segunda-feira, 31 de março de 2014

sexta-feira, 28 de março de 2014

Thomas Piketty: Save capitalism from the capitalists by taxing wealth

The distribution of income and wealth is one of the most controversial issues of the day. History tells us that there are powerful economic forces pushing in every direction – towards greater equality, and away from it. Which prevail will depend on the policies we choose.

America is a case in point. Here is a country that was conceived as the antithesis of the patrimonial societies of old Europe. Alexis de Tocqueville, the 19th century historian, saw America as the place where land was so plentiful that everyone could afford property and a democracy of equal citizens could flourish. Until the first world war, the concentration of wealth in the hands of the rich was far less extreme in the US than Europe. In the 20th century, however, the situation was reversed.

Between 1914 and 1945 European wealth inequalities were whipped out by war, inflation, nationalisation and taxation. After that, European countries set up institutions which – for all their faults – are structurally more egalitarian and inclusive than those of the US.

Ironically, many of these institutions drew inspiration from America. From the 1930s to the early 1980s, for example, Britain maintained a balanced distribution of income by hitting what were deemed to be indecently high incomes with very high tax rates. But confiscatory income tax was in fact an American invention – pioneered in the interwar years at a time when that country was determined to avoid the disfiguring inequalities of class-ridden Europe. The American experiment with high tax did not hurt growth, which was higher at the time than it has been since 1980s. It is an idea that deserves to be revived, especially in the country that first thought of it.

The US was also first to develop mass schooling, with nearly universal literacy – among white men, at any rate – in the early 19th century, an accomplishment that took Europe almost another 100 years. But again, it is Europe that is now more inclusive. True, the US has produced many of the world’s outstanding universities. But Europe has done better at producing solid middle-ranking ones. According to the Shanghai ranking, 53 of the 100 best universities in the world are in the US, and 31 in Europe. Look instead at the top 500 universities, however, and the order is reversed: 202 in Europe against 150 in the US.

People often talk up the virtues of their national meritocracies, but – whether in France, America or elsewhere – such rhetoric seldom fits the facts. Often the purpose is to justify existing inequalities. Access to American universities – once among the most open in the world – is highly unequal. Building higher education systems that combine efficiency and equal opportunity is a major challenge facing all countries.

Mass education is important, but it does not guarantee a fair distribution of income and wealth. US income inequality has sharpened since the 1980s, largely reflecting the huge incomes of people at the top. Why? Have the skills of the managerial cadre advanced further than everyone else’s? In a large organisation, it is hard to know how much each person’s work is worth. But another hypothesis – that top managers by and large have the power to set their pay themselves – is better supported by the evidence.

Even if wage inequality could be brought under control, history tells us of another malign force, which tends to amplify modest inequalities in wealth until they reach extreme levels. This tends to happen when returns accrue to the owners of capital faster than the economy grows, handing capitalists an ever larger share of the spoils, at the expense of the middle and lower classes. It was because the return on capital exceeded economic growth that inequality worsened in the 19th century – and these conditions are likely to be repeated in the 21st. The Forbes global billionaire rankings show that the wealth of the very richest has grown more than three times as fast as the size of the world economy between 1987 and 2013.

US inequality may now be so sharp, and the political process so tightly captured by top earners, that necessary reforms will not happen – much like in Europe before the first world war. But that should not stop us from aspiring to improve. The ideal solution would be a global progressive tax on individual net worth. Those who are just getting started would pay little, while those who have billions would pay a lot. This would keep inequality under control and make it easier to climb the ladder. And it would put global wealth dynamics under public scrutiny. The lack of financial transparency and reliable wealth statistics is one of the main challenges for modern democracies.

Of course there are alternatives. China and Russia, too, must deal with wealthy oligarchies, and they do it with their own tools – capital controls, and jails whose bleak walls can contain the most ambitious oligarchs. For countries that prefer the rule of law and an international economic order, a global wealth tax is a better bet. Maybe China will come round to it before we do.

Inflation is another potential solution. In the past it has helped lighten the burden of public debt. But it also erodes the savings of the less well off. A tax on vast fortunes seems preferable.

A global wealth tax would require international co-operation. This is difficult but feasible. The US and the EU each account for a quarter of world output. If they could speak with one voice, a global registry of financial assets would be within reach. Sanctions could be imposed on tax havens that refused co-operation.

Short of that, many may turn against globalisation. If, one day, they found a common voice, it would speak the disremembered mantras of nationalism and economic isolation.

Thomas Piketty is author of “Capital in the twenty-first century”

Fonte: FT

quinta-feira, 27 de março de 2014

Can populism and putsch work in Egypt?

Nine months after overthrowing the elected Islamist government of Mohamed Morsi, Abdel Fattah al-Sisi, the army chief who has come to embody the hopes of a prostrate Egypt, has cast off his uniform, ready to be elected president by probably a massive majority of a nation that sees him as a saviour. Yet while Egypt desperately needs a unifying figure to set an inclusive tone and restore confidence in the country’s future, it is unclear how Mr Sisi can play that role.
The electoral coronation of the field marshal in mufti, still basking in the adulation of his compatriots for rescuing them from the brief but sectarian rule of the Muslim Brotherhood, may turn out to be the pinnacle of his career.

The scale of Egypt’s problems, with its economy at a standstill, polarised politics and a gathering jihadist insurgency, is giddying. Since Mr Sisi and the army retook control in last July’s coup, moreover, the emphasis has been on rebuilding the national security state partially dismantled after the overthrow of Hosni Mubarak in the Tahrir Square uprising of early 2011. More generally, it is hard to imagine how military populism, the cause of so many of Egypt’s ills, can be the solution to them.
Before it came under the sway of officers and men of providence 60 years ago, Egypt was in the same position as South Korea in its stage of development. British colonial power bore heavy responsibility for discrediting constitutional politics, true, but Egyptians were easily seduced by the ultimately hollow pan-Arab nationalism and personality cults surrounding Gamal Abdel Nasser and his officer-class successors, and having the army as overarching institution and almost the only social escalator.
Now, Egypt has: 85m people crammed into the Nile valley and delta, nearly half of them below the poverty line and with millions of the young yearning for opportunities not there; a rentier economy rigged for crony capitalists and the off-budget business empire of the military; a clerical establishment that controls much cultural space, and an education system not fit for purpose; and still only one real institution, the army, along with a revived personality cult, this time of Mr Sisi.
There are important differences in this new episode of military populism.
First, Mr Sisi probably has more power than Mr Mubarak. While he has re-erected essential pillars of the police state, alongside new laws curtailing freedoms such as assembly and expression, he has tilted power away from the security services towards the army. He has also enhanced the power of the military in the new constitution, drawn up by a handpicked panel and endorsed in January by a referendum no one was allowed to contest. Mr Sisi has given up his uniform, but not its power.
Second, the Muslim Brotherhood, widely reviled after using its bitterly divisive moment in power to capture the organs of state rather than to govern, has been branded a terrorist organisation. Between 15,000 and 20,000 people have been rounded up, and just this week 529 supporters of Mr Morsi were sentenced to death, and another 919, including the Brotherhood’s leader, put on trial, in kangaroo courts even previous military tribunals would have struggled to emulate.
Third, Mr Sisi comes to power after two presidents were swept away in barely three years. They have gone but the unmet socioeconomic and political demands of a restive young population remain – and it knows the route to Tahrir Square.
Fourth, by criminalising mainstream Islamist opinion, Mr Sisi has created a permanent state of emergency and opened the gates to jihadis – above all in the ungoverned space of the Sinai peninsula – which will make achieving consensus and stability very difficult. The multibillion-dollar aid packages from Saudi Arabia and the Gulf on which Egypt is subsisting are, furthermore, payment for the state crackdown on the Brotherhood.
We do not yet know the real colours of Mr Sisi, who as a chameleon general made first the Brotherhood and then the people believe he was one of them. He is revered as a saviour for something he knocked down; we do not yet know whether he can build anything except a mass following. But whatever the question is in Egypt, populism and putsch-ism are not the answer.

