The Great Debate UK

All different, all ugly in their own way

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By Laurence Copeland

Oh no! Sluggish growth, a declining population, earthquake and tsunami…. and now this: “Dating Agency Downgrades Japan” screams the FT front page.

That’s what happens when you scan the headlines too quickly.

On a closer look, it seems that all those elegant Tokyo office ladies are OK after all. It’s just that one of the rating agencies has put Japan on downgrade watch, only a few days after the USA got the same treatment. The fact that all the main markets other than gold appear to have taken the announcement about the U.S. in their stride should not be taken as evidence that all is well, however.

In this table I show the latest credit default swap rates (the cost in basis points of insuring 5-year Government debt against default) for nine countries. Alongside the CDS spreads, I give two key indicators of the country’s solvency: its national debt (i.e. its accumulated Government debt) and its Government budget deficit, sometimes called its Public Sector Borrowing Requirement, which is the annual addition to its national debt, both measured as proportions of national income (or GDP). Latest As % of 2010 GDP CDS Spread (b.p.) Debt Deficit France 79 84 -8 Germany 45 79 -3 Greece 1325 144 -10 Ireland 652 94 -24 Portugal 659 83 -9 UK 58 76 -10 USA 46 90 -9 Japan 80 226 -9 Norway 18 48 +15

 

The death of the euro is greatly exaggerated

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-Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own.-

The Governor of the ECB, Jean-Claude Trichet has raised interest rates by 0.25 percentage points – and quite right too. For us in the UK, blaming rising prices on temporary disturbances in the world’s commodity markets is a figleaf to hide the fact that we are actually embarking on a partial default-by-inflation. For Europe, it is a different story. For one thing, the Germany-Austria-Netherlands bloc is, if not booming, at least chugging along at a highly respectable rate, and as the ECB Governor said today in response to a question about the impact of the rate rise on Portugal, his job is to set interest rates for the Eurozone as a whole, not just for the benefit of one of its smallest and weakest members.

China – accidental imperialist

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-Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own.-

OLYMPICS-CANOE/China is an emerging imperial power. We can be sure of that fact, even though the Chinese Government may well have been absolutely genuine in repeating that it feels no urge for empire-building or for intervention in the affairs of other countries. It is simply the case that, if trade follows the flag, the opposite is also often true.

Permanent revolution trains kids for unemployment

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BRITAIN-ELECTION/By Laurence Copeland. The opinions expressed are his own.

I am unsure about Britain’s education system. Most of the time, I think it is a matter of one step forward, two steps back – but then there are times when I wonder about the forward step.

This morning I heard the glad tidings about the latest ideas for grabbing a much-prized relegation slot in the world’s education league table (predictably enough, the Americans can be relied on to provide stiff competition).

Don’t blame politicians for pragmatic foreign ties

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LIBYA

By Laurence Copeland

There are times when even a cynic like me has to feel some sympathy for politicians. Take the case of Libya, for example. Over the forty years of Muammar Gaddafi’s regime, relations between Britain (and our Western allies) and Libya have varied from lukewarm to cold and back to lukewarm again.

Now that this particular dictator appears to have reached the end of the road, some people are asking why the previous Government ever allowed our relations to rise above freezing point, which sounds rather as though they are trying to resurrect our long-dead (and possibly mythical) Ethical Foreign Policy. Is that feasible?

UK deficit cutting – lessons for the US

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USA-BUDGET/The news that China is engaged in talks over the building of a rival to the Panama Canal ought to set alarm bells ringing in Washington – and not just because of its obvious geopolitical implications. It is yet another sign that the Chinese have finally woken up to the fact that relending their hoard of dollars straight back to the USA is not a very smart policy, at least not as long as the Federal Government carries on spraying out greenbacks like a tipsy GI on furlough, and without Chinese support, the outlook for the Treasury bond market looks threatening.

Those who argue that it is a bad time for imposing austerity should be ignored – in the good times there was no sense of urgency, and in any case deficit reduction has to be a multiyear project. The Federal deficit is running at over 10 percent of GDP and the projections for the coming decade on unchanged policies are too frightening to contemplate.

Interest rate decision day: no news is bad news

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-Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own.-

Whether their problem is narcotics or alcohol or simply junk food, addicts are usually planning to give up… but not yet. In the meantime, there are always plenty of excuses for delay.

Are interest rates set to rise?

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USA/Whenever he approaches a bend, an F1 driver has to make a fine judgment: brake too soon and he loses vital momentum, too late and he risks losing control altogether, with possibly fatal consequences.

For the past year, the MPC has been getting closer to the bend – the point at which it will have to raise interest rates – so, as each month passes without a touch on the brakes, the balance of risk changes as the danger of losing control of inflation increases.

Bank bonus season again

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–Laurence Copeland is a professor of finance at Cardiff University Business School . The opinions expressed are his own–

Bank bonuses are in the news again, and once more we see the spectacle of the Prime Minister indirectly pleading with the bankers not to be too greedy. Note the contradiction in the government’s position: even though we own two of the largest and most culpable banks, we dare not impose explicit limits on their pay lest they decamp to places where the political climate is more hospitable and the regulators more tolerant. But although enforced limits are out of the question, it’s quite OK to pressure them by every other means  – which, of course, raises the question: why should bankers be more willing to stay in Britain when their pay packet is limited by “voluntary” restraint rather than government intervention?

History, bunk and the bond market

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–Laurence Copeland is a professor of finance at Cardiff University Business School . The opinions expressed are his own–

The title says it all: “This Time is Different” by Reinhart and Rogoff tells how, for centuries, monarchs and, later, nation states have persuaded lenders to forget their chequered credit record and trust them yet again with loans on relatively easy terms. Although, by the nineteenth century, Western European countries had mostly reached a stage where their reputation seemed worth preserving at  some cost, more or less from the moment they achieved their independence the South American countries established a tradition of default which they have guarded jealously to the present day, and as Reinhart and Rogoff make clear, Greece has defaulted at regular intervals ever since it became an independent nation in 1832.

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