the Springbok back row.

When a French president praises capitalism an Englishman is conditioned to smell un rat, indeed a whole nest of them. And Sarkozy did not disappoint, in his grand opening address at Davos.

He offered three interpretations of the causes of the crisis: global imbalances, short-termism, and bankers being tempted into speculation and away from real banking. Arguably they point to quite different solutions, but they were all grist to his moulin.

We need a new form of globalisation, he argued, where everyone follows the rules set by a range of new global gendarmes, overseeing financial regulation, exchange rates, trade and environmental standards, but all of them respecting the rights of nation states – a kind of global gaullism.

It is a beguiling vision, a kind of avatar capitalism, and delivered with fine phrases and only a modicum of finger-pointing. The beef came in a threat to put exchange rates at the top of the agenda when the French chair the G20 in 2011- delivered with just the hint of a smirk. I don’t know how the Chinese translate “New Bretton  Woods”, but I bet it sounds to them like yet another attempt to talk up the renminbi. Bush and Paulson failed to make much of an impression  with their rhetoric.  So far Obama has had other carp to steam. A Franco-Chinese spat in 2011 sounds an enticing prospect.

As you climb the mountain to Davos (the train via Landquart is my demotic route of choice – eschewing the expensive corporate Audis) you tend to think you know what the Forum’s financial talking points will be. This year the names Bernanke and Volcker will be on every lip – at least until the Senate vote on the former is known. If the answer is no, which seems less likely after the President’s weekend on the White House switchboard, there will be no other topic of conversation. The markets are likely to react badly, whoever is proposed to replace him, and whatever participants think of his pre-crisis record.

There is no simple yes/no answer to the Volcker question. His Rule remains opaque. In a discussion with a private equity panjandrum today we concluded very firmly that it would either not make much difference, or would change everything, taking the markets back to pre-Big Bang days, but we couldn’t decide which. And the two sentence summary put out in Washington last week doesn’t help a lot.

This discussion sent me back to the only text we have which might give a clue – the G30 report issued a year ago, which was little noticed at the time. The working group was chaired by Volcker, and included all his familiar themes. So for $49 (an odd price point) you can find out more. I suspect that anyone who carted a box of them up the hill this week could make a killing.

What he says there is that systemically important banks should be “restricted in undertaking proprietary activities that present particularly high risks and serious conflicts of interest”. Specifically, the “sponsorship and management of commingled private pools of capital” – hedge and PE funds to you and me – should “ordinarily be prohibited” and “large proprietary trading should be limited by strict capital and liquidity requirements”.

If this remains his view, some of the qualifications and sophistications seem to have got lost in translation as it transmogrified into a White House press release, and the difference between the second proposition and the argument that more capital is needed in banks trading books (on which Basel have put out some proposals already) is not necessarily so great. The first point, on hedge funds and private equity, applies specifically to funds where the bank’s money is managed with that of its clients, which would affect some investment banking activities, but perhaps not fundamentally.

These grey areas will be examined carefully in the sharp white light of the Davos morning, and over the Dole in the piano bars late at night.

But last year the whole conference was taken over, on day one, by the Societe Generale affair, kicking all else off the agenda. Perhaps, somewhere, a bank is e’en now preparing a nasty surprise for us, as we commingle for the first night in our overpriced hotels.