Föhrenbergkreis Finanzwirtschaft

Memo from Davos: Down with Democracy!

hkarner — Fri, 27 Jan 2012 22:06:35 +0000

Date: 27-01-2012
Source: The Huffington Post

Multinationals, responsible for creating millions of jobs, manage to pit governments against one another in terms of wages, work conditions and taxation. Political leaders flounder in countering multinationals’ claims about the need to reduce excessive regulations, fire workers at will or accrue huge profits for shareholders. The multinationals have more power, argues Daniel Bell for the Huffington Post: “the laws of the country must conform to the dictates of MNCs, rather than to the people’s will.” Company executives argue that their ability to select targets for charity is better than government programs relying on taxation, that a net increase of jobs anywhere in the globe has higher moral ground than protectionism. Bell concludes, “the clash may not be between good guys and bad guys, but rather between competing systems of morality.” In the clash between corporate-backed authoritarianism and democracy, nations must decide if some form of global governance could provide basic standards for all and tame the multinationals. – YaleGlobal

Governments are powerless in imposing popular controls on multinational corporations, which can simply jump borders and remove jobs

We are familiar with the truism that multinational corporations are too large and powerful and cannot adequately be controlled by democratically elected politicians. MNCs constantly complain about rigid labor regulations; they want the right to fire workers at will, because otherwise they won’t survive in a ruthlessly competitive market. Moreover, the pace of technological change has increased exponentially the last few years, and the need for labor flexibility has become ever more pressing. If rigid labor regulations hold up the need for innovation, the MNC will pack up its bags and move to a country that is more „welcoming“ to big business. From a democratic perspective, the problem is clear. The ultimately controlling power should lie in the hands of the people and their elected representatives. But here it seems the MNCs have more power; the laws of the country must conform to the dictates of MNCs, rather than to the people’s will. In his State of the Union address yesterday, President Obama tried to reassert the people’s authority: he said he would change the tax code to punish companies that move jobs overseas, and reward companies that return jobs to the United States.

But what makes sense from a democratic perspective may not make sense from a moral point of view. Or so it was suggested earlier today at the annual meeting of the World Economic Forum at Davos. In two sessions (open to the reporting press) with CEOs of major MNCs, it was surprising (to me) the extent to which the CEOs appealed to moral (rather than strictly economic) arguments to justify their ways.

To address the criticism that they had lost their moral compass, the CEOs tried to deflect responsibility for the suffering caused by the financial crisis and the subsequent „great recession,“ but these arguments were not very persuasive. Brian T. Moynihan, CEO of Bank of America, claimed that banks tended to reflect the excesses of the economy, but he did not add that some banks exacerbated those excesses by knowingly peddling dubious products to consumers. David M. Rubenstein, managing director of the Carlyle Group, said that wealthy financiers should not be condemned because they pay low tax rates if the law allows it, but he didn’t add that those low tax rates may be due to loopholes fought for by well-funded lobbies that effectively skew the political system in the interests of the rich and powerful. What’s legal may not be moral.

But the CEOs also put forward some arguments worth pondering. John T. Chambers, the CEO of Cisco, argued that the best performing companies also tend to engage in substantial corporate philanthropy. His own company gave away $299 million last year. He didn’t explain the connection between profit-making and philanthropy, but perhaps the point is that being known as a „good“ company increases the motivation of employees to be productive; and perhaps the regulatory authorities are more likely to be supportive of „good“ companies.

The issue of job creation seemed even more fundamental to the moral outlook of the CEOs. Several CEOs emphasized that they create jobs and they should be given the conditions to do so. But job creation also involves destruction, or, as they put it, disruption. Duncan Niederauer, CEO of NYSE Euronext, pointed out that restructuring of his company required 20,000 job cuts. But he added that such restructuring was done with a vision of more growth, particularly in emerging markets. Put in moral terms, the loss of some jobs is justified because it allows for the creation of more jobs. The problem, from a democratic perspective, is that the jobs are often created in other countries.

But what if the total number of jobs is greater than the number of jobs lost, isn’t that a good result? As Patricia A. Woertz, CEO of the agricultural conglemerate Archer Daniels Midland put it, economic growth that adds jobs wherever they happen is a positive. And governments that try to prevent that process — like President Obama in the name of protecting jobs at home — should presumably be condemned from a moral point of view (assuming that MNCs do in fact create more jobs than they destroy, globally speaking). That is, they should be condemned from the point of view of theories of universal moral reasoning that value human well-being regardless of national boundaries. Democrats who value nation-based collective self-determination may side with President Obama. But the clash may not be between good guys and bad guys, but rather between competing systems of morality.

