sexta-feira, 30 de outubro de 2015

Binary thinking — right for computers, wrong for the real world

George Boole was born 200 years ago — and whether you celebrate or lament the mathematician’s life de­pends on your point of view. Yes, he made a profound contribution to today’s technological society; but one can also argue that he helped to entrench a damaging way of thinking that permeates society.

One of his lasting contributions came in his 1854 book, An Investigation of the Laws of Thought, introducing what we now know as the Boolean algebra crucial to most computers. This applied the systematic language of algebra to the field of logic — a unification of two disparate fields into something much more powerful. It centres on the simple idea of statements that are true or false.

There is an appealing simplicity about true versus false, and it is this characteristic that makes Boolean algebra so useful for computer engineers, who can work in “on” and “off” rather than exact voltages with all their variability. Boole’s logic predicts what happens for each of these binary states.

What is so unexpected is that “true”, “false” and a few simple logical operations such as “and”, “or” and “not” can be combined to make an equation that can add, multiply, compare, remember and much more. Indeed 80 years later Alan Turing — the British mathematician who developed the first electronic computer — would prove you needed only these simple operations to compute anything (if it was at all computable). From the great simplicity of base logic, we have built the most complex of machines.

However, this same attractive simplification is commonly behind poor decisions in other fields. We should not really blame Boole. Human nature has always tried to reduce the world to binary states — good and evil, friend or foe. But Boole gave strength to such thinking at a time when seemingly exact laws of physics promised to make the universe simple and predictable.

Politicians argue their policies are the “right thing to do”, that their opponents have the “wrong” ideas. We worry about which foods are “good” or “bad”; lawyers demand yes or no answers. Yet few situations are black or white. Medicines do “good” and “harm” simultaneously; wars do not just involve “good guys” and “bad guys”; political decisions are often less about what to do than how to do it.

The problem with binary thinking is that it leads to binary decision-making. We are drawn into reductive “if this, then that” reasoning. The UK’s In or Out debate on EU membership will leave little room for creative ways forward.

Perhaps the fight-or-flight approach to decision-making served humanity well in our evolutionary past but leaves us ill equipped to handle today’s multidimensional problems without the tempting reduction to binary versions.

Paradoxically, Boole’s legacy also gives us the tools to escape our human limitations through the automated computation of rising tides of data. But to use the tools well we also need to adjust our binary mind set.

One focus for change should be the “key targets” culture that pervades organisations. This reduces multidimensional data to the “true or false” test of whether a single arbitrary value has been reached. Stripping out complexity makes it easier to direct people to a common goal. But this in itself creates problems. Hitting a waiting time target in the accident and emergency department may prove detrimental to quality of care, staff retention or funding preventive treatment. Targeting carbon reduction in cars has arguably resulted in more nitrogen oxide pollution from the switch to diesel vehicles, not to mention opportunities for cheating when incentives are attached to a single measure.

An alternative is a world of agile metrics. We can hold big data on a situation — but instead of those responsible for originating the data pre-computing the metrics, decision makers can, with agility, invent their own measures.

So how can we change our thinking? Maths education is pivotal. Rather than use modern computing to allow open-ended, complex problem-solving it in­sists on reducing complexity to the point that all problems can be solved with pencil and paper to yield an answer that is right or wrong. The real world is not like that. We need a curriculum that accepts practical problems do not necessarily have a single correct answer. Just as Boole combined maths and logic, we need to combine the power of computer-based maths with our natural intuition for a nuanced world, a project that I am deeply involved in.

Ultimately, is Boole the hero or villain of this story? No. Something in between.

Conrad Wolfram writer is chief executive of the Wolfram Group Europe. Jon McLoone co-wrote this article

Fonte: FT

quinta-feira, 29 de outubro de 2015

If Angela Merkel is ousted, Europe will unravel

It is more accurate to call it panic than plotting. This week I spent time in the company of members of Angela Merkel’s Christian Democrat party. Startlingly for an outsider, the conversations turned on whether the German chancellor would survive the refugee crisis. Some thought she had just weeks to turn things around. Never mind that only yesterday she had towered above any other European leader. Overnight, the unthinkable has become the plausible — for some in her party, the probable.

Other voices say the fever will subside, but Ms Merkel’s vulnerability speaks to the convulsions across Europe caused by the tide of refugees from Syria, Iraq, Afghanistan and the Maghreb and Sahel countries of Africa. In the eastern, post-communist part of the continent, the influx has strengthened the hands of the ethnic nationalists who never quite signed up to the idea of liberal democracy. To the west it has bolstered the fortunes of nativists such as Marine Le Pen’s National Front in France. Rallies of the far-right Pegida party in Germany now feature speakers who lament the loss of concentration camps. If Britain’s David Cameron loses his referendum to keep Britain in the EU it will be because emotions over migration trump economic self-interest.

Ms Merkel has rarely been called a conviction politician. Her longevity in office has resided in her skill in finding the natural point of balance in the German national mood; and, it should be said, her ruthlessness in despatching potential rivals. The adjectives most often applied to her leadership style, sometimes with more than a note of frustration, have been cautious, deliberative and consensual.

“Mutti” (mum) Merkel, as she is often called, has succeeded by assuring her compatriots that she will shelter Germany from the fires raging beyond its borders. They need not worry about the detail of policy. Germans can be sure she will be firm but calm in standing up to Russia’s Vladimir Putin and, though committed to the future of the euro, will be a careful guardian of the nation’s finances. For a decade, Germans have taken her on trust.

She has displayed the same skills in Europe. Those who have watched her operate at summits of EU leaders have marvelled at her informal consensus-building. A conversation over the shoulder with this prime minister, a deal sealed over a snatched cup of coffee with that president, a friendly pat on the shoulder for officials seeking common ground. Ms Merkel has always pressed the German interest, but in a manner of compromise over confrontation.

The refugee crisis has seen a different Ms Merkel: a leader ready to speak to, and act on, her convictions, to step outside the padded cell of focus groups and opinion polls. Her decision to welcome the hundreds of thousands making their way through the Balkans made more sense than her opponents allow. Could Germany really have built fences and posted soldiers to guard them? Could it have chartered trains to send them back to a Middle East in flames? But there was heart as well as head in her response.

Fair enough, say my CDU friends. And, yes, her welcome for the refugees initially caught the national mood. But the sheer numbers — Germany expects 1m-plus arrivals this year — have changed the calculus. Towns and villages have been overwhelmed by the influx. And, this the potentially fatal wound for the chancellor, a sense has grown that she has lost that all-important control.

Politicians never stop looking at their poll ratings and the CDU’s have fallen sharply. There is no obvious candidate to replace her, but step up Wolfgang Schäuble, the finance minister, as a likely stopgap until a candidate is chosen to fight the 2017 election. Mr Schäuble has been curiously quiet of late.

Behind selfish calculation lies a deeper fear. Centre parties across Europe have surrendered ground to populists of left and right because their electorates have feared they no longer offer security. Germany, the nastiness of the small Pegida notwithstanding, had seen the centre hold. But now, on an issue widely seen as one of cultural identity, has Ms Merkel lost control?

The answer I think is no, but when politicians fall to panic anything is possible. I watched at close quarters the defenestration by her own party of Margaret Thatcher, another powerful leader who seemed invincible until the moment of her fall. She, too, had won three election victories. Though deeply unpopular by 1990, until it happened it seemed unthinkable that her colleagues could turn on her with such ferocity.

The stakes, though, are much higher with Ms Merkel. The financial crash, the euro crisis and the collapse of the Schengen open borders arrangement has seen Europe unravelling as centrist parties across the continent have struggled to meet the challenge of the populists. Ms Merkel has been the rock of certainty — the leader with the authority to keep the show on the road. Without her the fractures would multiply.

Mr Schäuble, too, is a pro-European, in some respects a more committed integrationist. But Ms Merkel has been the guardian of a post-1989 settlement that has rooted Germany in its Europeanness. Her removal would see it shift into the camp of those consumed by narrower, more immediate calculations of interest, giving up on the ideal of a European Germany. And that would be the beginning of the end.

Philip Stephens

Fonte: FT

quarta-feira, 28 de outubro de 2015

Beijing starts to press its own narrative on the world

Perhaps somewhere in our universe of infinite possibilities there is a planet on which Robert Mugabe, who has presided mostly ruinously over Zimbabwe for decades, has been awarded the Nobel Peace Prize. Here on planet earth, he must be content with the Chinese “equivalent” — the so-called Confucius Prize, bequeathed by a Hong Kong-based association.

