Monthly Archives: October 2012

If Greece is to remain a eurozone member, we need greater emphasis on official debt forgiveness. If the objective is to safeguard Greece’s wellbeing outside the eurozone, there must be greater emphasis on returning Greece to a national currency while keeping the country in the European Union. Instead, Greece and the troika have opted again for the muddled middle – one that talks about sustainable eurozone membership but does not do enough to make this highly probable. Read more

Recent BBC polling in 21 countries showed that the majority of voters in all but one want Obama to win the Presidential election. Pakistan was that exception. Yet Mitt Romney has few fans either. Instead anti-Americanism is rampant and nobody in Pakistan really cares who wins the US election because for many people both candidates will continue to bash their country. Read more

Economic hardship pushes public opinion to become more inward looking and focused on domestic problems. As a result, solidarity among eurozone countries may weaken. In response strong co-ordination of the fiscal policies of the member states could lead to a reduction in imbalances within the euro area and stimulate overall demand Read more

The final full week of the US presidential campaign will see both candidates intensely debate the future of economic policy. But despite the rhetoric about its means, most experts agree on its ends. First, re-establishing economic growth at a rate that makes real reductions in unemployment possible; second, placing the nation’s finances on a stable footing by putting in place measures to ensure that the nation’s sovereign debt is declining relative to its wealth; and third, renewing the economy’s foundation in a way that can support steady growth in middle-class incomes over the next generation as well as work for all those who want it. Read more

It’s not so much that monetary policy is ineffective. Rather, people expect too much from it. Indeed, I would argue that unconventional policies create distortions that make an early return to economic health rather unlikely Read more

If President Obama is re-elected, he would regard that as a mandate to raise taxes on high income taxpayers. Some Democrats advocate that the President propose new legislation in January to cut taxes on everyone with income below $250,000, daring House Republicans to vote against a bill that lowers taxes on 97 percent of taxpayers while raising taxes on no one Read more

Those who have participated in the backroom negotiations know that it is the US above all other countries that has resisted a clear and accountable financing mechanism. This is par for the course. The US these days resists almost all calls for sharing the financial burdens of sustainable development. As a striking example, the US official development assistance budget, though large in absolute terms, is the lowest share of GDP of any advanced economy, just 0.18 per cent of national income. Read more

As the violence in Syria builds, powers outside the region are unable or unwilling to do much more than send in more weapons and watch what happens next. But this is no ordinary civil war. It is a conflict of growing consequence for much of the Middle East and, as it generates new risks across the region, it will become much more difficult for foreign powers to remain aloof.  Read more

The acid test for this week’s summit will be whether the proposed blueprint for comprehensive banking union is actually endorsed by the European leaders. Positive market reactions to announcements will not substitute for actual decisions for long. Read more

With each generational change in the party leadership, there is a burst of wishful thinking that major reforms may now materialise. The more cautious realise that China’s collective leadership system reduces the likelihood of game-changing shifts, and history tells us that progress is more likely to come from initiatives that are piloted locally and then adopted nationwide. Read more

As European leaders gather once again in Brussels to discuss the eurozone crisis, a shift to an anti austerity stance is urgently required. Yet whatever the fate of the single currency, the current crisis is set to transform the European Union. If the euro is kept intact, it will be because of a shift to more federal structures within the eurozone. If it fractures, there will need to be a serious redesign, in a federal direction, if what’s left of the euro is to be saved.

In either case, we will need new thinking about the way the European Union works. Read more

Those who interpreted the IMF’s recent World Economic Outlook as evidence that austerity is self-defeating are mistaken. The fiscal multiplier, which has attracted so much debate, measures the one-off impact of changes in tax or spending on the economy when the adjustment is made. It does not measure the impact of changes in tax or spending on the long-term growth rate. There is little in the study to suggest there is an advantage in postponing adjustment. Read more

The ability of the Fed to credibly make promises about future monetary policy would be threatened by a change in control of the White House because of the widely different monetary views of Democrats and Republicans. If policy is quickly reversed, it will call into question the ability of the Fed to use forward guidance as a policy tool again in the future.  Read more

Now that the party conference season has drawn to a close, David Cameron must return to the real task of stimulating growth, all the more urgent given the worsening economic and fiscal outlook. One of the most immediate challenges he faces is how to unlock private investment in the power sector as nuclear and coal-fired plants age. Read more

At the tail end of the first Obama administration, Pakistan has shifted from strategic ally of the US to pariah state and Syrians are fighting the bloodiest war ever in the Middle East against the foulest of dictators with no support. The Arab Spring has, by and large, succeeded in slowly changing the attitudes of societies that had lived under one man rule for so long. But there has been no coherent US response. The only consolation for the Muslim world as we look back on Barack Obama’s term in office is that a Republican win would be a much greater disaster for everyone. Read more

