Monthly Archives: February 2012

Two reminders of the age old debate over the merits of equities versus bonds emerged almost simultaneously in recent days. First, Warren Buffett argued in his latest annual letter that shares are not only a better investment than fixed income instruments but are also superior to gold, the darling of many seasoned investors.

Just as that was being digested, the Financial Times reported that the Ford Motor Company had decided to put 80 per cent of its pension plan assets into bonds, up from 45 per cent previously.

While Ford makes great cars, I believe they got this decision wrong. In doing so, they fell prey to the classic mistake that many investors make: basing decisions on recent past performance rather than a more balanced view of long-term history and a clear vision of the future. Although it’s easy to see why some investors might be tempted to go down Ford’s path, I’m betting that Mr Buffett will be proved correct. 

Anyone with a political memory is thinking about Sarajevo these days as Bashar al-Assad’s artillery shells blast into Homs and families huddle in dark and unheated basements trying to stay alive from the shuddering assault that edges ever closer. As the bombardment goes into its fourth week, those watching the clips from mobile phone cameras feel the same emotion they felt watching the siege of Sarajevo. It is the feeling of shame.

You know it is shame when “the international community’ now talks, as it did during the siege of Sarajevo, not of stopping the carnage, but of offering humanitarian assistance. The very word ‘humanitarian’ is shameful.

President Assad wants to retain fantasies of himself as a modernising fellow held back by reactionary elements but determined, in his own way and his own time, to lead his country forward. He must be stripped of these pretensions and the westernising Syrian middle class that jets between Damascus, Paris and London, must be disabused of such notions too. He and his hangers on need to understand that they have earned the ancient term of obloquy, hostis humani generi, enemies of the human race. 

Economic cheerleaders on Wall Street and in the White House are taking heart. The US has had three straight months of faster job growth. The number of Americans each week filing new claims for unemployment benefits is down by more than 50,000 since early January. Corporate profits are healthy. The S&P 500 on Friday closed at a post-financial crisis high. Has the American recovery finally entered the sweet virtuous cycle in which more spending generates more jobs, more jobs make consumers more confident, and the confidence creates more spending? On the surface it would appear so.

But the biggest continuing problem for most Americans is their homes. Purchases of new homes are down 77 per cent from their 2005 peak. They dropped another 0.9 per cent in January. Home sales overall are still dropping, and prices are still falling – despite already being down by a third from their 2006 peak.

Young couples are no longer buying homes; they’re renting because they’re not confident they can get or hold jobs that will reliably allow them to pay a mortgage. Middle-aged couples are underwater or unable to sell their homes at prices that allow them to recover their initial investments. They can’t relocate to find employment. They can’t retire. The negative wealth effect of home values, combined with declining wages, makes it highly unlikely the US will enjoy a robust recovery any time soon. 

Last year thirteen eurozone countries surpassed the deficit to gross domestic product ratio of three per cent. The latest forecasts by the European Commission suggest the region is slipping into a mild recession this year. As a consequence, in the absence of further policy measures, most of these countries risk missing their budgetary targets. This especially applies to Spain, where last year’s deficit was eight per cent of GDP. The Commission expects its output to decline by one per cent this year yet the country is still supposed to reach the three per cent deficit threshold by next year. Many other countries are in the same boat.

The dilemma for the EU is how to respond to this situation. Should Olli Rehn, the Commission’s vice president, push countries to take further immediate actions? Or should he recognise that these targets are out of reach and put emphasis on efforts rather than outcomes? From a structural point of view, the preferred option is clearly the latter. However, the European fiscal framework has lost a lot of credibility. He may wish to use the opportunity to demonstrate his ability to enforce discipline. 

Whoever wins this year’s US election, the combined effect of three events – the expiry of former president George W. Bush’s tax cuts, a renewal of the legally binding limit on federal borrowing and the start of a Congressionally mandated sequester, a mechanism that will automatically cut domestic spending from 2013 – will force the president and Congress to engage deeply with fiscal issues. The decisions made will do much to determine the country’s future.

For many observers, the central question in debates over deficit reduction is what can be done about entitlements. Growth in spending associated with an ageing population will be the major factor fuelling the growth of federal spending.

