Monthly Archives: June 2012

Leaders now understand that, especially in the aftermath of the global financial crisis, the eurozone cannot survive on the basis of monetary union alone. It also urgently needs greater fiscal, banking and political integration. They recognise that, to succeed, all this should be supported by growth-enhancing policies. Continue reading »

Although a majority of the US Supreme Court has upheld the constitutionality of the Affordable Care Act, Chief Justice John Roberts in siding with his liberal colleagues may have saved the public’s trust in the court. But over the next four months the act will remain a political football.  Continue reading »

It is my belief that the Federal Reserve Board vacancies of the last 6 years are a key reason why the FOMC has been so reluctant to act in the face of declining inflation, sluggish growth, and high unemployment. Now that the board is finally at full strength, the stage may be set for the long-awaited move by the FOMC toward aggressive monetary easing, perhaps through unconventional channels.  Continue reading »

Francois Hollande has had the kind of month most politicians enjoy once in a lifetime. After an unexpectedly large victory in the Presidential election, his troops followed up with a remarkable triumph in the legislatives, delivering him an absolute majority in the Chambre des Deputes, without the need to compromise with the Left Front or the Communists. The Socialists now control the Chambre, the Senate, and almost all the regions. It is “La Vie en Rose” across the politicaal landscape, for the first time under the Fifth Republic. That may well, however, be as good as it gets, and he should bask in his success while it lasts. Because dark clouds are gathering, and the honeymoon is likely to be very short-lived. Continue reading »

To stop the doom spiral that threatens the eurozone, European leaders must now repair the serious flaws in the design of monetary union that have been revealed by the crisis. At the very least, at this week’s summit of European leaders, they should recognise them, name them, agree on directions for reform, and set a timetable for decisions. Continue reading »

The President has seldom been a risk taker; he has operated within the boundaries of the possible, avoiding postures that yield no results. But he and his campaign have cleverly recognised that Mr Romney’s slow-footedness and lack of imagination presents an opportunity for them to shine in contrast. They have reversed the usual dynamic of reelection campaigns, highlighting the challenger’s stodginess while making Mr Obama’s into a nimble incumbent. Continue reading »

Pity Ben Bernanke and his colleagues on the Federal Reserve’s main policymaking committee. Once again they felt compelled to do something to be seen as countering a renewed slowing of the domestic economy that is compounded by a deepening European crisis and less buoyant emerging economies. But in continuing to act on its own, all the Fed will do is buy some time that will again be wasted by the country’s politicians. Meanwhile, collateral damage will mount, making the next policy steps even more excruciating. Continue reading »

What happens next? In these dire circumstances a confrontation between the courts and the government over whether Mr Gilani should resign or not, in which ultimately the courts call upon the army to intervene on their behalf could easily lead to the country’s fifth martial law. Mr Zardari may be trying to avoid that by calling upon his party to show calm and quickly nominating a new Prime Minister from the PPP, who will easily get sworn in by Parliament because the PPP and its political allies hold the majority. Continue reading »

The issue is not simply the number of negotiators. It is the wide range of political values and interests represented around the G20 table. It is not the “rise of the rest” that has shifted the terms of debate but the “rise of the different”. In the 1950s and 60s, the world saw the emergence (really the re-emergence) of West Germany and Japan. Though Japan’s surge created genuine anxiety in the US during the 1980s, fears were limited by the recognition that the Japanese, like the Germans and all other G7 members, were believers in free market democracy. There is no such consensus among today’s rising powers. As importantly, G20 members stand at quite different levels of development. Even where they have common political and economic values, poor countries have quite different hopes, fears, needs and plans from rich ones. Continue reading »

The euro lives to fight another day, after Antonis Samaras’ narrow victory in Greece’s elections on Sunday. Yet before we drink too much celebratory retsina, we must recognise that Greece still has mountains to climb: its access to international capital markets is non-existent, the economy is set to shrink further, and its creditors expect to see far more reform than has so far been delivered. The eurozone has its own Mount Olympus to conquer. Austerity hasn’t worked, no one wants a wave of defaults and, as yet, the Germans are dead against fiscal transfers.