Fonte: FT

quarta-feira, 26 de março de 2014

David Pilling: The verdict on Abenomics is ‘so far, so good’

Last year The Economist magazine devoted two colourful illustrations to the phenomenon of Abenomics, the radical policy to reflate Japan’s economy named after Shinzo Abe. One, bearing the title “Is it a bird? Is it a plane? No . . . It’s Japan!” showed the Japanese prime minister soaring Superman-like through the air. A second, published after stock market jitters last summer, portrayed him plummeting haplessly to the ground. Fifteen months after he came to power, it is time for an Abe audit.

In truth, we are no closer to knowing whether the attempt to banish deflation will end in tears. Those who say it will argue that, because of Japan’s huge stock of debt, if interest rates spike as a result of higher inflationary expectations, the government will be forced to default. In other words, it is precisely when Abenomicsreaches its stated aim that it will begin to unravel.

One senior banker argues that Japan’s debt situation means that it was always going to “hit a wall”. Abenomics, in his opinion, merely hastens that day.

For those who regard this view as unnecessarily alarmist, the question must be: how close is Japan to achieving its 2 per cent inflation target? This question was posed last week at a Brookings Institution conference by two economists, Joshua Hausman of the University of Michigan and Johannes Wieland of the University of California, San Diego. In a paper – “Abenomics: Preliminary Analysis and Outlook” – they conclude stridently that the policy both “ended deflation in 2013 and raised long-run inflation expectations”. They also say it lifted 2013 output growth by between 0.9 and 1.7 percentage points.

That sounds like a pretty good report card. Less positively, the economists judge the central bank’s 2 per cent inflation target as “not yet fully credible”. They also argue that the size of the policy’s stimulatory effect is likely to fall short of what they deem to be Japan’s large output gap – the difference between real and potential output.

If they are right, Abenomics is more likely to end in Abefizzle than Abegeddon. Much of the argument hinges on the size of the output gap.

As Jonathan Allum, a strategist at SMBC Nikko Capital Markets, points out in an excellent note, the International Monetary Fund puts this at a relatively narrow 0.9 per cent, with the OECD club of mostly rich nations judging there to be no output gap at all. Not so, say Drs Hausman and Wieland. They argue that the Lehman crisis has had less of an impact on potential growth than generally thought. They put Japan’s output gap at anywhere between 4.5 per cent and 10 per cent.

The debate seems esoteric. It is not. If Japan is already at its growth potential as the OECD contends, then the only way of raising real growth will be through implementing structural reforms. This is Mr Abe’s third arrow. That arrow has so far disappointed. To many it looks more like a poisoned dart. However, if Drs Hausman and Wieland are right, the third arrow may not be so important. Monetary policy could achieve much on its own by closing the gap. That would imply the Bank of Japan will need to do more since inflation normally only takes hold when there is more demand than supply, not the other way around.

On the surface the battle against deflation is going well. The headline inflation rate is running at 1.4 per cent, a tad higher than Germany, at 1.2 per cent. However, much of this is imported through higher energy costs. Strip out those and inflation is rising at only 0.7 per cent. The danger is it will simply peter out.

Two things could be decisive. The first is wages. If consumer confidence is not to be knocked for six, pay will have to start rising. Many big companies have been arm-twisted into lifting wages by between 1 per cent and 2 per cent. Nor is the news for smaller companies, which employ 70 per cent of workers, all bad. This month small company confidence rose to its highest level since 1989. Advertised jobs are up by more than 30 per cent since last year. Some industries, such as construction and trucking, cannot find workers for love nor money. Demographics, normally perceived as a looming catastrophe, may actually help in the short run by tightening the labour market further.

The second factor is the consumption tax, which from next month will rise from 5 per cent to 8 per cent. That may seem modest. It may also seem necessary to begin to repair Japan’s fiscal hole. If, however, you were designing a policy to reflate the economy, taking away consumers’ spending power would not seem like the best way to go about it.

It may take another few quarters to assess both the impact of the tax rise and the durability of the inflation numbers. Mr Allum says the policy has gone better than expected. “At some point, perhaps, the commentariat may have to rethink its scepticism,” he says.

The verdict on Abenomics must be “so far so good”. Sceptics, though, will continue to wonder how Abenomics can defy what they regard as the forces of gravity.

David Pilling

Fonte: FT

terça-feira, 25 de março de 2014

Michael Levi:Hot air about American gas will not scare Putin

Calls are mounting for the US to export shale gas to Europe to help free the continent from Russian influence. Observers are right to focus on Moscow’s energy leverage but they are prescribing the wrong response. The most useful thing that Europe could import is not American gas itself but the open economic model that has enabled the US natural gas industry to thrive.

Europe buys nearly 30 per cent of its natural gas from Russia. This has led to concern that President Vladimir Putin might turn off a few taps to gain leverage in the confrontation with Ukraine. For now, these fears are overblown – among other things, Europe has a lot of natural gas in storage – but the fundamental worry is well founded.

Yet US natural gas exports would do little to reduce Russian leverage. They cannot replace Russian gas in the current crisis since it will be more than a year until any US export terminals are built. Even once these facilities are up and running, the economics of sending shale gas to Europe are unlikely to make much sense. Once the cost of shipping is included, Russian gas is far cheaper; Moscow’s share of the European market is not likely to change much. Instead, American gas will flow mainly to Asia.

This is not to say that US exports would not hurt Mr Putin. They would push down the price of gas in Europe, which is one of the many reasons why they should be allowed. But it is fanciful to suppose that they could provide a decisive edge against Moscow in a future crisis.

Europe’s politicians should instead put their energy into copying the successful US policies that laid the groundwork for a spectacular boom in natural gas production. This might allow Europeans to produce more gas at home instead of buying it from Russia. The US Energy Information Administration estimates that Europe has 598tn cubic feet of technically recoverable shale gas, roughly half as much as the US. Yet almost none of this is being exploited. In part, that is because the continent is playing catch-up with a boom that started elsewhere. But there are deeper reasons, too. Many European countries have banned shale gas production. Those that allow development have slapped on taxes and government royalties that do much to deter it.

The US has lessons to offer on both fronts. Most gas-rich US states have rejected calls to prohibit shale gas production; instead, they have allowed development subject to robust environmental safeguards. The specifics vary from state to state. In Texas, a longtime energy producer, the industry has won public acceptance with less oversight than elsewhere. In Ohio or Illinois, which are new to the natural gas game, regulation is more stringent. Europeans would be wise to draw lessons from US states that have struck a balance between development and the environment.

The American shale gas industry has flourished on private land, where property owners are susceptible to commercial incentives. In Europe, mineral rights are generally publicly owned and unlikely to be privatised. Still, the more basic lessons – that government policy should be careful not to undermine the economics of gas development, and that care should be taken to ensure that local communities benefit from development – should be listened to carefully.

The US can also export lessons about gas markets. The US market responds efficiently to disruptions because regulators insist on open access to infrastructure such as pipelines, and enforce standards of transparency that ensure market participants are adequately informed. Europe has moved in this direction. Unlike the US, it needs to protect itself against foreign producers that might manipulate liberalised markets. Still, it has room to improve.

Focusing on steps such as these may be less attractive than talking up US natural gas exports: it denies America a chance to brag about its strategic influence and forces Europeans to grapple with their own political problems. The biggest opportunity to improve European security, though, comes from exporting the US model, not selling American gas.

