sexta-feira, 27 de fevereiro de 2015

We expect too much of the new masters of the universe

For City bankers who once thought of themselves as masters of the universe, these have been bruising years. Financial scandals, shrinking balance sheets and the humiliation of having to rely on state support have sapped the energy of a profession that once seemed indestructible.

Yet at the same time as private-sector bankers have been on the defensive, their official counterparts have been riding high. Central bankers used to be thought of as timid technocrats operating behind the scenes. Now they stride across the financial stage. They have slashed interest rates, pumped vast amounts of money into the financial system and worked with governments to rescue banks and keep them lending.

They are, it seems, the new masters of the economic universe. But we should be wary. We had too much confidence in private sector bankers before the crisis. Are we now too optimistic about the abilities of the financial system’s new overlords?

Central bankers derive their influence over markets from their independence and credibility — sources of power that they acquired in the two decades following the last big financial crisis, in the mid-1970s. The pioneer was the Bundesbank, which in the 1970s pursued tight monetary policies when inflation was accepted as a fact of life in many other countries. The US Federal Reserve under Paul Volcker followed suit in the 1980s, using high interest rates to bring inflation under control.

The UK emulated these policies under Margaret Thatcher, only to relapse in a spell of inflation in the late 1980s. This led to the Bank of England being put in charge of monetary policy as an independent authority. Since 1997, control over interest rates has been exercised by the Monetary Policy Committee.

Independent central banks committed to low inflation held sway as we moved into the 21st century. When the euro came into being, the European Central Bank followed the Bundesbank model. But we now know that, during this period, growth was supported in the west by an unsustainable credit boom. When the economy showed signs of faltering — after the Asian crisis of 1997, and again when the dotcom bubble burst in the early 2000s — central banks reduced interest rates to support economic activity. Financial markets believed in the “Greenspan put”: the US Federal Reserve would act to sustain growth, no matter what.

Central banks now seem ready to do whatever it takes to sustain growth — to a degree that casts doubt on the genuineness of their commitment to price stability. Monetary policy deliberately turned a blind eye to relatively high inflation in 2011-12.

And growth is not the only competing objective that central bankers have taken on. They have worked with governments to rescue banks, too. They are experimenting with new tools — quantitative easing, which entails creating money to buy financial assets, and “macroprudential” policy, which uses regulation rather than interest rates to steer the economy.

This carries risks. The most important tasks for central bankers are to maintain the stability of prices and intervene when there is a severe crisis in the financial system. If they over-reach themselves, there will be conflicting pressures which compromise these core responsibilities. That is a danger to the economy and puts central bank credibility at risk. Central bank independence is also in danger of being eroded. By acting as instruments of government policy, central banks are straying from their own dominion of monetary policy and financial stability into political territory. (For example, the ECB has been drawn into a role in the Troika of institutions supervising the restructuring of the Greek economy). Through QE programmes, central banks have become substantial holders of government bonds — with the result that government spending is financed by money creation rather than issuing debt on the markets. This is justifiable as a short-term remedy to restore confidence but not as a long-term basis for managing public debt.

It is a measure of how much has changed in the world of central banking that the very institutions that won their credibility by keeping a lid on prices now seem to be trying to create inflation, not subdue it. The 2 per cent inflation target served policy makers well as a definition of price stability when they felt that zero inflation was not achievable. But price stability could mean what it says on the tin — somewhere close to zero, perhaps as close as possible. The odd month in which prices fall is not the same thing as the chronic deflations endured by the US in the 1930s and the UK in the 1920s. Maintaining financial and price stability in well-performing economies such as the UK and US requires a gradual rise in interest rates. But today’s central banks are behaving more like pussycats than lions in pursuit of this objective.

We may live to regret their caution. The job of a central banker is to make unpopular decisions when politicians will not. We saw that in the 1970s and 1980s from the Bundesbank and the US Federal Reserve. We have yet to see those actions from the current monetary policy makers. The lions of the financial system need to find their roar.

Andrew Sentance is senior economic adviser at PwC and a former member of the Bank of England Monetary Policy Committee

quinta-feira, 26 de fevereiro de 2015

Shafts of sunlight amid Europe’s economic gloom

In Florence’s Bargello museum stands Donatello’s bronze statue of David, in a straw hat and calf-length boots, victorious over Goliath. If he were alive today to recast his sculpture on a topical European theme, the great Renaissance artist might be tempted to show Goliath as the eurozone, dressed in a suit and triumphant over David, a Greek youth wearing no tie.

The confirmation that Greece’s European creditors hold the upper hand over its radical leftist leaders by no means heralds a resolution of the debt crisis. A lack of mutual trust permeates this week’s interim agreement between Athens and its partners. The Greek economy and financial system are more precariously positioned than before the January 25 election that catapulted the left-of-centre Syriza party into power.

But the deal offers space for Europe to build on various positive developments that, so to speak, were airing on other channels as everyone watched the latest episode of the Greek drama. None of these alters the point that much remains to be fixed in the eurozone, but they do suggest that patches of sunlight are breaking through the clouds.

Take Germany, which is under pressure from its European partners — not to mention the US and the International Monetary Fund — to boost domestic demand in order to rebalance the eurozone economy and avert a drift into deflation. On Tuesday, employers struck a deal with the IG Metall trade union that awarded a 3.4 per cent pay rise, plus a one-off payment of €150, to workers in the state of Baden-Württemberg.

This increase is the highest of its kind since 2007 and is way above Germany’s annual inflation rate (prices actually fell in January by 0.4 per cent). It will serve as a model for national wage deals, covering not only the rest of the 3.7m employees represented by IG Metall, but workers in the chemical industry and other important sectors.

Higher German wages will not rescue the eurozone from its woes. But the pay deals ought to make some contribution to preventing deflation and raising demand in the eurozone, because Germany accounts for more than a quarter of the area’s economic output.

Germany is famously a nation of savers but, according to a survey released today by the GfK market research group, the willingness of Germans to make purchases is now at its highest level since December 2006. Conversely, their willingness to save stands at a record low.

The beneficial impact of these trends will in principle be enhanced by the euro’s decline on foreign exchange markets, which should boost exports; by low oil prices; and by the imminent launch of the European Central Bank’s ex­panded asset purchase programme, which will include eurozone government bonds and amount to €60bn a month. In Spain, whose economy grew in the final three months of 2014 at 0.7 per cent, its fastest quarter-on-quarter rate for seven years, an upswing is already well on its way. Meanwhile, latest figures show that bank loans to the private sector in the 19-nation eurozone rose in January for the second successive month.

Apart from Greece, the eurozone’s biggest concern in recent times has been the unwillingness or inability of France and Italy, the area’s second and third biggest economies, to grasp the nettle of reform by confronting vested interests in business, trade unions, professional orders and the bureaucracy. But even here some progress is being recorded.

Matteo Renzi, Italy’s centre-left prime minister, demonstrated his command of the political scene in January by deftly engineering the election of Sergio Mattarella, his candidate, as the nation’s president. His victory strengthens his hand as he prepares to introduce long-overdue reforms of the labour markets and electoral system.

Similarly, François Hollande and Manuel Valls, France’s president and prime minister, deserve credit for neutralising a rebellion in their Socialist party this month and ramming a set of business-friendly reforms through parliament. It was a display of determination unmatched since the Socialists’ presidential and legislative election victories of 2012. Mr Valls now promises to present a more ambitious bill to shake up industrial relations and give small companies an incentive to expand their workforces.

All these positive tendencies must be kept in perspective. The French reforms are modest in scope, and the far-right National Front is poised to inflict a heavy blow on the government — and the political establishment in general — in regional elections scheduled for March 22-29. The outlook for political stability and economic reform in Spain, after a general election due by December, is uncertain thanks to the rise of unconventional parties such as Podemos on the left and, to a lesser extent, Ciudadanos in the centre.

Outside the eurozone, two challenges — neither of which lends itself to easy answers — lie ahead. The first is the UK’s future in the EU, which may need urgent attention after the British election on May 7. The second is Russian-backed separatism in Ukraine and the unfolding threats to European security.

The growth of anti-establishment political forces, the UK problem and Ukraine remind us that fixing Europe will never be about economics alone. But, at least on the economic front, the year has begun with encouraging signs.

