A moonshot to save a warming planet

Every silver lining has a cloud. The technologies that offer human beings comforts and opportunities that would have been unimaginable two centuries ago ultimately depend on an abundance of energy. Fire is the source of that energy. But the burning of fossil fuels, from which we gain so much, also releases the carbon dioxide that threatens to destabilise the climate.

For some, the answer to this challenge is to embrace poverty. But humanity will not — and should not be expected to — give up the prosperity that some already enjoy and others greatly desire. The answer lies instead in breaking the links between prosperity and fossil fuels, fossil fuels and emissions, and emissions and the climate. We must not reject technology, but transform it.

This is not yet happening. BP’s latest Statistical Review of World Energy shows that global demand for commercial energy continues to grow, largely driven by growth of emerging countries, despite improvements in energy efficiency. Moreover, fossil fuels meet the bulk of that demand. In 2014, renewables contributed just over 2 per cent of global primary energy consumption. Together, nuclear power, hydroelectricity and renewables contributed merely 14 per cent.

A report entitled “A Global Apollo Programme to Combat Climate Change”, written by a number of high-profile British scientists and economists, offers a bold answer. It argues that carbon-free energy has to become competitive with fossil fuels. “Once this happened, the coal, gas and oil would simply stay in the ground.”

The need, then, is to generate a technological revolution. The paper (named after the successful mission to the moon of the 1960s) argues that this will require rapid technological advances. Progress is happening, notably the collapse in the price of photovoltaic panels. But this is not enough. The sun provides 5,000 times more energy than humans demand from industrial sources. But we do not know how to exploit enough of it.

Despite the evident need, publicly-funded research and development on renewable energy is under 2 per cent of all publicly-funded R&D. At just $6bn a year, worldwide, it is dwarfed by the $101bn spent on subsidies for renewable production and the amazing total of $550bn spent on subsidising fossil fuel production and consumption.

This is a grotesque picture. Far more money needs to go to publicly funded research. The public sector has long played a vital role in funding scientific and technological breakthroughs. In this case, that role is particularly important, given the agreed goal of reducing emissions and the fact that the energy sector spends relatively little on R&D.

The envisaged programme would have a single purpose: “To develop renewable energy supplies that are cheaper than those from fossil fuels.” The authors suggest that to do this, research should focus on electricity generation, storage and smart grids. The suggested programme would amount to $15bn a year, still a mere 0.02 per cent of world output. That is indeed a minimal amount, given the goal’s importance.

Any country that decided to join would commit to spending this proportion of its national income. While the money would be spent at each country’s discretion, the programme would generate an annually updated road-map of the breakthroughs needed to maintain the pace of cost reduction. The suggestion is that heads of government agree such a programme of accelerated and targeted research by the time of the Paris climate conference later this year.

Improved technology might end our dependence on the burning of fossil fuels. It might also reduce the emissions of carbon dioxide that accompany that burning. But Climate Shock by Gernot Wagner and Martin Weitzman, notes that new technology might also break the final link — that between emissions and climate. This then raises the seductive, but dangerous, possibility of geo-engineering — seductive because it may seem cheap, and dangerous because its results are so uncertain.

Some ideas for geo-engineering are close to carbon capture and storage, which is aimed at eliminating emissions from specific facilities. Carbon-dioxide removal might be applied to the atmosphere: this is what plants do. Another idea is “ocean fertilisation”, to accelerate natural absorption of carbon dioxide.

Replication of the atmospheric impact of a volcanic eruption would directly offset the impact of greenhouse gases. The matter emitted by the eruption at Mount Pinatubo in the Philippines in 1991 lowered global temperatures by 0.5C. The 20m tonnes of sulphur dioxide emitted dimmed the amount of radiation from the sun by 2 to 3 per cent in the following year. If we continue on our present path, that is the sort of measure people might well try to replicate.

It is not hard to envisage the dangers of such an intervention. It could not be a one-off, since particles put into the atmosphere would quickly fall out of it again. So the actions would have to be repeated on an ever-larger scale, as concentrations of greenhouse gases in the atmosphere increased.

Such a programme of deliberate pollution of the global atmosphere might well be viewed as an act of war. The consequences of repeated large-scale planetary engineering of this kind would also be highly unpredictable. This must be a very last resort.

The best way of responding to the challenge of climate change is through changed incentives and accelerated innovation aimed at making carbon-free technologies competitive with fossil fuels. Both demand more active public policies. The proposed Apollo programme would be an essential element. Its proposed costs are modest; its potential upsides are enormous. Success would be transformative. It would be far better to try and fail than not to try at all.

Martin Wolf

Fonte: FT

The three perilous options for Greece facing Europe

As EU leaders head into this week’s emergency talks , they face a choice of three hazardous routes out of the Greek crisis. Route one involves making concessions to Greece. Route two involves standing firm and allowing Greece to leave the euro. Route three involves Athens largely accepting the demands of its creditors.

The choice seems stark. But the truth is that all three routes may ultimately lead to the same destination: the destruction of the European single currency. The lengths of the journeys would vary, the scenery along the way would look different but the end point could still be the same.


Route one: Greece wins. The Syriza government has been operating on the assumption that its European partners will ultimately make big concessions rather than risk a country leave the euro. Those concessions would involve writing off some of Greece’s debts and allowing the country to abandon some reforms, such as further cuts in pensions and higher taxes.