Michael Levi is a senior fellow at the Council on Foreign Relations and author of “The Power Surge”

Fonte: FT

segunda-feira, 24 de março de 2014

Gideon Rachman: A Ukraine war would spell disaster for Russia

As US President Barack Obama and the leaders of the EU huddle together this week, they will strive to look united and resolved. The reality, as Vladimir Putin knows, is that they are divided and uncertain. The Russian president has moved with a speed and ruthlessness that has left western leaders floundering. Russiaswallowed Crimea, in less than a week, with scarcely a shot fired. It has now massed troops on Ukraine’s eastern border – and all that the west has so far offered the Ukrainian military is a supply of US army ready-meals.

But the notion that Mr Putin has notched up a brilliant victory is misleading. In reality, he has gambled dangerously – and he is likely to lose his bet on the use of force. The annexation of Crimea is risky enough. But an invasion of eastern Ukraine would spell disaster for Russia.

Mr Putin’s decision to grab Crimea was a desperate response to a Ukrainian revolution that the Kremlin could neither stop nor control. Rather than go down in history as a weakling who was watching ice dancing in Sochi as Russia “lost” Ukraine, Mr Putin decided to move on Crimea. It worked. Within days, he was enjoying standing ovations in Moscow and soaring opinion poll ratings.

But by grabbing Crimea, Russia has ensured that it will eventually lose Ukraine. If Ukraine is allowed to proceed with elections in May, an anti-Moscow majority is all but assured since the Russian speakers of Crimea will no longer be voting, and the remaining electorate is likely to be radicalised by the Russian threat. The interim Ukrainian government has just signed an accord with the EU – the very development that Russia was striving to prevent in the first place. Despite the carefully engineered display of pro-Russian euphoria in Crimea, the territory’s disgruntled minorities – particularly the Tatars – may well resist incorporation into Russia.

A military move into eastern Ukraine would greatly increase the dangers of a political, military and economic blowback sufficiently powerful to threaten the leadership in the Kremlin. Western military analysts have no doubt that, in the first instance, the Russian army would swiftly overwhelm Ukrainian forces. But recent history suggests that, when the world’s leading powers resort to military intervention against a hostile local population, they almost always suffer a long-term strategic defeat. The swift conventional military victory feels great at the time – but is followed by long-term agony.

Mr Putin, who has lamented that the collapse of the Soviet Union was the greatest “geopolitical disaster of the 20th century”, should know that “disaster” was greatly accelerated by the draining effects of the Soviet war in Afghanistan. Even the mighty US – with the largest economy and the most advanced military machine in the world – was unable to win in either Iraq or Afghanistan.

The cautious, professorial leader in the White House has apparently learnt the lessons of these failed wars far better than his swaggering bare-chested rival in the Kremlin. Of course, the Russian (and American) public get a certain retro thrill from a macho leader who is willing to send in the tanks. But, in time, they end up lamenting his folly.

Why is it that military force has become so much less effective in achieving political goals? Jeremy Shapiro of the Brookings Institution, who until recently worked for the policy-planning staff at the US state department, suggests that changes in military and social technology have made it much harder for invading armies to secure a lasting victory.

Unless the population of the area that has been invaded is tiny – or almost entirely welcoming – an insurgency is likely to develop. Modern-day insurgents usually have weaponry, such as roadside bombs or rocket-propelled grenades, that can inflict steady casualties on an occupying army.

They now also have social media and mobile communications technology that make it much easier to get organised. If the insurgency also has powerful external supporters – as in Afghanistan, Syria and Iraq – it can be almost impossible to subdue.

The Russians have one “advantage” that they could deploy in trying to suppress an insurgency in Ukraine: the willingness to act with extreme brutality that was displayed during the Chechen wars. But the population of Chechnya is only a little more than 1m and the territory lies within the borders of the Russian state. Deploying “Grozny tactics” after an invasion of a sovereign nation of 45m people, on the borders of the EU, would be an entirely different matter.

For that reason, Mr Putin may prefer – for now – to use his military to nibble away at smaller targets, such as Moldova. His tactics in Ukraine could initially be restricted to economic pressure, using the leverage of Russian energy, as well as political destabilisation and bribery. Yet trying to turn its large, western neighbour into a basket case is also not a great long-term option for Russia. Even if Mr Putin is not yet set on an invasion of eastern Ukraine, economic and political warfare could unleash a series of events that would eventually lead to armed conflict.

If Russian troops do go into Ukraine, you can expect initial triumphalism in Moscow – and hand-wringing in the west. But a “show of strength” in Ukraine would ultimately gravely weaken the Russian state.

Gideon Rachman

Fonte: FT

sexta-feira, 21 de março de 2014

Tony Barber: Putin bites at the west where his predecessors growled

De longe a melhor analise da decisão do Putin de anexar a Crimeia.

In the antechamber of Vladimir Putin’s presidential office in the Kremlin hangs a large portrait of Nicholas I, who ruled the Russian empire from 1825 to 1855. As Russia’s annexation of Crimea and the west’s retaliatory economic sanctions summon the spectres of hot and cold wars past, policy makers in Washington and Europe would do well to consider why Mr Putin chose the tsar as the historical figure at whose image visitors must gaze before they enter the president’s room. Then they will be on the right road to answering the question: “How do we deal with Putin?”

The story behind the portrait is not that Nicholas I was some all-conquering military commander or an emperor who transformed Russian society. Ivan the Terrible, Peter the Great and Catherine the Great have stronger claims to these roles. It is that post-Napoleonic Europe, whatever it thought of Nicholas I’s autocratic system of government, granted Russia respect as a great military and diplomatic power. As he made abundantly clear on Tuesday when he announced Crimea’s absorption into Russia, Mr Putin seethes with resentment at what he sees as the west’s disregard, ever since the Soviet Union’s demise in 1991, for Moscow’s status and interests as a leading power.

Mr Putin’s choice of portrait also reflects his belief that Russia under Nicholas I stood for a rock-solid domestic political order, founded on patriotism, the Orthodox religion, a strong central government and a secret police force that cracked down on dissent. Since Mr Putin first assumed the presidency in 2000, this is the kind of state he has sought to construct out of the political disorder, economic weakness and misguided openness to western values that, in his opinion, marked Boris Yeltsin’s Russia in the 1990s.

Dealing with Mr Putin, in the light of his dismemberment of Georgia in 2008 and Ukraine in 2014, requires an understanding of the political opportunism and willingness to use military force abroad that make him distinctive as a post-communist Russian president. But it also requires a recognition that any other leader might have acted no differently, given that Mr Putin is using a geopolitical playbook written in Moscow immediately after the Soviet Union’s collapse. In particular, the doctrine under which Russia asserts a special interest in its geographical “near abroad” – Ukraine and other post-Soviet states – is not a doctrine specific to the Putin era. On the contrary, it emerged in 1992 and its leading exponent was Andrei Kozyrev, Mr Yeltsin’s foreign minister.

It is all very well for western governments to assert that, in the post-cold war age, the notion of spheres of influence in Europe is abhorrent. The Kremlin has always viewed this as sheer hypocrisy, a mask behind which the west advanced up to Russia’s borders by incorporating the Baltic states, Poland and other former communist countries into Nato and the EU.

In Mr Yeltsin’s day Russia was too weak in military and economic terms to do much about this except growl in frustration. But the February revolution in Kiev raised the prospect that Ukraine would align itself with the EU, tilting the geopolitical scales in the west’s favour in an area of existential importance to Russian national interests and identity. It is telling that Mr Putin’s backlash commanded support not just from his handpicked supporters in the Duma, but even from anti-establishment critics whose pro-democracy rhetoric comes heavily salted with nationalism.

During the past 20 years it is difficult to think of any Russian leader – not just Mr Putin – who has found it psychologically and politically comfortable to think of Ukraine in its 1991 borders as a legitimate, independent state. This by no means excuses Russia’s behaviour in Crimea. But it is pointless to ignore the fact that Mr Putin’s language, menacing though it sounds to western ears, is but common sense to Russians: “We are one people. Kiev is the mother of Russian cities. Ancient Rus’ is our common source and we cannot live without each other.”