Daniel A. Bell

The End of the Win-Win World

hkarner — Fri, 27 Jan 2012 22:01:34 +0000

Date: 27-01-2012
Source: Foreign Policy – GIDEON RACHMAN

Why China’s rise really is bad for America — and other dark forces at work.

I have spent my working life writing about international politics from the vantage points of the Economist and now the Financial Times. Surrounded by people who tracked markets and business, it has always felt natural for me to see international economics and international politics as deeply intertwined.

In my book Zero-Sum Future, written in 2009, I attempted to predict how the global economic crisis would change international politics. As the rather bleak title implied, I argued that relations between the major powers were likely to become increasingly tense and conflict-ridden. In a worsening economic climate, it would be harder for the big economies to see their relationships as mutually beneficial — as a win-win. Instead, they would increasingly judge their relationships in zero-sum terms. What was good for China would be seen as bad for America. What was good for Germany would be bad for Italy, Spain, and Greece.

Now, as the paperback edition of my book comes out, the prediction is being borne out — which is gratifying as an author, although slightly worrying as a member of the human race. The rise of zero-sum logic is the common thread, tying together seemingly disparate strands in international politics: the crisis inside the European Union, deteriorating U.S.-Chinese relations, and the deadlock in global governance.

This new, more troubled mood is reflected at this year’s World Economic Forum. In the 20 years before the financial crisis, Davos was almost a festival of globalization — as political leaders from all over the world bought into the same ideas about the mutual benefits of trade and investment and wooed the same investment bankers and multinational executives. At Davos, this year, the mood is more questioning — with numerous sessions on rethinking capitalism and on the crisis in the eurozone. The European Union is an organization built around a win-win economic logic. Europe’s founding fathers believed that the nations of Europe could put centuries of conflict behind them by concentrating on mutually beneficial economic cooperation. By building a common market and tearing down barriers to trade and investment, they would all become richer — and, eventually, would get used to working together. Good economics would make good politics. The nations of Europe would grow together.

For decades, this logic worked beautifully. But, faced with a grave economic crisis, this positive win-win logic has gone into reverse. Rather than building each other up, European nations fear that they are dragging each other down. The countries of southern Europe — Greece, Portugal, Italy, and Spain — increasingly feel that they are locked into a currency union with Germany that has made their economies disastrously uncompetitive. For them, European unity is no longer associated with rising prosperity. Instead, it has become a route to crippling debt and mass unemployment. As for the countries of northern Europe — Germany, Finland, and the Netherlands — they are increasingly resentful of having to lend billions of euros to bail out their struggling southern neighbors. They fear that they will never get the money back, and their own prosperous economies will be dragged down. Now that France has lost its AAA credit-rating, Germany is left as the only large AAA-rated country in the eurozone. Many Germans feel that they have worked hard and played by the rules — and are now being asked to save countries where people routinely cheat on their taxes and retire in their fifties.

From the beginning of the crisis, Europe’s politicians have argued that the solution to a severe crisis within the EU was „more Europe“ — deeper integration. Unfortunately, their interpretation of what this means is rather different and dictated by the singular nature of their national debates. For the southern Europeans, „more Europe“ means Eurobonds — common debt issuance by the whole European Union that would lower their interest rates and make it easier to fund their governments.. But the Germans regard this as a dangerous pledge simply to underwrite their neighbors’ debts, long into the future. For them, „more Europe“ means stricter enforcement of budgetary austerity from the center — German rules for everybody.

Over the next year, this inherent contradiction is likely to cause increasing discord and rivalry within the EU as the political argument plays out against a deteriorating economic climate. Britain’s refusal to go along with a new European treaty at the December 2011 Brussels summit led to screaming headlines about a continental divorce. But it is likely to be just a foretaste of things to come. The development to watch for in European politics will be the rise of political parties that are more nationalist in tone and that take a much more skeptical attitude to the European Union — not to mention the single currency. Marine Le Pen and the National Front will do well in the upcoming French presidential election. Other rising Euroskeptic parties include the Freedom Parties in the Netherlands and Austria, the Northern League in Italy, the True Finns in Finland, and a motley collection of far-right and far-left parties in Greece.

Ironically, this intensifying crisis in Europe comes just at the time that the United States has decided to readjust its foreign policy to concentrate much more on Asia and Pacific. Although the „pivot to Asia“ is being presented as a far-sighted reaction to long-term economic trends, it also represents an adjustment to a shift in the global balance-of-power in the aftermath of the global economic crisis.

