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23 july 2011, and on the euro – and now the dollar too
A tired looking angela merkel left brussels yesterday with a deal agreed at a pre-meet with sarkozy and trichet, which most seem to agree was more than papering over the cracks. They committed to more economic governance which, based, on the expansion of the european financial stability facility, will be less than a euro area ministry of finance (see 2 june 2011 ) but well beyond what we have today. Whilst the "m" bit of economic and monetary union was meticulously planned and delivered, the "e" is an abrupt and ad hoc process. We will see what they deliver in this round, and what all 27 agree to. Meanwhile, enough was done to deal with the immediate issue of greece. The deal, with bondholders taking a 20% haircut, will see the rating agencies declaring a default, which will hasten the serious money already leaking from euroland, but should be enough to enable the system to manage that through in the short term. Whether it is enough to set greece on the road to recovery, to dam off contagion to the other piigs (definitely two eyes) or to stop the increasing mis-association of the eu polity in the public mind with pouring taxpayers' money down a somehow greedy bankers-linked black hole, we shall also have to see. Probably not, as the write-down surely needs to be bigger, and the transformation of the greek economy towards productivity and growth hardly begun. Meanwhile, as well as the euro teetering, the absolutely unthinkable across the atlantic is also somehow getting out of control, and there is a chance that the usa too may default, so too making the dollar teeter. Mark blyth sums that up well, talking about america's enormous long-term fiscal gap and dependence on china, with the us economy " like wile e coyote who runs off the cliff and it takes him a while to realise it. What has been keeping him up is chinese blowing air up". Suddenly global macroeconomic meltdown is right on the immediate agenda again. Short-term this is all going to shore up boutique operations like british gilts and of course gold, but any global tsunami will wash over us all, big time. No need for the ark just yet, but its time for the wellies.
20 july 2011, the litmus test
Rare praise for the eu, for bringing foreign airlines flying into europe within the ambit of its best-in-class emissions trading scheme - not that ets counts for much in the world, as the failure of copenhagen brutally showed (20 december 2009. This is part of a wider process of turning invisible costs on the environment into financial costs that will ultimately incentivise behavioural change. Yes, if we are ever to slow global warming rather than just mitigate, we are going to have to fly much less. The ets came from a growing realisation years ago that on current trends, climate change was likely to reduce gdp, probably by around 5% a year. Ironically the political agenda turned to this only because economic times were good and so mainstream public opinion allowed itself to worry about the environment. No longer: less people now are willing to pay higher prices to reduce climate change. Even then though the first phase of ets was a failure and only minor changes were made to the current one. Overall eu emissions were reduced by some 6% between the magic date of 1990 and 2008. However, that is a measure only of emissions released within europe, from our own homes and factories. It does not take into account what we imported, i.e. the carbon costs of our consumption - and so the emissions of what were once called developing countries' during that period have soared. In other words, in a world of international trade a net that captures part of the world is no net at all, as to reduce the globe's emissions, it needs to be a zero sum game. We've not really cut emissions therefore, we've just outsourced them. More than ever therefore if we are to cut emissions we need global sanctions and incentives, and unless we're flying less, amongst many other things, they're not working.
10 july 2011, juba-lant
There are so many parts of the world I know so little about; something my time at the united nations reinforced. I first followed sudan with the troubles in darfur and the horrifying janjaweed, discovering that an enlightened american-led process of many years was already near completion to stop a north-south civil war that had killed perhaps 2 million people. That culminated in a ceasefire and an independence referendum, and then with this week's celebrations, as south sudan became africa's 54th nation state. A glance at western sahara shows that there is no inevitability about such progress. South sudan however is extremely poor, if sufficiently exposed to mass media to want development and prosperity. Ensuring a permanent end to a war that has convulsed sudan for decades is just the first essential step along that road. South Africa, india, israel and hopefully Kosovo are all good examples of how a violent militia that forces independence (here the tenacious sudan people's liberation movement) can go on to build a plural and prosperous society that takes its place in the world and seeks to serve its people well. The country has oil, which is a good starting point, but so many countries show is no guarantee. The oil-rich border area already looks at high risk of re-igniting the war, and states such as neighbouring chad, sao tome and nigeria are text book "how not to" guides on becoming natural resource-dependent economies that breed corruption and autocracy, driving away the population's talent and reinforcing elites and tribal and religious divisions. Sudan has a place in british history, and indeed it was britain that without proper process united the 2 regions into one independent state in 1956, something today that looks another example of retreating imperial vandalism. As in india and israel, it was one reason for decades of war. Let's hope though that unlike in those places, independence turns out to be an end to the war, not just a phase in it, and that today really marks a new era of happiness for a fair slice of africa's people.