The good news is that there is no imminent Greek exit. The eurozone’s structural integrity remains intact for now. The fear of break-up will fade and the sell-off of peripheral debt should reverse. But most of the big questions remain unanswered.  Continue reading »

In welcoming signs of responsible contingency planning, it is important to distinguish between what central banks can deliver and what they are incapable of doing. In the context of today’s complex crisis in Europe, these critical institutions have essentially been reduced to the role of fire brigades. Continue reading »

If Greece remained democratic, the government would most likely lose support from its own citizens for its request to leave the euro. It would then have to start negotiating with its partners on the terms for staying, rather than leaving, the euro from a much weaker position. Continue reading »

Aung San Suu Kyi is right to dream of a better future for her people, especially the young. However, attending a U2 concert in Dublin will not bring them hope. Few young people in Europe feel optimistic about the future. Many in Asean do. They know that they are living at the dawn of the Asian century where explosive changes are coming. Continue reading »

The president has wasted more than three years on ad hoc responses to the crisis without apparent strategy. But it is not too late. A big economic speech laying out clearly his economic philosophy and a plan to tie together the seemingly disconnected strands of his policies would help him electorally and economically. Continue reading »

Dictatorships and tyrannies may be casual about spilling their people’s blood, but not democracies. When the people get to decide whether to go to war, they rarely do so willingly. This was why Immanuel Kant said the spread of democracy was the best guarantee of world peace. As he wrote in 1795, “if the consent of the citizens is required in order to decide that war should be declared nothing is more natural than that they would be very cautious in commencing such a poor game”. Continue reading »

Everyone hopes that the €100bn bailout of Spanish banks will calm the eurozone financial crisis and buy enough time for the further fiscal, banking and other integration that is required. That is possible but, unfortunately, it isn’t likely: firstly, because of the structure of the bailout; second, because it does nothing to resolve the issues at the heart of the eurozone crisis; and third, because in big financial crises, markets often determine that rescues such as this are not enough. I hope I am wrong, but this is unlikely to be a turning point for the eurozone.

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The €100bn bailout of Spain’s banks is of course a step forwards. After months of denial, the Spanish government has accepted that it cannot resolve its banking problems unaided. But the Spanish banking system still needs a fundamental overhaul. And at European level, there is still no consensus about what concrete steps need to be taken to solve Europe’s banking problem, or in which order. So the victory declarations this weekend look as misplaced as Manchester United’s premature Premier League victory celebrations a month ago. And the next few weeks will be fraught with danger.  Continue reading »

Keynesian economists blame the sluggish US growth and lack of job creation on the insufficiency of stimulus measures. If only Congress had agreed with President Obama to greater stimulus, they say, the current US recovery would have been much stronger. This is a dubious proposition. The deeper problem lay in the limitations of fiscal stimulus as a response to the 2008 crisis. Continue reading »

So far, emergency European funding has been impossible to exit. Rather than act as a catalyst for crowding in private capital needed to restore growth, and financial viability, public money has provided the private sector with the possibility to exit programme countries at a much lower cost; and exit it did. As a result, governments have become highly dependent on official aid to cover their budget needs, meet interest obligations and roll over maturing debt; and domestic companies have been starved of the oxygen that is so critical for investment and job creation. Continue reading »

The way in which the Bankia – and other – cases have been managed over the past few weeks confirms that banking supervision in the euro area cannot continue to be implemented in a decentralised way. The incentives of the national authorities to free ride are simply too high and undermine the stability of the entire euro financial system.

The traditional argument put forward in defense of conducting prudential supervision at the national level is that supervisory authorities have to be accountable to taxpayers, who ultimately bear the economic consequences of bank failures. As long as bank rescue operations are financed by taxes collected at the national level, so goes the argument, supervision should remain national. Continue reading »

There is only one thing worse than preparing for a crisis that does not happen; and that is not preparing for a crisis that does. It appears that American politicians not only lack plans to deal with adverse European contagion but are also on course to expose the country to additional self-inflicted challenges. Friday’s disheartening data are a timely reminder that these are enormous risks to take with what is already a very fragile employment situation. Continue reading »