Put bluntly, the United States is taking the rise of China much more seriously. American preeminence, long into the future, can no longer be taken for granted. Nor can it be assumed that a stronger, richer China is good news for America — as successive U.S. presidents argued all the way back to 1978. On the contrary, both as individuals and as a nation, Americans are getting the queasy feeling that a richer, more powerful China might just mean a relatively poorer, relatively weaker America. In other words, the rise of China is not a win-win for both nations. It is a zero-sum game. That belief is now feeding through into the presidential election — and is reflected both in the protectionist rhetoric of Mitt Romney and in the soft containment of China of the Obama administration.

Romney has promised to designate China a „currency manipulator“ and to slap tariffs on Chinese goods. These kinds of arguments have surfaced before, particularly during presidential elections — but they are not normally made by pro-business Republicans. However, with America beset by worries about high unemployment and a spiraling national debt, old nostrums about free trade are easier to jettison. Missed in all the excitement of a presidential election is the extent to which protectionism is being intellectually rehabilitated in the United States. Respected economists like Paul Krugman and Fred Bergsten have argued that imposing tariffs would be a legitimate U.S. response to Chinese currency policies.

A similar shift is underway in America’s military and strategic thinking. The Obama administration’s much-ballyhooed Asian turn is essentially a response to the rise of China. According to the Economist, China is likely to be the world’s largest economy (in real terms) by 2018. And Washington sees Beijing as already flexing its muscles, with increases in military spending and a harder-line in border disputes with a range of neighbors, including India, Japan, and Vietnam. As a result, the United States is seeking to make common cause with China’s nervous neighbors — bolstering alliances with its traditional Asian allies, while committing to strengthen its own military presence in the region. This move is all the more significant since it comes in the context of a plan to make deep cuts in overall U.S. military spending.

The Chinese are not wrong to see this policy as essentially one of „soft containment.“ They are unlikely to respond passively. A new Chinese leadership — under pressure from a nationalist public — might push back hard.

American-Chinese relations have long contained elements of rivalry and co-operation. But, increasingly, the rival elements are coming to the fore. This is not yet a new cold war. However, the state of relations between the United States and China — the sole superpower and its only plausible rival — are likely to set the tone for international politics in the coming decade.

In fact, the increasing rivalry between Washington and Beijing is an important contributor to the third major manifestation of the spread of zero-sum logic through the international system — the increasing deadlock in multilateral diplomacy, from the World Trade Organization (WTO) to climate-change negotiations to the G-20′s stalled efforts at global financial regulation.

In the heyday of globalization over the past three decades, big trade agreements were both a symbol and a driver of the strengthening of common interests between the world’s major powers. The creation of a European single market in 1992 and of a North American free-trade area in 1994, the setting-up of the WTO in 1995, and the admission of China to the WTO in 2001, were all landmarks in the creation of a truly globalized economy. But the days of heroic new trade accords are over. World leaders have stopped even calling for a completion of the Doha round of trade talks; the repeated empty exhortations have become embarrassing. There have been, however, some small victories: At the end of 2011, Congress finally passed a free-trade deal between the United States and South Korea, and Russia was admitted to the WTO around the same time. But the WTO is now largely playing defense, trying to prevent a major new outbreak of protectionism. Officials there dread the prospect of being asked to adjudicate a U.S.-Chinese dispute over currency — fearing that any such case would be so politically charged that it could blow apart the world trading system.

It is a similar picture in other areas where there were once high hopes for multilateral cooperation. The world climate talks were saved from complete disaster in Durban, South Africa, at the end of 2011 — but few believe that the vague and vestigial agreement reached there will have any real impact on the global problem. The G-20′s efforts to push forward with new forms of global financial regulation have also disappointed. The crisis within the European Union — which has so long seen itself as the champion of global governance — has damaged the whole cause of multilateralism.

A few months ago, I found myself sitting next to a senior EU official who turned out to have read my book. „My job is to prove your zero-sum thesis wrong,“ he told me. I replied that, as an author I hoped to be proved right — but as a European and a human being I was hoping to be proved wrong. My lunch companion laughed and said, „That is too dialectical for me.“

It is one of the nice things about the best EU officials that they are happy to talk to their critics, and comfortable using words like „dialectical.“ However, I fear that cultured technocrats will not do terribly well in the new era. A zero-sum world may summon up rather darker forces.

Creating an Economy That’s ‘Built to Last’

hkarner — Fri, 27 Jan 2012 18:00:27 +0000

Date: 27-01-2012
Source: BUSINESSWEEK By James Dyson

Obama wants America to get back to the business of making things. That means developing skilled workers at home while taking a global view

President Obama is right: America’s long-term success hinges on its ability to invent technology the world wants. It seems simple, but getting America back in the business of making things isn’t. It’s a global process. An idea born in Silicon Valley could be engineered in Switzerland, tested in China, and assembled in Taiwan. A stimulus to boost manufacturing may help the U.S. economy in the short term, but reinvigorating postwar-style production or space-race ingenuity is impossible without an increasingly capable workforce. Business demands it. And without it, long-term success will remain elusive.