The committee of what has been dubbed the “anti-Nobel Peace Prize” praised Mr Mugabe, 91, for his nation-building and service to pan-Africanism. The prize was established five years ago in petulant response to the award of the Nobel Peace Prize to Liu Xiaobo, an imprisoned Chinese dissident who has advocated greater democracy in China. Previous recipients include Russia’s president, Vladimir Putin, and Cuba’s former leader Fidel Castro. The choice of Mr Mugabe cements the prize’s reputation as a one-fingered salute to western values.

The award is a small, and somewhat bizarre, example of a broader trend. Slowly but surely, China’s Communist party is seeking to establish a parallel narrative to the western-centric view of the world. For most of the past century, American concepts of democracy, the sovereignty of the individual and the rule of law have been seen as universal. China is beginning to challenge that. Its creeds, absorbed over thousands of years of keeping a continental-sized state intact, tend more towards stability and strong government. For Beijing, the past 30 years demonstrate that material progress and competent leadership are more important than democracy in the creation of human welfare.

Beijing is steadily amassing the wherewithal to tell its story. From 2011, CCTV, the state broadcaster, began a huge expansion of its English-language programming, opening 70 bureaux across the globe. Since 2004, hundreds of Confucius Institutes, established to promote Chinese language and culture and affiliated with the Ministry of Education, have sprouted in dozens of countries. Private citizens, too, are getting in on the act. In 2009, Rao Jin, a student outraged at the US channel’s coverage of Tibet, set up to catalogue the alleged lies and biases of western media. Partly as a result, says Martin Jacques, author ofWhen China Rules the World, the west’s perception of China is shifting. Ten years ago, he says, few people had heard of Zheng He, the eunuch maritime explorer whose massive expeditionary forces reached Africa in the 15th century. Now Zheng’s voyages are prompting awe.

Less esoterically, until recently few people were aware of China’s nine-dash line, a cartographic loop that encloses virtually the entire South China Sea. Now the line is being used to strengthen Beijing’s claim over that crucial waterway, where it is building artificial islands and challenging the narrative of US-guaranteed freedom of navigation.

Beijing’s desire to construct its own version of events is a predictable consequence of its rising clout. It matches its action in other spheres. In finance, it wants an alternative currency, the renminbi, to challenge the dollar. New organisations, such as the Asian Infrastructure Investment Bank, are being established in parallel to the western-dominated Bretton Woods institutions.

Bestowing a prize on Mr Mugabe reveals a desire to side with anyone, no matter how flawed, who shuns the western world view. True, the Confucius Prize is not official. Mr Mugabe even had the gall to turn it down. Yet, as Orville Schell, a veteran China watcher, says, no Chinese organisation borrowing the Confucian brand would dare award a prize without a nod from Beijing. Mr Schell also recalls attending a dinner last year in the Great Hall of the People for former US president Jimmy Carter. The gathering was sparsely attended. Xi Jinping, China’s president, was instead hosting a dinner for Mr Mugabe, where he said the two countries’ friendship was “forged during the . . . glorious days of fighting together against imperialism, colonialism and hegemony”.

There were subtle hints of China’s story­telling efforts during Mr Xi’s recent visit to London. In his speech to parliament, he praised his hosts for establishing a parliament in the 13th century, but then said 3,300 years before that China had founded a state that “put people first” and promoted what he called the rule of law. No matter that the emperor he was referring to was mythical.

China wants to tell the world that its time is coming. Yet Mr Schell thinks that effort is hobbled by Beijing’s other narrative: that it is a victim of 150 years of humiliation. “They’re an economic global power. The idea that they’re a victimised third world country is strangely schizophrenic,” he says. Beijing, then, is caught between its old self-image as a wounded giant and its new one as a risen power able to enforce its version of events. The award to Mr Mugabe shows that this transition is not yet complete.

David Pilling

Fonte: FT

terça-feira, 27 de outubro de 2015

Sausages have a place at the table as part of a balanced diet

All reports about food and health should start with the same instruction: if you enjoy recreational worrying, read on. If you are seeking sensible advice on how to eat, skip to the end, which will almost certainly say most things are OK in moderation.

This week the World Health Organisation published a report conclusively linking processed meats with colorectal cancer. Bacon, ham, sausages and other smoked, cured or salted charcuterie are “group 1” products with the highest likelihood to cause cancer, according to a “meta review” of scientific research by theInternational Agency for Research on Cancer. This is a category that your breakfast banger now shares with tobacco, alcohol, asbestos and radioactive materials such as uranium.

This has naturally caused consternation at the breakfast table, pointing to the conclusion that feeding your child a bacon roll equates to stirring plutonium into their cornflakes.

The WHO draws on global research and issues its findings worldwide. This is logical in a macro sense. If the entire population of the globe could be persuaded to cut its intake of a range of preserved meats we would see a fall in the numbers dying of colorectal cancers. The problem is that the information is meaningless to the consumers it is supposed to help.

Most of the figures in the report refer to the amount of preserved meat eaten “daily”. I am already wondering about the kind of person who eats bacon every day. Then I am trying to imagine the kind of person who did not give up bacon when we were told its fat was laden with cholesterol and likely to stop our hearts. The same kind of person who did not give up bacon when we were told its salt content would hasten our deaths by boosting blood pressure to the point of apoplexy. The same kind of person who ignored the fact that smoked products have long been acknowledged as carcinogens.

For all the hysterical coverage, eating behaviour will not change because there is no clear message about the direct impact on the individual who is really, really enjoying sinking his teeth into a soft white bap, relishing the way the salty rasher is counterpointed by the sweet-sour descant of the brown sauce.

The global statistics do not identify whether it is the meat that is carcinogenic, the nitrates used in preservation, products of fermentation or smoke or salt. Dietary fibre is known to reduce the incidence of colorectal cancers, so is a wholemeal bacon sarnie OK? Is a Spanish Ibérico ham, made purely of organic pork and salt, carcinogenic to the same degree as a supermarket sausage pumped with preservatives to eradicate the lethal bacteria that are a risk in intensive rearing?

Finally, we have the numbers. “In total, tobacco use is responsible for the death of about 1 in 10 adults worldwide,” says the WHO, a figure including cardiovascular disease and chronic obstructive lung disease as well as lung cancer. Meanwhile, more than 200,000 die annually worldwide as a result of air pollution compared with about 34,000 who die from meat-related cancer.

As is now the way with food scares, we hear the hysteria, we see data relevant to the broadest of populations and try to understand its relevance to ourselves. We look at desk-based aggregations of earlier findings and find no pressing cause for action. We look at internationally based dietary advice — the sequential demonisation of salt, animal fat, eggs, carbohydrates — and see that each warning has been brought into question by countervailing research, and we are forced to one inevitable conclusion.

In spite of the findings published by the WHO, informed medical opinion seems to be that it is perfectly OK to continue to consume bacon in moderation and as a part of a balanced diet.

Tim Hayward

Fonte: FT

segunda-feira, 26 de outubro de 2015

The end of the Merkel era is within sight

At the beginning of this year, Angela Merkel had a good claim to be the most successful politician in the world. The German chancellor had won three successive election victories. She was the dominant political figure in Europe and hugely popular at home.

But the refugee crisis that has broken over Germany is likely to spell the end of the Merkel era. With the country in line to receive more than a million
asylum-seekers this year alone, public anxiety is mounting — and so is criticism of Ms Merkel, from within her own party. Some of her close political allies acknowledge that it is now distinctly possible that the chancellor will have to leave office, before the next general election in 2017. Even if she sees out a full term, the notion of a fourth Merkel administration, widely discussed a few months ago, now seems improbable.

In some ways, all this is deeply unfair. Ms Merkel did not cause the Syrian civil war, or the troubles of Eritrea or Afghanistan. Her response to the plight of the millions of refugees displaced by conflict has been bold and compassionate. The chancellor has tried to live up to the best traditions of postwar Germany — including respect for human-rights and a determination to abide by international legal obligations.

The trouble is that Ms Merkel’s government has clearly lost control of the situation. German officials publicly endorse the chancellor’s declaration that “We can do this”. But there is panic just beneath the surface: costs are mounting, social services are creaking, Ms Merkel’s poll ratings are falling and far-right violence is on the rise. Der Spiegel, a news magazine, wrote this week that: “Germany these days is a place where people feel entirely uninhibited about expressing their hatred and xenophobia.”