Western leaders are unlikely to get anywhere with Mr Putin unless they appreciate that the crisis, in his view, is about the defence of fundamental Russian interests. He is prepared to pay a very heavy diplomatic and economic price to uphold these interests. He sees this as a do-or-die moment for Russia in a way that it is not for the west.

This does not mean the US and Europe have no red lines of their own. The east-west political climate would be even more alarming than it is today were Mr Putin to encourage ethnic Russian separatism or make threatening military gestures in the direction of Estonia or Latvia, which are Nato members and must benefit from its collective defence guarantee if the alliance is to mean anything. But more likely in the near term, if the climate continues to deteriorate, are the formal Russian annexation of the Georgian regions of Abkhazia and South Ossetia. The Transnistria region of eastern Moldova could go the same way. Even a Russian move on eastern Ukraine, which would risk sparking Ukrainian nationalist resistance, cannot be ruled out.

The west clearly has a stake in an orderly international system. But if its basic interests are not at stake it will have no choice but to play the long game, as it did in the cold war. At some point it will have to restore a dialogue with Russia, keeping alive the hope of eventual change for the better in those regions sucked back into Moscow’s orbit.

At present, though, Mr Putin believes himself to be on a historical mission for Russia. He appears in no mood for a conversation and, under Russia’s constitution, he can serve as president until 2024. Who knows, he may find a way of retaining power after that. The west is going to have to dig in and be patient.

Tony Barber

Fonte: FT

quinta-feira, 20 de março de 2014

The Russian challenge for America’s odd couple

Picture Barack Obama in the White House. The US president is closeted with advisers, examining and re-examining every dimension and detail of the administration’s foreign policy. Now take a short walk to the State Department. You will not find John Kerry at home. The secretary of state has jetted off somewhere in search of a crisis to be defused or a diplomatic deal to be struck.

The analyst president, and the activist secretary. Such are the two faces of US foreign policy as it plays out around the world. There are circumstances in which this synergy of opposites could work. This has not been the case so far. The chatter in other national capitals is about a US punching far below its weight. Mind you, Europeans should be careful about stones and glass houses.

There is much to be said for Mr Obama’s deliberative approach. The shoot-from-the-hip style of George W Bush was hardly a roaring success. Nothing has done so much to deplete American power as the costly and failed wars in Afghanistan and Iraq. The unipolar moment has passed. There are limits on Washington’s ability to set the world to rights.

There is a point, however, when analysis begets paralysis – when an unwillingness to act itself diminishes the capacity to act. Prudence slides towards nothing-to-be-done fatalism. Staying out of wars is a noble but insufficient ambition for the world’s sole superpower.

Mr Kerry’s style could not be more different. While the president cogitates, his secretary of state agitates. As a senior European diplomat puts it, Mr Kerry never enters a room without a burning conviction that, whatever the crisis, he can find a diplomatic solution. Forget digital communications – Mr Kerry does his diplomacy face to face. How many times has he jetted to Israel and Palestine during the past year? A dozen at least.

This approach also has its advantages. Hillary Clinton, his predecessor, steered clear of the big challenges. Diplomacy only succeeds when the chief diplomat is ready to risk failure. If Mr Obama is content with his legacy as a peacenik, Mr Kerry wants to leave his own mark on history. Why not if the result is a Middle East peace deal or an end to the nuclear stand-off with Iran?

True, Mr Kerry’s self-belief and disdain for process does not endear him to everyone in the state department. One or two at the top are said to be casting an eye at the exit. Something may well be going wrong when officials feel a need to tune in to CNN to check whether the secretary of state has dreamt up a new policy on a flight.

More pertinently, Mr Kerry can be effective only if his interlocutors are persuaded that he is speaking for the president. They often have their doubts. Mr Obama certainly wants a deal with Iran – if only to avoid another war. Less certain is how much capital he will invest in pressing Israel’s Benjamin Netanyahu to accept an equitable peace with the Palestinians.

In a curious way, Russia’s march into Ukraine and its military annexation of Crimea present an opportunity as well as a danger to this the administration’s odd couple. It would be foolish to underestimate the possibility of a dangerous escalation. Vladimir Putin’s speech to the Duma this week was that of a Russian president who has unequivocally rejected the liberal international order. His grievances, we heard, reach back far beyond the collapse of communism to centuries of supposed western calumnies.

That said, the Russian leader’s ugly nationalism has brought rare clarity to the relationship. Even the most dovish of Europeans will now struggle to argue that a softly-softly approach will persuade him to bring Russia into the community of nations. In the long term Mr Putin’s revanchism is unsustainable. Russia is in secular decline. It desperately needs investment and technology. The problem is that no one knows how long Mr Putin can prop up his aggression with oil and gas revenues.

Two things are needed urgently of the US president. The first is convincing resolve – a sense of purposefulness that persuades allies and the Kremlin regime alike that the US is unshakeable in its determination to push back against Moscow’s expansionism. Everyone needs to know that Mr Obama really does mean it this time.

The second is a plan to rebuild the Euro-Atlantic community. Mr Obama will be in Brussels next week, visiting the headquarters of the EU and Nato. What better opportunity to invite America’s European partners to show there is substance to the old alliance. Europe must be told to do its bit but with the US leadership and the sustained grip that ensured that Soviet communism eventually collapsed under the weight of its contradictions.

The US and Europe have been talking on and off for years about a transatlantic trade pact to cement economic ties and about weaning Europe off Russian gas. Now is the moment for both sides to stop arguing about chlorinated chickens, for Europeans to end the dithering about a unified energy market, and for Washington to offer its allies access to US shale gas. It is also the time for Europeans to put more into Nato and for the US to strengthen security guarantees for central and eastern Europe.

Mr Obama will meet other leaders of the Group of Seven nations in The Hague on the margins of a summit on nuclear security. Ukraine gave up its nuclear weapons in return for a guarantee of its territorial integrity. Russia’s invasion has sent a dangerous message to would-be nuclear proliferators around the world. Mr Obama must counter it with strategic leadership. Then he can leave the diplomacy to Mr Kerry.

Philip Stephens

Fonte: FT

quarta-feira, 19 de março de 2014

Bye, Bye juros de Avó...

Pelo jeito ela não tem nada nada de Pomba: 1% no fim de 2015 e 2.25% em 2016, bem acima da previsão de Dezembro, 0,75% e 1,75 respectivamente. Com juros em alta, o ano de 2015 no grande bananão deverá ser de forte correção de rota. Em outras palavras, pagaremos o preço da macroeconomia criativa dos heterodoxos com juros e correção monetaria como se dizia nos tempo de antanho. Tempo, alias, em que ainda se encontra o pensamento econômico dos policy makers da atual administração.

Information received since the Federal Open Market Committee met in January indicates that growth in economic activity slowed during the winter months, in part reflecting adverse weather conditions. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate, however, remains elevated. Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee's longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.

The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in April, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $25 billion per month rather than $30 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $30 billion per month rather than $35 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee's sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate.

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on the Committee's outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate. In determining how long to maintain the current 0 to 1/4 percent target range for the federal funds rate, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

With the unemployment rate nearing 6-1/2 percent, the Committee has updated its forward guidance. The change in the Committee's guidance does not indicate any change in the Committee's policy intentions as set forth in its recent statements.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Richard W. Fisher; Sandra Pianalto; Charles I. Plosser; Jerome H. Powell; Jeremy C. Stein; and Daniel K. Tarullo.

Voting against the action was Narayana Kocherlakota, who supported the sixth paragraph, but believed the fifth paragraph weakens the credibility of the Committee's commitment to return inflation to the 2 percent target from below and fosters policy uncertainty that hinders economic activity.

