The stable of fictitious beasts from Greek mythology acquired a new inmate this week, unveiled in the letter from the Syriza government proposing economic reforms to keep the country’s bailout going. Yanis Varoufakis, the finance minister, has bravely set off in search of that wondrous creature: “EU best practice across the range of labour market legislation”.
If there was any doubt that the forthcoming negotiations between Greece’s new Syriza government and its eurozone creditors would be fiery, Greek prime minister Alexis Tsipras dispelled them in his barnstorming speech to his parliament on Sunday night.
His defiant rhetoric will have gone down well not just in Greece but also with some of the political left in Europe and beyond. Some politicians and commentators have elevated the dispute between Athens and the rest of the eurozone – usually shortened to Greece vs Germany – as a battle between the progressive and reactionary forces for the soul of Europe, a fiscal Spanish Civil War for the 21st century. Read more
A former colleague on the FT (no names, but he now runs the UK’s Office for Budget Responsibility) used to muse that a useful all-purpose headline for any story about an emerging market economy was “[Insert Name Of Country Here]: Structural Reform?”
Putting “Greece” into that formula after Syriza’s resounding victory in Sunday’s election, where do we stand? Every pundit in Europe is retailing some version of the insightful observation that it is all about whether Syriza — and its leader, Alexis Tsipras, Greece’s new prime minister (above) — can be induced to do enough structural reform to buy the fiscal leeway and debt relief it wants.
The problem with this view is that “structural reform” is a crude and unhelpful term. Read more
It is five years since a massive earthquake tore through Haiti, leaving tens if not hundreds of thousands dead and sparking a huge aid effort from overseas governments and charities to feed, shelter and treat afflicted Haitians.
A total of $13bn, more than 10 per cent of the global annual government aid budget, was pledged over several years — about $10bn from governments, and the rest from private donors.
Looking back, what was the effect of all this assistance? Did it provide short-term relief? Did it put the Caribbean nation on the path to higher living standards, better governance and greater resilience to natural disasters? Or could the aid effort have been much more effective?
The verdict at this juncture is: don’t know. Read more
There was a big kerfuffle in October when the IMF made a point of saying that it (along with a bunch of other forecasters) had underestimated the effect of fiscal tightening on European economic growth over the past couple of years, with obvious implications for the troika’s austerity programmes for the likes of Ireland, Greece and Spain.
The admission got some predictable pushback from troika members who have drunk deep from the austerian well. It was also questioned by my colleague Chris Giles, who pointed out that the results were highly sensitive to the inclusion in the sample of outlier countries – especially Germany (which, despite its frugal prescription for others, has itself followed expansionary fiscal policy and enjoyed good growth) and Greece (the opposite) – and possibly the exclusion of the Baltic states, which followed aggressive fiscal tightening to better effect than Greece. Read more
They say leading the IMF is like commanding the Red Army (top-down, hierarchical, fiercely cohesive) and running the World Bank like chairing a university social studies faculty (bureaucratic, fractious, ideologically riven). Heading up the WTO these days must be like operating a stable where all the horses are dead, dying or struggling to stand up.
The WTO’s negotiating function has all but seized up. The Doha round has crashed. The fate of plans for a plurilateral deal on services is unclear – and opposition from some emerging markets might force the agreement to be negotiated outwith the WTO. Brazil has made valiant attempts to get the WTO to address currency misalignments, but China has predictably squashed them. Read more
Another late-night Brussels meeting, though this one less shambolic than last week’s. The eurogroup announced it had managed to add up some numbers on a spreadsheet that has been kicking around and agree a debt reduction deal for Greece.
The IMF, which had been digging its heels over the need for the other two troika members to fill Greece’s financing gap, professed itself satisfied, even though the Greek debt:GDP ratio was projected at 124% in 2020 rather than the 120% the Fund had apparently drawn as a line in the sand two weeks ago.