Tony Barber

Fonte: FT

quarta-feira, 25 de fevereiro de 2015

Germany learns to look beyond its borders

Germans think any plan that is put on paper should be executed — which is why the country’s approach to government strategy has been a strong preference for not writing things down at all. So a report published yesterday in which the German foreign ministry reviews its own guiding principles represents a break with usual practice. It is as though, while hurtling towards a tornado, the pilot and crew of an airliner decided to rewrite their operating manual, publish it and invite comments from peers.

Germany has become the pivotal power of Europe, with Berlin as the EU’s crisis management centre. It was not planned this way. When Chancellor Angela Merkel’s grand coalition took office in December 2013, Europe’s sovereign debt crisis was in abeyance and Ukraine was an obscure, faraway land.

These days Berlin is often harangued for not doing enough to counter the problems of the day: the eurozone’s stagnant economy; Britain’s drift away from continental europe; the adventures of President Vladimir Putin’s Russia.

The recent turbulence had barely begun when Frank-Walter Steinmeier, the foreign minister, set in motion a year-long process designed to be a model of transparency, deference to outside opinion and democratic inclusiveness. It involved town hall meetings across the country and an internal review. Officials also commissioned expert views (I was among those asked to contribute).

Reality promptly whacked officials over the head. Violence in Kiev’s Maidan Square presaged Moscow’s annexation of Crimea, the downing of Malaysia Airlines flight MH17 and now open war is being waged by Russian-backed “separatists” in eastern Ukraine.

Then came a deadly Ebola outbreak, the terror threat from Isis, and a Greek election that threatens to exacerbate economic crisis in the eurozone. And who could have foreseen that Paris, London, Warsaw, Stockholm and Rome would be absent or ineffectual? Germany is the leader of Europe, no doubt — but a leader by default.

Given this confusing landscape, the report does a crisp job of articulating three priorities for German foreign policy. The first is to understand that crises are a byproduct of globalisation. The foreign ministry’s answer is a massive upgrade to its ability to understand and manage crises. It promises greater German participation in European and international peacekeeping missions.

Crises, it warns, can happen “close by or at home” (for which read: in Ukraine — on our doorstep). These are our own problems, not other people’s. So Germany needs to invest in resilience, too.

The second priority is to preserve an open, rules-based international order. A globalised economy has helped Germany thrive, says the report. The country must now invest in institutions, and help protect public goods and humanity’s common spaces such as outer space, the seas and the internet. If Berlin wants to shape events instead of merely reacting to them, it must improve its ability to act.

Finally, European integration is Germany’s crucial source of power and leverage. It enables Berlin to influence events within the EU. And, by contributing to the collective strength of European nations, it gives Germany influence beyond the EU’s borders. The alternative — cutting loose from Europe and trading with China on any terms — is a dead end. That means that Germany needs to look after the interests of its EU partners more. Athens will be interested to hear it.

What is missing? A stauncher commitment to democratic transformation in Europe’s neighbourhood would have been reassuring — not least for Ukraine and its neighbours.

On the use of force, the report is circumspect (more answers might come from the defence ministry, which has just started its own “white book” consultation process). Yet the foreign ministry report notes that “to buttress political solutions, military means may be called for or unavoidable”. By German standards, that is strong stuff.

Will the country’s voters be willing to follow their diplomats? Survey data suggest they remain cautious about a more active role. At the same time, however, large majorities now support a tough response to Russian aggression in Ukraine.

But there are already signs of a more assertive approach. Germany has been breaking new ground in many places: arming the Kurds in Iraq, holding together a fragile European consensus against Russia. It is worth watching what we do, not just what we write.

Constanze Stelzenmüller is the Robert Bosch senior fellow at the Brookings Institution in Washington

terça-feira, 24 de fevereiro de 2015

A closer look at Greece’s proposed reforms

Greece’s new leftwing Syriza government has talked of killing the country’s current bailout deal. Yet many of the reform pledges it spelt out in a letter to the eurogroup on Tuesday bear a striking resemblance to those made but not implemented by previous Greek finance ministers.

Others seem calibrated to give space for Yanis Varoufakis, Greece’s new finance minister, to claim he has kept faith with Syriza’s so-called “Thessaloniki programme”. This is a collection of anti-austerity policies endorsed by multiple factions in the hardline “Left Platform”, which is said to represent about one-third of party activists.

Greece has submitted the reforms to persuade its 18 eurozone partners to extend its bailout by four months, putting it on a path to collect about €7.2bn in loan payments by June.

Its gaps and omissions will presumably be filled in during negotiations with the group of institutions that have overseen the bailout and were until recently known as the “troika” — the European Commission, the International Monetary Fund and the European Central Bank.

Here are a few, decoded, points to ponder on key issues:

Privatisation: Syriza’s opposition to privatisation seems to have evaporated. The government commits not to reverse sales that have been completed, while “respecting the legal process” in the case of tenders already launched.

This is good news for Cosco, the Chinese state shipping company, and Maersk of Denmark, the frontrunners among bidders shortlisted for a two-thirds stake in Piraeus Port Authority. It implies, too, that a consortium led by Frankfurt airport that was named preferred bidder for a 40-year concession to run Greece’s regional airports will be able to wrap up the deal as planned.

But the question remains: will Panagiotis Lafazanis, the energy minister and Left Platform leader who declared last month that privatisation was “over”, try to obstruct the sales of the electricity grid and part of the state power utility, which are both at an earlier stage?

Tax policy: Despite Syriza’s promise not to increase taxes, Mr Varoufakis appears willing to comply with the IMF’s longstanding demand that concessionary VAT rates charged on Aegean Islands should be raised to the standard level. Such a measure would raise revenues significantly but was headed off by previous governments because of pressure from local politicians.
Revenue administration: The Syriza government will bolster the independence of the general secretary for public revenues “from all sorts of interference (political or otherwise) while guaranteeing full accountability and transparency of their operations”. This amounts to a commitment to ensure that the country’s top tax collector will not be forced out, as happened in June to Haris Theoharis after he asked several prominent Greek company owners with political connections to pay up.

Banking: A partial win for the Syriza government, which is committed to banning foreclosures for homeowners unable to pay their mortgages. Mr Varoufakis says the government will “collaborate with bank managements and the institutions to avoid, in the forthcoming period, auctions of the main residence of households below a certain threshold, while pursuing strategic defaulters”.

Labour market: A defeat for the government, which has pledged to revive collective wage bargaining and increase the minimum wage to the pre-crisis level by 2016.

Mr Varoufakis has signed up to the “phasing in of a new ‘smart’ approach to collective wage bargaining . . . would include the ambition to streamline and over time raise minimum wages in a manner that safeguards competitiveness and employment prospects”.

A confrontation is on the cards, as boosting wage competitiveness and labour market flexibility were key achievements in the eyes of the troika. But the Left Platform will press Mr Varoufakis for a firm timetable on rolling back both reforms.

Kerin Hope

Fonte: FT

segunda-feira, 23 de fevereiro de 2015

A Greek deal cannot fix the flaws in the euro

Watching the Greek crisis unfold, I found myself torn between two equal and opposite thoughts. First, the euro cannot survive. Second, everything must be done to save the euro.

The agreement reached between Greece and its eurozone creditors is therefore a good thing because it has put off the immediate threat of a political and economic crisis. But experience suggests that a debt deal with Greece may be only marginally more durable than a ceasefire in Ukraine. In both cases, there are underlying tensions and problems that cannot be solved by a cleverly drafted document.

Ever since a single European currency was first mooted, I have believed that it would eventually collapse. That belief is based on three simple propositions. First, a currency union cannot ultimately survive unless it is backed by a political union. Second, there will be no political union in Europe because there is no common political identity to underpin it. And so, third — the euro will collapse.

Plenty of people have attempted to convince me, over the years, that each of these three propositions is simple-minded and wrong. But events keep driving me back to the idea that the euro lacks the political and economic underpinning that it needs to survive.

The Greek crisis is a case in point. The most passionate pro-Europeans are right that the only long-term alleviation of the problems of the weaker economies in the eurozone would be to set up a genuine transfer union, in which tax revenues automatically flow from rich areas, such as Germany, to poor areas, such as Greece. But that is never going to happen because the Germans and Greeks do not trust and like each other enough to merge their fates in a real political union.

Northern Europeans will grudgingly extend conditional loans to the south. But they will not consent to the kind of automatic fiscal transfers that happen in a nation state because they suspect, correctly, that the political cultures of countries such as Greece and Italy are profoundly different from those of Sweden or Germany.

