Reuters blog archive
from Nicholas Wapshott:
By the end of the year, American taxpayers will no longer be part owners of General Motors. That is good news all around. Nationalization of a private company rarely makes economic sense. Even for red-blooded socialists, the ownership of the means of production has long been an empty threat, a totemic cul de sac that for years led socialism down the wrong path. Regulation is a far better way to ensure an industry works for the public good.
The federal government is not best-suited to administer a private industry. The emergency that once threatened American motor manufacturing has passed. State intervention has forced much-needed restructuring into a hidebound business riddled with grandfathered practices and anachronistic benefits. Intervention avoided the deleterious knock-on effects of the collapse of a major domestic industry, helped the external balance of payments, and saved thousands of skilled jobs in good time.
The return of GM to wholly private hands will no doubt set off hand-wringing from those who would have preferred GM to go properly bust during the financial panic of 2008, then restructure itself without state help. Those who opposed Steven Rattner’s motor rescue argue that government intervention to prevent a company from going broke interferes in a timeless process of rebirth as natural as the change of the seasons.
Quoting the Austrian Joseph Schumpeter’s notion of “creative destruction,” a term borrowed from Karl Marx, such dogmatic harbingers of woe welcome bankruptcies and business collapses as a means towards purposeful regeneration. Expect them to concentrate on the costs to the federal government of keeping the American motor manufacturing industry alive; do not expect them to estimate the real cost -- to the shareholders, to the motor workers, to the nation -- of allowing it to die.
from Nicholas Wapshott:
There have been a lot of sighs of relief in Europe lately, where countries like Britain and Spain, long in recession, have finally started to grow. Not by much, nor for long. But such is the political imperative to suggest that all the misery of fiscally tight economic policies was worth the pain that there are tentative claims the worst is now over and, ipso facto, austerity worked.
Hold on a minute. Growth is good. Growth is what allows countries to pay down their national debt by increasing economic activity, putting the unemployed to work and making people prosperous enough to pay taxes. But gross domestic product growth alone is not enough to provide adequate sustained prosperity if it does not also lead to significant job growth.
By Pierre Briançon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
The French government will not meet its target of shrinking the budget deficit to 3 percent of GDP by 2015, according to the European Commission’s latest forecasts. Some voices will again call for the Commission to show some nerve, and dare to discipline one of the EU’s big powers for once. This won’t happen, for political reasons. But it shouldn’t - for economic ones. The only sensible response to the projected higher deficit should be: “so what?”
from Photographers' Blog:
By Marcelo del Pozo
Over a year ago now, I was looking for a way to put a human face to the story of Spain’s unemployment crisis – a crisis that is still affecting the country today, with around one in four workers without a job.
I sent messages to lots of my friends, asking them if they knew any Spaniards thinking of emigrating to find employment. At last, I met Jose Manuel Abel, a former salesman from southern Spain, who, after being unemployed for two years, decided to learn some German and move to Munich for a job to help support his family.
from Anatole Kaletsky:
While the world is transfixed by the U.S. budget paralysis, fiscal policies have been moving in several other countries, most notably in Japan and Britain, with lessons for Washington and for other governments all over the world.
Let's start with the bad news: Shinzo Abe’s decision to increase consumption taxes from 5 to 8 percent next April. This massive tax hike, to be followed by another increase in 2015, threatens to strangle Japan’s consumer-led growth from next year onwards, since Abe looks unlikely to offset this massive fiscal tightening with stimulative measures that would maintain consumers’ spending power. Even if Abe delivers on his vague promise to compensate with business tax reductions, these will only aggravate the over-investment and corporate cash hoarding that have long distorted the Japanese economy. Meanwhile, the government’s willingness to risk economic recovery in the cause of fiscal discipline implies that those of us who believed Abe was making an unconditional commitment to do whatever it takes to achieve economic recovery were simply wrong. Now that the forces of budgetary austerity have reasserted themselves, Japan’s probability of ending its decades of stagnation is much reduced.
By Pierre Briançon
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
For more than a year the French government has been trying both short-term fiscal discipline and long-term economic reforms. It is failing at both.
Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.
Latvia, a country with a population roughly the size of Brooklyn (or Nebraska!), took over the debate at this week’s Brookings Panel on Economic Activity conference. Latvia’s economy went through a spectacular boom in the early 2000s, a terrific bust during the Great Recession, and is experiencing a quick, if moderate, recovery.
from Anatole Kaletsky:
Margaret Thatcher used to say that “There is no alternative” to whatever policy she believed in. But there is always an alternative to banging your head against a brick wall -- you can stop banging your head against a brick wall. The G20 Finance Ministers’ meeting in Moscow last weekend may have marked such a moment of revelation, when governments around the world gave up on fiscal and financial austerity, and recognized that growth based on consumption, borrowing and rising house prices is better than no growth at all.
It is now nearly five years since the Lehman crisis and throughout this period politicians and economists have been obsessed with avoiding the mistakes that supposedly produced the crisis. They have been trying to reduce debts, both in the public and the private sectors; to make their banks behave more cautiously; and to “rebalance their economies” away from their over-dependence on consumption, services and finance in favor of supposedly more sustainable economic activities such as saving, exporting and manufacturing. The virtues of saving, exporting and manufacturing are so much taken for granted these days that it is easy to forget the novelty and implausibility of the rebalancing concept.
From the U.S., we've had lots of talk of tapering. In Europe, the latest fad phrase in the financial world is “austerity fatigue”.
It’s a strange euphemism, somehow disconnected from reality. More than 19 million euro zone citizens were out of work during May, roughly equivalent to the combined populations of Belgium and Austria. Youth unemployment is on the wrong side of 50 percent in Greece and Spain.
Portuguese bond yields surged to more than 8 percent as a government crisis prompted investors to shun the bailed-out country, raising concerns about another flare-up in the euro zone debt saga.
The resignation this week of two key ministers, including Finance Minister Vitor Gaspar who was the architect of its austerity drive, tipped Portugal into a turmoil that could derail its plan to exit its bailout next year.