Monthly Archives: April 2012

Even with tough political action, it will take Spain years to achieve a balanced budget – meaning that it will be essential to build private sector investors confidence to finance deficits and avoid a Greek-style default. If there is a big shortfall in private sector financing, funds from the European Stability Mechanism could prove insufficient to fill the gap.
An alternative emergency approach would be to mandate, on a temporary basis, bond purchases by Spanish households and businesses. An alternative emergency approach would be to mandate, on a temporary basis, bond purchases by Spanish households and businesses.

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Europe needs to be more willing and able to support Spanish adjustment efforts. As currently set up, European mechanisms for exceptional financing assistances are overly binary – either way too little assistance or, at the other end, a full blown rescue package that brings with it the risks of collateral damage and unintended consequences. Continue reading »

Larry Summers’ considerable intellect suggests that he would be an excellent contestant on the popular game show Jeopardy. Of course, on the show, the question offered by the contestant must match the answer on the board. Summers and I disagree on the answer that matches the question “What is President Obama’s budget?” Let’s see why. Continue reading »

This is a very consequential election. As we continue to recover from the largest economic crisis in generations, we still need to strengthen the job market, address large fiscal challenges and build an economy based on sustainable, shared economic growth. Voters should have a chance to choose between clear alternatives. Mr Obama has laid out a multiyear budget embodying his vision for the future, and it has been evaluated by independent experts. It is time for Mr Romney to do the same. Continue reading »

The message is that there is nowhere left for murderous despots to hide. That is an extraordinary step forward in global accountability and responsibility and far outweighs the difficulties of temporarily making it harder to prise a long time offender from office. We should celebrate today’s verdict by copying President Truman’s old White House office desk sign, “The Buck Stops Here” and sending it to all world leaders starting with A for Assad and completing with Z for Zimbabwe. Continue reading »

These figures are worse political than economic news. The Labour opposition will seize upon them as showing that the government’s austerity programme is too strict and is killing off growth. They will renew their calls for a fiscal loosening through a cut in VAT and a slowing of welfare reform. The governing coalition may also suffer new strains as the Liberal Democrats seek to position themselves as more caring and in touch with ordinary voters than their Conservative colleagues. While Britain is unlikely to face the political ruptures that have been provoked by austerity budgets in Spain, France and most recently the Netherlands, a weakening of coalition support and cohesion is likely over the next few months. Continue reading »

Over the next 75 years, using realistic assumptions, Medicare costs are projected to increase from less than 4 per cent gross domestic product to more than 10 per cent of GDP. Every day that goes by either brings America’s elderly closer to a huge cut in their benefits or threatens every younger generation with an equally huge bill to pay – and the two ends of the political spectrum are more polarised than ever over how to address the problem.

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Is it possible to construct a legitimate fiscal and political union for the eurozone, while allowing member states to enjoy some degree of sovereignty? The answer, I think, is a cautious yes. I propose that the eurozone create a “fiscal club”, whose members would, most of the time, enjoy fiscal autonomy. If, however, their fiscal positions deteriorated so that they could no longer raise funds at a reasonable interest rate, they would automatically receive a bailout from the other club members – on the condition of an immediate loss of fiscal sovereignty. During the bailout phase, the country’s finance ministry would be run by Brussels, thereby establishing a contingent principle of “no eurozone taxation without eurozone representation”.

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All is not yet lost for the President. The polls tell us that many voters remain undecided- enough to swing the result. But he has played most of the cards left in his hand, and there is an unmistakable sense that power is slipping from him. The era of bling bling may be drawing to a close, and the age of Flanby, a kind of blancmange pudding which gives Hollande his nickname, could be just around the corner. Continue reading »

Crisis after crisis would be avoided if the west could learn to understand nuances that are vital to interpreting international affairs. Take Iran – where the western narrative is that the west is honest and straightforward, Iran lying and mendacious, but the reality is far less clearcut. Take North Korea – where the really important nuance of the recent rocket launch was that, for the first time, the North Korean government immediately admitted failure. And take Myanmar – where the dominant western narrative, that sanctions forced the country to open, is plain wrong. Western sanctions did not work; ASEAN engagement with Myanmar did.

A self-serving western narrative just cannot understand the complex new world that is emerging – and progressing, while the west languishes. Yet the era of western dominance is gone. Can the west begin to understand the new and more complex world order unfolding before our eyes day by day? Continue reading »

Despite its president’s fiery rhetoric, Argentina’s decision to renationalise YPF was not part of any overarching strategy. Cronyism, rifts between rival oligarchs, political expediency, populism and the wish to please a public resentful of the privatisations of the 1990s all played into the decision – which came in the context of a rapidly deteriorating economic and political situation.

Argentina suffers from high inflation, slowing economic growth, ballooning subsidies, price controls, capital flight, decaying infrastructure and a less than welcoming environment for foreign investors. Sooner or later the situation will become unsustainable. If Ms Fernández keeps postponing reform, her last years in office will be a nightmare – and YPF will be the least of her problems.

