UK News
Insights from the UK and beyond
from Felix Salmon:
Why Gordon Brown can’t run the IMF
Gordon Brown is very comfortable at the IMF. He chaired its most important committee, the IMFC, for many years, and he would love to take the top job of managing director. There might be a vacancy soon, if the incumbent, Dominique Strauss Kahn, steps down to run for president of France. But it won't be filled by Brown, now that UK prime minister David Cameron has made his opinions crystal clear.
Mr. Cameron told BBC Radio 4's Today program: "I haven't spent a huge amount of time thinking about this. But it does seem to me that, if you have someone who didn't think we had a debt problem in the UK, when we self-evidently do, they might not be the best person to work out whether other countries around the world have a debt and deficit problem".
He added: "Above all what matters is the person running the IMF someone who understands the dangers of excessive debt, excessive deficit, and it really must be someone who gets that rather than someone who says that they don't see a problem."
Mr. Cameron also said: "I certainly don't want a washed-up politician from another country. It's important that the IMF is led by someone extraordinarily competent."
He suggested that the next IMF head could come from "another part of the world", such as China or India. By convention they are usually chosen from European countries.
All of this is exactly right. Brown comes with way too much baggage: he'll never be able to admit that enormous chunks of what he did as Chancellor turned out, in hindsight, to be disastrous.
The head of the IMF has to deliver tough news about debt and deficits to heads of state around the world -- and Brown simply has no credibility on that front. And his diplomatic skills leave something to be desired as well.
More generally, it would be crazy to appoint a European to head the IMF right now, just as the biggest sovereign crises in the world look set to take place in Europe. If the IMF itself wants credibility, it must appoint a non-European to provide independent leadership in an era when the IMF will surely be asked to help bail out troubled European sovereigns.
It long since time that the head of the IMF stopped being a European. If and when DSK leaves, let's replace him with someone highly qualified -- someone who wasn't a partial cause of the last financial crisis -- from elsewhere in the world. It doesn't really matter where, just so long as it's not Europe or the U.S. Gordon Brown should be disqualified on both counts.
from Global News Journal:
Should Norway bail out Iceland?
While not exactly pocket change, Iceland’s $5.5 billion Icesave debt to Britain and the Netherlands amounts to just 1.2 percent of the value of Norway’s offshore wealth fund. For Iceland, it's more than $15,000 per citizen.
Given the two countries’ close historic links -- Norwegian Vikings discovered the Atlantic island where people still speak a version of “old Norwegian” -- speculation about Oslo coming to the rescue has Reykjavik licking its lips.
It would take some coaxing of the Norwegian electorate, but why shouldn’t Oslo help out its crisis-hit cousin, Icelandic newspapers are asking.
On muted idea has Norway buying Icesave debts and allowing Reykjavik to repay the loans on better terms than it has gained from the Dutch and British governments.
Unlike Germany, which fears it will have to bail out fellow euro-member Greece by taking cash from its own people or issuing more debt, Oslo would simply tap into savings and ensure the loan gets repaid before its oil runs out in a few decades.
But finding bailout advocates in Oslo is proving tough.
I am confused! How has Iceland got a debt to Holland or the UK? Individuals and in the UK’s case Local Authority gambled on high returns and no tax at home for their money by investing in Icelandic banks. These went through because they had bought worthless sub-prime exposure sold by US banks.
GovUK then had the usual knee jerk reaction, look good for the sound bite, promise them their money back. Why? They did not invest in UK to pay UK taxes. Therefore if any one needed to bail them out, and why should they be bailed out (as they took the higher risk for higher gain)? It should be Iceland direct. The lamentable thing is the govUK was too dumb to charge them the avoided tax first.
Ghost of past failure haunts G20
Stopping off in New York during a marathon, 18,000-mile diplomatic offensive before next week’s G20 summit in London next week, British Prime Minister Gordon Brown recalled a conference held in eerily similar circumstances in London 76 years ago.
Sixty-six nations gathered for the June 1933 London Monetary and Economic Conference which was aimed at lifting the world’s economy out of the Depression.
But amid American opposition to European plans to return to a system of fixed exchange rates, the conference collapsed and the world put up trade barriers, jobless ranks swelled and the rise of Fascism took the world into war.
“There was no further progress other than a resort to protectionism for the rest of that decade,” Brown told a business audience during a five-day pre-summit tour that has taken him to the European Parliament in Strasbourg, New York, Brazil and Chile.
Brown must be hoping desperately that history will not repeat itself when he hosts a meeting of leading industrial and developing economies in London on April 2 to try to chart a way out of the worst global financial crisis since the 1930s.
Again there have been signs of transatlantic division in advance of the summit, with many Europeans resisting U.S. pressure for more fiscal stimulus to boost the economy, while the Europeans put the emphasis on tightening regulation of the financial sector.
Mirek Topolanek, prime minister of the Czech Republic which holds the current European Union presidency, was quoted this week as saying U.S. President Barack Obama’s huge economic stimulus plan was “the road to hell”.
It seems that the recent UK gilt auction failed to sell out. This is bad news for Gordon Brown because he won’t be able to do a US-style stimulus because he just won’t have the money.
The Countries on the Continent are not so enamored of the US-style stimulus idea anyway because the two countries most affected are the US and the UK. The Czech President of the EU, said Obama’s plan was “the road to Hell.” If the US T-Bill auction meets resistance similar to the gilt auction in the UK, Obama’s plan will have its wings clipped.