8 july 2011, end of the world
The day after netanyahu won the election in 1996, a seminal moment in israel's history (and that's how it ended), the (rather leftist establishment) radio played rem's "it's the end of the world as we know it" virtually non-stop. Stop though, abruptly, will another world this week, as, after 168 years, this sunday will see the last edition of the uk's biggest selling newspaper, felled by its utterly immoral behaviour several years ago. The news of the screws, as it was unaffectionately known, was the most populist of papers, both in its stance and visual content, where it was sometimes indistinguishable from the outright pornographic "sport" (a cross between viz and playboy) that incredibly lasted a decade before finally biting the dust a few months ago. The story has had blanket media coverage here, the press, as it sometimes does, binging on itself. Despite its alleged working class basis and immortalisation by the jam amongst others, I won't be sorry to see the back of what I used to buy on long train rides on sundays when I knew I'd get through the observer and need some light relief. Good riddance to bad rubbish. I will though mourn the inevitable passing of newspapers, weaker by the year as the web, ipads and an ever easier ability to create bespoke news channels dooms both the general approach and paper to borrowed time. Amazingly, I don't even read a newspaper every day any more, getting it mostly on-line. My last redoubt is the economist, though I've a steadily growing pile on my bedside cabinet of what once upon a time I'd have finished cover to cover by saturday morning. My paper reading this weekend though is going to be my first foray into the news of the world for many a year.
2 july 2011, should I delete this blog ?
Sometimes you just read a fabulous thought-provoking article, like this. I have mused myself on the nature of memory, recalling vividly something bob dylan once said when refusing to be photographed, protesting that every picture takes away a piece of the soul. More accurate is a piece of your memory, as, like all parts of the body, memory cells have a finite existence, of some seven years. The brain therefore needs to make daily decisions on which memories to keep, and which will die. Looking at photos burns an old memory onto a new cell, skewing the brain's process. Viktor mayer-schönberger takes this a step further, by noting that in the digital age we CAN keep it all. So can others: quite literally, google knows more about us than we can remember ourselves. I thought immediately of the photos in my album, that I thought so carefully about taking, and arranged so painstakingly. Now we snap absolutely everything, and so have tens of thousands on the computer somewhere; and my album just stops about 3 years ago. I started this blog partly to remember thoughts I knew I'd forget, or never develop. Forgetting, says vms, the three seconds it takes to choose, has become too expensive for people. I found it a striking thought that we have lost the rather valuable capacity to forget. Now we walk around with everything, like a tortoise with a two-ton house, our every day burdened by our inability to delete, or to feel we have not rallied it sufficiently to our mind to make a decision. You can't know everything though, nor even remember all you once knew. No pity perhaps.
25 june 2011, let’s hear it for the bear
Being a bear is bad for business. No-one really wants negative news, and so being the one forever bringing it doesn't exactly make repeat calls more likely (doom and gloom). Messengers did really used to get shot. Yet, if bad is on the way, surely it's better to know it than not. And after one bad prediction, nouriel roubini has been economist du jour for years now. My broad view on the economy is that central bankers have worked marvels these last years to slow the need for deleveraging and keep the western economies afloat, but views that private investment and consumer spending are going to pick up the baton and race ahead are flatly wrong. The first will wait and see, and eventually work out there are better places to invest, the second is under sustained attack that will reduce spending power and job security for a long time to come, with no new asset value (like house price rises) or easy lines of credit to take the strain even if confidence did bloom. Which it won't. Which is another reason to hate the bears, as so much depends on that magic of confidence opening up our corporate and personal purses. There may be a little more monetary stimulus to come, but it's at the heavy long term cost of embedding inflation, and somewhere that overly-cheap money is flowing into a whole new bubble. I'm a fan of the q ratio, which shows that shares have been overpriced for a good long time now; the same thing other indices tell us about house prices, still. So, whilst most shoot or ignore the bears, they are probably still right. Whatever tactics we may yet employ, it's the strategists that have it in the end. Denise williams was on to something.
22 june 2011, camels, eyes and needles
The ten richest people on earth are worth some €200 billion - 60% of the income of the 700 million people of sub-saharan africa. Whilst 76.9% of statistics are made up, this one isn't, and it hammers home the depravity of the level of inequality in the world, which continues to rise. In an ever more open world though, a common market for the world's highest paid talent, this is a somewhat inevitable side effect. Clearly incomes at the bottom will never keep up, meaning the differentials will rise. The spirit level is a valiant attempt to show that societies with less inequality prosper more, a thesis that has surged across the world in all sorts of fields: here, in the marmot review; globally, even the uber-urban richard florida seems to be at it. We cannot though suspend our knowledge of the inevitable consequences that the forces of globalisation tend towards, nor take an overly optimistic view of how policy at any level can affect these forces. In a global market, without global governance, arbitrage is king. This profound change, the onset of which has been relatively rapid over the last 60 years, has changed every society it has touched, and will continue to do so, ever more quickly. Like the market itself, to embrace this hyper-charged version of free trade, with its effects both for good and ill, means you can't buck it; only understand, navigate and anticipate - if you're wise and lucky.