But leaders fear that, if they make concessions such as these, they could end up destroying the eurozone in order to save it. The governments of countries such as Ireland, Portugal, Spain and Latvia — which have stuck with their austerity programmes — would be instantly undermined. Radical left parties similar to Syriza, such as Podemos in Spain, would gain ground. Meanwhile, voters in Germany, Finland, France and the Netherlands — countries that have already lent billions to Greece — would have to be told that those loans might never be repaid.

In response, anti-EU parties such as the Alternative for Germany and the True Finns would probably gain support. The presence of nationalist and far-left parties at future EU summits would make it truly impossible to reach decisions. At that point, the survival of the EU itself — not just the euro — would come into question.

Route two: Grexit. Rather than head down the dangerous-looking route one, EU leaders have been prepared to contemplate a second route, where Greece defaults on its debts and then probably leaves the euro. European officials have generally sounded confident that Grexit need not cause contagion, whereby financial markets immediately begin speculating on the break-up of the eurozone, forcing up interest rates and potentially provoking new debt crises in countries such as Italy or Spain.

In the short term, the eurozone might be able to avoid contagion since the European Central Bank has programmes in place that allow it to buy unlimited quantities of eurozone countries’ bonds, forcing interest rates back down again. In the long run, however, that is unlikely to be a guarantee against debt crises. The ECB’s powers are meant to be temporary — but the precedent that a country can leave the European single currency would be permanent.


In the search for a more permanent fix, after a Grexit, EU policy makers would push for deeper integration to make the currency union more robust — in particular, through a genuine banking union. But northern European voters will have just seen their money disappear in a Greek default; they are highly unlikely to agree to underwrite the banks of southern Europe.

The political effects of Grexit could also be disastrous for the EU. An embittered and destabilised Greece would be out of the single currency but still inside the EU — at least, for a while. From that position it could block and disrupt EU policy on a range of issues, from sanctions on Russia to illegal immigration. (Greece is one of the main entry points for illegal migrants from Europe.)

Above all, Grexit would raise questions about the future of the whole European project. For decades, the steady expansion of the EU has been associated with the spread of peace and prosperity. The chaotic ejection of a country from the euro, amid poverty and civil strife, would throw that process into reverse.


Route three: Greece folds. Given the dangers of the first two routes, the EU has continued to insist Athens should stick with the programme — paying back its debts and making fundamental reforms that place its economy on a more sustainable footing. Unfortunately, there are no guarantees that even this route would lead the EU to a safe destination.

There are several problems. Greece’s debts look close to unpayable, so there are likely to be further debt crises in years to come. It is also far from clear that the state can be rapidly reformed in ways that will make it function better. The problems of clientelism and lack of competitiveness run too deep.

Most important of all, the Greek crisis has exposed the fact that the euro is a fundamentally flawed project. Historically, currencies that are not ultimately backed by a nation state have collapsed. The EU, nevertheless, thought it had created structures that could make the euro work. This has been shown to be untrue. In response, some European leaders will argue that the eurozone must now create more state-like structures, such as a banking union or a larger federal budget. But the past five years have demonstrated that this is likely to prove politically impossible.

The bitter truth is that when Europe’s leaders set up the European single currency they set off into unmapped and dangerous territory. There are no safe routes back.


Gideon Rachman


Fonte: FT

Merkel’s one big reason to hold on to Greece

In Berlin, as in capitals across Europe, politicians and policy makers have started thinking about the day after. Maybe that should be the week, month and year after. Step one is to prepare for the blame game if the Greek government decides to default. Step two asks what happens next. Exit from the euro and, possibly, from the EU? A failing state collapsing into a failed one? A Balkan foothold for Russia’s Vladimir Putin?

Amid this swirl, I have heard half a dozen good reasons why German chancellor Angela Merkel and her fellow eurozone leaders — Madrid, Lisbon and Dublin to name but three take, if anything, a tougher line towards Athens — should call Greece’s bluff. Not from any sense of self-righteousness, nor in a spirit of punishment or retribution, but because negotiations have not thrown up a better alternative.

Greek prime minister Alexis Tsipras had not a bad story to tell after his election victory in January. Greece needed debt relief; and the Syriza-led government had promised voters it would smash the clientelism that poisons the nation’s politics and economics. An objective observer would have spotted a deal: radical reform of state institutions, the taming of the oligarchs and rolling back of the cartels and closed shops that impoverish the Greek people, and a sustained attack on corruption in return for the promise of debt writedowns.

The goodwill has been squandered. Syriza’s promises have come to nought. The cliques, cartels and oligarchs flourish as before. And in talks with its eurozone creditors Athens has displayed a toxic mix of arrogance, amateurism and blatant venality.

Forget nitpicking arguments among technicians about the precise size of Greece’s primary surplus or the cuts required to create a sustainable pensions system. In conversations with other leaders Mr Tsipras has taken a fundamentalist line. He wants debt relief sufficient to free Greece of all the obligations in its present programme with creditors. And he wants to get out of the programme because Syriza repudiates liberal market principles.

It is unsurprising, then, that to walk the corridors in Berlin these days is to sense a hardening frustration. From the chancellery to the finance and foreign ministries, the message is that Greece’s fate rests with its government. If the loudest voices are heard among Ms Merkel’s Christian Democrats, the chancellor’s Social Democrat coalition partners have also shed their earlier sympathy for Syriza.

People close to the chancellor say she is absolutely prepared to see Athens tumble out of the euro. Sure there are differences with the finance ministry, whose boss Wolfgang Schäuble insists Germany’s first duty is to secure the long-term future of the eurozone by enforcing the rules. Ms Merkel takes a broader, political perspective. On the other hand, she is looking over her shoulder at a potential mutiny within her party if she strays too far from the finance minister’s line. The chancellor, it is sometimes forgotten, is a leader well practised in the art of self-preservation.