As the placid surface of German society is disturbed, so arguments about the positive economic and demographic impact of immigration are losing their impact. Instead, fears about the long-term social and political effect of taking in so many newcomers — particularly from the imploding Middle East — are gaining ground. Meanwhile, refugees are still heading into Germany — at a rate of around 10,000 a day. (By contrast, Britain is volunteering to accept 20,000 Syrian refugees over four years.)

It is all such a contrast with the calm and control that Ms Merkel used to radiate, captured by her nickname Mutti (or “mum”). Throughout 2014, as Ms Merkel led Europe’s response to the eurozone crisis and Russia’s annexation of Crimea, German voters seemed more inclined than ever to place their faith in the judgment of the chancellor.

The refugee crisis, however, revealed another side to Ms Merkel. Some voters seem to have concluded that Mutti has gone mad — flinging open Germany’s borders to the wretched of the earth.

That, of course, is a major oversimplification. Germany’s decision last month not to return Syrian asylum-seekers to the first safe country they had entered was, in part, just a pragmatic acknowledgment that such a policy was no longer practical. Nonetheless, Ms Merkel was widely seen as having announced an “open door”. That impression persists, making Germany (along with Sweden) the EU country of choice for asylum seekers.

The only way to turn this situation around quickly would be to build border fences of the kind that the Hungarian government of Viktor Orban has constructed. Some German conservatives are now calling for precisely such measures. But Ms Merkel is highly unlikely to embrace the Orban option. She knows that such a policy could sound the death knell for free movement of people within the EU, and would also seriously destabilise the Balkans by bottling up refugees there.

Instead, Ms Merkel wants an EU-wide solution. But German plans for a compulsory mechanism to share out refugees across the EU — and for an emergency fund to share the costs — are encountering stiff resistance. As a result, Germany’s relations with its EU partners, already strained by the eurozone crisis, are worsening. The election of an anti-migrant government in Poland this weekend will not help.

Could Ms Merkel still turn the situation around? If the German government gets lucky, the coming of winter will slow the flow of refugees, providing a breathing space to organise the reception of asylum seekers and to come up with new arrangements with transit countries, particularly Turkey.

Should the chancellor regain control of the situation it remains possible that in 20 years’ time, she could yet be seen as the mother of a different, more vibrant and multicultural Germany — a country that held on to its values when it was put to the test.

However, if the number of refugees heading into Germany continues at its present level for some time, and Ms Merkel remains committed to open borders, the pressure for her to step down will grow. There are, at present, no obvious rivals. But a continuing crisis will doubtless throw some up.

Regardless of the chancellor’s personal fate and reputation, the refugee crisis marks a turning point. The decade after Ms Merkel first came to power in 2005 now looks like a blessed period for Germany, in which the country was able to enjoy peace, prosperity and international respect, while keeping the troubles of the world at a safe distance. That golden era is now over.

Gideon Rachman

Fonte: FT

sexta-feira, 23 de outubro de 2015

Lunch with the FT: Ben Bernanke

At the allotted time of 2pm I am sitting at a booth at McCormick & Schmick’s seafood and steak restaurant in Chicago. My mobile phone rings. It is Ben Bernanke’s assistant. It transpires that I am not at the correct location. This is a chain of restaurants. I went to the wrong one.

Fortunately, it takes only five minutes to arrive at the right place. The restaurant is quite empty. Apart from the background music, it is quiet. The decor is heavy and dark.

Bernanke, 61, is waiting for me. He is wearing a plain brown suit and a yellow tie. I have met him often since he became a governor of the US Federal Reserve in 2002. He is always very much the deliberate and precise academic. It was a happy chance that this scholar, known for his work on the Great Depression, was chairman of the central banking system of the US during the biggest financial crisis since the early 1930s. His new book, The Courage to Act , provides a fascinating account of the effort to save the world from another such catastrophe.

I start by asking him how long the book tour will last. “Pretty much the whole month,” he answers. I suggest he will be delighted when it is over. “Absolutely,” he agrees. And what will he be doing afterwards? He reels off an impressive list of academic lectures. Meanwhile, he is based at the Brookings Institution, a centrist think-tank in Washington. He is doing some consulting. He is also on the speaker circuit.

The waitress takes our orders. I choose pan-seared swordfish with fingerling potatoes, onions and Brussels sprouts. He selects grilled halibut with green beans, blue cheese and mashed potatoes. I ask him how long he took to recover after leaving the Fed last year. “About 24 hours,” he says. “Relief is a bit of a strong word but I’m very happy to be a civilian again. I follow closely what’s happening in the economy, what’s happening at the Fed. But I no longer have the responsibility to make those tough calls. That was a burden.”

So, I wonder, does he wish to advise his successors? “No, no. I have a lot of confidence in them and I’m sure that they will make some good calls. But I was involved in that for eight years and that included some very difficult decisions. I’ve more or less exhausted my interest in doing that.”

I ask him how much he was affected by the populist rage against him — governor Rick Perry of Texas even accused Bernanke of treason when the former was seeking the presidential nomination in 2011. “It didn’t affect me much personally,” he replies. “I knew that it was just ‘shooting from the hip’. What did concern me, though, was the possibility that the Fed would come under severe political attack or lose its independence. Personally, I never felt under any threat.”

Bernanke is married with two children. How much did the hostility affect them? He replies that they had their own lives. “But my wife tried to help me decompress and make sure that I had good food to eat and some time off once in a while. And I tried to look after myself physically.”

“One of the Federal Reserve’s key functions is to act quickly and proactively when the legislative process is too slow. And the Federal Reserve was originally set up primarily to address financial panics, not do monetary policy. So it’s part of the job description.I ask him about the hostility to the very idea of a central bank in the US. “Well, it isn’t a unique situation. Switzerland, for example, and a few other countries, have had populist reactions to the crisis. In the United States, we’ve had other episodes: most recently, the Volcker disinflation of the early 1980s. I had in my office a piece of wood, which critics mailed to Paul Volcker [then chairman] saying: cut interest rates.

“All that being said, the hostility concerns me. I tried my best to bring our story to the broader public. I wish I could have done more. Perhaps, in retrospect, I should have done more. But I was very much engaged in trying to put out the fire. So I don’t know what to say. It was kind of predictable. The Federal Reserve failed in the 1930s. I think we did much better than in the 1930s.”

At this stage, we are eating. My swordfish is firm and juicy. Bernanke eats without comment, focusing on answering the questions.

Many critics complain that the Fed saved the rich and the bankers but let ordinary people drown. How does he respond? “Rising inequality’s an important issue for the US,” he says, “but it is a long-term trend that goes back at least to the 1970s. And the notion that the Fed has somehow enriched the rich through increasing asset prices doesn’t really hold up, for a couple of reasons: one is that the Fed basically has returned asset prices and the like back to trend; another is that the reason stock prices are high is because returns are low.

“It’s ironic that the same people who criticise the Fed for helping the rich also criticise the Fed for hurting savers. And those two things are inconsistent. But what’s the alternative? Should the Fed not try to support a recovery?”

He continues, warming to his theme: “If people are unhappy with the effects of low interest rates, they should pressure Congress to do more on the fiscal side, and so have a less unbalanced monetary-fiscal policy mix. This is the fourth or fifth argument against quantitative easing after all the other ones have been proven to be wrong. And this is certainly not an argument for the Fed to do nothing and let unemployment stay at 10 per cent.”

Other critics argue, I note, that the Fed’s intervention prevented the cathartic effects of a proper depression. He teases me by responding that I have a remarkable ability to keep a straight face while recounting what he clearly considers crazy opinions.

I add that many critics still expect hyperinflation any day now. “Well, we were quite confident from the beginning there would be no inflation problem. And, of course, the greater problem has been getting inflation up to target. As for allowing the economy to go into collapse, this is the Andrew Mellon [US Treasury secretary] argument from the 1930s. And I would think that, certainly among mainstream economists, it has no credibility. A Great Depression is not going to promote innovation, growth and prosperity.”

I cannot disagree, since I also consider such arguments mad. Nevertheless, I note, we have to recognise that neither he nor the Fed expected the meltdown. Does the blame for these mistakes lie in pre-crisis monetary policy, particularly the targeting of inflation, with which he is closely associated? Had interest rates not been kept too low for too long in the early 2000s?