Leaders in both parties should commit themselves to the goal of tax reform for growth, fairness and deficit reduction. They should acknowledge that every tax expenditure or special break has to be on the table. They should ensure their staffs are compiling a large inventory of options. The relevant Congressional committees should take testimony from experts of all persuasions. And then, right after the election, the negotiations should begin. Nothing that is likely to done during the next presidential term will be more important. 

At this weekend’s G20 meeting, European countries are likely to press for an increase in the International Monetary Fund’s resources as a means to bolster the firewalls against the eurozone debt crisis. The other G20 members must resist such pressure until Europe starts showing more signs that its getting its act together.

The balance sheet of the IMF is already heavily exposed to the eurozone crisis. Greece, Ireland and Portugal combined account for almost 60 per cent of outstanding loans. And this is before the fund participates in the new bail-out for Greece that was announced earlier this week.

The continued pressure on the IMF is also unfortunate given that Europe does not lack financial resources. Europe’s problem is not a lack of financing, but deep divisions about how the eurozone should operate in the presence of very different initial economic, financial and socio-political conditions among its member countries. This is an internal issue that the IMF cannot, and should not be expected to, solve.  

With the new Greek restructuring deal agreed, the question is whether fears about the sovereign debt crisis will abate or will the markets simply start looking elsewhere for other troubled waters.

In this regard, Japan increasingly looks like the real stand out. A variety of famous investors have come to the conclusion over the past two decades that Japan was on the verge of a major sovereign debt crisis, only to retreat quietly after it becomes clear that domestic deflationary pressures and strong domestic bond demand are continuing to keep Japanese bond yields remarkably low.

Japan has somehow managed to creep by with its problems untouched, or as some of us have described it, seemingly enjoying a “happy depression”. But the fact is that Japan’s outstanding debt to gross domestic product at a whooping 230 per cent makes Greece’s latest 120 per cent by 2020 target seem like a picnic by comparison.

Add to that a very weak demographic profile and declining industrial productivity, and it quickly looks as though Japan’s “happy depression” of the past 20 years is set to become less happy and more depressed.  

As a critic of the intervention in Iraq, and even of its milder sequel in Libya, I am a big fan of what David Cameron is doing on Thursday for Somalia. This time there are no troops massed on the borders or air strikes, just a conference at London’s venerable Lancaster House, which in colonial times regularly saw countries made and unmade.

For those who might not have noticed because Somalia is an unintentionally well-kept secret, he is hosting Somali and international leaders in an effort to begin to sort out the country’s future. And Somalia needs sorting. It has a violent civil war, the remains of a famine, a government whose writ does not run beyond the capital, a thriving piracy industry off its coast and terrorist training camps on shore.

The case for investing in Somalia conflict prevention today is Afghanistan in 2001. It country had a growing internal conflict, a massive drug industry and there was evidence that it was harbouring terrorists. But Afghanistan remained a second tier issue for the rest of the world. Until 9/11 and the attacks on America it was crowded out by other problems. Afterwards it sparked the costly and destructive war on terrorism that is still with us, and has had profound consequences for the US and its allies, as well as for Afghanistan and its neighbours.

Solving Somalia’s problems won’t be easy but bravo, Mr Cameron for trying. 

There was a certain inevitability about the Greek bail-out deal struck in the early hours of Tuesday morning in Brussels. The negotiators clearly decided to stick to coffee for themselves, and bread and water for the Greeks, rather than reaching for bottles of Mort Subite [Sudden Death], a Belgian beer worthy of its name. When the brinkmen get so close to the edge, as they did last week, they rarely jump.

There were some surprises, though. The unfortunate banks were asked to undergo yet another short back and sides. The central banks have agreed to disgorge some profits, to support lower rates for Greece. And some other creative accounting measures have brought the projected level of debt to GDP down to within a whisker of the magic 120 per cent number.

The odds on a happy end to this story? One would have to say that they remain quite long. The scale of internal devaluation required will impose severe strains on the social capital of a country whose stock is already low. But they are perhaps a little shorter than they were last weekend. 

