by David Steven | Mar 20, 2010 | Economics and development, Europe and Central Asia
A few weeks ago, I questioned German wage restraint, pointing out that other Eurozone countries would prefer Germany to allow salaries to rise, thus stimulating domestic demand, and helping address Europe’s economic imbalances.
French finance minister, Christian Lagarde recently made the same point:
Clearly Germany has done an awfully good job in the last 10 years or so, improving competitiveness, putting very high pressure on its labour costs. When you look at unit labour costs to Germany, they have done a tremendous job in that respect.
[But] I’m not sure it is a sustainable model for the long term and for the whole of the group. Clearly we need better convergence.
In the FT, Otmar Issing – who did his best to ensure the European Central Bank was run on Bundesbank-approved lines – reacts to the suggestion with characteristic restraint and good humour:
This idea, presented as a panacea for Europe’s problems, is so economically erroneous and politically dangerous that it would hardly deserve being taken seriously – were it not for the risk that it might actually prevail…
At a time when the EU has launched a new initiative to make the continent’s economies more competitive, after the failure of the “Lisbon agenda”, an approach that deliberately tried to reduce the competitiveness of one of the most successful exporters in world markets would look like a bad joke.
I’ll take that as a ‘no’ then. Issing, who has been lobbying hard against a Greek bailout, reflects a worrying trend in German opinion. According to this line of thinking, other Eurozone countries should buckle down, cut wages and public spending, and do what their richer and more prudent masters in Berlin Brussels tell them to.
And if this medicine is too bitter, then they should bugger off, re-adopt the drachma, lire or peseta, and spend the next hundred years or so paying back the Euro-denominated debt they have incurred while in the single currency.
It’s a depressing vision. And, for Europe, it looks like it’s stagnation ahead.
by Richard Gowan | Mar 19, 2010 | Cooperation and coherence, East Asia and Pacific, Economics and development, Europe and Central Asia, Global system
Regular (or obsessive) readers will be familiar with my exasperation at the EU’s inability to rationalize its presence in the G20, G8 and similar loose-knit multilateral forums – this would be much easier to achieve than, for example, altering the EU presence in the Security Council. During the economic crisis, EU members have gone the other way, with numerous European leaders trying to squash into the G20. So hurrah for Herman Van Rompuy and Jose Manuel Barroso, who have managed to work out a mechanism to streamline their respective roles in these forums:
European Commission President Jose Manuel Barroso and EU Council chief Herman Van Rompuy have decided who will speak on which subject when they both represent the union at international meetings such as the G20. “The two presidents have decided that the EU delegation will be composed of both presidents in one single delegation. That’s quite normal, as their roles are complementary,” a spokeswoman for the European Commission said during a press briefing on Thursday (18 March).
One of the novelties introduced by the EU’s new treaty is that the permanent president of the EU Council, former Belgian premier Herman Van Rompuy, also represents the bloc abroad in foreign policy and security matters. But in other areas, such as climate change, President Barroso will speak on behalf of the 27-member club. In areas where the two overlap, for instance energy, which is both a security and a commission policy area, they will decide on a case-by-case basis who will take the floor.
There’ll surely be tiffs on these “case-by-case” divisions of labor (and where does Catherine Ashton fit into this picture?) but this is a common sense approach. And common sense hasn’t been the leitmotif of Europe’s attitude to the G20 so far…
Still, the news could have come at a better time. The very idea that Europe can speak with a single voice on global economic governance has been shaken up by the growing controversy over how to bail out Greece. A key theme in recent G20 meetings has been how to reform the IMF – but now European capitals are fighting over whether the IMF should help Greece. The G20’s ability to coordinate the big economies is also in doubt. This week, the NYT reported on China’s attitude to one G20 pledge:
Last September, President Obama, President Hu Jintao of China and other leaders of the Group of 20 industrialized and developing countries agreed in Pittsburgh that all the G-20 countries would begin sharing their economic plans by November. The goal was to coordinate their exits from stimulus programs and prevent the world from lurching from recession straight into inflation.
The G-20 leaders agreed that the I.M.F. would act as intermediary.
But two people familiar with China’s response said that the Chinese government missed the November deadline and then submitted a vague document containing mostly historical data. These people said that China feared giving ammunition to critics of its currency policies at the monetary fund and beyond. Both people asked for anonymity because of China’s attitudes about its economic policies.
If this sort of thing continues, G20 discussions are going to lose the air of panicked collegiality of 2009, and get a whole lot nastier. It’ll help if the EU has a clear, single line on such controversies… That’s a bit of a pipe dream, given the Greek controversy, but kudos to Van Rompuy and Barroso for a small step in the right direction.
by Richard Gowan | Mar 19, 2010 | Conflict and security, Cooperation and coherence, North America
As a service to readers in Washington DC – if we have any – I’m pleased to announce that I’ll be speaking at a public event at Brookings on UN and NATO reform on Wednesday 24 March at 2pm. I’m in more exalted company than I deserve:
So, come and see me be entirely overshadowed – you can register here.
by David Steven | Mar 19, 2010 | Africa, Economics and development
You see plenty of reports from development agencies castigating development countries for one reason or another, but the boot is much less often on the other foot.
Interesting then to see this 2008 review (huge pdf download) from Nigeria’s National Planning Commission, which sets out to analyse ‘the volume and quality of Official Development Assistance to Nigeria between 1999 and 2007.’