18 june 2011, in celebration of...
Politics needs characters, even if they usually comes with the straight talking that makes them look devious or ideological. None fit that description better than ken clarke and jean claude juncker, thrown together today in a typical juncker aside about how clarke saved the euro. My strongest memory of juncker is when he virtually wrestled with the other jean claude at a press conference over the title of "mr euro", a wonderful vignette about the struggle between what in a normal polity would be seen as an overmighty central bank and a feeble finance ministry. Trichet's trump card was pulling out a euro note and pointing the assembled press to his signature. Juncker's most common (mis)quote is about why prime ministers always duck the hard choices, "we all know what we need to do, but we don't know how to get elected again if we do it" he said, actually about drugs. His harsh realpolitik was at it again recently, on how politics can influence monetary policy (that being outlawed by the treaty), "monetary policy is a serious issue. We should discuss this in secret, in the eurogroup... I'm ready to be insulted as being insufficiently democratic, but I want to be serious.. I am for secret, dark debates". Ken is equally open. Like juncker a heavy smoker, he is no hypocrite, "I shan't lose my paunch. I like my relaxed lifestyle. I like food. Because of my relaxed lifestyle I haven't suffered from the stress my colleagues do. I seem able to outlast them all". He's also not afraid to stake out his view of the right thing, regardless of popular consequence. As well as being for the euro, he was against invading iraq, a "disastrous decision" that "made britain a more dangerous place". Displaying another admirable trait, he adapted his views as circumstances changed, later saying "it would be immoral to walk away from the consequences of our actions, leaving behind anarchy and civil war". These two oldies will soon disappear from the stage, but let's hope for equally colourful and honest politicians waiting in the wings.
12 june 2011, two decades later...
Seen from space (or washington), the european organisation that counts has always been nato rather than the eu: guns make louder bangs than butter. Which is why to this day the uk is still america's "essential" ally in the bloc rather than germany, with paris and ankara the other pivotal players. Brussels isn't. With the soviet union poised to invade western europe - and budapest 1956 and prague 1968 showed they meant business - long-term substantial american defence investment, through nato, was easily-justified. With that as an alibi, and germany constitutionally unable to re-arm anyway, the eu happily trod the alternative path of "soft power" (the big softie), deftly deploying trade, aid, culture, ideas and international law. However, europe's inability to pull its military weight has long grated across the atlantic, and although things move in this field at a pace of years not weeks, recent barbed comments highlight that opinion is turning. Washington's generosity, paying 75% of nato's expenses, has allowed nato operations to be fuzzy coalitions of the willing. Ironically libya, the very first non-us led nato operation, has seen others more willing to lead than ever, but has come just at a point where the only two big spenders, britain and france, are significantly downsizing their armed forces - and even before that, us hardware has been needed at every turn. Libya therefore may well be the first and last, as the point of nato from a us standpoint becomes a serious question. With no enemy over the border, rich allies that can't keep up with american spending, are hamstrung in its use anyway, and stubbornly continue to function in foreign policy as a series of separate and small nations, what's in it for washington ? The current us defence secretary talks of a "dim, if not dismal future for the transatlantic alliance". Two decades ago, with the end of the warsaw pact, I presumed nato would fold too, with the eu picking up european defence through the western european union. That process, begun with maastrict treaty in 1992, finally winds up on 30 june 2011. Then we may need to move on to nato...
8 june 2011, the rocky road has no short cuts
Good coverage of monthly "manchester monitor", which surfaced in the guardian, on the basis of the city's economy being rather crestfallen and unsure, with little to drive investment or confidence. This is grist to the mill of the "time for plan b" brigade, whose basic case is that too much cutting, too quickly is leading us back into recession. Too basic. Whilst there is no doubt that a consequence of fiscal contraction is the economy's inability to create a sustained recovery, it is not its cause. That goes back over a decade to global imbalances, the credit boom, the almighty bubbles it created, especially in property, and lax regulation that enabled financial engineering to ride roughshod over the long-term consequences of the volumes hyperdrive the markets got into. There was no-one there, admitted alan greenspan, to take away the punchbowl once the party got going. Now someone has. Had they not, the consequences of that would have been much worse than the dampening effect we are experiencing now and will likely experience for a long time to come, even with the softening at the edges we are likely to see, within the wriggle room "the plan" allows. This is more or less the imf's verdict in its highly-authoritative annual "article iv" analysis of the uk economy, which concludes that catastrophe has been averted and we are climbing the long, slow and rocky road to recovery. Fiscally, they are right; but monetary-wise not. Like many others they are far too blasé about the rise in inflation (12 april) and the risks of stagflation now becoming embedded, so trapping the economy on a path to a different but equally devastating medium-term scenario; huge food and energy rises today's fuel on the fire.