Monthly Archives: December 2013

The British and French have a remarkable ability to irritate each other. That skill was demonstrated again recently when Jean-Marc Ayrault, the French prime minister, was asked on television why he was not prepared to take a leaf out of the British book and adopt the UK coalition government’s policies on cutting public sector pay and jobs. His response was firm, not to say aggressive. The Cameron government’s policies have, he asserted, created “mass poverty” and social inequality on a huge scale, of a kind which the French would never find acceptable. And he reminded the viewers that unlike France the UK had still not yet recovered output lost in the great recession.

This latest outburst is in a long line of criticisms elaborated by President François Hollande, and indeed Nicolas Sarkozy before him, both of whom believe that “Anglo-Saxon” governments, economists and credit rating agencies exaggerate French economic weakness. David Cameron’s promise to roll out the red carpet to welcome French entrepreneurs escaping punitive tax rates added fuel to the flames. And it is true that certain elements of the British press are assiduous in peddling a negative view of France as a latter-day Soviet Union, clinging to an outdated economic model.

If we look below the rhetoric, which side has the better of the argument? Read more

There has been widespread repression of Uighur and Islamic sentiments in the Western Chinese province of Xinjiang. The latest Chinese measure, according to the Reuters news agency, is a November announcement that Uighur college students will not graduate unless their political view are approved by the authorities, who admit that they are in “a life-and-death struggle” for people’s minds.

This is all incredibly similar to the brutal tactics that Stalin used in the 1930s in central Asia to try to crush people’s belief in Islam and prevent them performing traditional Muslim rites. Stalin clamped down hard on all religious practices and rites such as public prayers and fasting. Mosques were few and far between and the state-trained Ullema were considered by the public to be government stooges. Islam and its rituals went underground where they continued to flourish. Read more

With equity markets reacting enthusiastically to the Fed’s historic policy change announced last week, many have rushed to declare victory. Whether in asserting investor comfort with the policy regime shift or in declaring the definitive end of dependence on quantitative easing (“QE”), they believe that the markets’ short-term reaction can indeed be extrapolated into the longer-term.

Compare this with what we have been hearing from central banks. Reactions there have been quite muted. Humility may well be a factor, especially given that three prior attempts to “exit” earlier versions of QE regimes had to be abandoned. But there may well be more at play. Central bankers have good reason to be more cautious about declaring victory at this stage. And the rest of us would be well advised to ask why. Read more

Meeting in Brussels on Friday, European leaders addressed defence cooperation at an EU Summit for the first time since 2008. The timing of the discussion was propitious, coming at a time when European concerns about America’s commitment to transatlantic security and engagement had grown significantly as a result of Washington’s announced pivot to Asia and President Barack Obama’s hesitancy over Syria earlier this summer.

If ever there was a time when European leaders would need to demonstrate their willingness to do more on defence, this was it. And, indeed, the leaders rightly concluded that “defence matters.” They agreed to cooperate more closely on defence, including by increasing the effectiveness of their common security and defense policy, enhancing defense capabilities, and strengthening Europe’s defense industry. Read more

For a few years now, I have felt as if I live intellectually in the Alps. In the European Council, I used to translate the virtues of discipline into Mediterranean languages, while also interpreting for northern countries the difficulties felt by southern Europe.

A mutual learning process is now essential. The south, as it adapts to the social market economy, must be more determined in pursuing fiscal discipline and structural reforms. Likewise the north, Germany in particular, must appreciate that such efforts by the south are unlikely to generate sustainable improvements unless Europe’s policy framework becomes more growth-friendly. Read more

Job done, at least for now. Ben Bernanke and his colleagues at the Federal Reserve will be delighted at the market reaction following their monetary “pincer movement” on Wednesday. The Fed will taper its asset purchases by $10bn a month in January – down from $85bn to $75bn a month – with a strong hint that further tapering will occur as 2014 progresses.

At the same time, however, the Fed has strengthened its “forward guidance” message. Simply put, America’s central bank is promising low interest rates for longer. If the Fed’s forecasts are to be believed, rates will now be 25 basis points lower than previously projected at the end of both 2015 and 2016. Mr Bernanke has even managed to ease some of the tensions that had muddied the Federal Open Market Committee’s message over recent months. Those members who had previously offered a more hawkish view on interest rates appear to have had their talons trimmed. Read more

As on past occasions, the agreement reached by eurozone finance ministers on the single resolution mechanism will officially be saluted as a big step towards a fully-fledged banking union. But many will be disappointed because the agreement falls short of expectations.