Ptolemy’s theory of the universe held that the earth was at its centre. All other celestial objects rotated around it. It was, of course, nonsense. Copernicus later came along with his far-superior heliocentric system. Luckily, he died before anyone could be offended by this theories. Galileo, a supporter of Copernicanism, was not so fortunate.

The eurozone is in danger of shifting towards a Ptolemaic system with Germany at its centre. But, like Ptolemy’s theory, a German-centric eurozone may wilt under close scrutiny. It requires economic adjustment by others to protect the interests of German taxpayers and voters. That, however, makes the system as a whole increasingly unstable.

This is not an issue concerning Greece alone, even if investors remain focused on the minutiae of austerity, bail-outs and debt haircuts. It is, instead, about the need for adjustment by those who appear to be in strong financial position. Germany can play its part, encouraging domestic demand to grow more quickly, allowing its real exchange rate to rise with a more tolerant approach to inflation, ensuring that its current account surplus is invested not in potentially-worthless chunks of peripheral debt but, instead, in factories in southern Europe.

In other words, we need to drop Ptolemy and come up with a theory of eurozone relativity. 

You would be forgiven for being confused about the state of the British economy. The recent economic news is mixed and experts are divided in their views of the future.

On the positive side, the Bank of England’s latest inflation report forecasts a bumpy, but sustained pick-up, in economic growth in 2012. However, Moody’s recently changed its outlook on the government’s triple-A rating from ‘stable’ to ‘negative’ indicating a 30 per cent chance of a downgrade over the next 18 months. In the face of this uncertainty, UK companies are hesitant to invest the £730bn on their balance sheets as of last September, as Martin Wolf notes in his column on Friday.

Imminent budget decisions loom for the Chancellor. His first priority must be to keep his side of the policy bargain. There should be no relaxation in the aggregate fiscal stance. Any giveaways must be funded by new taxes or cuts elsewhere. Second, he should use his public platform to reverse the unfortunate perception that the coalition is anti-business and more concerned about redistribution than growth. This means pressing ahead with reform of the planning system which has been identified through independent research as the single biggest obstacle to small business expansion and job creation. It also means providing more certainty – perhaps a moratorium – on taxes that affect internationally-mobile investment and high-income professionals and entrepreneurs. 

The release of the minutes from the January 24-25 Federal Reserve meeting on Wednesday was one of the most anticipated ever. The wait proved worthwhile as the minutes went beyond just providing additional information on historic Fed decisions. They also shed light on the future of its balance sheet operations and some of the challenges that its unusual policy activism faces in this fluid economic and political environment.

You should have no doubt. The Fed remains one of the most activist, imaginative and courageous central banks in the world. Motivated by the uncertain economic outlook and the reticence of other policymakers who are much better placed to remove impediments to growth and job creation, it feels compelled to do even more to boost the US economy. Yet the its ability to deliver good outcomes is tempered by the fact that it is experimenting, deploying untested tools with inadequate support from other policymakers.

The bad news is that we will not know for a while whether the Fed’s unusual activism will work. However, when the time finally comes – and here is the good news – historians will have an unusual amount of information to understand the content in which innovations and important decisions were made. 

When discussing Greece, some policy officials and market participants have suggested that ‘the markets are now better prepared to deal with a default’. When was the other time such statements were being made? Probably in mid-September 2008, a few days before the collapse of Lehman Brothers.

If there is one thing to learn from the past five years, it’s that financial contagion operates in unexpected ways, especially after a major shock such as the failure of a major financial institution or the default of a country. Even if markets have prepared for the possibility of a default by Greece, the practical consequences of such an event can be much greater.

Greece does not suffer from a typical balance of payment problem. It has a major structural problem that can be resolved only through a combination of macroeconomic, structural and social measures. What is required is much more similar to the kind of programme that the International Monetary Fund applies to low-income countries, under the Poverty Reduction and Growth Facility (recently renamed Extended Credit Facility), with official financing provided for several years, at concessional terms to ensure debt sustainability. Strong conditionality has to be implemented, in line with the IMF practice for this type of programme, but not under the threat of continuous default that alienates the political support in Greece for the right policies and fuels instability in financial markets. 

 

After weeks of teasing the French voters Nicolas Sarkozy is set to fire the starting gun on Wednesday evening. He will, as expected, be a candidate for his job.