These days manufacturing extends far beyond the assembly line. It’s about inventing and solving problems: researching, testing, and experimenting with ideas and technology. The development of new products more and more defies borders. It’s impossible to make electronic goods exclusively on U.S. or U.K. soil—the supplier base, infrastructure, and often the expertise needed to produce everything from electric cars to solar panels is dispersed.

Within that context, it’s easier to understand why highly skilled jobs are going the way of assembly and manufacture. New research by the National Science Foundation (NSF) reports that more companies are taking research and development—and 85 percent of the new jobs it creates—overseas. Still, this is by no means a one-way street. As Caterpillar shifts some R&D abroad, it’s considering moving parts of its manufacturing operations back to the U.S. Creating new products is no longer one size fits all.

But constructing an economy that’s built to last depends on a ready supply of talented individuals: people who invent, create, and develop the ideas that will drive exports and those who can assemble them. China gets it. To make its economy more knowledge and technology intensive, China is investing heavily in science and engineering education, infrastructure, and R&D support. Already wages are increasing, the middle class is growing, and the country is developing new technology rather than just assembling products. And while the U.S. continues to file more patents than any other country, the Far East’s investment in R&D, fueled by China, matched U.S. contributions in 2009, according to the National Science Board’s report, Science and Engineering Indicators 2012.

ENGINEERING: U.S. VS. ASIA
To compete, the U.S., like the U.K., needs more engineers and scientists. But of the world’s engineering graduates, less than 4 percent of degrees are earned in the U.S. vs. 56 percent in Asia, says a report from the NSF. It’s no wonder such companies as Airbus, 3M, and Caterpillar are looking East for R&D talent.

At my company, Dyson, we’re in the process of doubling the size of our U.K. R&D team to 750, but we don’t have enough qualified people to fill the specialized roles we need. While we carry out R&D of new technologies, we’re increasingly dependent on a combination of engineers at home and abroad to get our machines to market.

Greater job training and partnerships between academia and industry are a step in the right direction. Currently half of U.S. science and engineering degrees go to students from outside the country’s borders. Why train brilliant minds simply to send them home again? In his State of the Union address, President Obama acknowledged that it’s these individuals who will invent new products, start small businesses, and create new jobs.

WHILE THEY’RE YOUNG
But long-term success demands more. Government must invest in science and engineering education at an early age. And for homegrown talent, getting young people to be creative, test their ideas, and solve problems—rather than learning by rote—would help inspire and enthuse. More practical science experiments and innovative hands-on engineering classes, combined with more consistent STEM (science, technology, engineering, and mathematics) teacher development, would help reinvigorate interest in subjects children too often give up on.

Manufacturing isn’t about us and them anymore. To safeguard it while creating future jobs, the U.S. needs to invest in a highly educated workforce and allow inventive companies, new and old, to thrive. Countries such as Singapore, where we make high-speed digital motors for our appliances, gear their education systems to better suit the progressively high-tech nature of their economy.

Both the U.K. and the U.S. could offer greater financial incentives for promising students to study STEM subjects and help plug a growing gap. Better career advice—engineering is both highly rewarding and well paid—and more readily available industrial scholarships and experience would ensure that more of these students apply their knowledge to invention.

To make the most of this talent, innovative small businesses should be prioritized when it comes to higher tax relief and lending. These companies often come with bigger risks—R&D is expensive and time consuming—but greater potential rewards. And R&D tax credits are essential: They support creative businesses of all sizes without forcing the government to pick winners.

It’s not possible to follow the old method of making what worked in the past. New economies and customers are emerging, supplies and suppliers are shifting, and talent can’t be treated territorially. The U.S. should embrace the changing nature of manufacturing while investing in the bright minds that will deliver on its long-term potential.

James Dyson is founder and chief engineer of Dyson Ltd.

Cameron really knows how to annoy Germany

hkarner — Fri, 27 Jan 2012 17:55:24 +0000

Date: 27-01-2012
Source: The Financial Times
Subject: Cameron rebukes euro leaders over crisis

David Cameron has delivered a firm rebuke to Germany at the World Economic Forum, calling on Berlin to contribute significantly more resources and guarantees to help solve the eurozone crisis.

The British prime minister stressed on Thursday that although progress had been made, particularly with the European Central Bank’s funding of the European banking system, policymakers were still far from finding a solution to the underlying problems of the crisis. He criticised eurozone leaders for being distracted by other issues, such as the introduction of a financial transaction tax – an initiative he described as “quite simply madness”.

