October 11, 2007
Soros and sovereign wealth funds
To Britons of a certain generation - my generation - the name George Soros will always carry a certain mystique. In the US he may be regarded primarily as a billionaire with liberal views and in Eastern Europe he is associated with the Open Society institutes. But in Britain he will always be thought of above all as "the man who broke the Bank of England". Soros’s successful speculation against the pound in 1992 is widely believed to have caused "Black Wednesday", when Britain was forced out of the European exchange rate mechanism. The whole experience was a memorable crash course for the British public (and indeed the British government) in the power of global financial markets.
Curiously, perhaps, very little odium attached to Soros himself, after this unfortunate incident. He might have humiliated the government and forced a devaluation. But nobody seems to hold it against him. On the contrary, he is widely admired in Britain and is regarded as a something of a guru. I am as vulnerable to the Soros mystique as the next man, so I was intriuged to meet him for the first time at a small(ish) dinner for the launch of the European Council on Foreign Relations last week.
The ECFR is Soros’s latest philanthropic measure. As the name implies, it is loosely modelled on the Council on Foreign Relations in the US. But as well as doing research, the ECFR also plans to act as an advocacy group. The general idea is to encourage a stronger European voice in world affairs, or as the council’s statement of principles puts it "to develop a more coherent and vigorous foreign policy, informed by our shared values, dedicated to the pursuit of our common European interests, and sustained by European power." The council is opening offices all over Europe and has already signed up 50 founding members, who are a bit of a roll call of the Euro "great and good" - Joshcka Fischer, Dominique Strauss-Kahn, Giuliano Amato and so on.
Most of the conversation at the ECFR dinner centred around issues such as can Europe really speak with one voice; what should we do about Iran; should Europe aspire to be a counter-weight to the US; is there a politer way of putting that?
I am reasonably familiar with these debates, so the bit that really made me sit up was when Soros began to talk about financial markets - and in particular the impact of "sovereign wealth funds". These are the huge investment funds controlled by national governments like China or Russia. According to Soros, they are already bigger players on global financial markets than hedge funds and their impact is only likely to increase.
Western governments seem to be at a bit of loss about what to do. The Americans have been worried about these funds for some time, and are watching the new Chinese sovereign fund warily. But the European debate is lagging behind a bit. (Here is an excellent briefing note from the Centre for European Reform, both on the history of the funds and on what actions the EU might take.) Political and security people at the Soros dinner seemed to think it inevitable that European governments will take action to make it harder for potentially hostile governments to buy up "strategic" bits of the economy. Soros himself - as befits a guru and a speculator - did not venture an opinion about the correct course of action.
Isn’t all of this just a hooey to stop the emerging economies acquiring strategic assets in the West whilst ensuring that the Westerners have unfettered access to the resources and markets of the non-West?
After all, aren’t ExxonMobil, BP and TOTAL as much national champions in their countries as China National Offshore Oil Co which was denied the purchase of UNOCAL?
Altenatively, would CNOOC (or Dubai Port World) have been allowed to buy strategic American assets if they had been held on their stock markets rather than by their respective governments?
P
Posted by: Pacifist | October 11th, 2007 at 2:54 pm | Report this commentBlack Wednesday was another lesson for the world of the huge damage that unregulated global financial markets can do to countries, not only in Europe. The UK Treasury spent £27bn of reserves in the period around BW defending the pound, but this steward calculated it lost ‘only’ £3bn - judging by the papers the FT obtained following its ‘Freedom of Information’ request this claim is ridiculous, a result of spinning going into overdrive. Unfortunately the Treasury were allowed to come to the gaming table with as much as £27bn.
Leaving aside the irresponsible stewardship of the Treasury, the International Monetary Fund has overall responsibility for the BW episode. Rightly the future of this UN watchdog (IMF), which was reported to lack “even-handedness”, is uncertain.