Actually, as we reported after last week’s inconclusive eurogroup meeting, the Fund had already backed away from the 120% target in return for sharper reductions in the years following. That suggests it probably wasn’t a good idea to make a fuss about the figure in the first place, as it now makes it appear that, for the nth time, the IMF gave its assent to a deal it wasn’t happy with. Read more
If anyone should understand the benefits of open markets, it is a central bank. The Canadian Mark Carney’s appointment as Bank of England governor (unexpected, mainly because he had said he wasn’t interested) is a significant step even for a country that has had German, Swedish and Italian national football coaches, a Zimbabwean national cricket coach and various Dutch and German heads of state.
But it is not unprecedented. The Bank of England (more accurately HM Treasury, which makes these appointments) has form in bringing in foreigners. Read more
Like the European Christmas, America’s Thanksgiving is edging towards being an entirely retail-driven festival. Black Friday, the day after the holiday, has been the busiest shopping day of the year for a while; we now also have Small Business Saturday and Cyber-Monday (for online buyers), and no doubt some marketing fiend somewhere is seeking to theme Sunday and Tuesday also.
Those capitalistic Puritans would have been proud, right? Max Weber says so. Liberated from the clutches of a static and stultifying Europe (and skipping all those EU summits), they worked hard, saw profits and wealth as evidence of God’s calling, and we ended up with the greatest economy on earth.
Well, not really. Not only were they pretty feeble producers themselves to begin with – Bill Bryson claims the Mayflower carried not a single cow or horse or plough (plow, whatever) or fishing line – but the Massachusetts colonists had some peculiar views about business. Read more
The American Farm Bureau gladdens the hearts of ideas-strapped journalists every November by calculating the cost of a classic Thanksgiving dinner. This year’s reckoning shows the price up by a very reasonable 28 cents or 0.6% from last year: the turkey was more expensive but most of the other ingredients were cheaper.
Now, here’s the thing. Despite all the dire talk of food price shocks and drought in the Midwest and the newly meat-chomping Chinese and so on, the Thanksgiving dinner has not risen much in real terms since the global food price crisis in 2007-2008 and has been pretty stable for two decades. Read more
With friends like these…. Jean-Claude Juncker and Christine Lagarde. (AFP)
It’s not as if the troika of eurozone rescue lenders never falls out, but usually it takes a not-in-front-of-the-children attitude to airing its rows. A refreshing change on Monday night, as my colleagues Peter Spiegel and Josh Chaffin report, when the eurogroup summit, while not actually deciding anything substantive, made sure it would stand out from the dozens of other such gatherings by hosting a very public argument between the eurogroup’s Jean-Claude “We all know what to do, we just don’t know how to get re-elected after we’ve done it” Juncker and the IMF’s Christine Lagarde.
The actual substance of the spat looks laughably trivial. It’s about whether Greece hits its 120 per cent of GDP debt target in 2020 or in 2022, which, given the huge uncertainties in forecasting debt dynamics, is about as precise as a Florida election count. The 120 per cent target is itself pretty arbitrary, apparently based on what seems to be sustainable in Italy, which is a very different country with a more flexible economy and captive domestic investor base for government bonds. Read more
Well, trade reporters, you won’t have bananas to kick around any more. One of the world’s longest-running trade disputes, and one of the few with genuine comic potential, was fixed today as the EU signed an agreement with Latin American countries to end the banana wars.
As a WTO matter, it’s being going on for 20 years; as a source of trade friction, much longer. The political deal was actually done nearly three years ago, which gives you a sense of just how quickly trade diplomacy moves. Read more
Just a week till presidential election day, but still time for more dialogue of the deaf about offshoring. The latest iteration was kicked off by a Romney comment (and slightly less misleading ad) wrongly suggesting that Jeep, owned by Chrysler, was moving production to China. (In fact Chrysler is restoring capacity there to service the Chinese market.) The Obama campaign has just released its response, and so another bout of breast-beating economic nationalism gets under way.