“The first part of a response is to ask whether monetary policy was, in fact, a major contributor to the housing bubble and all that happened. Serious studies that look at it don’t find that to be the case. People such as Bob Shiller [a Nobel laureate currently serving as a Sterling professor of economics at Yale University], who has a lot of credibility on this topic, says that: it wasn’t monetary policy at all; it came from a mania, a psychological phenomenon, that took off from the tech boom and moved into housing.”

Thus, lax regulation was to blame. Has the problem been fixed? “I think it’s an ongoing project,” he replies. “You can’t hope to identify all the vulnerabilities in advance. And so anything you can do to make the system more resilient is going to be helpful. I do think, if I had to pick a single change that has moved us in the right direction, it would be the increase in capital in the largest banks, which means they are more likely to withstand whatever the shock may be.”Bernanke continues: “The second general argument is that, while I think the Fed had some complicity, it wasn’t so much in monetary policy but, together with the other regulators, in not constraining the bad mortgage lending and excessive risk-taking that was permeating the system. This, together with the structural vulnerabilities in the funding markets, and so on, led to the panic.”

The late Hyman Minsky, I point out, argued that “stability destabilises”. So did the very notion of a “great moderation” cause the imprudent behaviour?

He replies that “individually rational behaviour can be collectively irrational. And that’s why the regulators have to do what they can to constrain individual behaviour, so that it doesn’t lead to collectively irrational outcomes.”

Some argue that the financial sector is riddled with perverse incentives: limited liability; excessive leverage; “too-big-to-fail” banks; and a range of explicit and implicit guarantees. How far does he agree? “I think that there was, for rational or irrational reasons, an upsurge in risk-taking. And if you’re taking risks, then I have to take the same risks, or else I get left behind.

“There’s two ways to get rid of ‘too-big-to-fail’. One is by having a lot of capital. And the other approach is via the liquidation authority in the Dodd-Frank law [whereby the finances of failing banks can be reorganised, without a bailout].” But, he adds, “if you break the firms down to the size of community banks, you lose a lot of functionality. At the same time, you don’t necessarily stop financial panics, because we had financial panics in the 1930s.”

So how much capital should there be in banks? Some economists — Anat Admati of Stanford University, for example — think it should be 20 per cent of assets or even a third.

“Tim Geithner was very much in favour of more capital,” he responds. “I was certainly in favour of more capital. I think we made a lot of progress. You know, though, that these are international debates and decisions. Other countries were less inclined to add capital. But I wouldn’t do it by an arbitrary number. What I would do is stress test it, because the amount of capital you should hold depends on the kind of assets and the kind of businesses you have. And if it’s a fixed leverage ratio, then you’re going to have every incentive to load up on risk.”

I ask him whether he is confident that the improvement in the resilience of the banks is adequate. “It’s a fool’s game to predict that everything is going to be fine, because either it is fine, in which case nobody remembers your prediction, or something happens, and then . . . ” They remember your prediction, I interject.

Bernanke continues: “My mentor, Dale Jorgenson [of Harvard], used to say — and Larry Summers used to say this, too — that, ‘If you never miss a plane, you’re spending too much time in airports.’ If you absolutely rule out any possibility of any kind of financial crisis, then probably you’re reducing risk too much, in terms of the growth and innovation in the economy.”

The waitress asks us if we would like anything more. I order a double espresso. Bernanke asks for tea. By now, our time is coming to an end. But I push a little harder on the costs of financial liberalisation. He agrees that, in light of the economic performance in the 1950s and 1960s, “I don’t think you could rule out the possibility that a more repressed financial system would give you a better trade-off of safety and dynamism.”

What about the idea that if the central banks are going to expand their balance sheets so much, it would be more effective just to hand the money directly over to the people rather than operate via asset markets?

Having gained the nickname “Helicopter Ben” for suggesting just such a policy, he is very much aware of this idea. But he responds by saying, “Well, it doesn’t have to be put in such an off-putting form. I think a combination of tax cuts and quantitative easing is very close to being the same thing.” This is theoretically correct, provided the QE is deemed permanent.

While paying the bill I ask whether, given the weight he places on regulation, he believes it is really possible to regulate today’s complex global megabanks. “Yes,” he responds. “The Federal Reserve moved recently in the direction of enhancing its oversight of foreign subsidiaries and foreign banks that are located in the United States. So there is some movement towards so-called national treatment.

“Banks complain that that’s going to Balkanise the capital markets. But, as Mervyn King [former governor of the Bank of England] said so beautifully, banks live globally and die locally. So, for that reason if no other, there’s some case for having regulators look at the subsidiaries of foreign firms, as well as their own domestic firms.”

I add that it was only because of Lehman’s failure that they finally got the needed bailout authority from Congress (via the “Tarp” or Troubled Asset Relief Program). “Ultimately, something was going to go,” he agrees.I turn, finally, to perhaps the biggest question about the crisis. Could they have avoided the failure of Lehman in September 2008? “No,” he responds firmly. “It was completely unavoidable. Without a buyer, there was no one to guarantee their liabilities. So no one would lend to them. There was a complete run of all the creditors, all of the counterparties, all of the customers. And if we had lent them the money and somehow conjured up some fake collateral, in violation of the law, we would have ended up owning the firm, and it would have been a non-viable firm.”

Under Bernanke’s chairmanship, the Fed, whatever its pre-crisis mistakes, helped save the US and the world from a disaster. Humanity should be grateful, I thought on leaving. Humanity, being human, mostly is not.

Martin Wolf is the FT’s chief economics commentator

Fonte: FT

quinta-feira, 22 de outubro de 2015

Polish voters confront a historic choice in Sunday’s general election

In The Elephant, a 1957 short story by the Polish satirist Slawomir Mrozek, a zoo director anxious to please cost-conscious bureaucrats saves money by acquiring an inflatable rubber elephant and fooling the public into thinking it is real. The deceit backfires when his workers fill the elephant with gas and it floats away, eventually puncturing itself on a cactus in the botanical gardens.

In contrast to the absurdities of communism that adorn Mrozek’s tales, there is nothing illusory about Poland’s progress since it regained independence in 1989 after 45 years of Soviet-imposed one-party rule. The question at the heart of Sunday’s parliamentary election is whether the result will extend, slow down or even reverse this progress.

The election appears certain to produce Poland’s first change of government in eight years, replacing the centre-right Civic Platform party with Law and Justice, its rightwing rival. This may herald a highly unpredictable spell in Polish politics, particularly if Law and Justice falls short of an outright legislative majority and relies for support on small, quirky rightwing groups.

Law and Justice has left no doubt that, where it sees fit, it will brush aside Civic Platform’s market-oriented liberalism to assert state influence over the economy. There will be fewer deviations in foreign policy, for both parties are staunch Nato supporters and wary of Russia. But Law and Justice will adopt a tougher, more culturally defensive stance on Europe’s refugee and migrant crisis, an attitude that may cause friction with Germany and EU authorities in Brussels.

It is little wonder that Poland’s European allies, not to mention the US and Russia, are keeping a close watch on events in Warsaw. A particular concern among Poland’s friends is Law and Justice’s admiration for the high-handed legal and economic practices by which Viktor Orban, Hungary’s self-styled “illiberal” prime minister, has barged his way to political supremacy.

In their deepest sense, the elections are a contest between the two visions of Poland that emerged from the heroic struggle fought against communism in the 1980s by the independent Solidarity trade union. The first vision blends an emphasis on national identity, Catholicism and social conservatism with a penchant for state intervention to assist families, the less well-off and small companies. This is Law and Justice’s outlook.

The second vision is more self-consciously “modern”, pro-EU, pro-business, liberal in social values and less overtly religious. This is the outlook of Civic Platform, which since 2007 has provided Poland with its longest stretch of political stability since the end of communism. Donald Tusk, a former Civic Platform prime minister, was appointed last year as the EU’s president. It is inconceivable that EU leaders would have considered Jaroslaw Kaczynski, the Law and Justice leader and Mr Tusk’s predecessor as premier, for this prestigious job.

Unusually for a European democracy, left-of-centre parties register barely a flicker on contemporary Poland’s political radar screen. Still, one must remember that many of Law and Justice’s economic policies lean distinctly to the left.

