Monthly Archives: March 2014

After prolonged debate, China’s long anticipated “New-Type Urbanisation Plan 2014-2020” was unveiled in mid-March. There is much to be applauded. It rightly focuses on improving the quality of urbanisation by reining in wasteful investments, meeting the social needs of migrant workers, addressing environmental concerns and developing new financing sources. The ultimate target is that by 2020 China will be 60 per cent urban compared with 54 per cent today.

—But its flaw comes from a seemingly reasonable stipulation that the size of the largest cities should be “strictly controlled” and labour migration should be targeted at the smaller and medium-sized cities. This restriction not only violates a central theme of the leadership’s Third Plenum in Beijing last November — that the market and not the government should play the “decisive role” in allocating resources — but it also will make it more difficult for China to achieve much needed productivity gains. Continue reading »

The surprising statement by Jens Weidmann, head of the Bundesbank, that quantitative easing “is not out of the question” in the eurozone, is not that surprising after all.

Last month’s judgment by the German constitutional court on the European Central Bank’s Outright Monetary Transaction indicated that the main problem with the commitment to do “whatever it takes” to save the eurozone lies in its unlimited nature, which could lead the central bank to purchase a large amount of assets of a specific country and thus take on to its balance sheet risks that could have budgetary consequences outside the control of national parliaments. The statement implicitly recognised that there would be no objections if the purchase of assets was limited rather than open-ended; and spread throughout the eurozone rather than concentrated on only one country. Continue reading »

Early next month, just a few days after President Barack Obama visits its Brussels headquarters this week, Nato will turn 65. That is normally a good age for retirement. But Vladimir Putin’s blatant actions in Ukraine have put a halt to any such thoughts. The transatlantic defence alliance is still very much needed. The question now is not whether Nato should retire, but how it should respond to the new challenges to its east.

Over the years, the alliance has evolved through various phases in response to changes in the security environment. During the first phase of its existence – let us call this NATO 1.0 – the alliance’s focus was on defending western Europe against an attack from the large Soviet-led forces arrayed against it. The North Atlantic Treaty, which was signed on April 4 1949, committed each of the 12 signatory states to regard an armed attack against one as an armed attack against all. Collective defence was the essence of Nato’s mission – and remained so until the cold war ended in the late 1980s. Continue reading »

The unsurprising consequence of the indifference of supporters of the centre left and centre right is that more extreme parties, and notably the far-right National Front, have done better than many forecast. The FN may have scored only 7 per cent on a national basis but it did well where it focused its attention.  Continue reading »

Niall Ferguson is half-right. There has been a geopolitical taper but not of the kind he meant. Instead, there has been a tapering of western geopolitical wisdom.

Has anyone noticed the string of western geopolitical failures over a decade? Despite massive military and financial interventions, Iraq and Afghanistan are failing. Three years ago the US announced: “For the sake of the Syrian people, the time has come for President Assad to step aside.” He remains in office. And now the west is on the verge of handing China a geopolitical gift by alienating Russia. Continue reading »

Whenever there is a sign of possible weakness in China’s financial armour there are voices that cry out that a crisis is brewing. The latest example is the recent default on a bond payment by Shanghai’s Chaori Solar Energy Science and Technology. This quickly prompted questions about whether this was China’s “Bear Stearns or Lehman moment”. Less alarmist views welcomed the default as a signal that the government wanted to instil a sense of prudent risk-taking.

Interpretations of Premier Li Keqiang’s statement that future defaults may be unavoidable also depended on one’s sentiments, with some seeing it as a sign of imminent problems and others dismissing it as an acknowledgment that defaults are part of every economy. Continue reading »

It wasn’t a “giveaway” Budget – because, as the chancellor admitted – even the greatest upward revision in growth between Budgets in at least 30 years had not given him anything to give away.

The Office of Budget Responsibility’s gloomy view of the UK’s underlying potential has not changed. In its view, the faster than expected growth we have seen – even since December – has merely brought forward the date at which the spare capacity in the economy will be used up. Continue reading »

When an economy enters a prolonged period of lower-than-expected growth, there is bound to be a fight over the spoils. In the UK’s case, George Osborne has decided to prioritise the interests of the older generation, as show in Wednesday’s Budget statement. Politically, that is not surprising. All political parties yearn for the support of the baby-boomers: there are lots of them and they are now of an age where they can reliably be expected to head down to the polling stations to cast their votes.