The mechanism is unsatisfactory from several viewpoints. The decision-making process is cumbersome and involves too many bodies. The funds are insufficient to tackle a big banking problem. The ability of the mechanism to borrow in the markets is still unclear. The period of transition to the final system is too long, at least compared to the frequency of banking crises. Overall, the separation between banking and sovereign risk – which was the main goal of the union – has not been achieved. Read more

North Korea’s formerly powerful number two, the ill-fated Jang Song Thaek, was very publicly and brutally executed along with key aides either as part of Kim Jong Un’s plan to consolidate his unrivalled power, as retaliation for fomenting a military coup against the boy leader, or as punishment for simply “not clapping with sufficient enthusiasm”. North Korean’s propaganda organs were in rare form when they denounced him: “Despicable human scum Jang, who was worse than a dog, perpetrated thrice-cursed acts of treachery . . . every sentence of the decision served as a sledgehammer blow brought down by our angry service personnel and people on the head of Jang, an anti-party, counter-revolutionary, factional element and despicable political careerist and trickster”. How is this Asian hybrid of Hobbes and Orwell even possible in 21st century Northeast Asia, the veritable cockpit of the global economy? Read more

At times, policy makers find themselves in the role of magicians, especially when they are pivoting from one well-accepted policy stance to another less certain one. In fact, this is what the US Federal Reserve will be doing in the next few weeks – perhaps as early as next week (a 50/50 chance), more likely in January and most definitely by the end of March.

As signalled already by Fed officials, and as nearly implemented in September, the central bank is on the verge of altering its policy mix in a material fashion – gradually reducing its reliance on monthly asset purchases (which have been held unchanged at $85bn since the announcement a year ago) and relying more on indirect tools. Put another way, the Fed is seeking to maintain its support for the US economy and markets while reducing the use of a highly experimental tool that, many believe, risks longer-term collateral damage and unintended consequences. Read more

The let-down that China watchers felt when the much anticipated summary communique came out of the third plenum of the Communist party was soon overridden by the ambitious agenda laid out in the subsequent “decision” document. Despite the vagueness of the communique, the “decision” provided a comprehensive reform programme that, if acted upon, will absorb the energies of this generation of senior leaders and beyond. Ironically, rigorous implementation of these reforms will alter market incentives so that annual gross domestic product growth in the coming years could rise to 8-plus per cent even as the recent Central Economic Work Conference debated whether to lower the official target to 7 per cent to reinforce that quality now matters more than quantity. Read more

Much is made in the west of the supposed enigmatic qualities of the east and generally that sentiment really tells us more about a lack of knowledge among westerners than about the complexities of things Asian. However, Thailand may be an exception. Even the most astute observers are regularly caught off guard by political developments inside the kingdom.

I remember speaking to one of America’s most respected Thai specialists seven years ago just before the coup against former prime minister Thaksin Shinawatra, and he sagely advised that all was stable in Bangkok and there were no threats to his popularly elected government. Two weeks later, on September 19 2006, the army was in the streets and the military took power, repeating a tragic pattern that has bedevilled Thailand’s politics for decades.

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Both the UK and Japan would like to see sustained economic recoveries but, until recently, the recoveries they craved were fundamentally different in nature. The UK ideally wanted an export-led recovery supported by plenty of productive investment. The financial crisis provided the perfect opportunity to wean the UK off the housing-led, debt-financed consumer booms of old. Japan, meanwhile, hoped to see a shift towards a consumer-led recovery, helped along by an end to the deflationary curse which had persuaded the Japanese to hoard cash and repay debt. Read more

As economist Robert Triffin explained more than 50 years ago, the development of an international reserve currency requires that the issuing country or area records a current account deficit. This partly explains why the yen and the Deutschmark did not develop an equivalent role to the dollar, in spite of the relative strength of the Japanese and German economies. The eurozone economy is now in the same position.

The eurozone countries have adjusted, during the financial crisis, from running a broad external balance, which prevailed until 2010, to a rising surplus (2.7 per cent of gross domestic product in 2013, up to 3 per cent in 2015).  Read more

Beijing’s declaration last week of a special air defence identification zone above disputed islands in the East China Sea and the surrounding waters claimed by Japan and China is a clear escalation of an already dangerous situation. It might be tempting for commentators at this stage to digress into describing the torturous history of the disputed Chinese or Japanese sovereignty over these uninhabited rocks, to provide context for how the two great nations of Asia have virtually drawn daggers over barren island territories in a distant corner of the Pacific Ocean. Yet, the deeply unwise and provocative new Chinese decree of unspecified military measures in the event of unauthorised entry into this airspace has served to dramatically broaden the regional context of this bilateral stand-off. Read more

One system believes in limiting how much power money can buy and imposes redistribution mechanisms to counter inequalities of opportunities and outcomes. The other throws the weak out of the premier stratum of society, and uses large income distribution to perpetuate dominance and power structures.

No, I am not referring to the socioeconomic systems pursued by different countries. Nor am I referring to some grand academic experiment to test whether high growth with redistribution is indeed feasible. Instead, I am talking about the contrast between professional sports on the two sides of the Atlantic Ocean. Read more