Germany says “nein”. That is the most important conclusion to be drawn from the debate on eurozone economic policy. What the German government is saying is that the eurozone must become a greater Germany. But this policy would have profoundly negative implications for the world economy.
Continue reading “Excessive virtue can be a vice for the world economy”. Please leave your comments in the box at the end of Martin Wolf’s column.
by Kenneth Rogoff
When in doubt, bail it out,” is the policy mantra 11 months after the September 2008 collapse of Lehman Brothers. With the global economy tentatively emerging from recession, and investors salivating over the remaining banks’ apparent return to profitability, some are beginning to ask: “Did we really need to suffer so much?”
By Glenn Hubbard
This week the United Nations reported that the recession has created a $4.8bn (£3bn, €3.4bn) shortfall in its 2009 aid programmes – more than half the $9.5bn it seeks. On the one hand, that is bad, because the UN does much valuable humanitarian work. On the other hand, financial constraints may force the UN to rethink the portion of its aid aimed at economic development. The UN continues to fund government and non-governmental organisations to run economic development projects. But that is not how to end poverty: only the local business sector does that.
Will no one rid me of this turbulent central banker? Gordon Brown, the UK’s prime minister, may be asking just that when he learns of yet another critical comment from the governor of the Bank of England. For Henry II, king of England in the 12th century, the troublemaker was Thomas Becket, his own choice as archbishop of Canterbury. For Mr Brown, it is Mervyn King, whom he has reappointed to an equally impregnable position. The parallel is clear: central bankers are cardinals in the cult of monetary stability.
Becket was murdered. Mr King will not suffer that fate. But a later king of England brought the church and his archbishops to heel. Could the Bank suffer a similar fate?
Indeed, one of the results of this crisis is to imperil central bank independence, not just in the UK. This is so for three reasons: at close to zero official interest rates, the boundary between monetary and fiscal policy erodes; governments are running huge fiscal deficits, particularly in the UK and the US, which threaten monetary stability; and, finally, those in charge wish to divert blame for the disaster.
The remainder of the article can be read here. Debate from our panel of economists appears below.
With one bound the banks are free, or so it seems. Already, the panic of the autumn of 2008 is fading. The period within which lessons can be learnt and changes made is closing. Yet without radical changes, another crisis is certain. It may not even be that long delayed.
In a recent speech, governor Elizabeth Duke of the Federal Reserve told an anecdote from just after the failure of Lehman Brothers last September. Ben Bernanke, chairman of the Federal Reserve, was asked: “Well, what if we don’t do anything?” To which he replied: “There will be no economy on Monday.” Instead, all institutions deemed systemically significant were saved, by shifting almost all of the risk on to taxpayers.
“Never again” might be too much to ask. But “not for a generation” is essential. Governments cannot afford an early repeat, financially, politically, perhaps morally: the lives of so many cannot soon be sacrificed to the whims of a foolish few.
The remainder of the article can be read here. Debate from our panel of economists appears below.
Martin Wolf and Jeffrey Sachs are among those to have joined the FT’s debate on aid. Visit the Arena blog to read their contributions.
By Adrian Wood
Ministers from developed and developing countries are gathered this week in Accra, Ghana’s capital, for the latest high-level forum on aid effectiveness. Learning from past successes and failures, reformers are pressing for more ownership by developing countries of aid relationships, more predictability of aid flows and less fragmentation of aid delivery. This agenda is important. If implemented, these reforms would give the taxpayers of rich countries better value for money and increase the benefits of aid to people in poor ones. Aid cannot on its own cause development, but if properly delivered and well used it can be enormously beneficial.
However, one can have too much of a good thing. Some developing countries, most of them in Africa, have had high levels of aid dependence – in excess of 10 per cent of gross domestic product, or half of government spending – for decades. It is questionable whether this has been helpful.
There are various reasons to be concerned about high aid dependence, but the most worrying is the undermining of good governance by distortion of political accountability. Governments that are highly dependent on aid pay too much attention to donors and too little to their citizens. This might not matter if the interests of citizens and donors were identical. But all donors have some non-developmental motives and, even when they seek to promote development, they have their own priorities. The result is confused and shifting policies, volatile aid and spending and, as a result, slower growth.
I therefore propose that donors collectively set an upper limit on the amount of aid they give to any developing country. This limit should be 50 per cent of the amount of tax revenue that the aid-receiving government raises from its own citizens, by non-coercive means and excluding revenue from oil and minerals.
This column continues here. Read comments from forum members below.
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