During this time, $6bn of aid has been spent in Nigeria, almost all of it spent by donors themselves, rather than being rooted through the government’s budget. The Planning Commission’s first job, therefore, was to try and work out who had spent what.
So it sent a template to donors asking for information on what they’d spent and where:
Of all the agencies, USAID was the only agency able to provide almost all the requested information with a little delay. EU was also able to meet most of our requirement, only after about three months delay…
CIDA’s [Canada] claimed disbursement did not tally with what they had actually spent…[It] refused to supply more information when asked [to]…
DFID is another donor that could not account for all its activities. When asked to provide information on the sectors and states DFID is operating in, it simply wrote saying ‘we do not require our programme managers to collect expenditure on a state-by-state basis.’…
JICA [Japan]…did not cooperate at all despite our many efforts to get JICA to collaborate with us.
The UN system was also only ‘partially cooperative’. UNICEF did not provide a breakdown of its health spending, for example (nor did DFID or CIDA). “We do not know exactly what [this] money was spent on,” the report notes. The Chinese government was also asked for data – but the review does not tell us what its response was (read into that what you will).
Donors should be much more transparent accountable for their activities, the Planning Commission concludes, while the Nigerian government “needs to offer clearer and more effective leadership to her development partners both in terms of how and where to operate.”
It lauds the example of Kano and Ondo states. They are robust in their response to ‘intruder donors’ who operate outside a framework established by the state government. That allows leaders to set, and be accountable for, their own development priorities.
Update: Of course, Nigeria’s own statistics are often woefully inadequate, whether at national or at state level. Recently, for example, Kano state has just been counting its schools:
An additional 88 senior secondary schools and 174 private schools had been ‘discovered’, while in some areas schools had disappeared: the Kano municipality had 10 less junior secondary schools than first thought.
Update II: Worth pointing out, too, that the World Bank, DFID, USAID and African Development Bank recently agreed a joint strategy for Nigeria – bringing 80% of Nigeria’s development assistance under a single strategic umbrella. Somewhat oddly though, it cannot easily be found on any of the donors’ websites. There’s a copy here though.
I wonder if the donors will now move towards a single online platform to show what they’re spending, where, and what results it’s achieving… and, also, how effectively their joint approach is proving (the Bank and DFID have had a joint strategy for some years now) at reducing overhead for Nigerian government and non-government partners.
by David Steven | Mar 18, 2010 | Economics and development, Global system
Michael Lewis, in his highly entertaining new book, The Big Short, has a pop at ratings agencies (amongst a bazillion other targets). All the big Wall Street firms, he writes, were highly effective at manipulating Moody’s and Standard and Poor’s:
Everyone on Wall Street knew that the people who ran the models were ripe for exploitation. ‘Guys who can’t get a job on Wall Street get a job at Moody’s,’ as one Goldman Sachs trader-turned-hedge fund manager put it.
Inside the rating agency there was another hierarchy, even less flattering to the subprime mortgage bond raters. ‘At the rating agencies the corporate credit people at the least bad,’ says a quant who engineered mortgage bonds for Morgan Stanley. “Next are the prime mortgage people. Then you have the asset-backed people [dealing with sub-prime mortgages, for the most part], who are basically like brain dead.
Wall Street bond trading desks, staffed by people making seven figures a year, set out to coax from the brain-dead guys making high five figures the highest possible rating for the worst possible loans. They performed the task with Ivy League thoroughness and efficiency.
Despite their pivotal and disastrous role in the financial crisis, business for the ratings agencies is booming. If anything, their influence, meanwhile, has grown, especially over governments, as they threaten countries with a sovereign debt downgrade.
I was especially intrigued by media coverage for a recent report from Moody’s, which claimed that the US, UK, Germany, France and Spain are all at risk of social unrest as governments struggle to get their finances under control. According to Moody’s Chief International Economic and Financial Policy Analyst, Pierre Cailleteau:
Growth alone will not resolve an increasingly complicated debt equation. Preserving debt affordability at levels consistent with AAA ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion.
We are not talking about revolution, but the severity of the crisis will force governments to make painful choices that expose weaknesses in society.
Strong stuff. And interesting too. One of the key questions for the next few years is whether the fallout from the financial crisis will be toxic enough to damage, or even break, some societies.
So I thought I’d read Mr Cailleteau’s report, rather than just relying on the Telegraph’s summary. I wondered how strong his analysis was. Was he a smart guy or one of those dubbed in Lewis’s book as the ‘brain dead’?
But then I hit the buffers. Go to Moody’s website and there’s no content at all available unless you register (which includes pretending to read a 6103 word user agreement – the site knows if you haven’t at least scrolled through it).
Once I’d gone through all this rigmarole and logged in, I was told that access to Cailleteau’s report “is not part of your current service”. (I was allowed to read the report’s press release. Big deal. I struggle to think of another organisation that requires registration for that.) Nor could I find a biography for Cailleteau. Only one of his reports was freely available to subscribers (a research note on methodologies). And even the link to pricing information for his ‘social unrest’ report was not working.
So I am left none the wiser about Cailleteau’s argument or credentials. All I do know is that he dismissed talk of a systemic global banking crisis in August 2007, a year before [corrected] Lehman’s nearly brought down the world’s economy.
Of course, anyone can make a mistake (though that one’s a doozy) – but surely it is no longer acceptable for the ratings agencies to hype their work to the press and lord it over the world’s economies, without letting us see the evidence on which they base their diagnosis and prescriptions.
More transparency please. Either on a voluntary basis. Or enforced through regulation.