On the ECFR specifically, we had an example yesterday of Europe not speaking with one voice. The French president met with the Russian president to discuss many foreign affairs matters including Iran. However national interest appeared to intrude - per ‘The Times’:
Posted by: Slightly Optimistic | October 11th, 2007 at 5:18 pm | Report this commentSoros is an asset to the global community - not just the financial world. And he is absolutely right to launch a dialogue about the potential impact of sovereign wealth funds. He is also the perfect person with the political, financial and historic gravitas, not to mention the personal conviction… to do it right. He is, after all, a true European, and Europe needs his leadership now more than ever.
Posted by: Toni Moss | October 11th, 2007 at 6:58 pm | Report this commentI was surprised reading this http://www.economist.com/blogs/certainideasofeurope/2007/10/a_new_thinktank_makes_its_pitc.cfm
in the economist on the launch date of the ECFR - the phrase “What unites our group is a desire to … force [Europe] to face up to its global responsibilities” got me frowning.
While as an incurable Atlanticist I am very pro-European (voted pro-constitution) I was surprised by this declaration of intent. There’s arrogance in the idea that one can force the EU to assume a stronger global role at this point in time and I believe it is that kind of arrogance that has set the stage for the no votes in France and the Netherlands and for euroscepticism in the UK. For a large part the anti-EU movement is populist and reactionary; The sentiment of being overruled by an intellectual elite who disregard popular opinion is strong, is alienating many from the idea of further integration and is playing into the cards of populist parties. Trying to push at things again as if the referenda never took place is squeezing the pro-European center; at the time of the Dutch referendum, some 80% of MPs endorsed the constitution which was defeated with only 39% in favour. Populist parties grew to hold some 25% of seats since, heavily banking on people’s disgust with the arrogance of power. In nay case, if clear majorities in a democracy oppose something it undermines democracy and strengthens populism to implement it anyway.
Practically, a European common foreign policy cannot be defined beyond vague qualifications of morality and undefined economic policies. Even a relatively slight shift in the electorate such as during the last elections in Germany where the socialists remained in the government can lead to a very different German foreign policy where the focus on Moscow was abandoned for an Atlanticist orientation. Even when in France a president from the same party is elected, the result can be a very different policy. Apparently the shift is strongly connected to the orientation of the new leader (Merkel for Schroeder, Sarkozy for Chirac) than to their party political platform. Hence the only real way of forging a common European policy seems to be the union of political power in the center, against the will of quite a few constituents.
People tend to focus on the negative in European politics, legislation that has lead to the best product and food safety guidelines in the world is easily dismissed by populist `bananas must be “free of abnormal curvature”‘ joke. No matter how beneficial a common European policy could be, pushing too hard for it can very easily undo decades of patient work building up consensus.
Soros is investing in moveon.org which in my view uses populist tactics to tilt the democratic platform away from the mainstream; it could cost them the election if conservative America can use the term ‘liberal’ again as a curse. It’s all very well intentioned but tends to have the opposite effect.
Posted by: Felix Drost | October 12th, 2007 at 12:06 am | Report this commentI don’t ‘focus’ on the events as much as the cause and effect. My father and my grandfather both fought in the world wars of the 20th century and I voted in the referendum to stay in. I was brought in Europe and have traded within it for many years. What concerns those of us that are referred to as ‘Euro skeptics’ is the bureaucracy and waste of Brussels! I did not sign up for a common currency, and thank god Britain didn’t join. Maybe in two to three decades it will work, but the memories of sovereign states and their peoples are long and yes it will work one day, but it cannot be rushed.
Posted by: BeeCee | October 13th, 2007 at 9:41 pm | Report this commentWe have Governmens democratically elected (not so the Monarchs of course) so when the Government we have elected and our Representatives (yes, representatives elected by us) vote we have to respect their vote.
After all, remember that when the US was formed they didn´t take into account the votes of 80% of the population:
WOMEN (51%)couldn´t vote in the US in 1776…while they can vote in the EUROPEAN UNION of 2007.
BLACKS (20% of the American population by then) were slaves when the US was founded….they couldn´t vote.
NATIVE AMERICANS (10% of the population by then) were in process of extermination…they couldn´t vote.
So America was created by an small minority of the population
In fact, the European Construction is the MOST DEMOCRATIC natinal building process in World History.
Posted by: enrique | October 15th, 2007 at 3:59 am | Report this comment