His speech in Davos reflected British officials’ long-standing and deep frustration with Germany’s leadership of the single currency area and called for a much stronger firewall to prevent contagion within the eurozone, common European sovereign debt and for powerful countries committing to reduce their trade surpluses as much as the struggling countries seek to minimise their deficits.

The sentiments chimed with many British and US delegates at the WEF who have criticised Germany for seeking to persuade other countries to “become more German” without the corollary that Germany must “become less German” by importing more and allowing its trade surpluses to shrink.

“Yes, tough fiscal discipline is essential. But this is a problem of trade deficits, not just budget deficits,” Mr Cameron said.

The prime minister’s speech followed an address by Angela Merkel, German chancellor, on Wednesday in which she rejected calls for a significantly greater financial commitment to underpin the euro. While she also accepted that austerity alone was not enough, she insisted troubled peripheral European economies must impose structural reforms to become more competitive.

Bankers in Davos and financial market investors have become significantly more optimistic this year that the European authorities are getting to grips with the eurozone crisis, but Mr Cameron begged to differ.

“We need to be honest about the overall situation”, he said. “The crisis is still weighing down on business confidence and investment?.?.?.?so we still need some urgent short-term measures.”

He sided with the International Monetary Fund’s call for bigger firewalls to protect countries struggling to finance their deficits, but which do not have longer-term concerns about solvency. For the longer term, he added that the eurozone needed a central bank that would always stand behind the currency, further economic integration and fiscal transfers and collective debt issuance.

“Currently it’s not that the eurozone doesn’t have all of these, it’s that it doesn’t really have any of these,” he said.

But the message that will annoy Berlin the most was that he called on Germany to allow its trade surplus to fall.

“As Mario Monti has suggested, the flip side of austerity in the deficit countries must be action to put the weight of the surplus countries behind the euro,” he said, referring to the Italian prime minister. “I’m not pretending any of this is easy. These are radical, difficult steps for any country to take.”

The call for Germany to accept eurobonds was an attempt to align Britain with Christine Lagarde, the IMF’s managing director, who travelled to Berlin this week with the same message.

So far, there is no sign that Germany is willing to change its mind.

hkarner — Fri, 27 Jan 2012 17:51:02 +0000

Date: 27-01-2012
Source: The Wall Street Journal
Subject: Banks Face Bind Over Cash Pile

DAVOS, Switzerland—After receiving nearly half a trillion euros in cheap loans from the European Central Bank last month, the Continent’s banks face a dilemma: to invest the money in lucrative but potentially risky government bonds or hoard the cash at a loss.

The choice reflects the uncertainty surrounding Europe’s financial system at a time when dark clouds continue to hover over the euro-zone economy and its common currency. Regardless of whether banks use the money to buy bonds or simply stash it at the central bank for safekeeping, consumers and businesses are unlikely to see much of the funds pumped back into the economy in the form of loans.

The ECB in December extended about €489 billion ($640.88 billion) in three-year loans to hundreds of banks that operate in the euro zone. The loan program was primarily designed to fend off a potential cash crunch. European banks face hundreds of billions of euros of debt coming due this year and, with funding markets shut to all but the strongest institutions, some banks faced the prospect of serious liquidity problems.

Bankers and government officials gathered in Davos, Switzerland, this week for the World Economic Forum are virtually unanimous that the ECB’s loans have eliminated such fears, at least for now. And the ECB is poised at the end of February to offer banks another chance to take out the loans. Bankers and analysts expect them to borrow hundreds of billions more. The ECB loan program provides „a very significant degree of breathing space to banks,“ said Adair Turner, chairman of the U.K.’s Financial Services Authority, in an interview here.

But bank executives say lenders are taking radically different views on how to use the money.

Some are squirreling it away. In at least some cases, that means parking the funds back at the ECB in a facility that houses bank deposits overnight.

Thanks to the ECB loans, the banking industry is „awash with liquidity, although I have to admit that most of that liquidity goes back to the ECB overnight,“ said Francisco Gonzalez, chairman of Spanish lender Banco Bilbao Vizcaya Argentaria SA.

That sentiment, echoed privately by other senior European bank executives in Davos this week, also is apparent in the amounts housed in the ECB’s overnight deposit facility.

They have been climbing since the loan program was launched last month, peaking on Jan. 17 at €528 billion, the largest sum on record. (They fell slightly this week to about €485 billion.)

The downside is that leaving the money in the deposit facility is a money-losing proposition. The ECB pays a paltry 0.25% interest rate—less than the 1% that banks were charged to borrow from the ECB in the first place.

