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Monthly Archives: December 2015
Sangin shows the west must stay committed to Afghanistan
The battle for Sangin, and the Taliban’s claim to have captured the Helmand town from the Afghan army, follows an intensifying military and political crisis in Afghanistan that has for months been clear to the US, Britain and their Nato allies.
The big powers have displayed a total reluctance to acknowledge publicly what is happening on the ground. There has been virtual silence from US President Barack Obama and UK Prime Minister David Cameron and their respective governments, even as Britain and the US have sent special forces to the beleaguered southern province of Helmand to stave off a Taliban attempt to conquer it. Defence ministry officials on both sides of the Atlantic have handled the crisis as though it were merely a spot of bother. Read more
Now watch the dollar – and the euro
It was expected to be a “dovish” rate rise and so it proved. Initially, at least, investors are choosing to focus on the slow pace of monetary tightening that Federal Reserve chair Janet Yellen has emphasised, not the vexed question of whether Wednesday’s move should have happened at all.
But dovish or not, Yellen and her colleagues at the Federal Reserve will be hoping that this historic first rate rise will mark the beginning of several – even if they take longer to arrive than usual. The world cannot afford to have the Fed join the long list of developed country central banks that have raised interest rates since the global financial crisis, then later been forced into reverse Read more
Public-private collaboration key to climate targets
Governments, local and national, must work with private sector Read more
Chaos within Afghan Taliban as leadership struggle intensifies
Taliban followers of Mullah Mohammad Rasool © Getty Images
As if recent events in Afghanistan were not calamitous enough — the fall of the city of Kunduz to the Taliban (since reclaimed), the appearance of the militant Islamist group Isis, the collapse of peace talks between the government and the Taliban, the continuing economic crisis — the recent shoot out between Taliban groups could exacerbate the chaos and infighting as the leadership struggle intensifies.
The Taliban issued a recording on December 5 apparently claiming that their leader Mullah Akhthar Mansour had not been killed in a dispute in Quetta, in Pakistan, in which at least five Taliban chiefs were killed and others injured. It was first reported by the Kabul regime that Mullah Mansour himself had been killed. It is still not clear if he is wounded or dead. Read more
London’s new airport runway: the case for Gatwick
Gatwick airport © Getty Images
A subcommittee of the UK cabinet is expected to meet this week to decide whether to endorse the Davies Commission’s recommendation that a new runway be built at Heathrow airport rather than Gatwick. After such an elaborate study, the expectation is that Heathrow will be given the go-ahead. This would be a costly and high-risk decision.
The final verdict will be made by Prime Minister David Cameron. He had promised to give his decision by the end of the year but the deadline has now been delayed yet again.
The commission produced an estimate of nearly £150bn in economic benefits for Heathrow against around £90bn for Gatwick. It recognised that such estimates are highly uncertain because the benefits stretch far into the future and depend on the unpredictable dynamics of a competitive global industry. For example, if a Gatwick expansion caused one airline alliance to shift its London operations from Heathrow to Gatwick then the benefit calculation would change significantly. A risk-minimisation approach is the prudent way to compare highly judgmental forecasts. Noise footprints and cost estimates are more robust than benefit estimates, and should be given more weight in such comparisons. On both grounds, Gatwick wins over its bigger rival by a wide margin. Read more
A common guarantee scheme is vital for eurozone banking union
© Getty Images
It is widely agreed that for a true banking union to be realised, the eurozone needs a single deposit guarantee scheme, in addition to the existing single supervisor mechanism and the single resolution fund . However, there is as yet no agreement on establishing such a thing.
Germany, in particular, is opposed to a common insurance scheme and has indicated that before it could agree to one a number of requirements need to be met, aimed at reducing dangers such as the perverse loop between bank and sovereign risk. Even the very recent proposal of the European Commission, which foresees a gradual build-up of national schemes and then a common reinsurance mechanism, before moving to a true SDGS in 2025, has been rejected.
Germany’s position seems to be motivated by the fear that its taxpayers and savers might have to bail out bank depositors in other eurozone countries in case of insolvency. This is based on the assumption that banks’ solidity is negatively correlated with the state of public finances, which is worse outside Germany. One way to reduce the risk of this,is to cut the amount of government bonds that banks are allowed to hold on their balance sheets, either by imposing concentration limits or by eliminating the zero risk weight status that governments bonds currently enjoy. Read more
Nigeria and China deals: what’s the benefit for us?