Reunião do dia 19 de Março de 2014

terça-feira, 18 de março de 2014

Prise Ukraine from Putin’s claws

Wolf tem razão em relação a necessidade de conter a Russia, mas exagera ao comparar a situação atual à anexação da Czecholosvakia. Peca, também, por não reconhecer que a NATO com sua expansão para o leste resolveu a sua própria crise de identidade, assumindo uma nova missão incompativel com a inserção da Russia na arena europeia. É um jogo perigoso e o paralelo mais adequado é com a sequencia de eventos que levaram a primeira guerra mundial. A grande diferença é que vivemos na era nuclear e por isto um conflito armado de grandes proporções esta descartado, mas conflitos regionais, como àqueles da guerra fria, não podem ser excluidos de antemão.

“A far-off country of which we know little” was Neville Chamberlain’s argument for doing nothing about Hitler’s 1938 annexation of Czechoslovakia. That annexation – carried out by a revanchist Nazi regime, allegedly in defence of ethnic Germans, is an unnerving parallel to Vladimir Putin’s annexation of Crimea. Russia’s president is using ethnic Russians as an excuse to restore Moscow’s old empire. Viktor Yanukovich, the ousted president of Ukraine, has even said: “I would like to ask those who cover for these dark forces in the west: are you blind? Have you forgotten what fascism is?” I really do hope not.

The west is not going to war with a nuclear-armed Russia. But outright annexation of a part of a smaller country strikes at the roots of the post-second world war European settlement. Angela Merkel, Germany’s chancellor, was right to say that Russia had resorted to the “law of the jungle”. This annexation cannot go unanswered. It is too dangerous a precedent.

Some argue that the west has already created the precedent by separating Kosovo from Serbia. But that was a response to Serbia’s brutality. Nothing like that had happened in Crimea. Nor did any western power annex Kosovo. A far better parallel is between Serbia’s actions in Kosovo and Russia’s forgotten brutality in Chechnya.

Russia complains that extension of Nato to its borders is an outrage. But Nato does not annex countries. Russia’s behaviour stoked the desire of its erstwhile possessions to join Nato. Why, Russians might now ask themselves, do people who have enjoyed the blessings of their rule wish to be defended against them?

Mr Putin’s restored Russian autocracy is a revanchist power. This is depressing. But it is reality. The west must unite in response.

The essential points about western relations with Russia today are that the latter is relatively less powerful and relatively more economically intertwined than the old Soviet Union. This gives Russia weapons against us, but creates vulnerability.

So how should relations be managed? With carrots and sticks.

Start with Ukraine. The country rid itself of a predatory gangster. The west should not accept the lie that “fascists” drove this. But the west should state that if Russia does not threaten the integrity of the country, it will not offer Ukraine a defensive alliance. The priority must be Ukraine’s economic stabilisation. Whether Russia views that as in its own interests depends on whether it can be brought to view a stable, prosperous and democratic Ukraine as desirable or as a threat.

Oleksandr Turchynov, Ukraine’s acting president, has said: “What the Kremlin is most afraid of is a democratic, European, successful and prosperous Ukraine which we are today building . . . this is the real motive for their aggression.”

I fear Mr Turchynov is right. Yet it would be vastly easier to stabilise Ukraine economically with Russian co-operation than without it: in the 12 months to October 2013, 24 per cent of Ukraine’s exports went to Russia and 30 per cent of its imports came from it. Russia is also the country’s biggest energy supplier.

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The International Monetary Fund is optimistic about the possibilities of agreeing a successful programme for Ukraine in April. Whatever Crimea’s political significance, it is only 4 per cent of the economy. The IMF has rightly worried about the overvaluation of the hryvnia, this being a way for the rich and powerful to obtain foreign assets at a subsidised rate. But that is now correcting, as it had to, given a current account deficit of 9 per cent of gross domestic product last year and the collapse in foreign currency reserves (see charts). Probably, the biggest issue is that any programme has to bind the next government. One with clear conditionality for tranched disbursements would be the best way to deliver this.

It is essential to distinguish the urgent from the vital. Stabilising the economy and correcting huge price distortions – including unaffordable low gas prices from which the corrupt benefit vastly more than the poor – is urgent. Deep institutional reform is vital. Ukraine has a third and possibly last chance (the previous ones being independence in 1991 and the Orange revolution in 1995) to achieve what Poland has done. It must move swiftly towards a more open and competitive economy and a more transparent and accountable government, as Anders Aslund of the Peterson Institute for International Economics argues. Signing the EU association agreement would help. Cleansing the Augean stable of corruption must be the condition for needed assistance.

A successful Ukraine would be far and away the best riposte to Russian revanchism. I can see no logical reason why it should be infeasible. But I can see two contingent ones.

The first is that Russia will dedicate itself to destroying this opportunity by breaking Ukraine up or seeking to conquer it. The answer to that must be that Russia would become a pariah and not just in the west. Few indeed are the countries prepared to contemplate such actions with equaniminity. The desire to prevent a return to a world of military conquests is very powerful.

The second is that the west and, above all, Europe will be too frightened in their dealings with Moscow. The principal – though not only – reason is that Russia is such an important supplier of energy. Gas is the crucial commodity because it is far less easily tradeable than oil and coal. In 2011 Russia supplied 30 per cent of the EU’s imports of natural gas. But if one allows for domestic gas production, and the share of gas in the energy mix, then Russia probably supplied little more than a 20th of the EU’s energy. Could the EU dispense with that if it had to do so? The answer has to be yes, though it might have to reconsider popular policies, such as closing down nuclear power, while the US would also have to consider gas exports to the EU.

The west must not pretend that Ukraine is a far-off country of which it knows little. It could be Ukraine today and the EU itself tomorrow. Russia’s revanchism has to be stopped, even for Russia’s own sake. A stable and democratic Ukraine is not hostile to Russia’s true longer-term interests. The starting point has to be helping Ukraine, ideally with Russian co-operation, but without it if necessary. It will not be easy. But it will be worthwhile.

Martin Wolf

Fonte: FT

segunda-feira, 17 de março de 2014

Gideon Rachman: How wars can be started by history textbooks

When political leaders start rewriting the past, you should fear for the future. In Russia, Hungary, Japan and China, recent politically sponsored efforts to change history textbooks were warning signs of rising nationalism.

In January Vladimir Putin presided over a meeting designed to produce a new standardised history book for use in schools. The Russian president complained that many current textbooks are “ideological garbage” and “denigrate the Soviet people’s role in the struggle with fascism”. He dislikes the suggestion that the countries of eastern Europe were occupied by the Soviet Union in 1945. His preferred vision of history is that the USSR saved these nations from fascism.

The political significance of this historical dispute became clear in the crisis over Ukraine. Moscow has consistently attempted to tar the new government of Ukraine as “fascist”, arguing that its leaders are the ideological heirs of the Ukrainians who fought with the Nazis against Stalin’s Soviet Union. That version of events is now being energetically promoted by the Russian media.

Ironically, Mr Putin’s Russia enjoys warm relations with Hungary – the one government in the former Soviet bloc that could justly be accused of adopting a dangerously equivocal attitude to the history of the far right. Hungary’s conservative government, led by Viktor Orbán, seems to be encouraging the rehabilitation of Miklos Horthy, Hungary’s authoritarian and anti-semitic leader of the interwar years. Several statues to Horthy have been erected around the country, as a well as a plaque in Budapest. Efforts are also under way to rewrite school history textbooks to give them a more “patriotic” tone.

As with Russia, Hungary’s neighbours have reason to be concerned by this outbreak of historical revisionism. One of the reasons that some of the country’s rightists look kindly on Horthy is that he was a believer in a “Greater Hungary” that would one day reclaim the territories that the country had lost after the first world war, a cause that remains dear to modern Hungarian nationalists.