And yet. For all that Syriza seems determined to march off the edge of the cliff and its partners are confident that the eurozone would weather the shock of its fall, the one good reason for holding on to Greece is felt more acutely by Ms Merkel than by any other leader.

There are plenty of reasons beyond economics that might sway her. Greek exit from the euro would pile more insecurity on to the continent’s most combustible of regions. Mr Putin, already promoting instability and subversion in the Balkans, would seize the moment. Europe’s stand against Russian revanchism could be gravely weakened. It would be harder still to control migration across the Mediterranean; efforts at reconciliation in Cyprus would stall. All this, even before the impact on market confidence in the long-term future of the eurozone.

My own guess, though, is that the thing that keeps Ms Merkel awake at night is at once far less tangible and immeasurably more powerful than any such hard-headed calculation. More likely she is torn between her own firm belief in the importance of preserving the rules — Mr Putin’s trampling on the rules explains her tough response to the Russian invasion of eastern Ukraine — and her acute and closely-held sense of Germany’s European mission.

Ms Merkel sees herself as the guardian of European unity, the more so since François Hollande’s French government has retreated from the shared leadership role that once conjured up the metaphor of the Franco-German motor. Greece’s departure would be a historic failure; an admission of the fragility of the European enterprise and a signal to the world that the process of integrations could yet unravel.

None of this means much to Anglo-Saxons of a eurosceptic bent. But the new, reunited Germany was founded on the assumption that its future was rooted in ever closer European unity. This, visitors to Berlin are reminded, was Helmut Kohl’s great legacy.

An Italian friend suggested the other day that Europe might look at Greece as many in Italy have long seen that country’s Mezzogiorno region: irredeemable, hugely expensive, but ultimately worth paying for. Ms Merkel, I am sure, would not go that far, but nor will she lightly let go of Greece. Here though is the irony. Whatever the outcome — Grexit or another bailout fudge — the German chancellor may well be the big loser.

Philip Stephens

Fonte: FT

The time has come for Tsipras to accept Europe’s deal

Its time do face the music...

Within weeks Athens will either reach an agreement with its creditors, or default on billions of its debts. Given Greek banks’ dependence on funding from the European Central Bank, default could then push Greece out of the eurozone. After that, nobody can be sure what would happen. For Greece’s creditors, a larger default would follow: euro-denominated debts would be repaid in drachma, or not at all. The destruction of Greece’s financial system would rip the life out of its economy and do unknowable damage to its political system. Such chaos would also deal a wounding blow to the European ideal that has spread stability and prosperity across the continent over the past decades.

No European leader worthy of the name should want such an outcome, let alone will its occurrence. In light of this the Financial Times has consistently argued for every possible effort to be made to avoid “Grexit”.

But there is an outcome worse than Grexit, and that is a botched rescue that merely postpones it, wasting Europe’s scarce political and financial capital. Previous rescue attempts provide a lamentable example. The first, in 2010, allowed no space for debt forgiveness. Instead, over €200bn was invested in making Greece’s creditors whole. Athens avoided default but its economy gained no relief. The austerity insisted upon by its creditors drained demand from an economy already in freefall.

Two years later, after a depression deeper than that endured by any other state in recent times, Greece’s official creditors were panicked into another imperfect bailout. This time there was — some — debt relief; most privately held debt was partly written down and its repayment dates pushed back. But Greece was again left in a position of fragility, its economy doomed to another year of recession and forced to impose cuts destined to shatter whatever brittle consensus lay behind the programme. The IMF wrote that Greece had to carry out “an unprecedented amount of fiscal and current account adjustment”. Athens was left facing hefty repayments this year, for which it lacked the financial wherewithal — in particular, billions owed to the ECB.

Past bailouts sowed the poisonous seed of further bailouts to come. Were Greece now led by a government meekly submissive to its creditors, it might weather yet another negotiation. But in January, a series of political mishaps swept the previous administration from power and ushered in Syriza. The radical left party, led by Alexis Tsipras, set about unravelling much of what had been agreed — postponing or cancelling reforms, and provoking their European partners by insisting on the need for an entirely new settlement. Six months of fractious negotiation later, Greece’s creditors have put together a new offer: Syriza must either accept, or face the consequences.

Without friends or finance, the Greek prime minister is left with just three possible cards to play: one technical, a second principled and the last utterly dishonourable. In technical terms, Syriza’s condemnation of the current arrangement deserves a hearing. Their north European antagonists are wrong to resist debt relief; such stubbornness renders more likely a dismal repeat of this stand-off. Greece’s finance minister Yanis Varoufakis is right to insist that any solution prioritises growth, a factor inexplicably absent from previous negotiations.

Mr Tsipras’s principled cause for resistance is the backing of the Greek people, who elected him to office sharing his disgust at the previous settlement. But however principled, this is a card of questionable value: Athens may have invented democracy but this does not mean a Greek vote should trump a German or Nordic one. Moreover, the electorate also chose Mr Tsipras after he promised to keep Greece within the euro, not gamble their membership for political gain.

The dishonourable card that Syriza holds is the horror with which sensible Europeans, such as Germany’s chancellor, Angela Merkel, contemplate Grexit. Mr Tsipras’s strategy all along may have been premised upon his antagonists acting responsibly so he does not have to. There is a mere €2bn gap between his position and that of hardliners such as Wolfgang Schäuble, Germany’s finance minister: for such an amount, he might reason that she would never allow such harm to be caused to Europe.