The predictable problems with the currency union also extend to economics. Eurosceptics always foresaw that countries such as Italy would struggle to cope in a euro-area, where they could neither devalue their currency nor use inflation to reduce the burden of debt. So it has proved — and, as a result, nations such as Greece, Italy and Portugal risk being slowly crushed under the burden of unemployment and debt.

But there is one aspect of the euro crisis where my starting certainties have given way to doubts. My initial belief was that since the euro was a bad idea, its collapse could only be a good thing. Now I am not so sure.

The economics of collapse of the single currency look increasingly alarming. If Greece had made a so-called “dirty exit” from the euro, at the very least it would have provoked a financial crisis in Greece itself.

The wider euro area would also have been vulnerable. The Germans and others have said repeatedly that the euro is now strong enough to withstand a Grexit. But if Greece fell out of the single currency zone, speculators would surely start eyeing up the next vulnerable straggler in the euro herd. And, as doubts grew about the fate of Portugal or Italy, the complacency of financial markets could swiftly turn to panic.

A disorderly break-up of the euro would also raise profound political questions, including the survival of the EU itself. If Greece or other highly indebted countries were to leave the euro, they would surely have to repudiate their debts; otherwise those obligations would become even more crippling as they attempted to pay them back in a new and rapidly plunging currency. Yet it is hard to see how northern European countries could continue to work placidly in a law-governed EU, alongside other states that had just defaulted on their debts to them.

Europe can ill-afford the political disarray that would be caused by the collapse of the euro. In fact, there has rarely been a period when it is more urgent for Europeans to work together. The war in Ukraine means that European countries once again face a genuine security threat from Russia.

It is true that it is Nato’s job to provide the direct, security response. But the EU is critical to organising and maintaining a united European response to Russian aggression, through sanctions. That is why Moscow is so intent on disrupting EU unity.

The challenge of Russia is not the only problem that makes EU solidarity particularly important at the moment. There are going to be many more refugees heading towards Europe from north Africa and the Middle East in the near future and the EU badly needs to organise a collective response.

Above all, at a time when political extremists of the right and left are gaining ground in Europe, the EU serves as an important enforcer of basic, liberal values. At times, the political correctness of Brussels can be grating and smug. But it is infinitely preferable to the political incorrectness of racists and nationalists, such as the National Front in France or the Sweden Democrats.

So the news that Greece and the eurozone have come to a grudging agreement is a relief. But while the euro has been reprieved for a while, I still fear that it cannot ultimately be fixed.

Gideon Rachman

Fonte: FT

sexta-feira, 20 de fevereiro de 2015

Alan Greenspan: Opec has ceded to the US its power over oil price

Normal diplomacy probably could not have achieved the geopolitical outcomes that have been produced in the past year by America’s shale oil revolution. Oil prices have more than halved, which — coupled with the collapse of the rouble that stemmed from the turmoil in Ukraine — has gone a long way towards disabling the Russian economy. Cheap oil has weakened Iran’s economy, too, lifting the chances of a realistic nuclear agreement. Finally, oil-rich Venezuela was on the edge of default even before the oil price decline. This amounts to a marked change in the economic and geopolitical landscape, of which the main beneficiaries are the US and its allies.

At the root of the price collapse was the development in the US of techniques for extracting tight oil, mostly from shale deposits, by horizontal drilling and hydraulic fracturing. This reversed the decline in US oil production, adding 3m barrels a day since 2012. As a result, the gap between global production and consumption has widened, precipitating a dramatic rise in US and world inventories and a fall in prices. Saudi Arabia, confronted with an oil supply glut but not wishing to lose market share, abandoned its leadership role as global swing producer and refused to cut production to support prices.

After the oil embargo of the 1970s, Opec wrested oil pricing power from the US. But the shale technology breakthrough is likely to be a far more effective stabiliser of oil prices than the cartel of oil producing countries. Opec is now relinquishing its pricing power. It may never be regained.

The reason is that shale technology is far more flexible. Shale oil wells can come on stream faster than most conventional wells, and drain far more rapidly. More than half of the oil content of shale wells is run off in the first two years of operation, while conventional wells keep producing for 20 years or more. Thus, shale oil output can expand and contract more rapidly than conventional wells. Unlike the production decisions of a monopolistic Opec, fluctuations in market prices will automatically guide shale expansion and contraction.

Recent oil price declines, of course, have given consumers considerably more purchasing power. Global consumer outlays are up markedly in the current quarter, but this will be partially offset by slowed capital investment in oil-producing countries this year and next. On balance, the impact of the oil price decline on global gross domestic product appears marginally positive.

India, a large crude importer, is among the countries to gain most from falling prices. So is Japan — which has been importing oil to replace the nuclear power capacity that was switched off after the Fukushima disaster in March 2011. China, the US and Europe have also benefited, to a lesser degree.

Brent crude prices fell to $45 a barrel in late January, down from $115 in June last year — though they have recently rebounded, to close to $60. Is this a temporary increase as traders cover their short positions, after which prices will resume their slide? The answer is likely to be found in the inventory statistics. For prices to rise, the gap between consumption and production must close.

So far, the heavy build-up of inventories of crude and petroleum products, and decline in the number of active drilling rigs, has not arrested the growth in US crude output.

A year ago, when prices were high, the conventional wisdom was that, at $60 a barrel, shale oil could not be profitable. Back then, incentives to cut production costs were a low priority; when each barrel was worth more than $100, the most important thing was to get it out of the ground. At today’s prices, cost-cutting is mandatory. We are about to find out whether shale producers, with their backs to the wall, can keep oil investment innovative and profitable.

Alan Greenspan was chairman of the US Federal Reserve from 1987 to 2006

quinta-feira, 19 de fevereiro de 2015

The short telegram about Vladimir Putin’s Russia

War or ceasefire, Russian aggression in Ukraine is overturning at last the west’s complacency. Washington has realised that this is more than a discrete regional conflict. Europeans — many of them, anyway — now understand that Vladimir Putin is challenging the rules-based order that has kept the continent’s peace. What is needed next is a broadly based strategy to counter the Russian president’s ambitions.

This demands an assessment of the Kremlin’s thinking, motives and intentions — the sort of analysis once found in the diplomatic dispatches sent home from embassies overseas. Where do military opportunism in Ukraine, Russian gas supplies, Moscow-directed subversion and corruption, and nuclear sword-waving fit in Mr Putin’s worldview? Whatever happens in the Donbass, the west will be grappling with Russian revanchism for some time yet.

A good point of departure is the Kremlin’s obsession with “encirclement”. There is nothing new — or, given the record of history, surprising — about Russia feeling threatened. This mindset was one of the binding threads of the Soviet Union. At the heart of the neurosis lies an intuitive insecurity reaching back deep into Russian history. Conveniently, the ever-present danger provides a patriotic buttress for the ruling elite. Faced with an “evil, hostile and menacing” world, the security of the nation and regime become interchangeable.

There are nuances. Even as he rails against their efforts to humiliate Russia, Mr Putin regards western societies as decadent, weak and divided. And Russia still has friends in the west. Mr Putin is lauded by far-right populists. He is assured of a welcome in Vienna. Only this week he was in Budapest to meet Viktor Orbán, the acolyte who serves as Hungary’s prime minister. Moscow’s goal is to deepen and exploit conflicts between the western powers.

Russia should not be treated as monolithic. The fears, real or imagined, of the political and military elites do not represent the outlook of all Russians. Many of them are well disposed towards the west and eager to share in its material wealth and culture. As one diplomat has put it, Russians are “by and large friendly to the outside world” and, in their private thoughts, remarkably resistant to xenophobic propaganda.

For their part, those at the top often seem to believe their own rhetoric. In the Kremlin’s world — and Angela Merkel, the German chancellor, has discovered this at some cost — there is no such thing as objective truth. Reality is whatever Moscow finds comforting and convenient. There is no one ready to challenge the myths and distortions by speaking truth to Mr Putin’s power.

The regime operates on two planes. The first is the public attempt to expand Russian power and influence, whether by seeking to forge an alliance with Beijing or indulging pliant friends such as Mr Orbán. The second comprises the deniable interventions — from sending “little green men” into Crimea, to interrupting gas supplies, to kidnappings and cyber attacks in the Baltics — that are calculated to unnerve adversaries. To quote the aforementioned diplomat, these two sets of actions “dovetail into each other in purpose, timing and effect”. In the process, “everything possible will be done to set major western powers against each other”. The big prize has always been to wrench Germany out of the transatlantic alliance.