The party plans to slap new taxes on banks and supermarket chains, both largely foreign-owned sectors. It wants to make banks bear most of the burden of helping more than 500,000 Poles convert expensive, Swiss franc-denominated home loans into zlotys. For the banks, the new taxes and mortgage conversions would cost the equivalent of several billion dollars.

As if to sugar this pill, Law and Justice proposes that Poland’s central bank should lend the banks funds worth almost a fifth of gross domestic product. The ostensible purpose is to make cheap loans available to masses of small and medium-sized businesses. For good measure, Law and Justice intends to reduce the retirement age, raise tax-free income thresholds and extend child benefits for larger and poorer families.

This economic programme, which resembles Mr Orban’s policies in Hungary, runs the risk of alienating foreign investors, damaging Poland’s nascent financial markets, compromising the central bank’s independence and destroying the nation’s reputation for fiscal discipline. Yet it has an undeniable appeal to hard-pressed, low-wage workers who have benefited little from post-communist modernisation.

For six months, opinion polls have predicted victory for Law and Justice. Many Poles think that Civic Platform’s long enjoyment of power made the party arrogant and out of touch. Young voters have little memory of the erratic behaviour that blighted Law and Justice’s spell in office from 2005 to 2007. Mr Kaczynski, a deeply suspicious figure in the eyes of moderate voters, has sought to allay their concerns by stating that, in the event of victory, he will not serve as prime minister. Instead the job will go to Beata Szydlo, a less abrasive party colleague.

In every democracy the time for change arrives one day. So it is in Poland. But the approach of the European winter reminds us that, only 34 years ago, Poles woke up one snowy December morning to find that tanks were on the streets and almost the entire Solidarity leadership was under arrest. That was the era of martial law, the last time a boot stamped on the face of a free Poland. The next government’s duty is to ensure that all the progress achieved since 1989 does not go to waste.

Tony Barber

Fonte: FT

quarta-feira, 21 de outubro de 2015

Starbucks and Fiat told to pay up to €30m in tax after EU ruling

Fiat and Starbucks must each pay up to €30m in tax repayments after Margrethe Vestager, EU competition commissioner, opened a significant new front in the battle against tax avoidance by multinationals.

Ms Vestager said on Wednesday that the Netherlands acted illegally by offering a sweetheart tax deal to Starbucks, while Luxembourg did the same for Fiat.

While she held fire on reaching a decision in relation to Apple in Ireland and Amazon in Luxembourg, Ms Vestager’s rulings are an attempt to forge an important legal precedent. The commissioner is seeking to establish that deals handed by EU governments to large companies to reduce their tax bills can constitute unlawful state aid.

This means that European governments have effectively been offering illegal subsidies, which must be clawed back, possibly in hundreds or thousands of cases.

Commission officials admitted that they did not have the resources to police all of Europe’s tax rulings, but Ms Vestager said that she expected the practice to stop immediately.

“I expect tax rulings to be ‘by the book’ and that they do not contain state aid,” she said, laying down a marker of intent. “I believe that we need a more fundamental shift in corporate philosophies. If it isn’t part of it already, paying one’s fair share of tax should be firmly integrated in a company’s corporate social responsibility.”

Ms Vestager stressed that the creation of a legal framework was more important than any financial penalties. These are relatively modest — between €20m and €30m — because the cases focus on two relatively small units: Starbucks Manufacturing BV and Fiat Chrysler Finance Europe.

However, many lawyers expect the sums involved in Apple’s case could be far bigger, and possibly run to billions of euros.

Both the Dutch and Luxembourgish government rejected the rulings although they did not immediately say whether they would appeal against them to the European courts. Fiat also said that it had not received any state aid, while Starbucks said that it would appeal against the European Commission.

At heart, state aid cases hinge on whether companies have received “selective” benefits thanks to tax deals — nicknamed comfort letters — that other companies would not have received.

In the case of Starbucks, the commission condemned the Netherlands for allowing the coffee roaster to reallocate a large slice of its profit and attribute it elsewhere internally in the form of royalty payments. The essence of the Dutch government’s defence is that much of Starbucks’ profit derives from its brand value and other intellectual property such as recipes, which are not created within the Netherlands.

However, the commission decided on Wednesday that these internal royalty payments were unacceptable because other roasters could not use the same strategy to reduce taxable profit. The commission also said that Starbucks was inflating its costs internally by marking up the prices of coffee beans imported from Switzerland, making them cheaper than those available to competitors.

In an immediate sign of the potential legal showdowns to come, Starbucks immediately rejected Ms Vestager’s methodology, saying: “The European Commission wrongly asserts that independent third parties which roast coffee beans for Starbucks do not pay equivalent royalties as our own roasting plant in Amsterdam. This is false.”

In the Fiat case, the commission argues that the company’s financial arm kept its tax low by putting an artificially low value on its capital. Fiat says there was no question of preferential treatment.

Fonte: FT

terça-feira, 20 de outubro de 2015

Japan’s students require less mediocrity

Japan has a fair claim to being the world’s oldest nation. Today, youth is its scarcest and most precious asset. This decade the number of people living in Japan has fallen by about 800,000, and the number of 18-year-olds is falling faster still. If the country is to prosper as its population shrinks, it needs its dwindling band of young people to punch above their weight.

Hence the alarm felt in Japan last month when the country’s premier seat of learning dropped 20 places in a widely followed ranking of the world’s leading universities. The University of Tokyo, previously regarded as peerless among Asian colleges, now ranks below rivals in Singapore and China.

Thirty years ago, Japanese students who graduated from university would (if they were male, at least) amble into a corporate job they would typically keep for a lifetime. The important thing was to secure a degree certificate. As for an education — well, employers could be counted on to take care of that.

Most recruiters did not care if the curriculum contained a hefty dollop of banality, since that saved them the trouble of having to erase what had already been learnt when their graduates arrived to be drilled in the doctrines of corporate life.

An unfortunate legacy of that era is a university system that, in my view, expects too little of its undergraduates. It often declares students successful if they listen and give the right answer, when they should be challenged to think critically. More than half Japanese university students study less than five hours a week. Many eschew classes that demand serious reading and homework, preferring raku-tan or classes that will earn them “easy credit”.

Instead of coming to campus and learning, some spend their time at cram schools teaching their younger compatriots who need to pass competitive exams to enter university. Others find work waiting tables. Or they dedicate themselves to competitive sports, music or simply having fun — a part of university life everywhere, of course, but one Japanese students relish more than many.

Change is difficult. Ten years ago, I was among a group of professors at Keio University who created our all-English programme. Our first decision was to ban absences for attending recruitment seminars — which companies regularly plan without apparent regard to class hours. But we had to back down. Our students complained that they were the 30 undergraduates in Japan who were in effect barred from getting a job.

Next year we start another programme in which students will mingle more with those who have studied elsewhere. Graduates who understand that universities are first and foremost a place of research and learning will challenge the status quo.

In the late 19th century, Japanese universities imported western ways of education. The young people they taught were the ones whose abilities and ideas allowed Japan to burst on to the world economic stage. The university system we inherited from the last century performs a different function entirely.

It is attuned to corporate Japan, a mighty industrial force that needed workers it could mould to fit specialised roles. But that economic model is past. This is again a time of ideas — and Japan needs young people capable of supplying them.

Sahoko Kaji is a professor of economics at Keio University

sexta-feira, 16 de outubro de 2015

Crackdown breeds Uighur resentment of China’s deserving Han heroes

The streets of Aksu are decorated with posters lauding the heroes of “national reunification” — the Chinese Communist party’s preferred term for its conquest of the vast northwestern territory of Xinjiang in 1949.

Residents of the small city on the fringes of the Taklamakan desert stroll under the watchful gaze of personages including Ban Chao, an accomplished Chinese general of the Eastern Han dynasty (25 – 220 AD), and the founding “ten marshals” of the People’s Liberation Army. For Aksu’s native Muslim Uighurs, an ethnically Turkish community, the lionisation of Chinese conquering heroes is at best insensitive.

Once an entirely Uighur city, Aksu is now split roughly 50-50 between Uighurs and Han Chinese migrants. Prior to the PLA’s arrival, Uighurs accounted for more than 90 per cent of Xinjiang’s population.

Today they still rank as the region’s largest ethnic group but only just. In a country that is home to 11.5m Uighurs and 1.2bn Han, the former are destined to become a minority in what the Communist party officially refers to as the “Xinjiang Uighur Autonomous Region” — if they are not already.