Nigeria's Lagos-Kano railway line, rejuvenated with Chinese financing © Getty Images
China-Africa economic relations have seen a remarkable deepening over the last two decades, as part of a trend of African countries turning eastward to find counterpoints to their traditional western relationships, and Asian countries looking to Africa for natural resources to cope with growing domestic demand.
But it’s up to Nigeria, like other African countries, to drive harder bargains with China. Engagement must go beyond the symbolism of signing strategic agreements and memorandums of understanding; the nation’s leaders must always find answers to the bottom-line question: how does this benefit Nigeria?
That is the question that should be at the top of President Muhammadu Buhari’s mind as he meets President Ji Xinping to discuss reviving a raft of stalled, China-financed railway and power projects in Nigeria at this week’s China-Africa co-operation summit of heads of state and government in Johannesburg. Read more
Renminbi’s SDR promotion is both gift and burden for China
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Until China’s currency joined the International Monetary Fund’s Special Drawing Rights on Monday the term rarely attracted headlines. This event drew so much attention because many see its inclusion as an acknowledgment of China’s status as a global economic power. The renminbi is the first emerging market currency to be added to the elite basket and the first new one since the SDR’s creation, nearly 50 years ago. For China, it has been a much sought after goal. In financial significance, however, it is still largely symbolic since it will be decades before the renminbi becomes a major international currency.
Including the renminbi in the basket of reserve currencies — to join the dollar, euro, yen and pound — would seem to be an obvious move given’s China’s economic weight in the global economy, and.it might be viewed as a gift from the western financial powers — but it also carries a heavy burden that Beijing may come to regret. Under the qualifying rules a new entrant has to meet two criteria. The candidate must be a major trading nation, which China clearly is. And its currency must be “freely usable”. Initially this was understood to mean “freely convertible or tradable” and if so, the renminbi would not qualify given China’s extensive capital controls. But the IMF came out with the interpretation that it means widely used in international transactions — and this condition was met given its use in trade finance, swap arrangements and currency spot markets. Read more
The Arab world must rejoin the fight against Isis in Syria
A French fighter aircraft takes off to join operation Chammal against Isis in Syria © Getty Images
The lack of reaction from the Arab and wider Muslim world after the terrorist attacks in Paris and Beirut is both shameful and unfortunate. The US-led coalition to fight Isis in Iraq and Syria is reeling from desertions by Arab states that have increasingly found excuses not to take part in military actions against the Islamist militant group, even though some of their own capitals have been targets.
The Paris aftermath has led in the west to an excess of discussion on military and political policy on Iraq and Syria, how to deal with the Syrian leadership and how to cope with the refugee crisis. Yet in the Arab world there has been little policy reassessment or debate.
International pressure is mounting on the Arab states. Anwar Gargash, the United Arab Emirates minister for foreign affairs, was quoted on Monday by the official WAM agency as saying that the UAE would “participate in any international effort demanding a ground intervention to fight terrorism” in Syria. But unless western nations galvanise the states into action and their governments to act more responsibly over the crisis in the Middle East, the situation across the Muslim world will become increasingly dangerous. Isis is already killing far beyond its heartland — most recently in Afghanistan and Bangladesh. Read more
Japan’s solution is to raise wages by 10%
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Japan needs inflation, and more inflation than the 0.5 per cent achieved with its quantitative easing programme. The need is not for the usual countercyclical reasons, even if the economy is flirting with technical recession. Rather, the country needs meaningful positive inflation for reasons of fiscal stability. Public debt, even on a net basis, is very high at 160 per cent of gross domestic product. Even a small adverse shock could cause unsustainable debt dynamics — such as debt service payments spiralling up to consume much of the government budget.
In circumstances like those facing Japan today, positive inflation can contribute to fiscal stabilisation as a form of taxation. Together with low nominal rates provided by the Bank of Japan, it would lead to negative real rates and reduce debt. No debt reduction is pain free. Debt holders would suffer but, under our proposal, the average taxpayers would in effect recoup the cumulative 15-20 per cent of GDP that they transferred to bond holders by deflation in the last 20 years. Reducing the public debt burden would in this gentle and general manner also ease the way for other reforms. Read more
Risks to Europe that economists fail to see
What at first looks positive can turn negative if the politics goes wrong, says Stephanie Flanders Read more