It’s nice when one thing in the Financial Times acts as an unplanned yet completely effective rejoinder to another. First, we have Jose Manuel Barroso explaning what a brilliant job he’s doing in getting tax and regulatory havens under control, notwithstanding the absence of any explanation of how exactly they contributed to the crisis —
Author Archives: P O Neill
The mother of all carry trades
With the US Federal Reserve’s surprise shift to Quantitative Easing today (surprise in terms of timing), the prospects look even better for anyone brave enough to do massive borrowing in dollars and invest in higher yielding assets elsewhere. For example, the government debt of Europe’s more fragile sovereign borrowers, like Ireland, Greece, and Italy. The Fed’s actions today signal another sustained push down on borrowing costs, and, critically, that there will be dollar depreciation (as already happened today once the significance of the QE announcement became clear). When Irish PM Brian Cowen told Barack Obama “It is my firm conviction that America’s leadership – your leadership – will be at the heart of the global renaissance “, did he have in mind that the US might be the backdoor lender to his fiscally embarrassed administration?
Switzerland delivers polite “Na” to IMF
The IMF, 3 days ago, to Switzerland —
Under the current circumstances, direct foreign exchange intervention should be aimed only at countering disruptive short-term pressures on the currency.
This followed an acknowledgment that monetary policy measures were probably headed towards zero interest rate and quantitative easing type measures. So what did the Swiss National Bank do today? The expected monetary policy easing, plus a blatant direct foreign exchange intervention —
Still on the downward slope
Ireland’s PM Brian Cowen today updated the Dail (lower house) on the still deteriorating state of the economy. One thing his remarks unintentionally highlighted is the problems that governments create for themselves when they are sitting on their internal economic projections which they treat as confidential but then still demand that everyone needs to contribute to the “debate” over how to mitigate the crisis. Anyway, the Opposition did coax him into revealing the GDP growth decline forecast for 2009 and he helpfully revealed the rate of downward revision —
It was said at budget time [October] it would be in the region of 2%, it was said in January it would be approximately 4% and the indications are now that it could be 6% or 6.5%.
So the revision is about minus 1 percentage point per month, which is probably on a par with former Baltic Tiger levels.  And senior policymakers still hint that the domestic banking system is a very fragile state. So those green shoots of recovery, ends of tunnels or whatever are not being sighted in Ireland yet.
Incidentally, Cowen also recently cited Canada as his preferred model for financial sector regulation.  Various things contribute to Canada’s relatively less severe manifestation of the crisis. The IMF helpfully points to one of them —
Complementing monetary policy, the floating exchange rate policy has also served Canada well, serving as a shock absorber. The recent depreciation of the exchange rate, which has occurred in line with the decline in commodities prices, will dampen disinflationary pressures and support activity.
Not an option that Ireland has.
The IMF apologizes on Gordon’s behalf
As mystery continues to surround the identity of the person in the charge of the UK economy since 1997, the IMF has come up with a carefully phrased admission that it got the UK and US economies wrong in its assessments over the last few years. What they politely don’t say is that, had they come up with any assessments less positive than they did, the respective Treasuries would have talked them out of it.Â
They all want to meet him
An interesting wrinkle for those who care about summitry: Barack Obama’s visit to Europe in April will include Prague for what is being billed as the annual EU-USA summit. Normally this includes just the Commission, the USA, and the Council Presidency which of course is the Czech Republic at the moment.  Last year’s summit was in Slovenia in June so they seem a little ahead of schedule. But more importantly, it won’t be just the 3 leaders —
After consulting the European Commission and the U.S. administration of President Barack Obama, Mirek Topolánek will invite the highest representatives of all 27 EU Member States to the EU-USA Summit.
Thus it’s going to be a big show, but presumably at the expense of getting much done with 28 heads of state/government and the Commission in attendance. It will get in a lot of “grip and grin” handshake photos for Barack Obama. Is this the format that the Obama team wanted to make worthwhile a visit to a “small” state?
Euro 2012 to be funded by Arab states of the Gulf?
Has the global financial crisis crossed yet another threshold with indications that the financing of the Euro 2012 Championship could be imperilled? The successful joint bid of Poland and Ukraine looked on one hand like a smart move to recognize the eastern European fan bases but on the other like a gamble given all the costs that the tournament brings, not least in stadium upgrades.  And with money tight for everything, money for football was perhaps going to be a tough sell.  Hence this interesting Polish courtship of Kuwait —
Alternative history
Poland is proposing that the time that a Euro-aspiring country should spend in the exchange rate stability test of the Maastricht criteria be shortened i.e. that it not be as long as two years in the ERM-2 before becoming eligible for the euro. Note that had such a relaxation been in effect from the start, the UK might already be in the Eurozone, since Black Wednesday hit during the ERM-2 phase of sterling, when the UK already was very close to the 2 year requirement. Of course pre-Euro is different from post-Euro but one does wonder what the EU would look like with the UK as an ERM and then Eurozone country in the original group.
For the EU summit agenda
One of the original motivations for tomorrow’s EU summit was the perception that Nicolas Sarkozy’s aid plan for French carmakers was in effect encouraging them to preserve production in France at the expense of Slovakia and other central European countries. In that light, how should one interpret the following apparently likely sequence of events: Government of Germany takes equity stake in Opel; Opel sells one of its German factories to Daimler, and Daimler aborts a project to build a new factory in Hungary since it will now have the extra German capacity?
Will it be a different world on the Ides of March?
The next 2 weeks look like they will be critical in determining the global policy response to the financial crisis. Events are moving faster than any long-scheduled summit (such as G20 in April, let alone G8 in Sardinia in July) can hope to maintain their relevance. One interesting element of the response is that the multilateral financial institutions appear to be acting to the maximum of their existing mandates even as the politicians talk about revisiting their mandates and functions. Â