The rest of the field is still not settled. Marine Le Pen is having trouble securing the necessary 500 signatures from elected officials. But we should assume that, one way or another, her name will be on the ballot, along with the socialist François Hollande, the Green Eva Joly, centrist François Bayrou, left socialist Jean-Luc Melenchon, Dominique de Villepin, who might best be described as “ailleurs” (elsewhere), and one or two representatives of the more exotic fauna of French political life.

Mr Sarkozy has made something of a recovery in the polls recently, and the official launch of the campaign will probably produce a further bounce, the polls are now against him. Whatever the outcome of the crisis in Greece, it is hard to see the economic news flow favouring incumbency in the next three months. So the campaign is Mr Hollande’s to lose. But his policy efforts so far suggest he could just manage that feat.  

Xi Jinping, China’s designated next leader, visits the US this week, in the middle of a divisive presidential campaign whose protagonists often find it convenient to blame China for America’s woes. He will face protests over unfair competition and currency manipulation, and tense discussions about human rights and security.

Chinese sensitivities, on the other hand, have been heightened by the election rhetoric and by US reaffirmation of its interests in Asia. Beijing is keen to strike a constructive note, urging collaboration to solve global problems. Such visits are also seen as an opportunity for Mr Xi to establish personal relationships, with planned side trips to Iowa and Los Angeles intended to show a softer, less formal side of the future leader. How Mr Xi is treated will be scrutinised. This will force Barack Obama and congressional leaders to weigh the pressures of partisan politics against the future of the relationship. 

There is not much good news when it comes to managing the global system. The euro is in crisis; trade talks are stuck; and then there is climate change – the greatest global challenge met by the greatest global short-sightedness. Or are we missing something?

Just before Christmas, the parties to the UN climate convention agreed in Durban that a global legally binding approach to controlling emissions would be undertaken, to be signed in 2015 and implemented from 2020.

Success in 2015 depends on several factors. First, we need to change the debate from being narrowly about climate to being about food, water and energy – all affected by climate change. Increasing our resource efficiency not only helps the climate, but will help our economy.

Second, Europe needs to show how low carbon contributes to our economic benefit not hardship. Third, we must build new political coalitions that align countries with common interests in a low-carbon future – and work out how to accommodate the US without excusing them.

We must also ensure that previous national pledges to act are fulfilled; structure incentives to drive investment and innovation in low carbon technology; and commit money for adapting to and mitigating climate change. Finally, the scientific community must rehabilitate itself. The communication and the strengthening of trust in climate science is critical.

We cannot let the age of austerity be the age of inaction – the climate will not wait. Low-carbon development raises issues of justice, security and prosperity. It is one of the hardest nuts to crack in the multilateral system. As leadership elections and transitions dominate politics in the next 18 months, this is a challenge the winners cannot be allowed to duck.
 

President Barack Obama’s budget for 2013 will set off a vitriolic battle. Republicans will rail against the Democrats’ “class warfare” and Democrats will rail against the Republicans’ “coddling of the rich”. Yet it is mostly for show. The rich will win in their fund balances while probably losing at November’s presidential polls, and the poor and working class will probably re-elect Obama but suffer a continuing decline in relative and perhaps absolute incomes.

There are very high long-term costs to all this. Main street is in decline, despite the recent optimism over a revival of hiring. One of every two Americans is now in a low-income household. Only about one-third of Americans aged 25-29 have a bachelor’s degree, and the college completion rate falls to a distressing 11 per cent among young Hispanic men. Mr Obama’s policies are slightly more responsive to these realities than the Republican alternatives, but the larger truth is that a shrinking federal government will fail to meet America’s skill, education and infrastructure challenges.

Even as Democrats praise Mr Obama and Republicans castigate him for his headline proposals to tax the rich, the budget is actually more grim news for America’s poor and working class. The poorer half of the population does not interest the Washington status quo. A third political party, occupying the vast unattended terrain of the true centre and left, will probably be needed to break the stranglehold of big money on American politics and society. 