But it offers banks the comfort of knowing their funds are safe. Industry experts said this week that such safety is more valuable in the current environment, especially for lenders in troubled countries such as Italy, Spain and Portugal. „‘Survival first’ will have to be the mantra for most banks in peripheral European countries,“ analysts at RBC Capital Markets wrote.

„Those [banks] with liquidity are parking it with central banks. Those without liquidity are borrowing from central banks,“ said Peter Sands, chief executive of U.K. bank Standard Chartered PLC, which didn’t borrow funds from the ECB. „So instead of being the lender of last resort in times of crisis, central banks have become the central actor.“

Other bankers and investors said several lenders are using the funds to snap up large quantities of government bonds in stressed countries. The theory: The banks could pocket a tidy profit thanks to high interest rates on the government bonds.

That, in turn, could defuse governments’ financial problems and simultaneously help repair banks’ balance sheets by boosting their profits.

This so-called carry trade resembles the way U.S. banks rebuilt their capital and profitability levels after the financial crisis by using cheap funds from the Federal Reserve and capital from the U.S. government’s Troubled Asset Relief Program to buy higher-yielding assets including Treasurys.

But it exposes banks to the risk of drops in the price of the bonds, particularly if the European crisis takes a turn for the worse.

„We are really seeing clear signs that this money is not simply staying in the deposit facility, but is circulating in the economy,“ ECB President Mario Draghi said earlier this month, pointing to the declining yields of some European government bonds as a sign that banks are using the funds to buy the bonds. „By and large, the banks that have borrowed the money from the ECB are not the same as those that are depositing the money with the deposit facility of the ECB.“

Even if banks are using the funds to buy government debt, that won’t necessarily provide permanent relief to cash-strapped European governments. „Without greater demand from nonbank investors, the level of supply absorption may not be sustainable,“ said Guy Mandy, a European rates strategist at Nomura, on an investor call Thursday.

Some bank executives said they are loath to publicly confirm they are using ECB funds to buy government bonds for fear of public criticism that they are using central banks’ money for a quick buck rather than to help kick-start the European economy by lending the funds to customers.

Some bank executives said the ECB money will eventually trickle down into loans to businesses and individuals.

„The cost of funding is going down very rapidly. That will put more money in the margins of the banking system, which is good because in order to give credit you need strong banks,“ said BBVA’s Mr. Gonzalez. „We are in the process of filtering that money down to the real economy.“

The Shining Star of Europe?

hkarner — Fri, 27 Jan 2012 06:05:06 +0000

Author: David Beckworth · January 25th, 2012 ·RGE EconoMonitor

Fareed Zakaria points us to what may be the shinning star of Europe:

[P]erhaps the biggest reason for poverty-stricken nations like Egypt to pay close attention to Poland is that it is a very rare breed in today’s world, especially in Europe. Poland has a strong economy – the sixth biggest in the European Union now and the only European Union country to avoid a recession altogether. None of its banks needed to be rescued. Its economy grew 4% last year, and is on track to grow 3% in 2012. Why, you’ll ask. How did it survive the turmoil in the Euro Zone? One answer is that it has strong domestic demand and has been pouring money into infrastructure projects. But the real – and fortuitous – reason is that Poland has yet to be allowed in to the Euro Zone – it continues to use zlotys instead of the euro. So unlike Greece or Italy, it was able to devalue its currency to stay competitive.

I know that last part will leave some of my hard money readers in angst, so think of it this way. Poland has been able to stabilize domestic demand by adjusting its monetary policy accordingly. The Eurozone periphery has not been able to do this and paid dearly as seen below:

Now Poland has done other things right as noted by Zakaria, but what this contrast highlights is that the Eurozone crisis is as much a monetary crisis as anything else. Yes, there are deeper structural problems with the Eurozone, but if Eurozone officials want to address these deeper problems they need to first address the immediate monetary problems behind the crisis. Maybe the shining star of Europe will help them appreciate the monetary nature of the crisis.

Financial Crises 1810-2010

hkarner — Thu, 26 Jan 2012 22:19:44 +0000

A new graphic from HistoryShots, based on Reinhart & Rogoff’s well researched book: This Time Is Different: Eight Centuries of Financial Folly. The top half of the chart maps financial crises in terms of GDP affected, while the bottom indicates number of sovereign defaults.

http://www.historyshots.com/viewzoom.cfm?loc=FinancialCrisis

Economic Indicators Dashboard: What’s the state of the US economy?

hkarner — Thu, 26 Jan 2012 22:09:53 +0000

http://chartporn.org/2012/01/23/update-economic-indicators-dashboard-5/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+ChartPorn+%28Chart+Porn%29

Angela Merkel discovers her inner European

hkarner — Thu, 26 Jan 2012 17:02:53 +0000

The euro crisis appears to have ignited in the German chancellor a passion for the EU

Ian Traynor, Europe editor, guardian.co.uk, Wednesday 25 January 2012 12.50 GMT

Angela Merkel has been thrust unambiguously, if reluctantly, into the top seat at the EU table. Photograph: Sean Gallup/Getty Images

Angela Merkel‘s predecessor, Gerhard Schröder, was the first German chancellor spared any memory of the Hitler years. That explains why, the story goes, he was the first German leader to view the European Union pragmatically, as a utilitarian, not an idealistic project.

