Reuters blog archive
from Nicholas Wapshott:
In the nearly five years since the worst financial crash since the Great Depression, the remedy for the world’s economic doldrums has swung from full-on Keynesianism to unforgiving austerity and back.
The initial Keynesian response halted the collapse in economic activity. But it was soon met by borrowers’ remorse in the shape of paying down debt and raising taxes without delay. In the last year, full-throttle austerity has fallen out of favor with those charged with monitoring the world economy.
Christine Lagarde, managing director of the International Monetary Fund, has been urging German Chancellor Angela Merkel, who has been imposing singeing public spending cuts on her neighbors, and George Osborne, Britain’s finance minister, who has been doing the same to the Brits, to ease up. The IMF is now urging fiscal measures beyond monetary easing “to nurture a sustainable recovery and restore the resilience of the global economy.”
By Christopher Swann
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
The crowds gathering for the International Monetary Fund’s spring meeting should cut Japan some slack. Prime Minister Shinzo Abe’s economic policies are in for a drubbing at the shindig in Washington, DC. IMF officials have been bemoaning Japan’s “risky” fiscal stimulus while the U.S. Treasury has been grumbling about the weaker yen. But Japan was right to act.
from Lawrence Summers:
Europe's economic situation is viewed with far less concern than was the case six, 12 or 18 months ago. Policymakers in Europe far prefer engaging the United States on a possible trade and investment agreement to more discussion on financial stability and growth. However, misplaced confidence can be dangerous if it reduces pressure for necessary policy adjustments.
There is a striking difference between financial crises in memory and as they actually play out. In memory, they are a concatenation of disasters. As they play out, the norm is moments of panic separated by lengthy stretches of apparent calm. It was eight months from the Korean crisis to the Russian default in 1998; six months from Bear Stearns's demise to Lehman Brothers' fall in 2008.
from Hugo Dixon:
Cyprus’ deposit grab sets a bad precedent. Money had to be found to prevent its financial system collapsing. But imposing a 6.75 percent tax on insured deposits - or even the 3 percent being discussed on Monday morning - is a type of legalised bank robbery. Cyprus should instead impose a bigger tax on uninsured deposits and not touch small savers.
Confiscating savers’ money will knock confidence in the banks. Trust in the government will also take a hit, since Nicosia had theoretically guaranteed all deposits up to 100,000 euros. Small savers should be encouraged not penalised. They are the quiet heroes of the financial system, who squirrel away their savings, not those who drag it down by engaging in borrowing binges.
from Lawrence Summers:
If the global economy was in trouble before the annual World Bank and IMF meetings in Tokyo this past weekend, it is hard to believe that it is now smooth sailing. Indeed, apart from the modest stimulus provided to the Japanese economy by all the official visitors to Tokyo, it’s not easy to see what of immediate value was accomplished.
The U.S. still peers over a fiscal cliff, Europe staggers forward preventing crises King Canute-style with fingers in the dyke but no compelling growth strategy, and Japan remains stagnant and content if it can grow at all. Meanwhile, each BRIC is an unhappy story in its own way, with financial imbalances impeding growth in the short run and deep problems of corruption and demography casting doubt on long-run prospects.
from Anatole Kaletsky:
John Maynard Keynes said back in 1936 that “practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.” Keynes himself is now a seemingly defunct economist, but his influence connects the two most important events of the week and perhaps of the year: the sudden reversal of fortunes in the U.S. election and the powerful critique of overzealous fiscal austerity produced by the International Monetary Fund.
What connects these two events is an economic question that almost nobody dares to raise publicly, but that now seems destined to dominate the U.S. election and that hung over the IMF annual meeting in Tokyo this week: Do deficits really matter? Or, to restate the issue more precisely: Are government efforts to cut budget deficits counterproductive in conditions of zero interest rates when fiscal austerity suppresses economic growth?
The IMF is ratcheting up the pressure on the euro zone again, telling it to deepen financial and fiscal ties as a matter of urgency to restore confidence in the global financial system. Despite the European Central Bank’s recent statement of intent, the Fund said the risks to financial stability had risen over the past six months and it raised its prediction of how much European banks are going to have to offload as part of a deleveraging process that has a long way to run.
An eye-watering $2.8 trillion of assets now needs to be cut over two years, which could further choke off credit to the currency bloc’s weaker members, deepen recessions and push up unemployment. Despite recent steps, the euro area is still threatened by a “downward spiral of capital flight, breakup fears and economic decline”.
By Fiona Maharg-Bravo
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
Joaquin Almunia, the vice-president of the European Commission, has prematurely weighed into the debate on possible conditions attached to the country’s 100 billion euro bank bailout. Before the rescue operation even began, he opined that liquidating a bank could make sense if the costs of keeping it alive with public money exceed the costs of shutting it down. This sounds sensible in theory. But in Spain, it’s not that simple.
from Lawrence Summers:
Once again European efforts to contain crisis have fallen short. It was perhaps reasonable to hope that the European Central Bank’s commitment to provide nearly a trillion dollars in cheap three-year funding to banks would, if not resolve the crisis, contain it for a significant interval. Unfortunately, this has proved little more than a palliative. Weak banks, especially in Spain, have bought more of the debt of their weak sovereigns, while foreigners have sold down their holdings. Markets, seeing banks holding the dubious debt of the sovereigns that stand behind them, grow ever nervous. Again, Europe and the global economy approach the brink.
The architects of current policy and their allies argue that there is insufficient determination to carry on with the existing strategy. Others argue that failure suggests the need for a change in course. The latter view seems to be taking hold among the European electorate.
from Jeremy Gaunt:
Greeks smashing windows and setting fire to shops and banks in a fury of opposition to yet more austerity is gripping. But it is hardly unique. A few years ago there were similar scenes for weeks after police shot a 15-year old schoolboy. And back when I lived there, U.S. President Bill Clinton was treated to a similar welcome -- mainly because of his military assault on Serbia (a fellow Christian Orthodox nation) during the Kosovo conflict.
There are doubtless degrees. The latest level of destruction was the worst since widespread riots in 2008 -- and austerity being imposed on Greeks is very painful. But it is worth noting that there are two underlying elements than make such uprisings more common in Greece than elsewhere.