President Obama releases the politically-weighty final budget of his first term on Monday. It covers the fiscal year beginning October 1 and also contains long-term budget projections. There are four key points to understanding it. It is as much a campaign document as an actual budget. None of the major proposals it contains will pass Congress in this presidential election year. The poor fiscal outlook for the US will be starkly confirmed. And, the key budget date in 2012 is not now, or mid-year, but December 31. That’s when some major tax cuts expire, the mandatory budget cuts triggered last year commence and legislation raising the federal debt limit will again be needed.

The main cause of these deficits is the financial collapse of 2008 and the Great Recession that followed it. Indeed, the US economy is still very weak, having grown only 1.6 per cent last year. That’s why this new budget will propose one last round of fiscal stimulus ($350bn in tax cuts and spending increases) to accelerate recovery. That would be followed by $3,000bn of deficit reduction actions (half of which would come from tax increases on individuals), beginning next year. This approach of stimulus now and long-term deficit reduction soon thereafter is, in my view, the correct one. 

The Taliban’s public declaration that they will hold talks with the US after eleven years of war is a major break through for the political process. It is also vital for Afghanistan’s internal stability and the relative peace that America and Nato will need if they are to leave the country in good order and without too much bloodshed in 2014. But all the major players have a great deal to do before the pieces can be put together.

The clandestine talks brokered by Germany, fostered by Qatar, and starting with direct meetings between US officials and Taliban representatives, will hopefully conclude with a reconciliation with the Afghan government. The Taliban’s insistence that they will only talk with the Americans will probably be watered down, while president Hamid Karzai’s contradictory statements mean that he is feeling insecure but not averse to the talks. They will go ahead because there is no other alternative to ending the war. 

Growing up in India in the 1960s, I knew that America gave us wheat, and Britain gave us books. On a table in my uncle’s home was a stack of elegant hardcovers, borrowed from the library of the British Council. Later, as a student at Delhi University, my own education in literature and history was largely shaped by the books from the same library.

Those memories came back when I read the commentary in the British press about whether the UK should stop giving aid to India. Over the years, while the British Council libraries were allowed to run to seed, the Department for International Development supported rural health and education schemes. Several years ago, when Indian billionaires started buying UK companies, calls were first heard for the dismantling of these operations. Earlier this month, when despite continued aid activity, the Indian government said it might buy French warplanes rather than British ones, these calls were renewed.

Undoubtedly Britain and India have a somewhat special connection. No other relationship between a former imperial power and a former colony is so suffused with affection and so free of animosity. To maintain this spirit, the British would do well to focus on culture rather than economics or military hardware. Close down DfID’s operations in India. Do not sulk when the Indian government buys guns from elsewhere. But, please, do restore the collections of the British Council libraries, and do send your best writers and actors on trips to India. 

Thursday’s agreement on a new adjustment programme for Greece appears to be a courageous and ambitious. Yet two factors could derail the deal well before any of its benefits materialise.

First, all three parties feel they have already been asked to do a lot, without seeing any actual or potential benefits to their sacrifices.

Successive Greek governments have been forced into rounds of austerity measures for the last two years, yet every meaningful indicator of their country’s economy and finances has worsened. Official creditors have poured money into the country, but this has done little to improve Greece’s prospects. Meanwhile, those creditors that still have Greek bonds complain that every time they have agreed to a haircut, other parties have moved the goal posts.

The second factor complicating the process is that no party sufficiently “owns” the adjustment programme. This is likely to prove a problem: weak ownership makes it hard for government leaders, the ECB and IMF, or those negotiating on behalf of private creditors – to sell an agreement to their constituents with any conviction, or to sustain implementation. It also makes it hard to make the many corrections needed over the course of an adjustment programme.

The agreement is welcome, but it stands a small chance of placing Greece on the path to high growth, ample jobs and financial stability. Greece needs a fundamental economic, financial and institutional reset. Such resets take time and carry considerable risk. But until they happen, repeated rounds of protracted negotiations are the rule, not the exception – as are derailed agreements, finger pointing and disruptive blame games. 

 

Amid all the chest thumping and finger pointing about the failures of capitalism, let’s not forget the responsibility of governments across the globe. They relaxed regulatory requirements, turned blind eyes to dangerous activities and indulged in their own excesses.