With the second world war, the EU’s founding myth, ever more remote from the generation of leaders in power in Europe, Merkel is considered to have continued that trend – putting Germany first, indirectly insisting that to succeed Europe has to become more German.

The sovereign debt and single currency crises of the past two years have raised existential issues about the EU, questions about its longevity and survival, which would have appeared ludicrous if asked only a few years ago.

In the intensity of the crisis, with Merkel and Germany thrust unambiguously, if reluctantly, into the top seat at the EU table, the chancellor seems to be gradually discovering her inner European.

In an interview in the gleaming Berlin chancellery with the Guardian and partner newspapers from France, Italy, Spain, Poland and Germany,Merkel’s talk of a European polity with national powers ceded to a European government smacks more of Helmut Kohl, Joschka Fischer, or Germany’s veteran political philosopher Jürgen Habermas than it does of the cautious chancellor who did not enter politics until the Berlin Wall came down when she was 35.

It falls to Merkel, more than any other politician, to save Europe. The crisis has concentrated her thinking. It has taken a while, but the commitment and the passion seem to be emerging.

„Our union is our good fortune,“ she emphasised. „It is our good fortune that we are united, and it is only in a united Europe that we [Germans] will continue to prosper.“

The German and the European common interests coincide, Merkel avers, echoing Helmut Kohl’s mantra in the era of Maastricht and German reunification 20 years ago.

As a product of communist east Germany, Merkel brings quite a different perspective to the merits of Europe compared with the west Europeans who have run the union until now and who might take their inheritance for granted.

„For 35 years, until the wall came down, I suffered the restriction of not being able to just pop across to western Europe. It was my dream for that to be possible. This is my continent – a continent where people hold the same values dear that I do.

„This is a continent that can enable you to help shape the world, and stand up for the things that will safeguard the future of humanity – human dignity, freedom of opinion, freedom of the press, the right to protest, sustainability in business and mitigation of climate change.“

German idealism appears to be reviving in the Berlin chancellery. But Merkel underlined that this is no longer enough if Europe is to escape decline, defeatism, and increasing irrelevance in the world.

„I don’t want the EU to be a museum for all the things that used to be good. I want an EU which successfully strives to create new things. I know that this implies a massive change for some people, and that we will therefore need one another’s support.

„If, however, we balk at these efforts, and just treat one another with kid gloves and water down any attempts at reform, we will definitely be doing Europe a disservice.“

The many critics, however, will see that as Berlin dictating the agenda while others take the pain.

The two years of crisis have propelled Merkel into place as Europe’s paramount leader, exposing the myth of French parity with the Germans at the top of the EU. That has also raised hackles everywhere else because of perceived high-handed prescriptions from Berlin combined with Merkel’s maddening caution and refusal to be rushed in a crisis.

She is having none of it.

„I do take these concerns seriously, but they are unfounded. I also find it interesting how quickly certain stereotypes can be roused – in German discussions as much as anywhere else. We refer to ‘the’ Germans, ‘the’ Poles, ‘the’ French, ‘the’ Spanish and ‘the’ Greeks, and we imagine that we’ve got the people of each nation figured out … We can put the old stereotypes out to grass.“

In a time of rising anti-EU populism across Scandinavia, Britain, the Netherlands, Austria, Italy, France, and parts of eastern Europe, Germany almost uniquely appears immune to mainstream political Euroscepticism, although the liberal Free Democrats, Merkel’s junior coalition partner, are flirting with the notion in an attempt to reverse disastrous polling and election results.

The euro crisis and the bailouts have undoubtedly dented the German public’s traditional satisfaction with the EU. But a paradox of German politics is that the two parties doing well at the moment, the social democrats and the Greens, are more pro-European than the government while the most Eurosceptic, the Free Democrats, are performing wretchedly.

„Let me make one thing absolutely clear – all the relevant political forces in Germany are completely committed to the EU,„ said the chancellor.

It’s an assertion that is accurate, but could be made about barely any other EU country outside the Iberian peninsula.