The organising message here is that a permanent modus vivendi with the west is impossible. Russia must forever be its own master in a world of competing great powers, each with its own sphere of influence. Yet there are limits on Moscow’s pursuit of its ambitions. It avoids needless risks and is sensitive to the logic of force. If an adversary has sufficient force and makes plain a readiness to deploy it, the Kremlin will step back. Measured against the west, Russia is far and away the weaker power.

By now, readers may have detected something familiar in all this. I have taken these thoughts and quotations, with only minor stylistic adjustment, from the famous “long telegram” sent to the US state department by George Kennan in February 1946. Kennan, the ranking US diplomat in Moscow, produced an analysis of Soviet motives and intentions that would set America’s posture for the rest of the cold war.

We are not witnessing a re-run of that particular confrontation. Mr Putin does not have a global ideology to sell. The Kremlin’s latest aggression throws an opportunist cloak over secular decline, though this makes Mr Putin no less dangerous in the short to medium term.

Kennan, whose approach was popularised as “containment”, was not interested in war. He cautioned against “prestige-engaging showdowns”. He saw containment as above all political and economic. Late in life he opposed the admission to Nato of former communist states. Yet he understood that the future of the west rested on its “cohesion, firmness and vigour”. Moscow’s allies in 1946 were western fatalism and indifference. Plus ça change.

Ms Merkel and US President Barack Obama talk about strategic patience. Sometimes it has seemed the patience is a substitute for the strategy. It is truism to say the west must find a way to co­exist with Mr Putin’s Russia. What matters are the terms of coexistence. Kennan produced a blueprint for standing up to the Soviet Union without starting a war. That is what is needed now. It starts with strategic resolve.

Philip Stephens

Fonte: FT

sexta-feira, 13 de fevereiro de 2015

Why Ernesto Laclau is the intellectual figurehead for Syriza and Podemos

When Ernesto Laclau passed away last April aged 78, few would have guessed that this Argentinian-born, Oxford-educated post-Marxist would become the key intellectual figure behind a political process that exploded into life a mere six weeks later, when Spanish leftist party Podemos won five seats and 1.2m votes in last May’s European elections.

Throughout his academic career, most of which he spent as professor of political theory at the University of Essex, Laclau developed a vocabulary beyond classical Marxist thought, replacing the traditional analysis of class struggle with a concept of “radical democracy” that stretched beyond the narrow confines of the ballot box (or the trade union). Most importantly for Syriza, Podemos and its excitable sympathisers outside Greece and Spain, he sought to rescue “populism” from its many detractors.

Íñigo Errejón, one of Podemos’s key strategists, completed his 2011 doctorate on recent Bolivian populism, taking substantial inspiration from Laclau and his wife and collaborator Chantal Mouffe, as he explains in this obituary. To read Errejón on Laclau is to take an exhilarating short-cut to understanding the intellectual forces that are shaping Europe’s future. Syriza’s victory in Greece, for one, has been directly driven by the ideas of Laclau and an Essex cohort that includes among its alumni a Syriza MP, the governor of Athens, and Yanis Varoufakis. Syriza built its political coalition in exactly the way Laclau prescribed in his key 2005 book On Populist Reason – as Essex professor David Howarth puts it, “binding together different demands by focusing on their opposition to a common enemy”.

On the Mediterranean side of austerity Europe, the common enemy is not hard to discern. During Spain’s massive indignados protests and encampments of summer 2011, one of the principal slogans was the quintessentially populist “We are neither right nor left, we are coming from the bottom and going for the top”. It is, in Laclau’s terms, “the formation of an internal antagonistic frontier” like this, between a broadly defined sense of “the people” and a ruling class unwilling to yield to their demands, that readies the ground for a populist movement like Podemos.

You can see the same political and social realities, the same fertile ground for a mass populist movement, and the same possibility of “radical democracy” in the stunningly successful Spanish housing activist group PAH. A 2013 poll for El País found 89% support for PAH’s campaign of direct action, eviction-blocking andescraches (demos outside politicians’ houses). Amazingly, the approval figure remained almost as high among voters of the governing rightwing Partido Popular, at 87%.With more than 500,000 evictions since 2007, and Spanish prime minister Mariano Rajoy enacting Troika-mandated swingeing cuts to public services, there have been times when Spain’s social services have contacted one of PAH’s 150 local branches for help. When a radical activist movement has become so successful that it is called upon to do the work of the state, not just by vulnerable citizens but by the state itself, the political conjuncture is striking in its uniqueness. Podemos is drawing directly on Laclau’s work to make the most of this opportunity, rejecting the old Spanish left of the PCE (Communists), smashing the discredited austerity-lite of the PSOE (Socialists) in the polls, and channeling a rehabilitated notion of leftist populism.

Laclau’s goal was to invert the analysis on populism – overturning the received wisdom that, explicitly or implicitly, always uses the term pejoratively. Usually, describing a person or a movement as populist implies that they appeal to basest instincts, hitting the lowest common denominators like a hammer on windchimes, sacrificing intellectual acuity in the name of short-term success.

Why, Laclau asked, should this necessarily be so? What if vagueness, simplification and imprecision were good, necessary qualities in a political movement? He writes: “Is not the ‘vagueness’ of populist discourses the consequence of social reality itself being, in some situations, vague and undetermined?” It is important, Laclau goes on, to “explore the performative dimensions” of populism. What is the process of simplification and emptying in aid of? What is “the social rationality they express”?

In the case of Podemos, repeatedly attacking la casta (the elites) may seem simple or trite on paper, as some have argued, but expressing your disavowal in the context of Spain’s domination by a corrupt, unreformable “regime of 78” (the year of the post-Franco constitution) which is in thrall to the troika and their friends in the bailed-out banks, as well as 40 years of Francoist patriarchy before that, becomes potentially transcendent.

Laclau also encouraged the likes of Podemos to think about who is served by anti-populism. The dismissal and denigration of populism has been “part of the discursive construction of a certain normality, of an ascetic political universe from which its dangerous logics had to be excluded”. It is here that Laclau’s words illuminate the present crisis: this universe, this constructed normality, is tragically familiar. It is one in which the centre polices the boundaries of political thought; and it is a universe in which Ed Miliband can be called “red” while promising to enforce neoliberal austerity policies. It is also a universe in which prominent leaders of the nominal left, from the Parliamentary Labour Party to Trotskyites, exhibit a pathological lack of faith in large swathes of the population.

And this is the nub: populism is seen as dangerous because democracy is dangerous. “Rationality belongs to the individual,” Laclau writes, characterising the anti-populist thesis, and when the individual takes part in a crowd or a mass movement they are subject to the most criminal or beastly elements of that group and undergo a “biological retrogression” to a less enlightened state of being.

Elite contempt for the masses has been fairly easy to identify in Spain’s recent history – a land of patriarchs, landowners, priests and, above all, Franco, the nation-state’s chiding father. The indignados were not the first to protest in their millions in Spain. Podemos leader Pablo Iglesias says his earliest political memory is the anti-Nato demonstrations of the 1980s. There was also Iraq and the mass trade union demos and strikes of the 1970s and 80s. The Laclauian fault-lines between a mass of “the people” and “the regime of 78”, already existed with a certain degree of solidity before 2008 – but it has taken the remarkable series of events since the start of the crisis to harden that “internal frontier”.

Spanish politician Pablo Iglesias has noted that the conversation in the squares in 2011, and subsequently on left TV chatshows like La Tuerka, had become much more important than the one going on in parliament. The developments in Spain since 2008 amount to what Raymond Williams called a new “structure of feeling”, a shift in the lived experience of ordinary people, a new chain of demands distributed through more public, more truly democratic channels. What changed was something, in Iglesias’s words, “that functions in the magma and suddenly makes many people in this country see a guy with a ponytail on television and listen to him”.

Dan Hancox

Fonte: The Guardian

quinta-feira, 12 de fevereiro de 2015

Guns are only half an answer for Ukraine

Vladimir Putin has agreed to a ceasefire in Ukraine. Past experience says the Russian president will not keep his promises. Mr Putin’s aim is to disarm the west. The west must decide whether to arm Ukraine.