In truth, Mr Osborne has to confront a stark economic reality. If the Office for Budget Responsibility’s forecasts are anywhere near accurate, the UK economy is condemned to a remarkably weak pace of economic growth in coming years. The OBR’s boffins believe the UK’s unexpected strength last year was cyclical, not structural, and is not yet prepared to proclaim a renaissance in medium-term growth prospects. Continue reading »

America’s stuttering recovery could put pressure on monetary policymakers to do even more to try and stimulate growth – either through a pause in tapering or through signals that will keep rates low for even longer. But there are increasing signs from the labour market that pressure on the Federal Reserve could come in the opposite direction; that, in fact, the economy is closer to its potential level than previously thought. If so, the time to begin tightening monetary policy might come significantly sooner than currently projected. Continue reading »

This week’s Budget provides a vital opportunity for George Osborne, the UK chancellor of the exchequer, to boost economic growth and employment by stimulating investment in cleaner and more efficient energy for homes and businesses.

The government has estimated that more than £100bn needs to be invested in electricity generation by 2020 to replace ageing power stations with infrastructure that is more efficient and less polluting.

But the private sector is still holding back because of uncertainties about the direction and pace of government policies. In particular the announcement last year that the government was reviewing the UK’s targets for reducing greenhouse gas emissions by the mid-2020s created doubts about the commitment to the development of low-carbon energy. Continue reading »

There is an important debate under way about the future of Europe and Britain’s place in the EU. I bring a pro-European bias to this debate. I am a great believer in the Union as it was originally conceived. This is a function of my personal history and of the philosophy I developed based on my life experience.

The Europe I believe in was intended to be a practical embodiment of the values and principles of the open society; a voluntary association of equal and sovereign states that surrendered part of their sovereignty for the common good. Continue reading »

Last week was a good one for global economic rebalancing, or so it seems at first sight.

Encouraging data from several countries point to a global economy that is operating on more cylinders and, therefore, growing in a more balanced fashion. Yet the manner in which this is being achieved, together with a still-inadequate overall level of global activity, are concerns. With the crisis in Ukraine also raising the stakes, the Group of 20 needs to work even harder to deliver on its innovative growth commitment.

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If articles in the China-watching press are to be believed, we have recently learnt a lot about the viewing habits of senior Chinese leaders. Xi Jinping, the Chinese president, reportedly considers the American classic The Godfather his favourite western cinematic indulgence. Wang Qishan, the former vice-premier of finance and now ultimate arbiter for discipline on the Communist party’s standing committee, is said to favour House of Cards. Mr Wang has purportedly told colleagues in Zhongnanhai, the cloistered leadership compound, to keep abreast of the Netflix hit. He apparently was so transfixed by early episodes that he instructed underlings to check the release date for season two.

Political heavyweights from authoritarian regimes tend to favour muscular US movies such as Rambo and Scarface. Apparently, the Latin American strongman Manuel Noriega had a library filled with violent American VHS video tapes (before the era of DVDs). Continue reading »

Events in Ukraine have underscored the importance of effective external support for successful economic and political reform. The international community is finally responding with concrete indications of support.

At one level the situation in Ukraine is unique – a product of the country’s sensitive location between Russia and Europe. At another, however, it is merely the latest example of a phenomenon that recurs all too often. A government that is illegitimate or at least highly problematic is brought down. The world community seeks to support economic reform. A new government, purportedly more democratic and legitimate, is installed in its place. Think, for example, of the transition that occurred after the Berlin Wall fell; or after the Arab uprisings; or in more isolated cases such as East Timor or Rwanda. Continue reading »

At the behest of Saudi Arabia, Pakistan has made a strategic shift from its so far neutral position on Syria’s civil war – to one that portends to back the Syrian rebels and even provide them with arms through Riyadh.

The shift will have serious regional consequences as it has already deeply antagonised Iran, which supports the Syrian regime, and angered Pakistan’s large Shia community which could prompt further sectarian conflict. It is also bad news for Afghanistan, where Pakistan-Iran rivalry may restart once US troops leave that country.

 Continue reading »

Until recently, the US was always the world’s “consumer of last resort”. Since the collapse of the Bretton Woods exchange rate system in the early-1970s and the subsequent huge increase in cross-border capital flows, the US easily absorbed more and more of the world’s surplus savings. This was particularly so in recoveries after US recessions. The US current account moved into modest deficit in the late-1970s and into much larger deficit in the 1980s. Thereafter, the deficits got even bigger, reaching a peak of almost 6 per cent of US gross domestic product before the onset of the global financial crisis.

The latest US recovery is, thus, unique. This time, the current account deficit has continued to shrink. Lots of explanations are offered, most obviously the decline in America’s dependency on imported fossil fuels thanks to the shale energy revolution. Yet, if that were true, Saudi Arabia and other oil producers should be running much smaller current account surpluses; mostly, they are not. Continue reading »

The Russian decision to authorise troop deployment in Ukraine raises profound questions – for Russia, for Ukraine, for the west and for the international community as a whole. What does Russia seek to accomplish by threatening this use of force? What does this mean for European security and international order? How should the west respond? Continue reading »