But if the Christian Democrat leader refuses to be rushed into spending German taxpayers’ money to bail out the eurozone periphery, she also sounds frustrated and impatient at the glacial pace of change in the Europe she effectively leads.

The EU may once have been a haven of harmony, she concedes, „but at the cost of all too often dodging difficult decisions. The EU would never be successful if we carried on like that, and it’s a successful EU that I want to see … Right now, the EU still has 7% of the global population. If we don’t stick together, the things we say and believe will go pretty much unnoticed. That European idea of peace, values and prosperity is my motive for doing what I do, and that’s why I don’t want us just to muddle through this crisis.

„I do what I do to the best of my abilities,“ Merkel said. „Everything I do comes out of my firm belief that we are extremely fortunate to have the EU – and we need to preserve that good fortune. If it weren’t for the EU, our generation might well have gone to war against one another as others did.“

Stefan Kornelius of Süddeutsche Zeitung, Javier Moreno of El País and Bartosz Wieliński of Gazeta Wyborcza contributed to this article

EU-Kommissar Rehn zur Schuldenkrise: Euro-Staaten müssen mehr für Griechenland zahlen

hkarner — Thu, 26 Jan 2012 16:52:45 +0000

26.01.2012, 17:27, sz

Der Verzicht privater Gläubiger wird nicht reichen: EU-Kommissar Olli Rehn hält weitere staatliche Hilfen für Griechenland für unausweichlich. „Wir bereiten ein Paket vor, das den Weg für eine nachhaltige Lösung freimacht“, sagte Rehn. An den Finanzmärkten herrscht Alarmstimmung: Die Renditen für griechische und portugiesische Staatsanleihen schnellten auf Rekordniveau.

Schuldenschnitt, zwei Rettungspakete und Hilfsfonds sind nicht genug, um die griechische Schuldenkrise unter Kontrolle zu bringen. Für die Rettung des Landes sind laut EU-Finanzkommissar Olli Rehn weitere staatliche Hilfen zwingend nötig. Das bedeutet, dass Euro-Staaten wie Deutschland noch mehr beitragen müssen. Das sagte er der Nachrichtenagentur Reuters am Rande des Weltwirtschaftsforums im Schweizer Davos. Rehns Sprecher bestätigte die Angaben der Süddeutschen Zeitung.

Um wie geplant die Schuldenlast des Euro-Staates bis 2020 von derzeit gut 160 Prozent auf 120 Prozent des Bruttoinlandsprodukts zu senken, werde der Forderungsverzicht der privaten Gläubiger in Höhe von 50 Prozent nicht ausreichen, sagte Rehn. Diese Lücke müssten die Euro-Staaten und die EU-Institutionen füllen. Wie viel Geld genau fehlte, wollte er nicht sagen.

„Wir bereiten ein Paket vor, das den Weg für eine nachhaltige Lösung freimacht“, (schon wieder!) sagte der Finne. „Es wird dabei wahrscheinlich einen höheren Bedarf an Finanzierung durch den öffentlichen Sektor geben, aber nichts Dramatisches.“

Rehn wollte sich auf Anfrage nicht dazu äußern, ob auch die Europäische Zentralbank einen finanziellen Beitrag leisten müsse. Er könne nicht für die EZB sprechen, sagte er. Private Banken, aber auch der Internationale Währungsfonds fordern, dass die EZB auch einen Schuldenschnitt auf die griechischen Anleihen hinnehmen müsse, die sie hält. Die Notenbank gilt als größter Gläubiger des überschuldeten Staates und ist bislang bei dem „freiwilligen“ Schuldenverzicht privater Gläubiger außen vor.

Die Verhandlungen der privaten Gläubiger mit Griechenland über einen Schuldenschnitt sollen sich in der Endphase befinden. Der Chefunterhändler des Internationalen Bankenverbandes IIF, Charles Dallara, will am Donnerstagabend in Athen mit dem griechischen Ministerpräsidenten Lukas Papadimos zusammenkommen.

Im Herbst hatten die Banken einem Schuldenschnitt von 50 Prozent zugestimmt. Dabei sollen die kurzfristigen Staatsanleihen, die sie derzeit halten, in längerfristige Papiere umgetauscht werden. Die Finanzinstitute streiten sich allerdings mit Griechenland um den Zinssatz, den das Land auf diese neuen Anleihen zahlen soll. Ein niedriger Zinssatz würde bedeuten, dass Griechenland mehr als 50 Prozent erlassen werden.

Am Finanzmarkt schnellten die Renditen für griechische und portugiesische Staatsanleihen auf neue Höchststände: Eine griechische Anleihe wirft mittlerweile 38 Prozent ab, portugiesische Papiere mehr als 15 Prozent.