If so, he may be making a bad miscalculation. For all the blame that the creditor nations deserve for the mess, their latest offer, while far from perfect, is acceptable. It could be improved with some debt relief, as the IMF urges, and which would give Mr Tsipras a scalp to parade before his own sceptics. It would help if pension and VAT reforms that the creditors demand were shunted into the future. If accepted, however, such a deal may allow this to be the last time Greece has to bargain for its financial future.

The creditors’ reasons for intransigence are weightier. It is not just for €2bn that they hold out, but a sign that the government in Greece will not endlessly backslide on reforms. Under the shelter of the euro, and fed by streams of EU structural aid, Greece’s clientelism grew worse. Experience has shown that even centrist governments need external prods to carry through reforms. Syriza, for all its professed outrage at the oligarchy dominating its economy, has shown little resolve for tackling it. Its resistance to reform betrays a contempt for market forces. If unwilling to concede on VAT and pension reforms, Mr Tsipras must offer something better: ideally, to break the cartels that hold back the Greek economy.

Were either side to back down, Grexit would be avoided, at least for the moment. But the creditors’ offer has the best chance of preventing a repeat of this saga. Mr Tsipras should accept it.

Editorial do FT

Greek fears erode market impact of ECB stimulus

Worries over a potential Greek exit from the eurozone triggered significant volatility in the debt of countries on the geographic periphery of the currency bloc on Tuesday, eroding the impact of the European Central Bank’s recent attempts to suppress borrowing costs by buying bonds.

Peripheral bond yields, which move inversely to prices, remain around levels seen late last year, before investors started anticipating the ECB’s €1tn bond-buying programme which launched in March and is aimed at stimulating the economy.

Prices for Greece’s sovereign debt dropped sharply on Tuesday, sending yields to the highest point so far this year. A sell-off in the country’s short term, 2017 bond pushed the yield to 29.24 per cent, while prices for the country’s benchmark 2025 bond fell from 53.4 cents on the euro to 50.9 cents on the euro.

The turmoil in bonds also sparked swings in equities, with a measure of implied volatility, the Euro Stoxx 50 Volatility Index, at its highest level since early January. The barometer of market fear tracks the cost faced by investors taking out options contracts as a hedge against price swings.

Money continued to move into the German Bunds, seen as a safer haven by investors. The 10-year Bund yield fell 3.6 basis points to 0.792 per cent.

“The market is now looking at a eurogroup meeting later this week as the last chance for a deal to be reached to avert a Greek default this month,” said Millan Mulraine, deputy head of US strategy at TD Securities.

However there were signs that the selling pressure on bonds in recent days had reached a limit on Tuesday as the market abruptly swung back from early losses. The ECB is accelerating its monthly bond purchases during June, a policy stance seen helping support the market.
The bank’s Fund Manager Survey for June covered more than 200 fund managers and found that 43 per cent of respondents said they were still expecting a deal to be reached between Athens and its foreign creditors. A further 42 per cent said Greece was likely to default on its debts but would not exit the eurozone.Market uncertainty over Greece failing to reach agreement from its creditors was underlined by the latest monthly survey from Bank of America Merrill Lynch, which said fund managers remain unprepared for any significant worsening of the Greek crisis, which could culminate in the country’s exit from the euro

Spanish 10-year sovereign debt yields rose as much as 11.5 basis points to 2.534 per cent — reaching their highest level since last August — before falling back to 2.424 per cent, up 4.3bp on the day.

Portugal’s government debt was also hard hit, with the yield up 10.6 basis points at 3.33 per cent, later retreating to 3.27 per cent, up 4.6bp on the session. While Italian 10-year yields moved up 13bp to 2.454 per cent, before falling back to 2.339 per cent, remaining around the highest level since November.

The euro eased on Tuesday, falling 0.5 per cent to $1.1226, but has remained resilient in recent days against the backdrop of volatile bond and equity prices.

Koon Chow, macroeconomics and foreign exchange strategist at Union Bancaire Privée, said investors were “reluctant to position for a Greek exit via the foreign exchange market”.

Mr Chow added: “They probably feel that [gaining exposure to] the balance of risks for a Grexit trade is better via shorting equities or being short peripheral European bonds against Bunds.”

Investors fear that any such default by Greece could lead to the heavily indebted nation leaving the eurozone, sparking further financial system uncertainty, especially elsewhere on the periphery, and jeopardising the continent’s fragile economy.

Talks between Greece and its creditors aimed at reaching agreement on the release of €7.2bn in desperately needed rescue funds for Athens collapsed last weekend, with both sides seemingly hardening their positions.

The breakdown in discussions with its creditors has pushed Greece closer to default and there are fears it may be unable to repay a €1.5bn loan from the International Monetary Fund, due in two weeks.

Four games the Greeks may be playing

When the radical left won power in Greece in January much was made of the fact that Yanis Varoufakis, the new finance minister, is an academic economist. Many expected that Greece’s negotiating strategy would display a new subtlety and brilliance, now that it was guided by the co-author of Game Theory — A Critical Introduction .

Yet, a few months on, Greece is running out of friends and money. As a debt default looms, even some sympathetic commentators are baffled by the Athens government’s actions.


So what game are the Greeks playing? Here are four possible hypotheses:

Game 1: they are bluffing and they still think they can win. The Tsipras government may still believe that the EU will not ultimately tolerate the break-up of its most important project — the European single currency. The loss of political prestige would be too enormous; the risks of financial contagion too great. But the EU will not make serious concessions until the moment that it really believes that Greece is about to crash out of the euro. So some evidence of chaos and panic in Athens may actually be necessary to convince the EU that the end game is approaching.