This means he will either have to cut back the stimulus, raise taxes radically, or inflate the currency which will offend the holders of T-Bills in general.
Obama does not seem to have any comprehension that the reason the Europeans and the Asians reject his plans is because, taken together, his plans make no sense. It is just impossible to do everything he says without causing a financial crisis. It is as if he can hold only one program in his mind at the same time, and he can’t do the sums. This is indeed “the road to hell.”
The economic projection of a healthy recovery depends on improved consumer and business confidence. But how can this possibly happen with the prospect of heavy taxes on investors and business owners, union control of more businesses, crushing energy taxes and direct economic controls on all businesses, a huge Obama Youth movement, and, uncertainty over the future? This is a Government take-over and suppression of Constitutional rights which means the end of America’s prosperity. Why would anyone have confidence unless he was a Government employee.
Obama is pure poison to America’s economy, and indirectly, to the world economy.
from MacroScope:
Waiting for the G20 to….?
Finance ministers and central bankers from the G20 meet this weekend in the English countryside to discuss the world's financial and economic crisis. With this in mind, MacroScope asked a number of economists what they want to see from the meeting and the G20 summit to follow later and what they expect to see.
The answer, in short, appears to be that much is needed but not much expected.
Paul Mortimer-Lee, head of market economics, BNP Paribas:
"There will be progress on agreeing that regulation needs to be more effective and more effectively co-ordinated on a global scale but I am unconvinced we are going to go a long way further. Some populist posturing on bank bonuses etc should be expected. The less is achieved in other areas the more this will get played up. On bank recapitalisation, they will all agree strong capital is a good thing, but in no way do I expect a concerted plan -- it's driven by events and the exigencies of the local banking system.
"I would like to see progress on the international financial architecture/the IMF and its resources. Maybe we'll get some new facility and some agreement on more new cash ... but a radical overhaul requires the power structure to be rejigged -- more power to the (emerging economies) and less to Europe. This is not something European politicians will want to be high profile when it comes out."
Sarah Hewin, senior economist, Standard Chartered:
"The economic data continue to worsen and markets remain in a state of fear. So the best outcome from the meeting would be a co-ordinated response to frozen credit markets and collapsing global economic activity.
from Global Investing:
And the next Iceland is…
If there's one thing you don't want to be, it's the next Iceland.
Since its currency, colossally indebted banking sector and economy collapsed in spectacular fashion in October, the country has become a byword for an economy that has truly hit the rocks.
Within weeks, banking problems and currency falls meant Hungary was being hyped as a "second Iceland", at least until a joint International Monetary Fund and European Union rescue package restored some stability.
Next to win the unwanted comparison was Ukraine. Having lost at one stage half its value, the currency has somewhat stabilised -- although most foreign investors are very hesitant to hold Ukrainian assets again. And like Iceland itself, Ukraine is now dependent on an IMF lifeline.
Now, it is Britain in the limelight. The New York Times as well as Britain's Observer and Daily Telegraph newspapers have all made the comparison in recent days.
For people earning and saving in sterling, it is an uncomfortable place to be and nervousness is to be found in the strangest of places. During a recent visit to a podiatrist, a Reuters correspondent found the conversation punctuated with speculation about the possibility of an IMF bailout for Britain and angst over cutbacks in the National Health Service footcare budget.
Angst? What on earth is the NHS doing with its £100 billion budget no strings attached budget. If there is an area which should be subject to investigation for financial misrepresentation it is the NHS.
I can only hope your Reuters correspondent put a size nine boot up the podiatrists flatulent backside.
‘What on earth was Darling talking about?’ – media ask
The media is still confused about the motives behind the Chancellor’s observation that “(the times we’re facing) are arguably the worst they’ve been in 60 years”.
What about the 27 percent inflation and 12 percent unemployment rates the country endured during the 1970s and 1980s, they ask?
The country has not been forced to go to the IMF, cap in hand, as it did in 1976, nor is it 1992 and another Black Wednesday, leader writers point out in Monday’s newspapers.
The problem seemed to be compounded when Alistair Darling was then forced to explain in a series of TV interviews that he was talking about severity of current economic conditions — the global credit crunch and rising commodities prices — rather than predicting a great depression.
“The pity is that the public doesn’t know what to believe or who to trust,” the Daily Mail says.
Darling also frets in the Guardian article on the weekend about the state of the Labour Party, saying the cabinet was partly to blame for its recent electoral woes and poor showing in the opinion polls because it has ”patently” failed to explain the party’s central mission to the country.
Was Darling then being honest or foolish, newspaper editorials ask.
Alistair Darling is guilty of one thing only: telling some semblance of the truth. If everyone faced it we might reshape our spending and living habits to accommodate it.
Unfortunately, telling the truth is not in keeping with NuLab’s policy. Brown’s idea is that we go on in total denial on the sliver of a hope that the problem will go away before too many people are made homeless, bankrupt, dying of hypothermia, victims of a failed NHS etc.
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The Wall
Yeap, it is all politics. Brown left a fantastic legacy of no boom and bust, very low debt, strong currency, great record of GDP growth and a bullet-proof financial system. I didn’t even need “A whole slew of major economists” to tell me that. And he clearly is not responsible for any of the issues that the UK that the UK doesn’t have anyway. After all he was merely in charge of the economy for 13 years, not nearly enough time to have any impact whatsoever, apart from the positive impact which is all due to him whilst clearly the non-existent negative impact, that only lying political opponents that can’t grasp his innate genuius claim exist, are all down to everyone else.
Just goes to show you can fool some of the people all of the time.