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Policy makers act when they feel the pressure of the markets – but as market pressure abates, they start thinking that the worst of the crisis is over. Decisions are postponed, measures are watered down. As the political process stalls, markets start having doubts about policy makers’ determination and lose confidence again, which gives rise to new turbulence. Such a system, in which policy makers act mainly under market pressure, while thinking that markets are myopic, is not only unstable; it is inefficient.
Trying to regain market confidence, having once lost it, requires much tougher actions, which cause economic pain and are unlikely to be the best way to consolidate domestic political support.  Continue reading »

The move would signal a long-overdue shift towards aproactive strategy vis-à-vis IMF governance reforms whereby Europe could finally break with the current “wait-and-delay” tactic, precisely at a moment when it needs powerful allies within the fund membership in order to erect a credible global firewall. France, Germany, and Italy would together help set the right tone for ongoing G-20 and IMF negotiations, where many non-European shareholders are expected to contribute to a sizable increase in the IMF’s financial capacity. This would, as well, jumpstart the forthcoming round of negotiations on the redistribution of the voting rights that will have to be finalized by January 2014, with Europe, this time, no longer in a defensive mode. Continue reading »

During his first 100 days in the office, the new president has a golden opportunity to earn the respect of the world by ensuring that the next selection of the World Bank is indeed open, transparent and merit-based.

Don’t under-estimate the importance of such a step. With so many people watching around the world, renewed failure to move forward with reforms at this critical juncture would accelerate the gradual disengagement from the two institutions by a growing number of countries. It would also undermine their standing in the court of public opinion at a time when both need to be viewed as “trusted advisors” and respected promoters of the global public good. Continue reading »

“La France compte 65 millions de sujets, sans compter les sujets de mécontentement”. From a political standpoint, the famous sentence by 19th century polemicist Henri Rochefort applies perfectly: French voters are angry and politicians are struggling to respond to their anger. But from a market perspective, there are only three serious topics: first, public finances; second, competitiveness; and third, the country’s stance in Europe. The question is whether the next president will have the ability to tackle them without exacerbating the citizens’ anger. Continue reading »

Once again, it’s the veil of secrecy that makes North Korea so dangerous.

Compared with North Korea’s government, Iran’s theocracy is an open book. Bluster among players in the controversy over Iran’s nuclear program has market watchers on edge, but the near-term risk of trouble here is over-rated.

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Credit Rick Santorum with accepting the obvious: he lost. Despite winning 11 primaries, Mr Santorum was always more of an irritant than a plausible contender for the Republican nomination. He surrenders the field having done a meaningful, though not enormous amount of harm to his side.

Mr Romney is none of those things, however, and with Mr Santorum out of the way, he now can get on with the business of challenging Barack Obama. With the primaries unofficially over, the shape of the fall race is fast emerging. Simply stated, Mr Romney is going to run against the Obama economy while Mr Obama runs against Mr Romney himself. Continue reading »

The academic community as a whole is unlikely to move overnight to a new model. The top titles still have a very strong appeal to ambitious researchers, and generate the kind of profit margins that leave room for a fight back. Elsevier has already begun tweaking the pricing structure of a number of its products and can do more as competition intensifies. Continue reading »

In domestic election campaigns European politicians display a kind of cognitive dissonance. They must be aware that any propositions on European policy will be subject to close reading in the embassies and chancelleries of their partners, yet they tend to talk as if they will only be heard by a domestic audience. The French Presidential campaign, which officially began on Monday, is a case in point. All the major candidates have made commitments on their European policies – to renegotiate this, or abandon that – which may appeal to elements of their target market, but which will not go down well with the Chablis at the first EU summit after their election.
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After a period of relative calm, Friday’s employment report should again sound alarm bells in many parts of Washington. The combined risk of an unemployment problem that is increasingly structural in nature and a rate that is bottoming out way too soon is bad news. It is the last thing America and, more broadly, the global economy need, especially at a time when Europe remains fragile. Continue reading »

There is plenty of reason for scepticism towards the promises of a leader who is responsible for deaths of thousands of his citizens and has broken his word repeatedly during this conflict. Nevertheless, Kofi Annan’s patient diplomacy is starting to pay dividends.  Continue reading »

The option of a completely government-run health system was never seriously considered in the US when the Affordable Care Act was debated in 2009. Americans are too convinced that everything government does is less efficient and costs more than if the private sector does it. The fact that this is obviously wrong in the case of healthcare has never penetrated the public consciousness.
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Premier Wen Jiabao’s report to the legislature covered every problem facing the country. He and his generation recognised China’s many ills. But these same issues have been highlighted every year—while the pace of reforms has slowed. It’s wise to separate good intentions from action.

So is there any way we can trust the policy messages coming out of the NPC?  Continue reading »

Luxury retailers are smiling. So are the owners of high-end restaurants, sellers of upscale cars, holiday planners, financial advisers and personal coaches. For them and their customers and clients, the recession is over. But the rest of America isn’t enjoying a recovery. It’s still quite sick. The finances of many Americans remain in critical condition.

The Commerce Department reported last Thursday that the economy grew at a 3 per cent annual rate last quarter. Personal income also jumped. Americans raked in over $13tn. Yet all the gains went to the top 10 per cent, and the lion’s share to the top 1 per cent. Over a third of the gains went to 15,600 super-rich households in the top one-tenth of one per cent.

This is the most lopsided recovery in US history.

But Washington doesn’t want to talk about it. The Obama administration would rather focus on the recovery without mentioning whose it is. Perhaps it’s because almost all Democratic and independent voters are in the bottom 90 per cent.

Republicans would rather not talk about the lopsidedness either, because they’d rather not bring up the subject of inequality to begin with. Their reverse-Robin Hood budget plans cut taxes on the rich and slash public services everyone else depends on. Continue reading »