Game 2: they are bluffing and they are only now realising that they have miscalculated. Alexis Tsipras and his Syriza party are newcomers to the high politics of the EU. They won election in January believing that they could win the argument against “austerity” and find like-minded friends across Europe. The past few months have been a painful education in the realities of European politics. Mr Varoufakis’s theories have not worked out in practice, leading him to lament the absence of “a skilled game theorist on their side”. But Syriza’s belated realisation that it must largely accept the terms of its creditors — or quit the euro — has come perilously late.

Game 3: this is all about retaining power at home. The erratic negotiating style of the Greek government betrays the chaos in Athens. In part, this is a reflection of the inexperience and lack of resources of the Syriza team. But the party may also be trapped by the internal politics of Greece. Syriza is a coalition and the hard left of the party is likely to split off if Mr Tsipras is seen to accept austerity in return for a new agreement with Greece’s creditors. The broader electorate may also be none too impressed. Cutting a deal might therefore mark the end of Mr Tsipras’s political career.

Game 4: Greece actually wants to leave the euro. Among the academics and politicians who have advised Syriza there are undoubtedly some who have always believed that Greece ultimately has to leave the euro. They think that their country can only escape its downward economic spiral if it repudiates some or all of its debt — and they know that the price of that is likely to be ejection from the euro. What is more, once Greece is out of the euro, a new, floating currency might help restore the country’s competitiveness. Some in Syriza also believe that the euro and the EU in general are inseparable from the “neoliberal” economics that they reject.


The difficulty is that Syriza came to power against the background of opinion polls showing that a large majority of Greeks want to stay inside the euro. So it is crucial for the Greek government to construct a narrative in which Syriza is seen to make a genuine effort to stay inside the single currency — only to be ejected by unreasonable foreigners, led by the Germans.

Which of these games is actually being played in Athens? I suspect that elements of all four are playing out. Even now, decision makers in Athens must be hovering between options one and two — convinced at one moment that the EU will ultimately cut a better deal, fearing at another that no such deal will emerge.

Some of Mr Tsipras’s apparently erratic behaviour — such as promising to make a payment to the IMF and then delaying it — also reflect his political difficulties at home. And while the group of Syriza thinkers who actually want Greece to leave the euro may be in a minority, their number will surely grow as the crisis intensifies.

The uncertainty about what is driving Athens is only amplified because a parallel set of questions can be asked about the motivations of Brussels and Berlin. It could equally well be argued that the German government is bluffing, in the expectation of Greek capitulation; or that the team around Chancellor Angela Merkel has miscalculated in expecting the Greeks to “behave reasonably”; or that the German government, like its Greek counterpart, is trapped by domestic politics; or, finally, that there are many in Germany, particularly in the finance ministry, who now actively want to force Greece out of the euro.

Uncertainty on one side of the negotiating table only increases the uncertainty on the other side. If both sides think that the other side’s calculations are shifting, then it is harder to make a reasoned assessment of what needs to be done to secure a deal.

Unfortunately, the “game” that is currently under way between Greece and its creditors looks less like a sophisticated exercise in a Cambridge seminar room than the scene in Rebel Without A Cause, in which two cars race towards a cliff — and each driver waits for the other’s nerve to crack first. In the movie, the scene ends with one of the drivers plunging over the edge.


Gideon Rachman


Fonte: FT

A split verdict on the blackmail and bullying over Greece

There are two conflicting narratives about the deadlock in negotiations between Greece and its eurozone partners. According to the first, Greece is governed by populist radical leftists who blackmail the eurozone by threatening to explode the financial equivalent of a suicide bomb. According to the second, Greece is bullied by callous partners who are only interested in making an example of it. Both narratives are schematic but contain many elements of truth.

Despite his wooden language, Alexis Tsipras has matured more in the past few months than the rest of his party. The Greek prime minister understands the stakes and he knows his options. His problem is that they are all dreary. The brinkmanship cannot continue much longer. His government’s looming cash shortage is horrifying. If he finds himself unable to pay public servants, it will be the end of his career and his party.

Mr Tsipras cannot use “Grexit” — a Greek departure from the euro — as a bargaining chip, or he risks creating severe hardship in a country that imports such essential items as food, energy and pharmaceuticals. An exit would be detrimental economically but also socially. Any improvements in competitiveness will be annihilated by political turmoil and civil strife.

He cannot accept a new bailout agreement because that would signify that before the general election he was either mistaken, opportunistic or fooled. Even a watered-down version of the creditors’ proposal would embarrass him before the Greek people who gave him a clear mandate: no more austerity.

Yet the Greek public, most of whom do not wish to jeopardise their membership of the eurozone, are not the people who should worry Mr Tsipras most. Far more problematic is his party. Many of his leading ministers are luddites. They live in the 1970s, dreaming of transforming Greece into a mix of Cuba and Venezuela. They cannot seem to understand how a globalised economic system works. Their dogmatism make them unsteady allies. He cannot trust them for an additional reason: some of them have their own designs on power.

One could wonder then, why the rest of the eurozone is taking so much trouble to negotiate with someone who, whether by choice or necessity, will not compromise. For two reasons. The first is geopolitical; indeed, geography is Greece’s only solid ally. The EU has no desire to alienate a country on its southeastern flank. The second is economic. European finance ministers sound confident these days that the fallout from a Greek exit can be contained. But no one knows for sure. So, for all the rhetoric, Europe follows its precautionary principle: if you cannot gather enough information, do not experiment.