Capitalism is like an energetic small child who needs rules, boundaries and discipline. If a toddler accidentally sets his home on fire, it’s the parents who bear the blame. “Capitalism in crisis” could easily be subtitled “government in crisis”. I’m not trying to excuse capitalism or its principal actors from a generous portion of the blame for the all too vivid pain of the past four years. Serious alterations are needed, only some of which have been put in place. But government has also seriously let us down.

If capitalists wish to avoid more regulation, they must get behind better governmental oversight. 

As Europe’s debt crisis continues to demand undivided attention, the patient that is Europe has revealed a new wound: Hungary, where a slow burn political crisis has finally come to a head. In recent weeks the forint has nosedived, stocks plummeted and debt yields spiked as markets sent an overwhelmingly negative message in response to the government’s willingness to jeopardise a potential European Union-International Monetary Fund safety net.

Viktor Orbán, Hungary’s prime minister, will formally respond to these concerns this week. But the markets and the international political community are a little late to this party. Since his Fidesz party won an overwhelming parliamentary majority in 2010 it has been cementing its longer term influence. The renewed market discipline is welcome, yes, but much of the damage in Hungary has already been done. It will take much more to undo than investors and EU technocrats seem to appreciate.

Perhaps counterintuitively, a final agreement between Budapest and the EU-IMF will only make the bigger political concerns in Hungary that much harder to combat. It is because market scrutiny is Europe’s best remaining weapon. But the sooner a deal is struck, the sooner market pressure will recede, and the more likely Mr Orbán will feel once again emboldened to pursue his agenda. Softer policy tools, which ironically have sharper impact, have not yet been leveraged as effectively as they could or should have been. 

Capitalism itself is not in crisis, but western capitalism is. This is a result of three strategic mistakes. The first was to regard capitalism as an ideological good, not as a pragmatic instrument to improve human welfare. Alan Greenspan was probably the greatest victim of this ideological conviction that markets always knew best. The second error was to forget the lessons that European capitalists learnt from the Marxist threat of the early 20th century. For capitalism to survive, all classes had to benefit from it.

The final error was to aggressively promote the virtues of capitalism to the third world without realising that it had to educate its own populations on the critical concept of “creative destruction”. Economics textbooks correctly pointed out that when the automobile was invented, the horse and buggy industry had to disappear. And when digital cameras emerged, Kodak film had to go. Yet, the masses were never told that they would have to learn new trades and skills as new competitors emerged from China and India.

For all its flaws, capitalism remains the best system to improve human welfare but it is also an inherently imperfect system. It requires careful government regulation and supervision. Asians never forgot this. The west did. Hence, the time may have come for Asians to reciprocate the generosity of the west in sharing capitalism with Asia. Western policymakers and thought leaders should be invited to visit the industrial complexes and service industries of Japan and Korea, Taiwan and China, Hong Kong and Singapore. There may be a few valuable lessons to be learnt here and there. 

On Saturday Russia and China put their cards on the table. They vetoed the Arab League’s plan for resolving the Syrian crisis, a plan that asks president Bashar al-Assad to step down in favour of his vice-president, the formation of a unity government and free elections. They are putting their money on Mr Assad, betting that he can crush the political opposition movement and growing rebel forces spreading across his country if he is just willing to be brutal enough.

Within Syria and among foreign policy mavens with ties to the opposition, the presumed and desired next step is for the Arab League nations, Turkey, and other Nato countries to arm the Free Syrian Army, the loose coalition of groups of soldiers who have defected from the military and those members of the opposition who can get and use weapons.An alternative is a military intervention by troops from various Arab League countries and Turkey to create safe zones for civilian protesters and all soldiers who wish to defect from the army. The sponsoring countries would have to make clear through every means possible within Syria itself that the goal of the intervention is to protect the population until a political settlement can be reached.

The lesson to draw from Saturday’s vote is not the veto, but the remarkable degree of support for the Arab League’s plan from the thirteen other members of the Security Council. The US and Europe should broadcast that support as directly as possible to the Syrian people, expand and tighten sanctions and exclusionary measures aimed at the Syrian elite, and provide all necessary assistance in a supporting role. 

