The Great Debate UK

from The Great Debate:

U.S. fights fire, Germans fear flood

-- Paul Taylor is a Reuters columnist. The opinions expressed are his own --

The United States is fighting a fire in the world economy, but Germany and some other European countries fear a flood of inflation as a result.

That clash of cultures is at the heart of transatlantic debate over whether Europe should spend more and ease monetary policy to revive growth, with a deep economic contraction certain this year and an end to the recession not yet in sight.

The perception gap could cause lingering resentment among Americans and Germans on the way out of the crisis.

World Bank President Robert Zoellick sees concern on both sides of the Atlantic, not just in Europe, at the risk of inflation down the road from the massive additional liquidity created by the U.S. Federal Reserve and soaring public debt.

The current gush of liquidity made the glut after the bursting of the Internet bubble in 2001 look like a desert, he told the weekend Brussels Forum, a conference of North American and European policymakers, business and opinion leaders.

The dollar's sharp fall and the jump in the price of gold after the Fed's announcement of a giant purchase of long Treasury bonds reflected fears that the United States will try to inflate its way out of the crisis.

from The Great Debate:

First 100 Days: What not to do in public diplomacy

-- Kristin Lord is a fellow at the Brookings Institution and author of the recent report, “Voices of America: U.S. Public Diplomacy for the 21st Century.” The views expressed are her own. --

As Senate confirmation hearings approach, America’s next public diplomacy leaders will get abundant advice about how to improve America’s standing in the world. The Obama administration’s nominees (an under secretary and at least two assistant secretaries in the State Department alone) would be wise to listen.

Yet, in truth, America’s new public diplomacy team can accomplish much by following that age old maxim: first, do no harm.  Seven key “don’ts” are worth bearing in mind.

1) Don’t let the pollsters get you down. Being liked and admired, while useful, should not be the sole metric of success in public diplomacy. The job of American public diplomacy leaders is to promote American national interests through the power of communication, build mutual trust and understanding, strengthen support for universal values Americans share, and build enduring relationships with current and future opinion leaders around the world. Measuring achievement through poll numbers encourages short-term thinking and can jeopardize long-term success.

2) Don’t forget the borders. More than 50 million foreign travelers spend their own money to visit the United States each year, a number that vastly exceeds the number of participants in U.S. government funded exchange programs. Talk of re-booting America’s image in the world will fall flat if those visitors feel badly treated at U.S. borders and consulates.

3) Don’t forget the Pentagon. The State Department controls just a fraction of the U.S. government’s personnel and budget for public diplomacy and strategic communication.  To have impact, the State Department’s public diplomacy leaders should engage the Defense Department and the rest of the U.S. government early on.

4) Don’t go it alone. As the State Department’s new director of policy planning wrote in a recent "Foreign Affairs" article, in today’s world the “measure of power is connectedness,” a fact that should give the United States tremendous advantages.  But to fully embrace the power of networks, the U.S. government must find new ways to mobilize private actors it does not control, support and call attention to the good work of others without taking credit, and (when it advances important American objectives) empower credible voices to speak out even if they fall out of step with official U.S. policies.

from The Great Debate:

New rules won’t end London’s golden lure

-- Alexander Smith is a Reuters columnist. The opinions expressed are his own --

New regulations may be cooked up to curb the excesses of its bankers but London will always attract those who believe its streets are paved with gold.

Some predict that the financial crisis spells the end for London as a major global financial centre, arguing it has thrived on lax regulation and a quasi-tax haven status and that the regulatory backlash which inevitably follows such a catastrophic economic debacle will suffocate the innovation and the financial incentives which have driven the growth of services in the British capital.

But these doomsters are overlooking key factors which have made London a world hub for centuries. London's geographical position -- most notably Greenwich Mean Time -- has served it well as a bridge between the time zones, its almost unrivalled cultural diversity, its global outlook, the advantage of English as the common language of finance and not least the trading and financial heritage it has built up since Roman times.

Throw in the advantages of maintaining its own currency during a period of downturn (particularly when a weaker pound gives it an economic advantage) and London is well served alongside New York and Singapore, Hong Kong or Tokyo when competing with other centres which have harboured global ambitions such as Frankfurt, Paris or more recently Dubai.

The City of London, also known as the Square Mile, which immodestly by British standards bills itself as "the world's leading financial centre" also clings to a host of antiquated traditions whose quaintness, including the appointment each year of a Lord Mayor, remains a tourist draw if nothing else.

