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What is it about political leaders installed by America in third world countries? It seems they never want to leave office. It started in Vietnam in the 1960s, where the CIA ruthlessly removed Vietnamese leaders who at first were useful to the US occupation, but refused to step down when they were not.
President Hamid Karzai of Afghanistan was a darling of Washington after the attacks of September 11 2001. Now he is a hate figure in the US capital, alleged to have allowed rigged elections that have plunged the country into an ethnic crisis that pitches Pashtuns against Tajiks. Continue reading »
Investors have already navigated a global financial crisis, experimental monetary policies and a frustratingly weak western recovery.
Now they face an additional challenge: how to deal with politically motivated sanctions on Russia that are both broadening (targeting whole sectors rather than individuals and particular firms), and morphing (from being imposed by the west on Russia to involving counter sanctions). Continue reading »
What the world saw last Thursday evening was an American president torn between personal preferences and cold reality. The result is a US that is once more moving towards greater military involvement in Iraq – but only reluctantly and incrementally.
Describing himself as someone who ran for office “in part to end our war in Iraq and welcome our troops home”, Barack Obama announced a policy of dropping supplies to save thousands of members of the Iraqi Yazidi religious minority – and authorised but did not order air strikes on advancing insurgents from the Islamic State of Iraq and the Levant (known as Isis). Continue reading »
The latest data release of the Italian second quarter gross domestic product shows that the economy shrank 0.2 per cent, confirming that the country is back in recession. This is worrying in several ways. It brings GDP below the 2000 level, making Italy the worst performer since the start of the European monetary union. The slowdown in exports, the only component of GDP that had grown in the recent past, shows the underlying fragility of the country’s economy and its lack of competitiveness. The negative result, together with the very low level of inflation, makes debt sustainability more difficult to achieve, thus raising new concerns in financial markets.
The most worrying aspect, however, is that the recent number proves once again how wrong economic forecasts have been about the Italian economy. At the end of last year, the consensus of Italian and international institutions projected the 2014 GDP growth at about 0.6 per cent. The Italian government courageously aimed at 0.8 per cent. These forecasts were revised down earlier this year – and lately by the International Monetary Fund – to 0.3 per cent. The last release will probably induce a further correction towards zero. Continue reading »
Faced with a choice between solving a problem and winning an issue, Barack Obama invariably opts for the former. The US president is a pragmatist who sees compromise not as a painful necessity but as a virtue. Unfortunately, he has seldom found any partners for peace on Capitol Hill. House Republicans do not lose their seats when they fail to address a challenge such as the budget or immigration. They lose them when they cast unpopular votes.
In his first term, this conflict between presidential temperament and legislative incentive was frustrating to Mr Obama’s liberal base. As the president continued to give but not receive, they came to regard him as timid and weak. Continue reading »
Disillusionment with Washington has rarely run higher. Congress is unable to act even in areas where there is widespread agreement that new measures are necessary, such as immigration, infrastructure and business tax reform. Barack Obama’s administration is condemned as ineffectual with respect to both domestic and foreign policy.
There was once a flood of extraordinarily talented people eager to accept political appointments and go into government; it has shrunk to a trickle. Crucial positions remain unfilled for months or years. Continue reading »
Barack Obama’s decision to bomb the forces of Isis – in order to blunt the danger of a genocidal mass killing of tens of thousands of Christians and Yazidis seeking shelter in the mountains of northern Iraq without food and water – reflects a much-needed change of policy, but could be too little too late.
Never before in modern Islamic history has a group such as Isis so mercilessly set out to not only undo long-standing frontiers in Iraq and Syria, but also to carry out mass killings of Muslims and non-Muslims (Isis do not consider Shia as Muslims and has been executing them at will). Continue reading »
Last week’s global sell-off, the worst since January, had all the features that make such market events both frightening and exciting for investors. It serves as a reminder to policy makers of the latent threats to financial stability, and the implication this carries for growth and jobs. It also provides insights for the more bumpy road that lies ahead.
The sell-off was sharp, sudden and generalised. In just a few days, the downturn erased the year-to-date gains for major US equity indices, with virtually every segment – both large and small – experiencing significant losses. To add insult to injury, conventional correlations among asset classes broke down as the spillover of the equity market correction spread beyond corporate credit. Commodities also sold off, as did the safest of all havens, German and US government bonds. As such, well-diversified asset allocations did little to mitigate portfolio risks. Continue reading »
As the Federal Reserve starts tightening US monetary conditions, a key issue is how capital markets will respond overseas, especially in the eurozone. Given the relative size of the US financial system, the rise in short and long-term interest rates on dollar assets can be expected to translate directly elsewhere. Higher yields in the US will attract capital from other parts of the world, thus raising rates there too. The overall impact will nevertheless depend on the reaction of local policy authorities and on the portfolio preferences of global investors.
A year ago, when the Fed hinted at tapering, the reaction differed across regions. In several emerging markets rates started rising, reflecting a reassessment of the risk profile of several larger economies, such as Turkey, Brazil or Russia, leading to massive capital outflows towards safe havens. The eurozone, on the contrary, was not affected much, benefiting itself from capital inflows coming in from emerging markets. Global investors had reassessed their view of the eurozone economy, in light of the interest rate convergence between member countries produced by the European Central Bank’s “whatever it takes” announcement, but also of the concrete progress realised in the implementation of banking union and the prospects for a strengthening economic recovery. As the tail risks in the euro seemed to fade away, international investors did not want to be overweight in one currency only, and a large part of the outflow from emerging markets landed in the eurozone, strengthening the euro exchange rate. Continue reading »
Outrage about inequality is big these days, and for good reason. Despite this justified attention, the discussion has been much too polite and limited. We should care about injustice, and not all forms of inequality are unjust per se – some are far more unfair than others. We still should do something about insecurity, the now largely forgotten theme of the 2008 US presidential campaign. That remains the real threat to poor Americans from inequality, not the (sometimes vast) wealth of some other people.
And we should care about inclusion, which means recognising that many individuals are still excluded from economic security – let alone wealth – because of race, region, ethnicity or gender. In short, noticing who is actually hurt, and how, is left out of the current inequality furore. The consistent omission of insecurity and inclusion is a moral failure, and one that results in policy mistakes. We obsess about the aggregate magnitude of economic disparities. But we cannot understand the risks of inequality, or identify the right policy response, unless we pay as much attention to the identity of those excluded from economic opportunity. Continue reading »