This does not mean that a compromise is out of the question. There is a lot to be gained if some ill-advised red lines are discarded. The Greek government is trying to avoid the bitter pill of pro-market structural reforms and the restructuring of its rickety retirement system. This is one of the most rigid and least open economies in the EU, yet some Greek ministers consider it a neoliberal paradise. It is a shame that the government fears the political cost of reforms and negotiates against the long-term interests of its own people.

Disillusioned by the reluctance of successive Greek governments to cut spending, some in the eurozone insist on unreasonable tax hikes and more labour reforms. Yet high taxes have already strangled the private sector and the middle class, the Greek labour market is more flexible than ever and labour costs have fallen sharply since 2009, and are well below the European average. Greece’s partners fail also to empathise with the pain that five years of a futile austerity has inflicted on the average Greek citizen. If Greece fails it will be Greece’s fault. But it will also be Europe’s guilt, if not regret.




Aristides Hatzis is an associate professor of law and economics at the University of Athens and a co-founder of GreekCrisis.net




Fonte: FT

US v China: is this the new cold war?

Strange things are happening in the South China Sea. In the past 18 months, Beijing has reclaimed 2,000 acres of land, converting several submerged reefs and rocks into fully fledged “islands”. Beijing’s land-reclamation efforts have dwarfed those of other countries, notably the Philippines and Vietnam, which have rival claims to the nearby Spratly Islands. China is also constructing piers, harbours and multistorey buildings (though there is no Fifa football stadium yet). On Fiery Cross Reef, in the Spratly Islands, it has built a 3km runway capable of handling all the military aircraft at Beijing’s disposal.

The splurge of activity has set alarm bells ringing. This month, in a speech in Tokyo, Benigno “Noynoy” Aquino, president of the Philippines, likened China’s activity to Nazi Germany’s annexation of Czechoslovakia. Ashton Carter, US defence secretary, called Chinese actions “out of step” with international norms. The US, he said, would “fly, sail and operate” wherever international law allowed. He explicitly denied that the act of “turning an underwater rock into an airfield” conferred any rights of sovereignty or restricted any other nation’s right of sea or air passage. China and other claimants, he said, should immediately cease all land reclamation.



That begs the question: what is the US going to do about it? The short answer may be not much. The US continues to fly military planes near the new islands. It and other nations are stepping up military co-operation in an effort to show a united front. Yet China’s island reclamation programme has proceeded apace. Mr Carter’s words sound like President Barack Obama’s “red line” in Syria. If Beijing continues to call Washington’s bluff, the truth will be out: the US speaks loudly but carries a small stick.

Why is it so hard for Washington to act? For one thing, though Beijing’s actions may not be in the spirit of co-operation, neither are they overtly illegal. Both the Philippines and Vietnam have also reclaimed land. China has merely done so on an industrial scale. Nor is China’s claim to the Spratlys entirely spurious, say legal experts. True, the islands are closer to the Philippines, Vietnam and Malaysia, three of the other claimants (along with Brunei). Yet proximity is not always decisive as Argentina can testify in relation to its dispute with the UK over the Falklands/Malvinas. Finally, China is not obviously threatening freedom of navigation. It does seek to restrict military activity within claimed territorial waters. That may contravene international law, although the UN Convention on the Law of the Sea says military activity — such as surveillance — should be carried out with “due regard” to the rights of the relevant coastal state. Where China is clearly trying it on is its effort to extend such restrictions to artificial islands. When the US flew a P-8 Poseidon aircraft near a new island recently, the Chinese navy told it to clear off.


Again, it boils down to what the US is prepared to do about it. It says it is considering sending warships within 12 miles of China’s new creations. Having made that threat, it may very well feel obliged to carry it through. China, though, is not powerless to respond. It could send in its own warships. If it really wants to up the ante, it could declare an air defence identification zone over all or part of the South China Sea, theoretically obliging incoming aircraft to report their presence to Beijing.

If China and the US are engaged in a game of bluff, the suspicion is that China may have more stomach for the fight. Its tactic is to pick quarrels over seemingly small-bore matters that individually are not worth shedding blood over. Yet collectively, almost imperceptibly, they advance China’s ambition to challenge US “primacy” in the region. Hugh White, an Australian academic, says China is cutting “very thin slices of a very long sausage”. Xi Jinping has already told us what the sausage looks like. China’s president has pressed for a new type of “great power relationship” that would bring Beijing greater respect — and power — in Asia. That does not threaten US primacy globally, but it does challenge it in Asia, where China wants to be treated as an equal, at least.

Beijing’s actions in the South China Sea are an important part of that strategy. As Carl Thayer, a security expert at the University of New South Wales, writes: “China has changed ‘facts on the ground’ and presented the region with a fait accompli”. The problem with faits accomplis — as Washington is discovering — is that you can’t do anything about them.


David Pilling


Fonte: FT

Greeks chose poverty, let them have their way

For more than five years, Greece has been Europe’s biggest concern. Instead of focusing on employment, or immigration, or the challenge of Vladimir Putin’s Russia, the continent’s attention has been on a country that represents 1.8 per cent of the eurozone’s economic output. It would be interesting to calculate how many hours Angela Merkel has dedicated to Athens in the past five years. Imagine President Barack Obama taking part in high-level talks for months on end, where little was on the agenda except the state of Tennessee. That, in effect, is what Europe’s heads of government have been doing.