In the centuries following Ban Chao’s military campaigns in Xinjiang, imperial China’s control of the region would wax and wane. The decisive demographic shift wrought by the ongoing influx of Han migrants has finally consolidated Beijing’s grip on Xinjiang, without which President Xi Jinping’s efforts to build a “New Silk Road” across the Eurasian land mass would founder.

In recognition of this fact, the party could arguably have chosen a humbler set of heroes for its propaganda barrage in Aksu — people such as Gong Shixiang, 21, and Wang Yongjun, 65.

Ms Gong moved to Aksu from Shanxi province because she can earn Rmb2,700 ($425) a month as a noodle shop cashier, compared to Rmb2,000 back home. Mr Wang, originally from Shandong province, sells flat breads at a market popular with his fellow Han migrants. He moved to Aksu five years ago after realising he could clear Rmb10,000 a month in China’s Wild West – twice what he was making in Shandong.

Neither Ms Shi nor Mr Wang seem concerned by the now frequent knife and bomb attacks on Xinjiang’s Han Chinese community, which are allegedly perpetrated by Uighur “separatists” fighting for an independent homeland. Mr Wang’s market is protected by a high fence and guards wielding maces. Should those defences fail, Mr Wang says “they wouldn’t stab me, they just want to kill young Hans”.

Mr Wang is badly mistaken about that. In May 2014, five assailants descended on a morning market in Xinjiang’s capital, Urumqi. At least 31 people were killed. One of the most arresting photos of that carnage showed a little old Chinese lady sitting in shock, her head covered with blood.

Not surprisingly, most of Xinjiang’s Han residents welcome the overt police and military presence across the region, which was beefed up after a deadly race riot erupted in Urumqi in 2009.

Uighurs tend to have a different reaction.

“Seeing armed police everywhere, ready to shoot, doesn’t make me feel safe. It scares me,” said a young Uighur professional in Urumqi, a city with the feel of Istanbul in some neighbourhoods with its cafés and mosques. “It’s also not working. Much more shit happened after 2009 than before.”

His concern that the security-led response only invites more violence is shared by Wang Lixiong, a Han critic of the party’s policies towards ethnic minorities. For Mr Wang, Xinjiang’s current crisis represents a potential future dystopia for the entire country if the party does not grant real autonomy to the Uighurs and also implement political reforms nationwide. “China’s ethnic issues can only be solved with a political transformation involving gradual democracy and grassroots, bottom-up elections,” he says.

Mr Wang draws a parallel between the violence in Xinjiang and unrest elsewhere, such as a recent “Unabomber” attack in which more than a dozen parcel bombs killed at least seven people in Guangxi province. In the absence of a more tolerant and representative political system, he argues, “the economic prosperity we see in front of our eyes could suddenly turn into a nightmare”.

Tom Mitchell

Fonte: FT

quinta-feira, 15 de outubro de 2015

Fashion for forward guidance leaves central bankers in a muddle

Just like food and clothes, monetary policy too has its fashions.

“Forward guidance” — the promise by central banks to keep interest rates low — is so 2013 that one rarely hears it mentioned these days.

Yet, while guidance may be yesterday’s fad its effects could not be more visible on the financial markets.

As central banks edge closer to raising rates, failure to provide clear advice over what happens next is agitating investors — with the split at the top of the US Federal Reserve proving particularly enervating.

“[The Fed’s] ‘talking’, or guidance, has now become disruptive,” said Erik Nielsen, chief economist at UniCredit. “Transparency ... is one thing, guiding the market is an entirely different thing, which so easily moves from being tricky but helpful, to becoming a real mess.”

As the recovery gathered pace, the Fed and the Bank of England have both softened their promises and gone increasingly “data dependent” — setting policy on the basis of the most recent wage, price and unemployment data.

The European Central Bank may have retained its own promise not to increase borrowing costs for some time, but its bigger preoccupation in 2015 has been a programme of quantitative easing, which the ECB launched in January and may expand in the coming months.

If vows to keep rates low initially helped central bankers reduce market volatility and foster the recovery, they also carried costs.

As Andrew Filardo and Boris Hofmann from the Bank of International Settlements warned in 2014: “If financial markets become narrowly focused on certain aspects of a central bank’s forward guidance ... recalibration of the guidance could lead to disruptive market reactions.”

Estimating the impact of forward guidance on the economies where it was tested is hard. Central bankers uttered different kinds of promises, some linked to time horizons, others to economic variables.

Moreover, these pledges often went hand-in-hand with other measures, including ultra-low interest rates and asset purchases, which make it harder to pinpoint their effects.

The BIS researchers have looked at the evidence from the US, UK, eurozone and Japan and concluded that while guidance helped to reduce the volatility of expectations about the future path of rates, it is less clear whether they provided a meaningful economic stimulus.

This view is disputed by central banks. For example, survey evidence from the BoE has shown that a majority of businesses polled in 2014 said guidance had made them more confident about the prospects for the UK economy — a finding that may suggest there may have been some positive effects.

Any discussion of guidance, however, should go beyond its immediate impact. Central bank-watchers should instead take a look at what has happened after the monetary authorities were forced to reformulate their promises in light of the economic upturn.

The outcome has been mixed at best. Mark Carney, Bank of England governor, gave last summer a vaguely worded speech in Lincoln Cathedral, saying that the decision on when interest rates will go up would come “into sharper relief” around the turn of the year. The wide time horizon implied in his words has allowed the bank to retain some credibility even as a slowdown in the global economy has made policymakers more cautious.

Conversely, Janet Yellen’s more specific call that she expected interest rates to go up by 2015 has come back to haunt her now that a “lift off” in December is looking less likely, prompting investors to wonder the usefulness of her words.

The parable of forward guidance holds lessons for QE, the other unorthodox policy tool central bankers have adopted to reignite growth since the crisis. So far, the assessment of the impact asset purchases had on inflation and growth has been broadly positive, though there are still doubts over its effects on inequality. However, with central banks still holding large amounts of government debt and other assets, any conclusion will hinge on how they manage the exit.

Fashions — even monetary ones — always look good when they first spread. The real question is whether they can pass the test of time.

Ferdinando Giugliano

Fonte: FT

quarta-feira, 7 de outubro de 2015

IMF warns of fresh shocks to global financial stability

The world risks a slide into a fresh financial crisis leading to global recession if governments and policymakers mishandle growing market stability risks, the International Monetary Fund warned on Wednesday.

José Viñals, the fund’s head of financial stability, told the Financial Times that its bad scenario “does not rely on extreme assumptions at all”, merely that risk premiums rise further, corporate defaults rise in emerging economies and there is a worldwide decline in appetite for riskier assets.

The effects would consign the world to growth rates sufficiently weak to be termed a global recession.

“If we don’t get it right we could set the clock back in terms of growth,” Mr Viñals added.

In its twice-yearly global financial stability report, the IMF simulated the effects of the current financial fragilities in emerging economies turning sour from another shock to confidence or a policy mis-step.

“Shocks may originate in advanced or emerging markets and, combined with unaddressed system vulnerabilities, could lead to a global asset market disruption and a sudden drying up of market liquidity in many asset classes,” the report warned.

In these circumstances, spending growth would slow sharply in emerging and advanced economies leading to a shortfall in output of 2.4 per cent by 2017 compared with the baseline IMF forecasts.

With those forecasts already weak, it would imply global growth would face the strong possibility of falling below 2 per cent for a year, the standard definition of a global recession, although one that would fall short of another crisis on the scale of 2008.

“Our central scenario is not a crisis. The downside scenario is not a global crisis but a situation in which we would have significant losses in terms of GDP,” Mr Viñals said.

The risks have worse implications than those simulated in the fund’s economic forecasts and highlight the need, he added, for policymakers to address the financial stability vulnerabilities in the world.

These stem mostly from emerging markets, with advanced economies less likely to cause a crisis but not immune from strains in poorer countries. A binge on credit is coming to a head in emerging markets, the fund warned, saying the emerging economies are “in the late-stage of a credit cycle” with debt levels significantly in excess of expected levels given growth in these economies.

“In emerging markets, we are in the late stages of a credit cycle . . . There is about $3tn of overborrowing or excess credit extended now,” Mr Viñals said. Relative to the size of its economy, China is the most exposed with excess credit equivalent to 25 per cent of national income.