Buffers from market pressures do indeed slow down reforms. This was vividly illustrated last August when Rome backtracked on tax reform commitments a few days after the European Central Bank started buying Italian bonds. However, austerity and reform are not always complementary. Germany implemented reforms under Gerhard Schröder (but without austerity) in the 2000s, and then austerity under the Merkel-Steinmeier coalition (but without reforms). Governments under extreme pressure may have no choice but to do everything at once, but when political capital is scarce, prioritising fiscal consolidation is usually at the expense of reforms.

Governments also need to show their citizens that effort pays. If, after a few quarters of fiscal adjustment and painful reform, the situation and outlook are only worse than they were before, reform-minded coalitions may wane or lose power. Risks are compounded by simultaneous retrenchment in several countries at once. Southern Europe plus France, which is also in need of budgetary adjustment and structural reform, accounts for more than half of the eurozone’s GDP. Keeping pressure on it will only be a credible strategy if accompanied by an effective growth programme for the entire eurozone. 

In the pantheon of financial crisis villains Fred Goodwin and the former Royal Bank of Scotland board stand tall, especially in the UK. But elsewhere in the Europe the rating agencies jostle for position. Following a less than glorious performance in the subprime debacle, their unhelpful downgrades of European sovereign debt have kept them firmly in the line of fire. Any politician on the stump in France, Italy or Greece can raise a cheer by promising retribution.

The European Commission has already shot these tiresome messengers twice. Even more stringent rules are being proposed.

While the political mood remains hostile to rating agencies – who, it must be said, have not done themselves many favours – there is a clear risk that ill-considered proposals are legislated in haste. The views of corporate and investors need to be heard before Europe rushes into new legislation. 

Has inflation targeting reached its sell-by date? Given the Federal Reserve’s formal adoption of an inflation target only last week, the answer is presumably No. There is, nevertheless, something odd about the enduring enthusiasm among central bankers for inflation targeting. The pursuit of price stability, after all, was supposed to be the best way of delivering overall economic stability. Yet, despite the widespread adoption of inflation targets, the developed world succumbed in 2008 to the biggest economic and financial crisis in generations.

This terrible performance surely should have led to a period of introspection, a desire to examine the role of inflation targeting in contributing to the crisis. Central bankers, however, have mostly brushed objections to one side, preferring to lay the blame on regulatory and supervisory failures or the misdemeanours of individual titans of finance.

Price stability is, of course, desirable, but inflation targeting itself is in danger of turning into a fetish. It’s time for a thorough re-examination of its contribution to our economic welfare. 

Republicans are doing something strange at the moment – choosing a candidate whom hardly any of them actually likes. Though Mitt Romney won the Florida primary handily yesterday, the Republican nomination is not so much being won as it is defaulting to him for lack of a compelling alternative.

Advocates of Mr Romney’s electability elaborate such qualities as his lack of obvious mental defect, the non-extremity of his views, and his superior financial and organisational resources. Seldom do they evince any affection or enthusiasm for the man himself.

In this respect, Mr Romney resembles two similarly unloved Democratic nominees, Al Gore and John Kerry, who lost winnable races because of their personalities – while George W. Bush was reelected, because ordinary people felt he wasn’t trying to be someone different from who he was.

Romney, Kerry and Gore are all versions of the same political type. Statuesque, handsome, impeccably credentialed, they didn’t overcome humble origins or broken families. Mr Romney’s background is alien to most Americans not because he descends from polygamists but because his father was a governor of Michigan, a chief executive and a presidential candidate.

The unloved candidate struggles to establish his plain-folks ordinariness in ways that inevitably backfire. He touts his plebian tastes – pick-up trucks, country music, trashy food – and inevitably gets it wrong, as when Mr Romney defended his claims as a sportsman by asserting that he had been hunting for rodents and varmints “more than two times.”

The public usually picks up on this gap between who the candidate really is and how he wants to be seen. Yet even more than Gore and Kerry, Mr Romney is running away from his own perfection. He must grapple with the affliction of excessive handsomeness and struggles to seem ordinary despite his riches. For the time being, he must disguise his reasonableness, his record of businesslike practicality and his ideological moderation. The number of people who can sympathise with his problems is very small indeed.