In these five years the world has changed. China and India are undergoing profound transformations. The jihadis of the Islamic State of Iraq and the Levant (Isis) represent a new and serious threat to the west, as does Mr Putin’s revanchism. But European leaders, instead of devoting their summits to the question of how to best defend our economic and military interests, agonise over what to do about Greece.


Five years of negotiations that have achieved virtually nothing (the few reforms that had been adopted, like a small reduction in the inflated number of public sector employees, have since been reversed by the Syriza-led coalition). It is pretty clear that the Greeks have no appetite for modernising their society. They worry too little about an economy ruined by patronage.

Europeans, too, have made mistakes. Since Athens joined the monetary union, we have lent Greece €400bn, 1.7 times the country’s gross domestic product in 2013. It is time for a reality check: they will never be repaid. And it is an illusion to imagine, as the Finns sometimes do, that we could receive compensation in kind by acquiring a few Greek islands. The age when the British empire would do that is, luckily, over. Bygones are bygones. The sooner we accept this and forget those loans the better.

If the Greeks do not want to modernise, we should accept it. By a large majority, they have voted for a government that, six months after the election, remains vastly popular. Its popularity with the electorate signals a wish to remain a nation with a per-capita income half that of Ireland, less than that of Slovenia. In a few years it will be overtaken by Chile. I only hope that no one in Athens dreams that debt forgiveness and Grexit offer an alternative path to growth.

Without economic and social reforms, Greece will remain a relatively poor country. But it is not for the rest of Europe to impose reforms on Greece. It should merely make crystal clear that without serious reforms, new official loans are over. The only way for Athens to borrow will be to convince the markets that it will pay its own bills. No more EU guarantees, explicit or otherwise.


We should ask ourselves whether it is really so important to keep Greece inside the EU. (Barring a treaty change, leaving the euro entails leaving the EU.) The criterion should not be the protection of our credit: that is gone, like it or not. Nor should it be the risk that there might be a run on the euro because of contagion: thanks to the actions of the European Central Bank, monetary union today is resilient enough to withstand Grexit.

European leaders should stop treating the Greek problem as if it were merely a financial issue. It goes to the heart of European integration. That project has undoubtedly accelerated as a result of monetary union (just think of the decision to remove bank supervision from national control).

But the euro cannot be a substitute for further political integration. Indeed, without such integration, the euro cannot survive — and today, Greece stands in the way of it.


Francesco Giavazzi is professor of economics at Bocconi University in Milan.




Fonte: FT

If Europe cannot bend it will break

Neither man would appreciate the comparison, but Alexis Tsipras and David Cameron are in remarkably similar situations.

The Greek and British prime ministers both say that they have secured a democratic mandate at home to demand changes in their national relationship with the EU. Both leaders have calculated that the other Europeans will meet their demands rather than risk seeing Greece leave the euro or Britain leave the EU. But both Mr Tsipras and Mr Cameron are encountering a wall of opposition in Europe that could lead them to the destinations that they are keen to avoid — Grexit and Brexit.


Both the Greeks and the Brits have found that an argument based on the results of their own national elections can go only so far in an EU of 28 member-states. When Mr Tsipras claimed that he had a democratic mandate to demand change in Europe, Wolfgang Schäuble, the German finance minister, is said to have responded: “I have also been elected.”

But the difficulties of changing Europe go well beyond a clash of national democratic mandates. They are rooted in the size and legal complexity of the EU — an organisation that is now so large and unwieldy that it finds radical change almost impossible to contemplate.

The British say that securing the changes they want in Europe, on issues such as immigration and the rights of national parliaments, will require treaty change — that is changes to the EU’s basic legal documents. But treaty change requires the agreement of all EU countries, some of which will also hold referendums. The very process of renegotiation also invites every member of the EU to come forward with their own clashing demands. Rather than contemplate that nightmarish prospect, it is easier for the EU simply to refuse to shift — other than in small or symbolic ways.

It is important to realise that this aversion to change is largely divorced from the merits of the reforms that are being requested. Different EU governments have different views on whether Greek or British demands are reasonable. There is some sympathy in France and Italy for Greek arguments that the country’s debts are unpayable and that further deep austerity would be counterproductive. There is some sympathy in northern Europe for British arguments on welfare and increasing the role of national parliaments. But, regardless of the merits of the Greek and British cases, there is a deep reluctance to open the Pandora’s box of profound reform.


The problems involved are not simply legal, they are also political. The worry is that concessions made to the Greeks or British would generate a backlash, with German or Dutch voters resenting a write-off of Greek debt, or Polish voters outraged by restrictions on the rights of EU migrants. Elsewhere, the sight of a radical left party such as Syriza or Eurosceptic conservatives, such as Britain’s Tories, extracting concessions from the rest of Europe could boost similar parties across the continent, making the EU even harder to manage.

As a result key governments in Europe, in particular Germany, are more willing to contemplate Grexit and Brexit than the Greeks and British may have realised.

The German government has been saying for some time that the eurozone can withstand a Greek exit from the euro. While Angela Merkel, the German chancellor, still seems keen to keep Greece inside for geopolitical reasons, the German finance ministry, led by Mr Schäuble, now seems inclined to let Greece go, believing that this could actually have a salutary effect on the other members of the eurozone. Whether or not Grexit happens, the German consensus is that the lesson of the whole Greek crisis is that Europe needs to be even less flexible, with the eurozone requiring tougher rules and stricter enforcement, including tighter supervision of national budgets from Brussels.

The British problem is less urgent than the Greek one and involves less money, but a similar German approach is already emerging. I spent part of last week in Germany at the Konigswinter conference, which has been bringing British and German decision makers together for 65 years.