Another factor in London's immediate favour is the infrastructure spending which is taking place to coincide with the Olympics in 2012. The massive Crossrail project will link the capital's east and west, while despite constant carping from its users, the underground "Tube" network is undergoing a major upgrade to bring it into the 21st Century. The lure of the capital's arts and culture, its shops, restaurants and pubs all combine to keep people coming to visit and to live and work.

from The Great Debate:

The state-sponsored shadow banking system

from The Great Debate:

Time to rethink inflation targeting

-- John Kemp is a Reuters columnist. The views expressed are his own --

It is time to add another victim to the ever-growing list of institutions (Bear Stearns, Lehman Brothers) and theories (value at risk, fair value accounting and originate to distribute) which have been tested by the financial crisis and found wanting. The central bank practice of inflation targeting -- the jewel in the crown of modern monetary economics -- has palpably failed.

Over the last two decades, inflation targeting has emerged as the most popular strategy for monetary policy among the world's major central banks, and become something of a state-of-the-art choice among theorists and central bankers.

Even the Fed, long skeptical, considered announcing a formal target for inflation last year. Senior officials considered whether it would be a useful way to counter the threat of deflation by providing an "anchor" for expectations about future prices. In the end the central bank ducked the decision and decided to press ahead with long-term inflation forecasts instead, as a form of "soft" targets.

But the experience of major central banks over the last five years -- both those pursuing formal targets and those like the Fed which have been employing "shadow" ones -- suggests inflation targeting has failed and will need to be overhauled once the immediate crisis has passed.

CENTRAL BANK PERFORMANCE

Controlling inflation has been the central objective for monetary policy for the last 30 years. But using interest rates to target the inflation rate directly emerged only in the early 1990s. In many countries, it was something of a default choice after strategies targeting intermediate variables (such as the money supply and the exchange rate) had been tried and failed.

from The Great Debate:

No safe haven for artful tax dodgers

-- Alexander Smith is a Reuters columnist. The opinions expressed are his own --

Big countries have got the world's tax havens running scared. They must now press home their advantage to stop such countries providing oases for tax dodgers and money launderers.

Switzerland, Austria, Luxembourg, Liechtenstein and Andorra have all responded to a global crackdown on tax evasion by offering to relax strict bank secrecy laws. This is an important victory for campaigners to put tax havens on the straight and narrow. Until their recent climbdown, Liechtenstein and Andorra were two-thirds of a trio of hardliners that refused to commit to Organization for Economic Co-operation and Development (OECD) standards on transparency and the exchange of information, earning them a place alongside Monaco on the OECD's blacklist of uncooperative tax havens.

G20 nations are right to point to the shift as progress, but they must not let it lie there. The concessions are too little, too late. They smack of opportunism, giving G20 leaders a chance to trumpet a crowd-pleasing success at a time when governments are failing to get a concerted grip on the financial crisis.

Some of the targeted countries make no secret of their intention to drag out reforms. Just look at the timeframe that Andorra, a safe-deposit-box-sized Pyrenean principality whose two rulers are a Spanish bishop and the French president, has set itself for complying. It plans to pass a law on relaxing bank secrecy by November. Switzerland's finance minister has said it could take years for his country to renegotiate 70 separate double taxation agreements and have them approved by parliament or referendums. Monaco, a glamorous Riviera principality that attracts millionaire tax exiles, has so far said nothing about its plans.

With estimates of between $1.7 and $11.5 trillion in assets held in the so-called offshore financial services industry, the OECD is unequivocal in its position: "Tax havens deprive governments of revenues needed for vital infrastructure, and undermine the confidence that citizens have in the fairness of their tax laws. Countries must take firm action to stop this loss of revenue."

TAX HAVENS NOT TO BLAME

from The Great Debate:

Wen’s U.S. posturing doesn’t matter – yet

-- James Saft is a Reuters columnist. The opinions expressed are his own --

What is more remarkable, that the premier of America's largest creditor publicly raised concerns about U.S. creditworthiness or that the market took the news so easily in its stride?

"We have lent a massive amount of capital to the United States, and of course we are concerned about the security of our assets," Chinese premier Wen Jiabao said on Friday at a news conference to close the annual session of parliament.