Nationalist efforts to rewrite history textbooks are also cause for concern in Asia. Shinzo Abe, Japan’s prime minister, has suggested some school textbooks adopt too “masochistic” a view of the country’s history. This suggestion has outraged the governments of China and South Korea, which even before Mr Abe’s advent had long complained that Japanese textbooks play down crimes such as the Nanjing massacre of 1937 or the use of sexual slaves by the Japanese imperial army.

Yet Beijing is itself hardly innocent of the abuse of history for nationalist purposes. President Xi Jinping unveiled his plans for the “great rejuvenation of the Chinese nation” in a speech given at the recently redesigned National History Museum in Beijing. The building devotes acres of space to the Japanese invasion of China in the 1930s, as well as the crimes of the British, French and other foreign imperialists who “descended on China like a swarm of bees”. But the national museum – like the textbooks that teach Chinese children – is virtually silent on the many millions who died under the rule of the Communist party, whether in the famines caused by Mao Zedong’s “great leap forward” or during the cultural revolution. A portrait of Mao still hangs over Tiananmen Square. For all the revisionism indulged in by Mr Putin’s Russia, it would be unthinkable (one hopes) for a portrait of Stalin to be on permanent display in Red Square. The point of the official version of history is obvious: to direct popular anger outwards, at China’s neighbours, rather than inwards towards its government.

Even Britain has experienced a controversy about the history taught in schools. Michael Gove, education secretary, has provoked fierce criticism from some eminent historians by suggesting children are being given an overly negative view of the first world war. Mr Gove argues they should be taught that it was a justified defence of freedom, and not just a futile bloodletting.

This illustrates that there is nothing unusual in the efforts of political leaders – including Mr Putin or Mr Abe – to try to influence the way their nation’s histories are taught and remembered. But there are still important distinctions to be made between legitimate debate and the politicised misuse of the past.

First, politicians should never be allowed to deny historical facts. Mr Gove may argue that the first world war was a just conflict. But he is not attempting to deny that the battle of the Somme took place, in the way that some Japanese nationalists, close to Mr Abe, have denied that the Nanjing massacre ever occurred.

The second important distinction is between encouraging debate – and shutting it down. It is sad and sinister that some Russian nationalists continue to promote a positive view of Stalin. But that view of Stalinism is much more dangerous if it becomes the unchallenged, official version of history, promoted in schools and on the media.

Politicians, like academics or ordinary citizens, will naturally have competing views about how to view their national history. But the abuse of political power to impose a single, authorised version of history on a nation’s schools and mass media is when education crosses the line into brainwashing. As we are seeing in Russia today, a public in the grip of a nationalist version of history can be a dangerous thing.

Gideon Rachman

Fonte: FT

sexta-feira, 14 de março de 2014

The responsibility of adjunct intellectuals

In the 1990s the philosopher and Arts & Letters Daily editor Dennis Dutton ran an annual Bad Writing contest in order to highlight turgid academic prose. If the contest were still around, this passage from The American Political Science Review might be a winner:
For a body of n members, in which there exists a group large enough and willing to pass a motion, let the members vote randomly and declare the motion passed when the mth member has voted for it, where m “yes” votes are required for passage. Define as the pivot the member in the mth position and note that there are n! (read “n factorial,” that is 1 · 2 · … ·n) such random orderings of n voters (that is, the permutations of ab, · · · , n). Then define the power, p, of a member, i, thus: pi = ti/n!, where ti is the number of times i is pivot.
As New York Times columnist Nicholas Kristof recently pointed out, this is the kind of writing that has estranged the reading public from academia. A generation ago, political scientists were public intellectuals. We wrote lucid prose. We spoke to the issues of the day. We advised President John F. Kennedy. But now all we care about is math, jargon and one another.
There’s one problem with what I’ve just said. That passage from The American Political Science Review appeared in 1962, the second year of the Kennedy administration.
Jargon has been the bane of academic life since there’s been academic life. Just read Immanuel Kant. Or Thomas Hobbes, who complained that the academic writing of his day was “nothing else … but insignificant trains of strange and barbarous words.” But if scholarly journals still feature specialists writing for specialists, more academics are writing for the public than ever before. When they’re not, it has less to do with the perversity of their preferences than the precariousness of their profession.


Academics used to face a hard choice between writing for sequestered journals that few people read and newspapers and magazines that are hard to break into. Now we have a third option: the blogs and Tumblr, Twitter and Facebook accounts of the social media world.
In my first year out of graduate school, I wrote an article in The American Political Science Review about the politics of fear. I can count on my hand the number of people outside academia who have read it. Not because it’s abstruse or irrelevant but because it’s cloistered behind journal paywalls that only academics can easily scale.
Now I have a blog, where I write about political theory, McCarthyism and bathroom breaks. As many as 20,000 people read my posts — in a single day. Thousands of my colleagues are doing the same thing, many with even bigger readerships. Group blogs such as Crooked Timber andLawyers, Guns and Money offer platforms to political scientists, economists, sociologists, literary critics, historians and philosophers, and judging by the comments they attract, they are read by a great many nonacademics.
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quinta-feira, 13 de março de 2014

The answer to Putin is support for Ukraine

Perhaps I have been too hard on the Europeans. I hope so. As Russia tightens its grip on Crimea there have been gathering signs that the continent’s democratic leaders are crossing an important bridge. They are seeing Vladimir Putin as he is rather than as the Russian president they once imagined they could coax him into becoming. Differences about the response to Moscow’s march into Ukraine are making way for glimmers of much-needed realism.
No one is quite sure how Moscow will respond to the rigged referendum in Crimea planned for Sunday. The outcome is predetermined – dark humour in European chancelleries has it that Mr Putin has already totted up the votes in favour of Crimea’s return to Mother Russia. One European foreign minister talks openly of the impending “Anschluss”. The EU and US will probably respond on Monday with an escalation of sanctions.

Whether immediate annexation suits the Kremlin is not certain. Ready as Mr Putin is to trample on international law and redraw the boundaries of Europe by force, he frets about legal niceties. Ludicrous though it seems to the rest of the world, this is why occupying Russian troopsare not wearing insignia. Even as they ensure the referendum is anything but free and fair, the pseudo legalists in Moscow are weighing the options after Crimea has been wrenched out of Ukraine.

The lawyer in Mr Putin might see advantage in Crimea retaining for now a fig leaf of independence. The tactician may agree. It will be harder to sustain the pretence that he is ready to negotiate once Crimea has been formally annexed. Perhaps, like Trans Dnestr, Crimea will be left in constitutional limbo under the control of Moscow. Yet Mr Putin may press ahead regardless.

There is still debate among Europeans about the level of sanctions to apply against the Kremlin. At one end of the spectrum – Greece, Cyprus and, to an extent, Italy come to mind – there are those who seem to think the way to avoid escalation is to give Mr Putin whatever he wants. At the other end are Poland, Sweden and the Baltic states, making the serious case that a tough response is the
only thing that will get the Kremlin’s attention.

Britain’s David Cameron has won plaudits for stiffening EU resolve at a recent summit. France, though, worries about the cost of cancelling lucrative defence deals with Moscow.
The pivotal player is Germany. Berlin’s diplomatic establishment is institutionally cautious. For reasons of geography and history, as well as economic ties, Germany has more at stake than its partners. It initially harboured hopes that Mr Putin would be willing to negotiate a way out of the crisis.
Angela Merkel’s tough speech to the Bundestag this week seemed to put such delusion to rest. A child of communist East Germany, the chancellor should be more attuned than most to authoritarian mindsets. Her speech marked recognition that Mr Putin sees confrontation with the west as integral to his tsarist rule in Moscow. In Ms Merkel’s description, the Russian leader’s might-is-right approach belongs to the 19th and early 20th centuries. Berlin will always want good relations with Moscow but, as one diplomat says, it is now beginning to look beyond Mr Putin for any normalisation.

Economic sanctions could well hurt EU states more than Moscow in the short term, particularly if they result in disrupted Russian gas supplies. In the medium term, however, Russia would be the big loser from any rupture of economic ties. The march into Crimea has already cost untold billions in future western investment.