For old hands at the Munich Security conference this month the argument about whether to supply defensive weapons to Kiev carried echoes of the 1990s Balkan wars. Then the Bosnians were overrun by marauding Serbs. Now Ukraine is buckling under the military might of a revanchist Russia.

The debate has simmered since Moscow’s annexation of Crimea and the dispatch of Russian forces to mobilise separatists in eastern Ukraine. No one could disagree with Angela Merkel, German chancellor, when she said Russian aggression was a profound threat to the European order. Where many parted company with her was in the conclusion that diplomacy and sanctions should mark the limit of the west’s response.

The should-we-arm-them argument was rehearsed when Serbian and Croat forces rampaged through the fledgling state of Bosnia Herzegovina. A UN arms embargo imposed on the former Yugoslavia locked in the military advantage of the Serbs. As the Bosnians were cut down, the west was split about whether to exempt them from the ban. Then, as now, US and Europe had resolved to keep their own forces out of the fight.

The Bosnians, one side argued, had the right of self-defence. If the west stood back, the least it could do was even up the fight. Bosnia, after all, had been recognised by the UN as a sovereign state. Slobodan Milosevic’s Serbia had no incentive to come to the negotiating table while it was advancing on the battlefield. So ethics and realpolitik gave the same answer.

On the other side many said that arming the Bosnians would simply level up the killing field. The Serbs would step up their attacks and new weaponry would dissuade the Bosnians from negotiating. And could the west draw such a neat line between arming Bosnia and sending in its own forces? What about mission creep? This side too claimed to be on the side of ethical realism.
The parallels with Ukraine, of course, are inexact. Mr Putin’s Russia is not Milosevic’s Serbia. Some of the actors have swapped roles. If Ms Merkel is now a peacenik, her predecessor-but-one Helmut Kohl called in 1993 for the Bosnian embargo to be lifted. The US president Bill Clinton backed sending arms before later changing his mind. Britain and France, which had contributed to a UN peacekeeping force, led the opposition. Anticipating Ms Merkel’s words in Munich, John Major, the then British prime minister, said lifting the ban would be a “counsel of despair” calculated to widen the conflict.

For all the differences, the question asked of the west is much the same. European security depends on territorial inviolability. If states can expand their borders by invading neighbours we are back to a Hobbesian world of the early 20th century. The security guarantees offered in the Budapest memorandum in return for Kiev’s surrender of nuclear weapons were unequivocal. Russia’s revanchism reaches beyond Ukraine. But how far will the US and Europe go to defend the postwar order?

Not too far, says Ms Merkel. Her diplomacy collides with private acknowledgment that Mr Putin will not give up what he calls Novorossiya. The most likely outcome of this week’s agreement in Minsk is a temporary lull. The name of the German game is to halt Russia’s advance, setting the Donbass alongside South Ossetia, Abkhazia and Transnistria as a frozen conflict. The west must be patient, she says, just as during the cold war. The oil price collapse and sanctions will take their toll. To provide Kiev with weapons would invite Moscow to escalate the conflict.

The riposte is that the west has a duty to help Ukraine defend itself. To surrender to Mr Putin’s land grab would be to encourage his revanchism. A better equipped Ukrainian military would change the calculus in Moscow. Sure, Mr Putin could send in an army division, but at the cost of heavy casualties and an end to the threadbare pretence of a western conspiracy to encircle Russia.
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I lean towards this second course. Mr Putin sees the west as decadent and weak. The message from Munich was that Moscow inhabits a parallel universe. Sergei Lavrov, the Russian foreign minister, attracted audible derision as he rehashed the tired narrative that the Ukraine crisis is all the fault of US-
sponsored fascists. Faced with such self-serving fantasy a line has to be drawn.

It should be understood, though, that arming Ukraine is at best half an answer. Modern defensive weaponry will not overturn the military facts on the ground in Donbass. Ukraine alone cannot defeat the Russian army.

The lessons from the Balkans are salutary. The UN embargo was left in place and the slaughter continued apace. Milosevic was forced to the negotiating table by direct Nato intervention after the Serbian massacre of civilians at Srebrenica. President Barack Obama is not about to send US warplanes to Ukraine.

In one respect Ms Merkel is right. The west should play a long game: maintaining sanctions for as long as Russian forces occupy Crimea and the Donbass and providing financial and other resources on a scale sufficient to see what is left of Ukraine emerge as a successful, democratic state. My question is a simple one: does the German chancellor have the patience and resolve?

Philip Stephens

Fonte: FT

quarta-feira, 11 de fevereiro de 2015

Presidential U-turns, fumbles, fudges and gaffes from Mexico

Echoing former US President George HW Bush in his 1988 “read my lips, no new taxes” election vow, President Enrique Peña Nieto pledged in September’s state of the nation speech neither new taxes nor higher tax rates for the rest of his government. That is a big promise when your term lasts until 2018. Mexicans may be wondering now whether they should believe it.

Why? Because the government has shown an alarming ability in recent months to shoot itself in the foot — and to backtrack on, or fudge, its announcements.

Take the fall in oil prices in a country that funds a third of its government budget from oil. At first, the government said it was protected by its much lauded hedging policy, which allows it to lock in a price for the year ahead, in this case $76.4 per barrel. Though well below peak prices, this turned out to be very comfortable given the plunge in prices and the price of Mexico’s crude export blend. Crisis averted, came the message.

Things were looking better and better: by mid-January, the government had tapped bond markets for the money to service half of its foreign debt needs for the entire year, and at historically low rates to boot. Inflation was unusually low. An improving US economy — the destination for nearly four-fifths of exports — held out the promise of less sluggish growth after two disappointing years.

But by the end of the month, the mood had changed as the oil price crunch sank in: austerity is the new government game plan, with budget cuts of more than $8bn ordered for this year, half to come from Pemex, the state oil company. While business leaders hailed it as responsible forward planning, public reaction to the announcement was still “Ouch”. Next year, many fear, the clampdown will be tighter still.

And it looks as though policy U-turns, stumbles and gaffes are proliferating.

This month, the president finally acknowledged what has been obvious to many Mexicans since news broke in November that his family’s luxury mansion had been built, paid for and was still owned by a favoured government contractor. That businessman was in turn part of a Chinese-led consortium that won, and was then abruptly stripped of, a high-speed train tender days before the house news broke. “I am aware that this . . . looks like something improper happened,” Mr Peña Nieto allowed. “Which, in reality, did not,” he swiftly added.

It is not just the presidential mansion that looked improper. Luis Videgaray, finance minister, bought a property from the same contractor, and Mr Peña Nieto was found, several years ago, to have bought another residence from a different one. Nothing necessarily wrong with that — except that the terms of the deals remain opaque, and the idea that leading political figures have fostered close ties to the purveyors of public works contracts makes many people queasy.

That it should have taken the president three months to realise all this might be bad enough. But his promise of a full investigation, to be led by a newly appointed federal auditor who immediately said he had jurisdiction only to probe government contracts and not houses, left the government with more egg on its face.

One step forward, two steps back? Mexico’s government has hit the skids since the disappearance and apparent murder of 43 students in the town of Iguala in September. This thrust the issue of security back into the spotlight after the government had deliberately steered the agenda towards reform and away from the previous administration’s bloody “war on drugs”. The renowned Argentine forensic team working on the investigation has accused officials of jumping to conclusions about what happened, and all but says the official version appeared to make the facts fit televised testimonies from the arrested alleged perpetrators — something Mexico denies.

Mr Peña Nieto and senior officials seem genuinely puzzled that the government’s messages appear mixed, at best, when its strategy — economic growth through ambitious reform — generated genuine excitement from international investors. The president’s hobby is chess: time for a new game plan, perhaps?

Jude Webber

Fonte: FT

terça-feira, 10 de fevereiro de 2015

Bitter times for French haute cuisine

The Michelin guide awarded its coveted stars last week to 609 restaurants throughout France as part of its annual appraisal of culinary standards in the country that invented haute cuisine.

The elite three-star category, which in Michelin speak means “worth a special journey”, had two new entries this year. Two stars mean “worth a detour” and one-star places are said to merit a stop if they are on your route.

When it comes to fine food, however, it is no longer the case that all roads lead to France. Globalisation has made a world of difference to restaurants in London.

