Opinion

The Great Debate

Where does Britain stand in the global economic race?

Following the international financial crisis of the late 2000s, the world’s financial leaders have been working towards a standardized banking system that will strengthen banks at an individual level, and thus improve the banking sector’s ability to survive stress when it occurs.

In 2010 the Basel Committee produced a third accord outlining a set of regulations, with the goal of solving the banking system’s ongoing problems. Since then the conversation has yet to cease over whether enough has been done, since the peak of the crisis in 2008, to ensure a stable financial environment that supports growth on an international scale.

The importance of Basel III lies not only on an inter-continental scale, but for individual countries to maintain the required standard regulations to a point of sustainability. In Europe, the debate over the role Britain will play in Basel III has yet to be resolved. During early Basel III discussions in May 2012, Michel Barnier, the French European commissioner for financial regulation, clashed with British Chancellor of the Exchequer George Osborne over the suggestion of higher leverage ratios in the UK, stating that a distortion of competition within the EU had the potential to cause a continental disadvantage.

In recent times the political context surrounding Basel III has not dwindled. In the Autumn Statement released on December 5 2013, Osborne revealed that “Britain is currently growing faster than any other major advanced economy.” As it stands Britain’s rate of recovery, in comparison to that of other EU members and the U.S., puts the country at risk of greater pressure to conform to the standardized regulations proposed in the Basel III accord. For Britain there is a better hope of financial prosperity and continued development in strengthening relations with China. Prime Minister David Cameron cemented that this is indeed the case during his December meetings in China, a country whose own role within Basel III is similarly undetermined. The chancellor noted:

“The Prime Minister’s visit to China this week is the latest step in this government’s determined plan to increase British exports to the faster growing emerging markets — something our country should have done many years ago.”

from Anatole Kaletsky:

When illogical policy seems to work

It’s cynical, manipulative and hypocritical – and it looks like it is going to work. How often do you hear a sentence like this, to describe a government initiative or economic policy?  Not often enough.

The media and a surprisingly high proportion of business leaders, financiers and economic analysts seem to believe that policies which are dishonest, intellectually inconsistent or obviously self-interested in their motivation are ipso facto doomed to fail or to damage the public interest. But this is manifestly untrue. The effectiveness of public policies and their ultimate desirability is in practice judged not by their motivations, but by their results.

Which brings me to the real subject of this column: the improving outlook for the world economy and why many economists and financiers cannot bring themselves to acknowledge it. Let me begin with a striking example anticipated in this column back in March: the boom in house prices and debt-financed consumption that the British government is pumping up in preparation for the general election in May 2015.

from Nicholas Wapshott:

Austerity is a moral issue

Security worker opens the door of a government job center as people wait to enter in Marbella, Spain, December 2, 2011. REUTERS/Jon Nazca

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.

Europe frets over crisis exit strategy

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

Higher taxes? Lower public spending? Devaluation? Inflation? Investment in green growth?

European governments are pointing in very different directions as they debate an exit strategy from the global financial crisis. Despite European Union efforts to coordinate economic policy, there are clear signs that the main European economies will charge off in disarray towards separate exits.

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