“China has recently started to address the problem by increasing banks’ provisions for non-performing loans. The question is how fast is the increase in non-performing loans going to be in the future and it is very important that the authorities remain vigilant so that banks adequately provision now before things get more complicated,” said Mr Viñals.

Were there to be a serious crunch starting in China, worse than that simulated by the IMF, Britain would be at the sharp end of contagion because the Asia exposure of UK-based banks such as HSBC and Standard Chartered make it more vulnerable than most.

“One would have to see something [bad], which is really a tail-risk, and [which] would affect more the British banks that are most exposed,” he added.

In advanced economies, the greatest risks come from the Fed’s probable decision to raise interest rates, which the fund urged be done in a way that did not spook markets. Globally, the IMF highlighted the risk that markets would dry up if there were any shock to confidence.

“Market liquidity, which is not low at present, is nevertheless much less resilient than we would have liked,” Mr Viñals said.

To prevent risks crystallising more than they already have, the IMF called for urgent action to quell some of the storms threatening to rage in financial markets and stop risks becoming reality.

It said the Fed should communicate carefully its interest rate intentions and the eurozone should throw light on non-performing loans in its banking sector.

It urged China to take “great care” as it moved to a new economic model less reliant on debt and investment. Apart from more provisioning against bad debt, the fund also urged the authorities to stop intervening in the stock market and to move more quickly towards a market based economy that relied “less on moral persuasion to guide banks’ lending activities and allow loan policies and interest rates to be determined by commercial considerations”.

Chris Giles

Fonte: FT

terça-feira, 6 de outubro de 2015

Back to school in Paris — and no gold stars

Before we moved to Paris over the summer, my six-year-old son attended a London state school. A month after his rentrée in the French system, he is still adjusting.

He misses his friends and needs to adapt to class in another language. He is expected to master joined-up handwriting. There are plenty of likely extracurricular causes for his current academic anxiety. But, being a product of French education myself, I can see he is also going through the shock of the cours préparatoire

We applied for this particular private school because it offers more English lessons than in the state system and because it focuses on personal development through artistic and sports activities. In a classic French way, however, the first day of CP (which is equivalent to year one) was intimidating.

My son’s supersized cartable — the French pupil’s traditional backpack — weighed more than 5kg. It brought back memories of the heavy bags I used to carry at school. In the classroom, behind rows of desks that made any movement impractical, the children faced a large white board and were asked to sit still. The message was clear: coming in the wake of the more relaxed kindergarten, this was now serious stuff.

In London, where my son was a first-year a year ago (children of his age start classes a year earlier there) the difference between school and kindergarten is not so marked. Until the age of 10, for instance, pupils sit not at desks but cross-legged on “carpet spaces” in front of a plasma screen.

A few weeks after we arrived in France, my son received his first punishment. It was a soft one: he was kept in class at lunch time to write out, several times, a discipline rule he had infringed, and I was sent a note to sign. Every French pupil eventually learns this is no big deal. But if you are used to a London school sending you home with a daily harvest of stickers on your sweater — “star pupil”, “super effort”, or “I was brave today” — it feels like a humiliation.

In Britain the school atmosphere was casual: parents hung out in the corridors after drop-off and in the playground long after pick-up. For the Easter bonnet parade, the headteacher awarded prizes dressed up as a pink bunny. In France, by contrast, we have permission to get a few metres inside my son’s school in the morning. We were lucky to be allowed to accompany him to his classroom on the first day. But most of my friends elsewhere in Paris are not allowed inside the premises for drop-offs. On day one, they had to let their often crying five or six-year-olds find their way to class on their own.

These differences reflect contrasting ideas of what school is, says Peter Gumbel, a British journalist whose children were educated in Los Angeles and Paris, and who in 2010 wrote the first of three books on France’s education system. “French teachers tend to say it’s about transmission of knowledge,” he tells me. “Teachers in the UK or in the US will say it’s about learning and personal development.” So school is seen as a community.

Among French pupils, there is a weaker sense of belonging, partly because learning and playing are kept separate. “In France, you can get put down quickly, and not congratulated as quickly,” Mr Gumbel adds.

The system is designed ultimately to select the elite, but a growing number of children — about 1 in 4 — are struggling at school, according to a 2012 OECD study. Ironically, France has pioneered innovative forms of teaching, only to shun them. Célestin Freinet’s methods in the 1920s, which emphasised collaborative work, discussions and field trips, were embraced in many other countries but ignored in France.

Mr Gumbel’s observations resonate with my own experience in the French state system. But then, I suggest, I coped with it and did not become particularly neurotic. I even remember, on occasion, having fun.

His explanation: I did OK because my parents were educated and belonged to the well-off postwar middle class. France, he tells me, shows the strongest correlation among OECD countries between academic results and social background.

“France has the word ‘egalité’ written on every school,” he says. “But it is one of the most inegalitarian systems.”

Anne-Sylvaine Chassany

Fonte: FT

segunda-feira, 5 de outubro de 2015

TPP trade deal: seven things you need to know

The US, Japan and 10 other Pacific Rim economies, representing some 40 per cent of the global economy, reached an agreement on Monday on what is the biggest trade deal signed anywhere in two decades.

Here are seven things worth knowing about the Trans-Pacific Partnership.

1. The TPP is as much about geopolitics as it is about trade.

Often called the “economic backbone” of US President Barack Obama’s “pivot” to Asia, the goal for the US and Japan is to get ahead of China, which is not included in the TPP, and to create an economic zone in the Pacific Rim that might balance Beijing’s economic heft in the region. It is also about writing the rules of the 21st-century global economy for everything from cross-border data flows to how state-owned enterprises are allowed to compete internationally.

“We can promote growth through trade that meets a higher standard,” Mr Obama told the UN General Assembly last week. “And that’s what we’re doing through the Trans-Pacific Partnership — a trade agreement that encompasses nearly 40 per cent of the global economy; an agreement that will open markets while protecting the rights of workers and protecting the environment that enables development to be sustained.”

2. China is not in it. But it may be some day.

While the TPP has in the past been discussed as a US-led move to contain China, the view in Washington has softened in recent years. China has said it is watching the development of the TPP carefully and is engaged in its own rival trade negotiations. Many in the US business community feel the real promise of the TPP lies in opening it up to other countries to join, particularly China.

The current members are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam. But already lined up to potentially accede are Asian economies such as South Korea, Taiwan and the Philippines, and Latin American ones like Colombia.

3. Embedded in the TPP is a free-trade deal between two of the world’s three largest economies.

Japan and the US have never before sealed a bilateral trade agreement. But when Japan joined the TPP negotiations in 2013 it prompted separate talks over everything from the trade in cars to that in beef, rice and pork.

The result would be a de-facto trade agreement between two of the world’s three largest single-country economies that would likely, over time, see barriers to trade fall between the two countries.

It would also be likely to further integrate Japan’s economy and supply chains with those in North America. One of the final bones of contention has been over the local-content rules for automobiles and car parts. It pits parts makers in Canada and Mexico, which thrived under the now 20-year-old North American Free Trade Agreement, against Japanese carmakers, which despite a significant presence in North America still have supply chains that stretch into non-TPP countries such as China and Thailand.

4. This would be a pivotal deal for Shinzo Abe, Japan’s prime minister.

To try and secure the TPP Mr Abe has been forced to take on some powerful political players in Japanese politics, including the agriculture lobby. But he has argued again and again that it would help Japan undertake much-needed structural reforms that would boost the economy’s growth potential.

That is certainly something he needs. Japan’s gross domestic product contracted at an annualised rate of 1.2 per cent in the second quarter of this year and data suggest the third quarter will not be much better, slipping Japan into a technical recession.

5. The TPP is controversial in many of its member countries.

In the Canadian election campaign now under way the TPP negotiations have provided one of the main points of economic debate. That matters. The race is now in a three-way statistical dead heat with Tom Mulcair, the head of the New Democratic Party, vowing to walk away from the TPP if his party wins on October 19.

“The NDP, when we form government on October 19, will not be bound by this secret agreement that [prime minister Stephen] Harper has been negotiating,” he said.

But Canada is far from the only place where the TPP is provoking controversy.

In the US, Australia and other countries opponents have seized on a provision that would allow foreign corporations to challenge decisions by governments before international arbitration panels. In Australia the issue is particularly sensitive since tobacco giant Philip Morris has mounted a case against the government there via an obscure Hong Kong investment treaty over Canberra’s introduction of plain packaging.