If the global economy was in trouble before the annual World Bank and IMF meetings in Tokyo last week, it is hard to believe that it is now smooth sailing. Indeed, apart from the modest stimulus provided to the Japanese economy by all the official visitors and the wealthy financial sector hangers on, it is difficult to see what of immediate value was accomplished. Read more

Far from being a morale booster at a time of austerity, today’s Nobel award is a grim reminder of just what bad times the European vision has fallen on, debased by the unresolved euro crisis. But the Nobel is awarded for what the recipient has done abroad – and today, there is no European foreign policy today to speak of. The best Nobels go to brave individuals and institutions that defy their times and peers to open a path to peace. This Nobel seems a bizarre and sentimental tribute to Europe’s past that further shames its present. Only a Nobel for economics would have seemed stranger.

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At the beginning of next year, federal tax increases and spending cuts equivalent to about 5 per cent of the entire US economy will automatically come into effect, unless Congress does something to avert it. If America falls off this “fiscal cliff”, the nation will plunge into recession. Ironically, the spending cuts will be triggered because Democrats and Republicans in Congress have been unable to agree on a plan for long-term deficit reduction. Yet as a practical matter, negotiations will drag on into the new year and, because everyone knows that the final compromise will be made retroactive to the start of the year, the cliff won’t feel like much of a cliff. With any luck, by the time significant tax increases and spending cuts take permanent effect, unemployment will already have dropped and growth will have accelerated. America’s irrational and irascible political process may come up with a timetable for reducing the budget deficit that’s surprisingly sensible.

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Two narratives are emerging to describe the re-emergence of China. The western narrative, concedes that China’s economy has grown, but couples this with constant observations that the story is too good to be true and that the Chinese economy is bound to sputter or even collapse. The current focus, after the removal of Bo Xilai, is on the purported fragility of China’s political system. The eastern narrative, however, focuses on China’s strengths, viewing the Bo Xilai episode as a test the Chinese Communist Party has passed. Moreover, rather than producing dictators who cling to power, the CCP is about to install talented, refomist new leaders who could inject fresh drive and dynamism into the economy over the next decade. Both narratives may be wishful thinking. Let us see which prevails.
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A brighter picture from Friday’s jobs data must be sustained if America is safely to deleverage those segments of the economy that remain over-indebted. A significant part of the monthly improvement is associated with part-time, rather than full-time, employment. With Congress too divided to enact meaningful policy measures, the Federal Reserve will have no choice but to remain deeply engaged in uncertain policy experimentation. Read more

Mitt Romney is the presidential candidate of one of the world’s oldest and most powerful political machines. Henrique Capriles is the candidate of an ad hoc and inchoate amalgam of Venezuelan political groups. Yet confounding expectations, Mr Capriles has run a flawless campaign and on Sunday will confront Chavez with the strongest challenge he has ever faced at the polls. In contrast, Romney’s campaign, lavishly funded and full of the best political consultants money can buy, has suffered from endless gaffes, mistakes and miscalculations. So is there anything that Mitt Romney, the 65-year-old veteran of politics and business, can learn from a 40 year-old from a backward country with a deeply flawed democracy? Quite a bit, it turns out.  Read more

Falling sales. Too many factories producing too many cars at excessive cost. Mounting losses at manufacturers. An urgent need for action. That’s what my colleagues and I found when we took up our posts as members of Barack Obama’s auto taskforce and that is what confronts European carmakers today – except without a taskforce or a central government to ram through the needed changes. Read more

Given the high-profile disasters of recent years, it is surprising that most banks think they have reputational risk under control. Banks must learn that investor relations officers cannot be expected to make an editorial silk purse out of the sow’s ears of IT disasters, unearned bonuses or egregious cases of customer exploitation. The Basel Committee has noted that “the art of protecting reputation is poorly developed and understood” and there is much that banks could draw from practices in other industries.  Read more

Politicians at last seem to be getting serious about the need to address the lamentable failings of vocational education in England – shortcomings that mean up to a third of young people today get little or no benefit from education after the age of 16. The government has started the ball rolling with some mostly sensible plans for reform, and now Ed Miliband has outlined how a Labour government would take things further forward. A lot of the detail has yet to be filled in, but the broad direction looks right. Read more

Now that Mikheil Saakashvili has lost Georgia’s election, some will pronounce the “Rose” revolution dead and buried – and that would miss the point entirely. The 2003 popular insurrection in the streets of Tbilisi was never simply the replacement of Eduard Shevardnadze with Mr Saakashvili or of a Soviet-era clique with a post-Soviet generation of leaders. Instead, the Rose revolution, like all genuine revolutions, was the replacement of a sclerotic political order unresponsive to public demand for change with one that at least begins to reflect the aspirations of the people who triggered and sustained it. Read more