Sir Howard Davies

Sir Howard Davies is director of The London School of Economics and Political Science

Sir Howard Davies

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. 

Sir Howard Davies

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. 

Sir Howard Davies

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. 

Sir Howard Davies

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.