The US has agreed to carve tobacco and regulations related to public health out of the TPP’s investment dispute system. But that is not the only controversy.

6. The TPP is only flirting with the issue of currency manipulation . . .

Among the issues that have generated the most controversy in the US is that of currencies and the question of competitive devaluations.

With a wary eye on a weak yen and competition from Toyota and others, the US automobile industry and its supporters in Congress have been pushing for the TPP to include an enforceable ban on currency manipulation.

That is not likely to happen as a formal part of the TPP. But according to people close to the discussions finance ministers and central bank governors from the TPP countries have agreed to a parallel agreement that would commit them not to engage in competitive devaluations to benefit their own exporters.

All are members of the IMF and many belong to the G20, each of which have their own rules on currency manipulation. But people close to the discussions insist these will be at a higher standard and include provisions for separate and regular consultations.

None of the TPP countries, however, are willing to make those commitments enforceable via trade sanctions, one of the key demands of the auto industry and its supporters.

7. The TPP would break new ground on environmental and labour standards for trade agreements.

Since 2007, the US has been required to include discussions of environmental and labour standards in its trade negotiations. But the TPP would for the first time make those commitments enforceable and potentially subject to trade sanctions if they are not met.

Many environmental activists remain sceptical, but the US insists that the TPP would help reduce trafficking in endangered species and tackle other problems such as overfishing in the TPP countries. If countries do not abide by their commitments Washington would use the agreement to call them on it.

New labour provisions in the TPP also would force big changes in practices in countries such as Malaysia and Vietnam.

In order to participate those countries would have to prove they are abiding by International Labour Organisation standards.

TPP countries would be required to have minimum wages. They also would have to enforce bans on practices that now result in forced labour such as employers holding migrant workers’ passports and charging special recruitment fees that can leave workers in immediate debt. In Vietnam, the government would have to allow greater freedom for workers to unionise and allow the creation of a rival to its single current trade union federation.

Shawn Donnan

Fonte: FT

sexta-feira, 2 de outubro de 2015

Wishing happy birthday to a united Germany

In the mid-1980s Giulio Andreotti, the late Italian prime minister, remarked that he liked Germany so much that he was glad there were two of them. It was an unworthy sentiment shared among other western European leaders of that era, notably Margaret Thatcher of the UK. On Saturday Germany celebrates the 25th anniversary of its reunification, and only a fool or a misanthrope would refuse congratulations to the German people.

On moral, historical and political counts, reunification has been a resounding, though not totally unqualified, success. It has brought democratic rights, civic dignity and higher living standards to the people of eastern Germany, who had known nothing since the 1930s but terror and war under the Nazis and ideologically enforced incarceration under communism. The highest representatives of today’s united state — Angela Merkel, the chancellor, and Joachim Gauck, the president — are from the east. Each commands international respect.

Reunification has also demonstrated, for the first time in modern European history, that a united Germany is not a military threat to world peace. From its birth in 1871 after the Franco-Prussian war to its death in the rubble of Berlin in 1945, this is precisely what had damned earlier incarnations of the German state.

Germany is an exemplary democracy with a sturdy, federal system of government and a commitment to a peaceful international order. Unlike Austria, France or Sweden, Germany has no rightwing populist movement of any significance. Nothing better illustrates Germany’s restoration to the front rank of nations than the fact that, seven decades after the Holocaust, it boasts one of the world’s fastest-growing Jewish communities.

Modern Germans display a confidence about their national identity that marks a departure from the guilt, self-hatred and anxiety of the first post-Nazi generations. This confidence has enabled Germany to embrace globalisation and evolve into such a diverse society that Christian Wulff, Mr Gauck’s predecessor, observed in 2010 that “Islam is now a part of Germany”.

All these achievements have come at a certain price. Notwithstanding the welcome that Germany has extended to hundreds of thousands of Syrian, Afghan and other refugees, the number of arson attacks and lesser criminal offences against asylum shelters has doubled so far this year to 437, from about 200 in the whole of 2014. The harmonious integration of immigrants poses a constant challenge.

Germany’s pacifist culture and rather provincial habits of mind translate into a diffidence on the world stage that belies the nation’s economic weight and falls short of its partners’ expectations on security issues. It is disturbing that, according to a Pew Research Center study in June, 58 per cent of Germans would oppose using military force to assist a Nato ally attacked by Russia, and only 38 per cent would support it. Germany’s handling of the eurozone crisis has also at times been short-sighted, putting so much emphasis on strict fiscal rules and its own model of export-driven growth that disunion and instability still plague the 19-nation area.

Any complaints about the quality of German leadership need to be balanced against the recognition that its major European partners are failing to rise to their own responsibilities. France and Italy are chronic economic underperformers. The UK stands on the sidelines of too many European discussions. Germany’s friends should wish it happy birthday — and pull their weight themselves.

Fonte: FT

quinta-feira, 1 de outubro de 2015

The credit bubble, the bears and the central bankers

When officials at the International Monetary Fund and World Bank first decided to hold this year’s annual meeting in Peru, some hoped that the location would offer a celebratory backdrop.

For after the 2008 western financial crisis, it initially seemed as if emerging markets — including those in Latin America — had seized the baton of global growth. After all, they were not involved in the craziness of the credit bubble that led up to the crisis, with all its subprime mortgage sins.

No longer. Next week, when the IMF and World Bank meet in Lima, officials will certainly wail about the feeble pace of developed world growth. What is really unnerving policymakers, however, is not the west but the state of emerging markets.

Growth is slowing everywhere from China to Peru. In addition, it is becoming clear that emerging markets have become caught up in a new credit bubble. And the consequences — like those of the western credit bubble of the previous decade — could be deeply destabilising for the global economy and unpleasant for investors. This is not least because the way that financial flows operate today in, say, Shanghai is almost as mysterious for investors as subprime mortgages were in California a decade ago, and just as dangerously contagious.

One way to get a sense of how risks are changing is to look at what has happened to emerging market corporate debt. A decade ago, this seemed to be running at fairly modest levels, at least compared with parts of the western world. But as the IMF notes in its latest financial stability report, between 2004 and 2014 emerging market corporate debt increased from $4,000bn to $18,000bn, with much of the growth occurring after 2008.

This gross number conceals big variations. Though corporate borrowing has recently surged in China, Turkey, Chile, Brazil, India and Mexico, it has declined in South Africa, Hungary and Bulgaria. But measured overall, the IMF calculates that emerging market liabilities are now twice the size of their equity; a mere four years ago, they were at par. It is a striking swing that raises questions about whether emerging market companies can service this debt if (or when) central bankers in the developed world — notably the US Federal Reserve — start to raise interest rates.

But there is a second way to frame the problem, which is to look at emerging markets debt not in isolation but in the global context of “money”. After all, as Matt King, an analyst at Citi, notes it is important to remember that there are two ways that “money” — in the widest sense — can be created. The first is through central bank action; quantitative easing has pumped trillions of dollars into the global system. The second part of the equation occurs when private-sector banks and markets recycle those central bank funds — and, most crucially, amplify these, sometimes on a massive scale.

For the past two years it was QE, the first part of the equation, that grabbed investors’ attention; the second part is often ignored because the data are poor. However, Citi has tried to calculate global private-sector money creation and reached a startling conclusion: three-quarters of all global private money creation in the past five years has oc­curred in emerging markets. More specifically, since 2000 $8,000bn of flows have gone into emerging markets — and this has generated $5,000bn of private emerging market credit each year.

This raises a crucial question: what happens when this process of emerging market private money creation slows or goes into reverse? Some policymakers hope any shock could be contained by more money creation on the part of western central banks — a bit more QE might calm markets, or so the argument goes. But Mr King of Citi doubts this will work: the emerging market bubble is so big that it is far from clear central banks could plug the gap if (or when) this money creation slows down; the world is reaching a point of “credit exhaustion”.

If this analysis is even partly correct (and I believe it is), the implications are alarming. That helps explain why markets have had such a nervy air recently, and why some of the savviest hedge fund managers, such as John Burbank of San Francisco-based Passport Capital, are now emerging markets bears. It also sheds light on why the IMF is so worried about what happens when US rates rise.

But until then, perhaps the real message is that it is no longer enough for investors to just watch the Fed. All eyes should now be fixed on emerging markets, too; starting with what does (or does not) happen next week in Peru.

Gillian Tett

Fonte: FT