The flow of ideas has helped spice up the city’s insipid menu; international commerce has provided fresh and plentiful ingredients unavailable to the generations who grew up with the legacy of second world war rationing.

But time has not been so kind to Paris. For one thing, new styles have made traditional French cuisine, with its rich sauces, look out of step with modern life — much like the country’s “big-state” economic model.

For another, globalisation has given France an appetite for junk food. A study found that 970m hamburgers were eaten in France in 2013, almost half of all sandwiches sold, up from one in seven in 2007. Moreover, sales at fast-food outlets in 2012 exceeded those of traditional sit-down restaurants for the first time.

France’s claim to the throne of good food and wine began to look shaky as long ago as 1976. That was when Steven Spurrier, a British wine merchant, organised a blind wine-tasting in Paris with 11 judges — nine were French — of high-end Chardonnays and red wines from France and California. California won.

Then, in 2007, the Michelin guide showered Tokyo with three-star awards in its inaugural guide to an Asian city, giving more top ratings to the Japanese capital than to Paris.

In a knife-twisting moment for France, Jean-Luc Naret, then Michelin’s international editorial director, described Tokyo as “by far the world’s capital of gastronomy”.

The guide has come in for the same criticism as French cuisine. Europe’s oldest hotel and restaurant guide was first published in 1900 by the Michelin brothers to encourage people to use cars — and therefore more of their company’s tyres — more often.

Today it faces competition from TripAdvisor, Zagat and other portals based on users’ reviews that many think more objective, less stuffy and generally more 21st century.

Last week I cycled to a new restaurant overlooking the Arc de Triomphe to meet Francis Luzin, founder of Le Chef magazine. He told me that when it comes to business, Michelin still packs a punch: a star means an immediate and enduring increase in revenue of 20 to 30
per cent.

An additional star has the same effect. In France, where the margins of high-quality restaurants rarely exceed about 6 per cent, it can separate success from failure.

Mr Luzin says that the biggest enemy to fine French cuisine is not the lack of invention but France’s tax and labour laws. A top chef in Paris recently confirmed his estimate that it is almost twice as expensive to employ a team of chefs in the French capital as it is in London.

I glance around the deserted restaurant and count seven waiters with time to spare.

“That is the 39-hour week,” says Mr Luzin. The catering industry works 39 hours in France rather than the standard 35, with little to show for the extra time spent on the job).

More important, Mr Luzin believes that the Michelin guide’s approach — in France it employs anonymous reviewers, each clocking every year about 30,000km, 160 hotel stays and 250 restaurant meals — still produces the ultimate reviews.

If that is true, French cuisine is still kicking: this year, the country has 26 three-star restaurants, four more than in 2000. There are 80 two-star restaurants compared with 70 in 2000. And it has 25 per cent more one-star restaurants.

But what, I ask, if your wallet doesn’t stretch to Michelin stars?
Mr Luzin pulls out a dog-eared card with a 20-strong list of his favourite — and moderately priced — Paris eateries. “Keep it,” he says with a smile. “Bon appétit.”

Adam Thomson

Fonte: FT

segunda-feira, 9 de fevereiro de 2015

China’s strange fear of a colour revolution

China’s education minister has just issued an edict to the country’s universities that sounds like something from the heyday of Maoism. “Never let textbooks promoting western values enter our classes,” thundered Yuan Guiren. “Any views that attack or defame the leadership of the party or socialism must never be allowed.”

As a visitor to Beijing last week, it struck me that it is rather late in the day to crack down on western influence. The Chinese capital is the home to every western brand you can think of — from Lamborghini to Hooters. In the cafés near Beijing’s university campuses, Chinese students gossip and surf the internet, much like their western counterparts. Yet apparent familiarity can be deceptive. Logging in from my hotel, I was naively surprised to run straight into the great firewall of China that blocks access to Google, Twitter and many other sites.

In recent months, the great firewall has been raised higher amid a crackdown on western influence that has affected universities, bloggers and television schedules. People directly involved in liberal politics have suffered much more directly. Human rights organisations say that hundreds of activists have been detained over the past year. Foreign non-governmental organisations are also under intensified scrutiny and pressure.

This crackdown points to a surprising sense of insecurity in China’s ruling circles. Events in the outside world have made the government increasingly anxious about the threat of a “colour revolution” that would challenge the Communist party’s grip on power. That links to anxiety about the internal stability of China, at a time when the economy is slowing and President Xi Jinping’s anti-corruption campaign is creating discontent among the ruling elite.

The wave of revolutions in the Arab world stirred deep anxieties in the Chinese Communist party about popular risings against undemocratic governments — and the chaos they can unleash. The role of western institutions and technology in stoking these revolts was noted in Beijing. The fact that the Egyptian uprising of 2011 was labelled the “Facebook revolution” and that one of its most prominent early activists was a Google executive helped to seal the fate of those two companies in China.

Over the past year, Chinese official paranoia about the threat of a colour revolution has been stoked by events in Ukraine and, above all, Hong Kong. China seems to have sincerely embraced the Russian view of the uprising in Ukraine, namely that it was essentially organised by the Americans, using all their nefarious tools, from the internet to NGOs. In April, months before the protests in Hong Kong broke out, Wang Jisi, a prominent Chinese academic, wrote that the main concern of Beijing’s leaders in dealing with America is “alleged US schemes to subvert the Chinese government and to penetrate politically and ideologically into Chinese society”.

The Hong Kong protests, which broke out in September, seemed to confirm Beijing’s deepest fears. Viewed from China, they looked dangerously like the arrival of the techniques of the colour revolution within China’s own borders: the sit-down protests, the students, the foreign television crews, the use of social media and the emergence of a catchy brand name, the “umbrella movement”. The Chinese government succeeded in damping down the protests in Hong Kong. But some in Beijing claim to see a sinister pattern of western meddling — stretching from the Arab world to Ukraine, Cuba, Venezuela and now Hong Kong.

What is more, all this international disorder is coming at a time of heightened political tension within China. Mr Xi’s trademark domestic political initiative is his anti-corruption campaign. This has gone on longer and struck deeper than many expected.

The anti-corruption drive is said to be popular among ordinary Chinese. But it is threatening powerful interests. In the past couple of months, the government has formally charged Zhou Yongkang, the former head of China’s internal security police and announced an investigation into Ling Jihua, who was the senior aide to Hu Jintao, Mr Xi’s predecessor. There is also said to be discontent in the massed ranks of party officials, many of whom have got used to supplementing their relatively meagre official salaries with bribes. Some even argue that the slowing of China’s economy has something to do with the chilling effect that the anti-corruption campaign has had on business deals.

It may be that Mr Xi is so perfectly in control of the political system that he can afford to take on powerful interest groups. But well-connected people in Beijing now speculate openly about the possibility of an attempt to remove the president. Some note that previous bouts of popular unrest in China, for example in 1989, coincided with divisions at the top of the Communist party.

Yet, in many ways, China has never looked stronger. A few months ago, the International Monetary Fund announced that China is the world’s largest economy, measured by purchasing power. Foreign leaders are queueing up for audiences with Mr Xi, usually in the hope of attracting Chinese investment. Viewed from the outside world, the apparent anxiety of China’s political leaders looks excessive, even paranoid. But, as the famous (western) saying goes: “Only the paranoid survive.”

Gideon Rachman

Fonte: FT

sexta-feira, 6 de fevereiro de 2015

Greece should bail-in the eurozone

Excelente artigo: de longe, a melhor analise do cenario econômico grego.