More sympathy might be due to the Obama campaign if it didn’t itself routinely equate foreign investment with sending jobs overseas, particularly its ill-advised attacks on the idea that a territorial corporation tax system would reward US companies for offshoring employment. As informed opinion on the subject routinely points out, the overall evidence is that foreign investment is a complement rather than a substitute to domestic expansion. If you want the specifics, read this. Read more
I thought we’d dealt with this “naming China a currency manipulator will enable Mitt Romney to put tariffs on Chinese imports and send gunboats up the Yangtze and go round to Xi Jinping’s house and eat food out of his fridge” gibberish, but Tuesday’s presidential debate has kicked off another round of fretting about it.
So read it for yourselves: right here is the relevant part of the Omnibus Trade And Competitiveness Act 1988. Penalties for being a currency manipulator? Read more
Intriguing piece in the Economist about “Chilecon Valley”, Chile’s attempt to snaffle some of the start-up tech talent driven out of the US by self-destructive American immigration laws. Some public seed capital and easy-to-get work visas and the sector is up and going.
So where does this leave the argument that a tough intellectual property rights regime, particularly with software and other tech patents, is necessary for innovation? Chile was forced to tighten up its patent and copyright law as a result of its 2004 bilateral trade deal with the US, but Washington remains unhappy about the implementation. Chile is one of the dirty dozen countries (actually 13 in 2012) on USTR’s ominously named annual Priority Watch List for poor IP protection, and Washington is trying to raise the IP bar yet higher for Chile and the other countries in the Trans-Pacific Partnership. Read more
Saul Loeb/AFP/Getty Images
Yesterday, I was all “the emerging markets have a point about running the IMF”. Read more
Giving emerging markets their rightful place in running the world economy has now been a staple summit platitude for years. Getting everyone to agree how to calibrate hegemony is a bit trickier.
The IMF is struggling with this at the moment, as its shareholder countries remain a long way apart on revising the “quota“, or voting share, given to each nation on the fund’s executive board. (For a sense of the complexity and intractability, think the Schleswig-Holstein Question but with Excel spreadsheets.) Read more
A thought on intellectual property rights following yesterday’s magnum opus. As is often the case in trade deals, political economy means that the remedies are at a tangent to the real problem.
The main complaint I hear from US companies is that their IP is being stolen in emerging markets, particularly but not exclusively, China. It’s not just about the quality of the laws on the books: it’s about getting them enforced. Even if you can get the evidence together for a case (especially tough for industrial espionage), Chinese IP courts have limited recourse and are subject to local political pressure. Read more
Paraphrasing Churchill (who was speaking at a White House lunch, as it happens) to law-law is better than to war-war. Obviously disappointing that the Obama administration is willing to politicise a trade policy (or at least its timing) so blatantly, the US government starting a WTO case against China on auto parts the day that POTUS arrived to campaign in Ohio.
But that’s hardly new. George W Bush imposed steel import tariffs in 2002 ahead of the mid-term elections, knowing that by the time that the WTO had declared the tariffs illegal, as it duly did in November 2003, they would have done their electoral work. Read more
The World Bank has a new chief economist: Kaushik Basu, currently chief economic adviser to the Indian finance ministry and otherwise a professor at Cornell. He follows China’s Justin Lin, another high-profile appointment from the Brics.
With the Bank playing a smaller role than formerly in financing development, its views on economics also carry less weight. The flagship World Development Report used to host some fierce ideological disputes, one of which a decade ago caused another Cornell economist to quit as head of the report (and produce a remarkably illuminating paper describing the unnecessarily polarised debate within the discipline).
But the Bank still has the capacity to start debates, and one particular idea of Basu’s seems a likely candidate. He created a stir by publishing a proposal on the highly charged (particularly in India) question of corruption, suggesting that giving bribes be legalised and only bribe-takers prosecuted. There are sound incentive-based reasons for this – it encourages those asked for bribes to report them to the police – but one can imagine why it might be controversial to let bribers go free. Read more