No serious business can now put money into, or share technology with, Russia with any confidence that its investment will be safe. Banks too must think hard as to whether their Russian relationships would withstand the scrutiny and asset freezes that would follow further escalation. When Ms Merkel spoke of Russia suffering “massive harm”, she was not exaggerating.
The EU also has an opportunity to seize the moment and accelerate policies that reduce its dependence on Russian gas. It should be looking at alternative sources of liquid natural gas, at better cross-border “interconnectors” to reduce the vulnerability of individual states, and at new pipeline routes from central Asia. Washington has a vital role to play here. Lifting the bar on exports of US gas would not have an immediate impact on European supplies. It would mark out a medium-term trajectory for the gas market that would do serious damage to Moscow. It would also stiffen European sinews.
More important than sanctions, however, is the scope and scale of prospective western help to the new government in Kiev. It is time for Europeans and Americans to open their wallets.
For all its bravado, the seizure of Crimea marked a strategic failure for Mr Putin. He will not want to be remembered as the tsar who lost Ukraine. His goal now will be to turn it instead into a failed state and thus block the establishment of a west-leaning democratic government.
So the west’s focus should be on Kiev as much as Moscow – on supplying the massive economic and political aid needed if Ukrainian politicians are to lay the foundations of sustainable democracy and economic revival. This will be neither cheap nor easy. I once heard a Russian oligarch complain that he could not do business in Ukraine because it was “too corrupt”. There are no guarantees of success.
What, though, is the alternative? A continent that settles disputes and frontiers by force? Europe has been there before.

quarta-feira, 12 de março de 2014

Bitcoin needs to grow out of its obsessive adolescence

Newsweek’s flawed attempt to expose a 64-year-old Californian called Dorian Nakamoto as Bitcoin’s mysterious inventor has come at an opportune moment for exponents of the cryptographic currency. It has distracted from a crisis of trust caused by the failure of Mt Gox, the Tokyo Bitcoin exchange.

By rights, Bitcoin’s community of enthusiasts, venture capitalists and start-up companies should now be occupied with how it can re-establish credibility after a series of unfortunate events. Instead, much of its energy over the past week has been taken up by fulminating about the magazine’s treatment of Mr Nakamoto, who denies being Bitcoin’s architect.

Online forums have filled with virulent criticism, and a lot of sexist abuse, of Leah McGrath Goodman, the reporter who found the man she believes (but has not yet proved) is “Satoshi Nakomoto”, author of the original Bitcoin paper. Devotees have condemned her attempt to “dox” him – expose his identity – whether or not he is their man.

The hysteria undermines Bitcoin’s chances of graduating from a hobbyists’ obsession to a mainstream technology. You cannot challenge fiat currencies and disrupt the global payments industry while reacting to any uninvited scrutiny like an adolescent whose parent has opened the bedroom door without knocking. It does not work that way.

I say this as a believer in the potential of cryptographic currencies (whether or not Bitcoin survives) to become cheaper and more efficient means of payment and exchange than banks and card companies provide. As I wrote in a previous column, the technology could also permit the exchange of other types of digital contracts.

Whatever its underlying potential, Bitcoin faces an immediate crisis. As some 15-minute celebrities have found, the only thing worse than too much attention is no attention at all. Unless it can restore its reputation rapidly, the media and consumers will lose interest.

Mt Gox is not the only Bitcoin exchange to have mislaid Bitcoins – several others have suffered from a software loophole known as “transaction malleability” – but it is by far the most serious. It filed for bankruptcy in the US this week, having lost about 745,000 Bitcoins ($472m at Wednesday’s exchange rate), and still has not clearly explained what happened.

To the aficionado, Bitcoin’s credibility remains intact. “There has not been a loss of confidence in the technology, but people are newly cautious about trusting Bitcoin companies,” says Edward Felten, professor of computer science at Princeton University.

In the case of other exchanges, and perhaps Mt Gox, Bitcoin payments were settled as intended but hackers then altered identifying information on the transactions to fool exchanges into believing that Bitcoins had not changed hands. Mt Gox, the argument goes, was a victim of its own sloppy online bookkeeping rather than a Bitcoin flaw.

To the average consumer, this is a distinction without a difference. Being able to trust “Bitcoin” as a technology but not to be sure that your own Bitcoins are safe does not mean much. The basic function of a bank is to store its depositors’ cash more securely than keeping it under the mattress and if Bitcoin cannot match it, little else matters.

The currency’s more reflective supporters recognise this. “I have met a lot of depressed people, even if they did not lose money themselves,” says Pamir Gelenbe, a partner of Hummingbird Ventures, one London-based Bitcoin investor. “This is a bad event for the ecosystem.”

Fixing it will demand both technological and cultural changes. Mt Gox embodied the slapdash, enthusiast phase of Bitcoin. It was founded as an exchange for trading virtual cards in an online game called Magic: The Gathering (from where the Mt Gox name came). Even after it switched to trading Bitcoins, its software was notoriously flawed and accident-prone.

The $100m of venture capital invested in Bitcoin in the past couple of years (including $25m in Coinbase, the San Francisco-based digital wallet company in December) has brought professionalism and an experienced group of technology executives to the field. They look on Bitcoin more dispassionately than the earliest adopters.

“The recurring theme of Bitcoin is that it is exciting but it has been difficult to find good entrepreneurs. There is a set of guys who got lucky by setting up companies in the early days before it really took off. They were in the right place but were the wrong people,” says one venture capitalist.

Some of the new entrants are now trying to fix the flaws that Mt Gox exposed, such as requiring two digital signatures for each transaction (an approach taken by BitGo, a Seattle start-up), rather than letting a hacker who obtains a single signature steal the money. Elliptic, a London-based company, is offering storage of Bitcoins backed by banklike deposit insurance.

Such changes raise the possibility of Bitcoin becoming more expensive as safeguards are added (Elliptic charges 2 per cent for its deposit insurance). Goldman Sachs estimated this week that Bitcoin transfers cost 1 per cent of the amount, compared with 2.5 per cent for Visa-type card payments, and adding costs could erode that edge.

But Bitcoin’s backers do not have much choice. As a “crisis strategy draft” that circulated at Mt Gox in its last days put it: “At the risk of appearing hyperbolic, this could be the end of Bitcoin, at least for most of the public.” A crisis sometimes makes you grow up fast.

John Gapper


terça-feira, 11 de março de 2014

Martin Wolf: The spectre of eurozone deflation

The European Central Bank is failing to hit its own target for price stability. The difficulty is that the bank’s governing council may be unable to agree on effective measures, largely because of splits on national lines. That might prove very dangerous.

Give credit where credit is due. The announcement of the ECB’s Outright Monetary Transactions programme in the summer of 2012 – and the prior statement by Mario Draghi, its Italian president, that the bank would do “whatever it takes” to preserve the single currency – restored confidence. The ECB won the battle without having to fire a shot. After the announcement, yields on Italian and Spanish government bonds fell to far more tolerable levels.

But the ECB has been far less successful in securing price stability. True, its target is neither as unambiguous nor as symmetrical as the ones adopted by other central banks. Its aim is to achieve inflation “below, but close to, 2 per cent over the medium term”. Yet in the year to February 2014, headline inflation was 0.8 per cent. This is hardly close to 2 per cent. It is also highly dangerous, as is cogently argued in a blog by senior members of the IMF’s European department.

First, this low inflation has, as is to be expected, coincided with weak demand. In the fourth quarter of last year, eurozone real demand was 5 per cent below levels in the first quarter of 2008. In Spain, real demand fell 16 per cent. In Italy, it fell 12 per cent. Even in Germany, real demand stagnated from the second quarter of 2011: this is no locomotive. The failure to offset this has made recovery of crisis-hit economies more difficult, lowered investment and created long-term unemployment. All this will deeply scar the eurozone.

