By Alan Beattie and Tom Braithwaite in Washington
The proposal for a levy on banks’ balance sheets and profits was high on the agenda of the G20 grouping of nations after recommendations in a feasibility report by the International Monetary Fund, released earlier this week. Read more
Here in DC waiting for the G20 central bank governors and finance ministers meeting to end. There have been no actual cries of pain and bodies thrown out of the room as yet, but I think it’s safe to say that agreement over the vexed issue of taxes on banks’ balance sheets and/or profits is not going to be resolved this weekend. The Canadians at least have some moral authority on their side when they point out that their banks didn’t fail during the crisis, so why should they adopt the preferred solution of those whose banks did?
One thing strikes me, though. As we all know, the baton of global governance has passed from the G7 to the G20, sign of the rising power of Asia and Latin America, etc, etc. But this subject – the one that is most vexing and dividing them at the moment, except perhaps exchange rates – is a pure G7 issue. Few other countries’ banking sectors are big and developed enough to try to steal business from London or New York or Frankfurt or Paris or Tokyo as a result of new bank taxes, and those that might conceivably be – Singapore, Switzerland – aren’t in the G20 either. The G20: not a governance panacea. Who’d a thought it?
China’s foreign exchange regulator is considering cutting short-term foreign debt quotas for some commercial banks, three sources familiar with the situation said on Friday, as it seeks to curb speculation over yuan appreciation. Read more
Who has the crisis hit hardest?
The 53m people (close to the population of the UK) who will remain in extreme poverty by 2015 who would not have had there not been a crisis.
And that wasn’t the grimmest of the World Bank-IMF Global Monitoring report.
“Although the recovery is underway the negative impact will be lasting,” said Delfin Go, World Bank lead economist, at a press conference.
Among the other impacts of the crisis:
- 1.2m additional children may die from 2009 to 2015.
- 100m people (three times the population of Canada) may remain without access to clean drinking water.
- 350,000 more children may not finish primary school.
In his press conference this morning, Gordon Brown had a nice line about the Conservatives. He said: ”Novices cannot be trusted with the recovery”. His abuse of statistics throughout the press conference simply screamed: “The prime minister cannot be trusted”.
Here are two examples. Read more
The Greek game with the markets is over. Greece has been forced to seek help from the rest of the eurozone and the International Monetary Fund. This is a long and familiar journey for any country with a funding crisis.
First, promises of budgetary probity are made, but investors, who have heard it all before, do not believe they are entirely credible. This happened to Greece at the start of the year, and the interest rate on Greek debt rose.
Second, the remaining investors willing to finance the country seek reassurance that an outside body will prevent a default. Greece has been in this limbo-land this spring as the eurozone squabbled over the terms of giving support to the country.
Finally, one event spooks the markets and investors flee. The endgame came for Greece happened yesterday when Eurostat, the European statistical agency, revised Greece’s 2009 deficit higher to 13.6 per cent of national income from 12.7 per cent. The new government had said that it had revealed all about the past mis-reporting of its public finances. Eurostat begged to differ.
So today, Greece had no option but to Read more
From Reuters 11.15am:
Greek Prime Minister George Papandreou asked for the activation of a euro zone and International Monetary Fund aid package on Friday aimed at pulling the debt-laden country out of a debt crisis.
This follows yesterday’s Greek bond market and credit default swap drama – oh, and Moody’s downgrade. Read more
The Bank of Japan is not going to let the government foist an explicit inflation target on it without a fight. In a fascinating speech given in New York yesterday BoJ governor Masaaki Shirakawa argues that inflation targets are one reason that central banks allowed asset price bubbles to develop. For good measure he suggests that the world learned the wrong lessons from Japan’s deflation – and implies that US monetary policy in the 2000s was too loose as a result.
Mr Shirakawa’s argument:
Second, some political, economic and social dynamics influenced central bankers, and it became difficult for them to conduct monetary policy based on factors other than the inflation rate. This mechanism is quite subtle. The logic that price stability is a precondition for economic stability and that the independence of the central bank is necessary for price stability, became gradually but firmly established in the 1990s. At the same time, the granting of independence naturally called for the strengthening of accountability. An easily identifiable benchmark was desired. The framework which best fulfilled such needs was inflation targeting. However, under an inflation targeting regime, the debate tends to center on the relationship between the target inflation rate and the actual or expected inflation rate.
As a result, the cost of justifying adjustments in monetary policy becomes quite high in the eyes of central bankers, when such adjustments are aimed to deal with imbalances which appear in forms other than price indices. Economists focused their attention to the linkage between the output gap and the inflation rate, while awareness toward financial imbalances was limited.
“Scrupulously staying out of politics” —that’s how my colleague Norma Cohen sums up the Bank of England’s behaviour. The schedule of events, as you can see, is bare. We expect it to remain this way till after the election.