"To speak truthfully, I do indeed have some worries. I would like, through you, to once again request America to maintain their creditworthiness, keep their promise and guarantee the safety of Chinese assets."

Can't be blunter than that; the Creditor-in-Chief at the top of the country whose foreign reserves include about $1.4 trillion of U.S. dollar assets is now fretting that he won't get his money back and is talking about "promises" and "guarantees."

Besides pointing out that there was very little of this kind of talk when Americans were stuffing their garages to the rafters with Chinese goods in 2006 and before, it is just amazing how little impact his words seem to have had.

U.S. Treasuries fell on the news, but not sharply and much of their moves throughout the rest of the day were driven more by the ups and downs of the stock market, which ended its best week since November with another day of gains.

from The Great Debate:

“Truman doctrine” could boost IMF firepower

-- Paul Taylor is a Reuters columnist. The opinions expressed are his own --

The day before he returned to the U.S. Treasury for six weeks to help the understaffed Obama administration, Edwin Truman published a proposal to give the International Monetary Fund more firepower to fight the financial crisis.

Truman's idea -- a one-off $250 billion allocation of Special Drawing Rights (SDRs) to IMF member states -- looks like the quickest way to put a safety net under developing countries and avert financial contagion. The Group of 20 world leaders should embrace it at the meeting in London on April 2.

U.S. Treasury Secretary Tim Geithner has not endorsed the plan in public, but the British minister preparing the summit confirmed it is one of the options under consideration. It could supplement a proposed doubling of the IMF's resources and get around the reluctance of surplus countries such as China and Saudi Arabia to contribute more for now.

SDRs are international reserve assets, calculated in a basket of major currencies, that are allocated to the IMF's 185 members according to their quota of the Fund's capital. A special issue would be a bit like a global central bank printing money to help countries with payments difficulties.

A G20 endorsement would show financial markets that world powers are cooperating to overcome the crisis by supporting developing nations starved of credit by the collapse of international bank lending.

THE BENEFITS

from The Great Debate:

Divorce marked to market

-- Margaret Doyle is a Reuters columnist. The opinions expressed are her own --

The Myerson divorce case in Britain makes compelling reading, as all rich bust-ups do. Regardless of whether the judges make Ingrid Myerson hand back 3.2 million pounds of her 11.1 million pound payout to compensate for the decline in her ex-husband's shares, she is a lucky woman.

Thanks to her divorce last year from fund manager Bryan who, as one half of Active Value Advisers, was the scourge of corporate UK, she is independently wealthy. Had the marriage survived, she would probably be -- like him -- worthless.

The lesson from the Myerson divorce is that wives who cede control of the family finances to their rich husbands will have to accept that marriage may be for poorer as well as for richer. If they do not want to risk their family's wealth being wiped out, they will have to take an interest in it.

is a sculptor, and presumably claims as little financial nous as most artists. But this model of marriage -- where one party, usually the husband, makes the money and all the financial decisions -- remains surprisingly common among the rich. It is easy to see why.

Over the past few decades, pay for senior executives and financiers has rocketed. And the demands on them have soared too: in terms of hours, overseas postings, travel and general stress. So it made sense for the other party, usually the wife, to become a "trailing spouse" whose job it was to support her high-earning husband and keep the family show -- and the second homes and dogs and ponies -- on the road.

With such a lifestyle and largely absent husbands, it was hard for these wives to maintain any sort of career at the same time. And with millions being made, that trade-off seemed to make financial sense. Why would a wife bother to work when she was paid buttons compared with her husband's lavish pay and perks? And why should she get involved in the family finances when her financier husband was doing such a good job at it? MARITAL UNDERSTANDINGS

from UK News:

Raising the price of alcohol

Chief Medical Officer Liam Donaldson has recommended that the government should sharply raise the price of alcohol  to try to combat Britain's chronic drinking problem.

His annual report calls for a minimum price of 50 pence per unit of alcohol sold, which would nearly double the price of some discount beer and wine. Scotland, Wales and Northern Ireland have also shown interest in minimum pricing.

But the government is under no obligation to accept any such recommendation and is aware of the unpopularity of raising alcohol prices in a recession and not so far away from a general election.

Gordon Brown rejected the proposal outright.

The Conservatives say it is important to deal with people's attitudes to drinking, not just supply and price, while the Liberal Democrats support putting an end to "pocket-money priced" alcohol.

What do you think? Does price play much of a part in Britain's binge-drinking culture?