Second, there is an appreciable risk that the eurozone will fall into deflation. Mr Draghi has described deflation as a situation where price level declines occur across a significant number of countries, across a significant number of goods and in a self-fulfilling way. By this definition, deflation is absent: only three countries have negative inflation and only a fifth of items in the consumer price index have fallen in price. Longer-term inflation expectations are also stable at close to 2 per cent, though short-term expectations have fallen (see chart).

As the IMF authors argue: “One should not take too much comfort in the fact that long-term inflation expectations are positive”. The data indicate that, in the long term, eurozone prices are expected to rise at a healthy 2 per cent a year. But as they point out, long-term inflation expectations were also reassuringly positive immediately before three bouts of deflation in Japan. It was nearer-term expectations that turned more pessimistic – leading to falls in prices and wages that enabled deflation to take hold.

Put simply, the eurozone is just one negative shock away from deflation. The cushion is far too small. When negative short-term real interest rates are needed in order to avoid deflation, the situation is perilous.

Third, ultra-low inflation is itself costly. This is particularly true for countries that have to restore competitiveness. If inflation in core countries is low, then inflation in crisis-hit countries must be close to zero or negative. Angel Ubide of the Peterson Institute for International Economics notes that average inflation in surplus countries is only 1.5 per cent, against 0.6 per cent in the adjusting economies. While falling prices would improve competitiveness, they would raise the real burden of private and public debt. This might well create another round of financial stresses.

If average inflation stood at 2 per cent, with the surplus countries on (say) 3 per cent and the adjusting countries on 1 per cent, the eurozone would be in far better shape: real interest rates would be lower, the economy would be stronger and internal adjustment would be faster. If average inflation reached 3 per cent (roughly the level that the Bundesbank achieved in Germany over the period from 1980 to 1995), it would be still better.

The ECB has allowed the eurozone to fall into a deep and entrenched slump. It is failing to hit its inflation target and the economy is even flirting with deflation. The bank has also allowed the supply of money and credit to stagnate. The Bundesbank used to focus on these variables because over time they can put upward pressure on activity, wages and prices. But the ECB appears to be ignoring them. It is failing to do its job.

What, then, can be done? The aim must be to raise demand and inflation in the eurozone as a whole, particularly in surplus countries. The aim must also be to improve credit markets.

To achieve this, the ECB should announce a symmetrical inflation target of 2 per cent, indicating that it will henceforth view excessively low inflation as a problem no less serious than rapidly rising prices. It should implement a programme of quantitative easing, purchasing the bonds of member governments in proportion to shares in the central bank. Finally, it should announce a longer-term refinancing operation to unblock the flow of credit to small and medium-sized enterprises. Other possibilities, such as negative deposit rates, are also worth considering.

Difficulties arise. It is unlikely that such measures would raise demand in the surplus countries very much: the rate of interest on German Bunds is already very low. The benefits would be felt mainly on the periphery – cementing the idea that profligate crisis-hit economies are being rescued by the back door. Large-scale purchases of the bonds of crisis-hit countries are legal but may well trigger hysteria in surplus Europe. The ECB would probably suffer a deep internal split if it sought to adopt such a policy. That could jeopardise its political legitimacy. The fear is that the ECB may be forced to pretend that low inflation is not a threat because it cannot agree on what to do about it.

The eurozone crisis is not over. Despite the emergence of a degree of stability, the situation remains very fragile. The ECB might in fact be able to do very little about this. That is partly because the measures it would need to take are controversial. It is also partly because of the view held by some that its job is to stabilise not the eurozone but the German economy. That is not a European currency union. It is something quite different.

Martin Wolf


segunda-feira, 10 de março de 2014

Ukraine is a test case for American power

A few weeks ago, even Europeans were paying little attention to events in Ukraine. Now the whole world is watching. This is because the Russian incursion into Ukraine is widely seen as a direct challenge to the US-led world order. If President Vladimir Putin gets away with it then other governments, such as China and Iran, may decide defying America is getting less risky.

Barack Obama’s opponents in Washington argue that the US president blinked over the use of force in Syria and has shown weakness in his dealings with Iran and China. Senator John McCain, Mr Obama’s defeated rival in 2008, claims that the Ukrainian crisis is “the ultimate result of a feckless foreign policy where nobody believes in America’s strength any more”.

But the “weak Obama” story misses the point. This is not the cold war, in which US presidents were called upon to show unshakeable resolve, in a global struggle with an implacable Soviet enemy. Instead, the Ukraine crisis is a vital test of the foreign-policy rules of a new era – the era of globalisation, when the west’s most dangerous rivals are also often its key trading partners.

The one continuity with the cold war is that in Ukraine in 2014, just as in Hungary in 1956, the US knows that it cannot use force. The fact that Mr Obama appears to have ruled out a military response is proof not that he is weak but that he is sane.

However, the defining difference with the crises of the cold war is that nowadays a confrontation with Russia, and potentially one day with China, involves economic relationships that did not exist when the world was divided into rival political and economic blocs. What is not yet clear is whether the west has worked out how to play the economic cards that globalisation has dealt it.

The problem is that, while western powers know they could damage Russia economically, they also know that in harming Russia they would also inflict plenty of collateral damage on their own economies. Are Europeans and Americans prepared to accept that?

Faith in the potential power of economic sanctions has been boosted by the startling damage they have done to Iran, cutting the country off from the global financial and trading system. However, the economic pressure on Iran worked partly because that country had nothing that the west could not find elsewhere: Iranian gas could, ironically enough, be replaced with Russian gas.

Russia is a much tougher challenge. Western policy makers know that it is impossible to inflict real damage without exposing their own vulnerabilities, whether it is German dependence on Russian gas, Britain’s role as a financial centre, or France’s €1.2bn contract to supply ships to the Russian navy. America does less trade with Russia – but also knows that US sanctions would be much less effective without European participation.

The struggle with Russia has global implications because, potentially, it is a test case for an even bigger confrontation that might one day be staged with China. As with Russia, the US finds itself in an increasingly adversarial political and strategic relationship with a country that is also vital to the global economy. If the Chinese leadership were ever to “do a Putin”, and use military force in support of its dispute with Japan over the Diaoyu-Senkaku Islands, how could the US and allies react? Unlike the Ukrainians, the Japanese have the protection of a security treaty with the US. But China, like Russia, might still calculate that America would not really risk going to war with another nuclear power – particularly over some uninhabited rocks on the other side of the globe.

Economic sanctions would then be considered. But the stakes would be even higher than with Russia, because China is now the second-largest economy in the world. In theory, the US could restrict the imports of Chinese goods – or even, in extremis, use the US navy to block China’s energy imports. But, like the Russians, the Chinese would have plenty of economic weapons with which to retaliate, from the disruption of the supply chains of American corporations to a refusal to buy US Treasury bills.

The knowledge that the Chinese – as well as the Iranians, Syrians and others – are watching increases the incentive for America to act over Ukraine. The “weak Obama” narrative, while unfair and oversimplified, has gained a certain currency around the world. If the president is seen to threaten “there will be costs” for Russia’s actions in Ukraine but then not to deliver, he looks foolish. America’s potential rivals might also conclude that global economic interdependence has not strengthened the west politically, but weakened it.

That could be right in the short term: we will see. In the long run, however, globalisation still works in favour of the west, even in political terms. It might have reduced the west’s ability to punish but it has increased its power to attract. Ultimately, the punishment that would most hurt Mr Putin is “losing” Ukraine. But, by occupying Crimea and threatening eastern Ukraine, Russia is likely to alienate the Ukrainian population permanently. At the same time, it is underlining the point that the west is more politically and economically attractive than the Russian alternative. Even if the Ukraine crisis makes the west look temporarily weak, the long-run trends are still much more favourable to the US and the EU than to Russia.

Gideon Rachman