For the past week, the world has been roiled by the new Greek administration. Elected on the basis of promises to end austerity and write down part of Greece’s enormous debt burden, Finance MinisterYanis Varoufakis has embarked on a whirlwind tour of Europe to explain his policies, with a view to gaining broad support for a new approach to ending the Greek depression and restoring its finances.
The “new deal” that Mr Varoufakis offers both to Greece’s citizens and to its eurozone partners is, broadly, this:
Many people have commented that Greece’s debt burden, though enormous relative to its shrinking GDP, is not unaffordable, and question why a further restructuring is necessary. But this misses the point. The debt deal offered by Mr Varoufakis would not materially affect Greece’s payments. But it would fundamentally change the power balance between Greece and its creditors.
For the ECB, Mr Varoufakis suggests converting existing holdings of Greek debt to perpetual bonds. These would be similar to the “consols” issued by the British government at various times, usually to finance wars, which are fixed-coupon bonds with no maturity date that can be repaid at any time. Perpetual debt with fixed-rate coupons can become expensive for the issuer when interest rates are falling, but this is mitigated by the call option: indeed, the British government is just about to call most of its remaining War Loans in order to refinance them at today’s low interest rates.
As Andrew Lainton explains, the ECB should accept Mr Varoufakis’s offer. It has nothing to lose and a great deal to gain by removing the risk of default from its holdings of Greek debt.
Mr Varoufakis suggests converting other debt, notably the European Financial Stability Facility (EFSF) rescue loans, to GDP-linked bonds, where debt service costs and/or repayments would rise and fall with GDP. The proposal was well received by representatives of the finance sector, but so far eurozone governments have been distinctly lukewarm. For them, this proposal is politically controversial. It stems from Mr Varoufakis’s argument that Greece is insolvent, not illiquid.
The proposed debt restructuring would convert EFSF loans to something akin to preference shares — a debt-for-equity swap. In effect, Mr Varoufakis wishes to bail in creditors, rather as senior unsecured bondholders and uninsured deposit holders would be in a bank failure (once the EU Bank Recovery & Resolution Directive is fully implemented). This is, of course, risk sharing — not by issuing common debt, but by taking equity stakes in a distressed country with a view to turning it around. I suspect this might be anathema in creditor countries. But as Mario Draghi pointed out in a speech in Helsinki in November 2014, some form of risk sharing is essential if the eurozone is to survive. Mr Varoufakis’s scheme thus deepens European integration without breaking the taboo on common debt. It deserves serious consideration.
But Greece has already had debt restructuring in return for the structural reforms imposed by the Troika: it has failed to enact all the reforms agreed, and even those it has managed to make have largely failed to deliver the expected benefits. Why should Greece’s creditors take seriously new promises to reform, let alone replace the existing reform programme with something different?
Mr Varoufakis argues that privatisations at fire-sale prices are counterproductive. So, too, are tax and benefit reforms that wreck the living standards of ordinary Greeks while leaving the privileges of the rich untouched. After meeting Tsipras this week, Martin Schulz, the President of the European Parliament, commented: “We agree ordinary Greeks have paid too much. Now is the time for those who took money out of the country to pay.”
But the challenge of making the sort of structural reforms that would ensure that rich and powerful Greeks pay their share should not be underestimated. Previous administrations have not dared to tackle Greece’s oligarchs.
Mr Varoufakis’s pledge to “destroy the Greek oligarchy” is thus not simply a side issue. It is the heart of his mission to restore Greece to prosperity and enable it to remain in the eurozone. And he will need all the help he can get from his eurozone partners to achieve this objective.
The mistake that the EU has made in Greece is to fail to provide adequate support — or even recognise the need — for radical reform of institutions and governance. Telling a government to end corruption, reform taxation and pursue sound fiscal policies is all very well, but governments in hock to oligarchs have enormous difficulties doing this. When institutions are weak, officials and politicians are captive and corruption is rife, a strong legal framework and sensible governance rules will not by themselves ensure fundamental change. The EU could be doing far more to help Greece enact the deep structural reforms of institutions and governance that is really needed to turn it round.
The EU must also learn the lessons of history. Europe has suffered terribly in the past because of antagonistic relationships between indebted nations and their creditors. And the world is littered with the political corpses of those who inflicted pain on their people and damage to their economies in the name of “balancing the books” and “restoring credibility”. Severe austerity begets populism — and populism, though well-intentioned, has a dark side. Germany should remember its own history: it was Chancellor Brüning’s austerity policies at the height of the Depression that led to Hitler’s landslide victory in 1932. Latin American countries, too, have repeated the cycle of severe austerity — populist profligacy — disastrous collapse again and again. And Greece, of course, is a serial offender. It is essential that this cycle is broken. And for that, co-operation, mutual support and a sense of shared destiny is needed. This is the hope that the Greek people cling to. And this is the hope that the EU, at its best, can offer.
Syriza is a populist government, and some of the policies it has already implemented are disturbingly similar to those of other populist governments that eventually failed disastrously. It must resist the siren voices that want to wipe out the pain of the past and restore lost prosperity through a highly expansive fiscal programme. This is a road that must not be travelled. There can be no magic wand: recovery requires hard work and enterprise, and there will still be pain to come.
But the EU, too, must not allow its fear of populism and scepticism about Syriza’s motives to dominate its decisions. It now has an opportunity both to restore hope to Greece and to secure its own future as a union. It should take it.

Frances Coppola

Fonte: FT

quinta-feira, 5 de fevereiro de 2015

Mentioning the war: a Greek strategy to win German hearts

Yanis Varoufakis, the Greek finance minister, was in Berlin on Thursday for a meeting with Wolfgang Schäuble, his fiscally hardline German counterpart, as he seeks to alter the terms of the European bailout. The two are not natural soulmates; Schäuble is a formal and old-style German politician while Varoufakis is an ebullient and youthful 53-year-old, an economics blogger and professor at Essex, Sydney and Athens universities who dresses with nightclub-bouncer chic and whose party uses the imagery of the Nazi occupation to rally Greek resistance.

Wolfgang Schäuble: Good morning, we expected you earlier.

Yanis Varoufakis: I apologise, I was paying a visit to the site of Hitler’s Bunker.

WS: Yes. You are all rather fond of Nazi sites. I saw your leader’s visit to the memorial to Greeks shot by the Nazis. Perhaps you will find time to squeeze in a visit to Wannsee while you are in Berlin.

YV: Let us not get off on the wrong foot. I’ve come with a present for you.

WS: How thoughtful. Is it a book?

YV: Yes, Anthony Beevor’s Crete: the Battle and the Resistance.

WS: Of course, Greeks and gifts.

YV: You must understand, I mention Nazis not as an insult but as a warning of what happens when a country is reduced to national humiliation and unending hopelessness. We now have Nazis in our own country, we think Germany, of all nations, would want to help us resist them. You know how we feel.

WS: This is why you also threaten to pursue Germany for war-reparations, out of your desire for a common front?

YV: You have to understand. Some of our Nazi references are for internal consumption and some are for your consumption. You must not confuse the two. I want a strong Germany. A Germany leading Europe; lifting all the boats on Europe’s seabed.

WS: So you do not mind a powerful Germany as long as it is doing as you wish. If we waive your debts and let you abandon reform, then we are not an army of occupation. You do not mind a powerful creditor as long as he keeps paying.

YV: We are simply asking for help.

WS: And we wish to help. We wish to help you to help yourself. But we also need trust and reliability, a belief that if a country makes an agreement that it can be counted on to fulfil it.

YV: But the programme is bringing my country to despair. Do you want me to mention the Nazis again?

WS: I believe I caught that message.

YV: We are in a savage debt crisis. You gave the largest loan in history to an insolvent nation. We came to you with a mortgage problem and you offer us credit cards. Our people voted for a better future — that was our promise to them.

WS: A promise made on someone else’s bank account.

YV: We need time to work out a new programme. We need you to keep supporting the bailout beyond February 28, while we work out new terms that you will not like.

WS: Namely?

YV: We want you to cancel our debt, reduce the required budget surplus and allow us to cancel privatisations.

WS: Writing off the debt is not acceptable to the German people.

YV: Do I need to mention the last time German debts were written off?

WS: I am surprised you haven’t.

YV: I thought I would go to Dachau before I head home.

WS: Yes, yes. You are going on an entire Third Reich tour. The best you can hope for is extending the maturity of debt and some breathing space for a tax reform programme. Do not put yourself in a position where you are forced to leave the euro. We would not wish it but we cannot prevent it under all circumstances.

YV: We will not leave the euro. As the Eagles say, you can check out any time you like but you can never leave.

WS: I doubt Don Henley studied the intricacies of Maastricht treaty.

YV: You must respect our mandate from a people not prepared to put up with endless austerity.

WS: I know you are an expert in game theory but I urge you not to overplay your hand.

YV: Half measures and compromise are not enough this time.

WS: Something you learnt at Essex?

YV: It’s the only way.

WS: We will have to agree to disagree.

YV: I cannot agree to that.

Robert Shrimsley

Fonte: FT

quarta-feira, 4 de fevereiro de 2015

Greece owes a debt to Spain

What are Spaniards to make of the news from Greece? A radical leftwing party that barely existed as a political force before the financial crisis has swept to power, promising that it will no longer accept demands that international creditors have hitherto presented as non-negotiable.

The Spanish people, like others in southern Europe, have had a taste of the Greeks’ plight. About a quarter of Spain’s workforce is unemployed — not far off the figure in Greece. Both countries have had to endure crushing austerity programmes aimed at winning the confidence of creditors, and to secure conditional promises of support from European and international institutions. Few can say as sincerely as the Spanish that they feel Greece’s pain.

Nonetheless, when Spaniards talk about Syriza’s election victory in Greece last month, the mood is more of circumspection than sympathy.

Part of the story is that Spain, despite the fragility of its own finances, has lent considerable sums to Athens — about €26bn, if you include Madrid’s contribution to the eurozone rescue funds. This is more than half the €40bn that Spain itself received from the European Stability Mechanism to recapitalise its banks.

Look at it this way, it can seem as though a disproportionate share of the eurozone’s reserves of financial solidarity come from the very countries that are most in need of support.

Yet despite what some commentators have been saying, the big worry for most Spaniards is not that Athens will default on its debts. It is widely accepted that some kind of deal will be reached. This is unlikely to involve a reduction in the nominal amount that Greece must repay, but the real value of repayments will probably be whittled down nonetheless by deferring payment and lowering the interest rates in some form or another — the time-honoured solution of “extend and pretend”.

On the contrary: it is not because our situations are opposed that Spaniards are fearful of events in Greece. It is because they share some similarity. The really big fear is that politicians in Greece will engage in a round of brinkmanship — both with international creditors, and with the eurozone’s monetary authorities — that will forever drive a wedge between the north and south of the eurozone.

If investors get their fingers burnt in Athens, they will hesitate to write cheques in Madrid, Milan or Lisbon. If Germans feel that sharing a currency with Greece no longer serves their interests, they will feel the same about any monetary union that includes the other countries of southern Europe. Lose control of the situation in Greece, and a destructive gap will open between the eurozone’s creditor and debtor nations.

Then there is the prospect that the political upheaval that has been wrought in Greece could happen here as well. After all, many of the circumstances are similar. While the Spanish economy has been doing better recently, the sense of recovery has not been widely shared. A large part of the population — those without jobs, or whose salaries have been cut — has so far scarcely perceived the economic rebound. Most Spaniards feel poorer than they did before the crisis. The lesson that many Spaniards would take from a Greek default is that austerity has not delivered in either place.

Backsliding by Greece could undermine the momentum of Prime Minister Mariano Rajoy’s reformist government and give even more impetus to Spain’s radical left Podemos party. On the other hand, if Syriza succeeds in reforming Greece, this could spur positive changes in Spain and elsewhere, paving the way for reconciliation between north and south and for a strengthening of the monetary union.

For now, the popularity of Podemos reflects, not a roar of approval for its policies, but a howl of anger from a disaffected group of Spanish voters. For now, in fact, Podemos does not really have any policies that it can sell as an alternative to the reformist programme of Mr Rajoy. But the fear of the traditional parties, and especially the governing Popular party, is that if Syriza gets its way in Greece, Podemos might revive the idea of a writedown on the Spanish debt. Chaos could follow.

Spain has begun the painful work of reform under great stress and with much sacrifice. It needs to do much more. Greece, twice rescued, has also made sacrifices, but is yet to push really deep reforms. Many in Spain would like to see reforms that would foster growth. European policy has already started to change. So extend and pretend — and reform and grow.

Andrés Ortega is a fellow at the Elcano Royal Institute and a former head of policy planning in the Spanish prime minister’s office

Fonte: FT

terça-feira, 3 de fevereiro de 2015

A deal to bring modernity to Greece

Ingram Pinn illustration©Ingram Pinn

Maximum austerity and minimum reform have been the outcome of the Greek crisis so far. The fiscal and external adjustments have been painful. But the changes to a polity and economy riddled with clientelism and corruption have been modest. This is the worst of both worlds. The Greek people have suffered, but in vain. They are poorer than they thought they were. But a more productive Greece has failed to emerge. Now, after the election of the Syriza government, a forced Greek exit from the eurozone seems more likely than a productive new deal. But it is not too late. Everybody needs to take a deep breath.
The beginning of the new government has been predictably bumpy. Many of its domestic announcements indicate backsliding on reforms, notably over labour market reform and public-sector employment. Alexis Tsipras, the prime minister, and Yanis Varoufakis, the finance minister, have ruffled feathers in the way they have made their case for a new approach. Telling their partners that they would no longer deal with the “troika” — the group representing the European Commission, the European Central Bank and International Monetary Fund — caused offence.It is also puzzling that the finance minister thought it wise to announce ideas for debt restructuring in London, the capital of a nation of bystanders.
More significant, however, is whether Greece will run out of money soon. Most observers believe that Greece could find the €4.3bn it needs to pay the IMF next month even if the current programme were to lapse at the end of February. A more plausible danger is that Greek banks, vulnerable to runs by nervous depositors, would be deprived of access to funds from the European Central Bank. If that were to happen, the country would have to choose between constraining depositors’ access to their money and creating a new currency.
As Karl Whelan, Irish economist, notes, the ECB is not obliged to cut off the Greek banks. It has vast discretion over whether and how to offer support. The fundamental issue, he adds, is not whether Greek government securities are judged in default, since Greek banks do not rely heavily upon them.
Far more important are bonds the banks themselves issue, which are guaranteed by the Greek government. The ECB has stated it will no longer accept such bonds after the end of February, the date of expiry of the IMF programme. If the ECB were to stick to this, it would put pressure on the Greek government to sign a new deal. But this government might well refuse. In that case the ECB might cut off the Greek banks.
Martin Wolf charts
This game of chicken could drive the eurozone into an unnecessary crisis and Greece into meltdown before serious consideration of the alternatives. The government deserves the time to present its ideas for what it calls a new “contract” with its partners. Its partners surely despise and fear what Mr Tsipras stands for. But the EU is supposed to be a union of democracies, not an empire. The eurozone should negotiate in good faith.
Moreover, the ideas presented on the debt are worth considering. Mr Varoufakis recognises that partner countries will not write down the face value of the debt owed to them, however absurd the pretence may be. So he proposes swaps, instead.
A growth-linked bond (more precisely, one linked to nominal gross domestic product) would replace loans from the eurozone, while a perpetual loan would replace the ECB’s holdings of Greek bonds. One assumes the ECB would not accept the latter. But it might accept still longer-term bonds instead. GDP-linked bonds are an excellent idea, because they offer risk-sharing. A currency union that lacks a fiscal transfer mechanism needs a risk-sharing financial system. GDP-linked bonds would be a good step in that direction.
Martin Wolf charts
Many governments would oppose anything that looks like a sellout to extremists. The Spanish government is strongly opposed to legitimising the campaign of its new opposition party, Podemos, against austerity. Nevertheless, Greece and Spain are very different. Spain is not on a programme and owes much of its debt to its own people. It can justify much of its policy mix in its own terms, without having to oppose a new agreement for Greece.
Two crucial issues remain. The first is the size of the primary fiscal surplus, now supposed to be 4.5 per cent of GDP. The government proposes 1.0 to 1.5 per cent, instead. Given the depressed state of the Greek economy, this makes sense. But it also means Greece would pay trivial amounts of interest in the near term.
The second issue is structural reform. The IMF notes that the past government failed to deliver on 13 of the 14 reforms to which it was supposedly committed. Yet the need for radical reform of the state and private sector no doubt exists.
One indication of the abiding economic inefficiency is the failure of exports to grow in real terms, despite the depression.
Indeed, Greece faces far more than a challenge to reform. It has to achieve law-governed modernity. It is on these issues that negotiations must focus.
Martin Wolf charts
So this must be the deal: deep and radical reform in return for an escape from debt-bondage.
This new deal does not need to be reached this month. The Greeks are right to ask for time. But, in the end, they need to convince their partners they are serious about reforms.
What if it becomes obvious that they cannot or will not do so? The currency union is a partnership of states, not a federal union. Such a partnership can only work if it is a community of values. If Greece wants to be something quite different, that is its right. But it should leave. Yes, the damage would be considerable and the result undesirable. But an open sore would be worse.
So calm down and talk. Let us all then see whether the talk can become action.

Martin Wolf

Fonte: FT