The Konigswinter atmosphere was, as ever, friendly and frank. Markus Ederer, the head of the German foreign ministry, told the British visitors: “Germany will go to great lengths to support London, even help London, but it cannot go to any lengths.” Allowing EU countries to choose which of its principles to follow would “curb the union’s strength, maybe even more than continuing in a smaller but punchier union.” That looked like a quietly-stated, but direct, warning to the British that Berlin is prepared to see the UK leave the EU, rather than risk the union’s internal coherence.

Germany’s tough approach is based on a realistic assessment of how hard it will be to get reforms through a 28-member EU — as well as a profound aversion to rolling back the process of EU integration. But it is also an alarming commentary on Europe’s inability to respond to changed circumstances, whether it is a 25 per cent shrinkage in the Greek economy, or the unanticipated migration of millions of people across the EU. That failure to be flexible about change is dangerous. A Europe that cannot bend is much more likely to break.




Gideon Rachman




Fonte: FT

Euphoria has China’s stock market in its dangerous grip

There is a fin de siècle feel about China. Growth is fading fast but the stock market is galumphing to evermore exuberant, and seemingly irrational, heights. The property boom is over, as is easy government financing courtesy of land sales. Imports of commodities have slumped, as anyone in Brazil and Angola can tell you. Money is pouring out of China at an unprecedented rate and those who can are busily securing a foreign bolt-hole for themselves in case things turn sour.

In the political sphere, President Xi Jinping has established himself as the most powerful leader since Deng Xiaoping, or possibly even Mao Zedong. Editions of Mr Xi’s speeches regularly hit the bookstores as collective leadership gives way to the cult of personality. Yet there is something brittle about his authority. The more he attacks entrenched interests through an extraordinarily far-reaching anti-corruption campaign, the more vulnerable his own position could become. Even some seasoned China watchers such as David Shambaugh, professor at George Washington University, have thrown caution to the wind by predicting that the end of the Communist party is nigh.


One does not have to be anything like so bold to detect signs of real stress in the economy, which has been the main source of Communist party legitimacy for years. In the first three months of this year, it grew at 7 per cent, its slowest rate since 2008. Some economists say the slowdown is much sharper than official numbers suggest. It is true that China’s newly minted middle class now wants good jobs, clean air, safe food and less corruption more than it wants growth for growth’s sake. Yet if you are looking for flashing red lights, there are plenty around. Take the soaring stock market. At a pinch, you could see this as a sign of confidence, particularly in the vibrant technology sector. Yet, as investors shift frantically out of property and into equities, the ramp-up in valuations looks more frightening than reassuring. This year, the Shenzhen stock index, which is heavy on tech, has more than doubled in value. In May, trading volume on the Shanghai and Shenzhen stock exchanges combined was more than 10 times that on the New York Stock Exchange. Last week, a record 4.4m investors opened stock trading accounts as punters scrambled to get a slice of the fervid action.

In normal times, the government would seek to cool such exuberance. Instead, it is throwing fuel on the fire. The state-run press has carried prominent articles justifying the heady valuations. In May, the central bank cut interest rates for the third time in six months. Yet the real cost of capital continues to rise. Huge overcapacity in industries such as steel has destroyed pricing capacity. Real interest rates are thus at their highest since 2008.

One reason the authorities may be encouraging a bull run is that it helps to raise the valuation of hard-pressed state-owned enterprises. A record number of private companies are going bust as banks toughen their lending criteria. Yet in the public sector, the opposite is happening. The government recently ordered banks to prop up insolvent local government projects, saying they should keep on lending even if borrowers are unable to service existing debts. Since the massive stimulus launched in 2009, total debt in the economy has more than doubled to 250 per cent of output. That credit expansion has been accompanied by slower and slower growth, suggesting a potentially huge build-up (still largely unacknowledged) of non-performing loans.

As former Fed chairman Ben Bernanke says, this is not a story of cyclical downturn. Something much bigger is unfolding. China is seeking to re-engineer an economy that has relied for years on investment in heavy industry and infrastructure. Now it wants growth from domestic consumption and services. The authorities are caught in a trap. The more they leave things to market forces, the more the economy slows, obliging them to step in with “pretend and extend” administrative measures.

This doesn’t mean China’s economy is on the verge of collapse. The government has huge resources and a deep capacity to snuff out contagion in what is still largely a command economy. In spite of Mr Shambaugh’s prediction, you might well lay odds that, in 10 years’ time, the Communist party will still be in charge of the world’s biggest economy. Yet today’s stresses are the most serious challenge to growth-as-normal since the end of the 1990s when Zhu Rongji, former premier, was performing surgery without anaesthetic on the engorged state sector. Sooner or later, today’s stock market euphoria will give way to a more sombre mood.




David Pilling




Fonte: FT

Greece needs a deal before midnight

What is going to happen with Greece? Nobody knows. That does not mean nobody cares. On the contrary people care passionately, in directly conflicting directions. On both sides are participants determined not to concede. This impasse illustrates the folly of creating a currency union among sovereign states that lack common political institutions, powerful emotional bonds or strong economic similarities. The marriage is ghastly but divorce is scary.

Greece is now on the brink of default. It owes €1.5bn to the International Monetary Fund this month; another €452m to the IMF and €3.5bn to the European Central Bank next month; and a further €176m to the IMF and €3.2bn to the ECB in August. Without a deal with the rest of the eurozone to release €7.2bn in the remaining funds from its bailout agreement, Athens will be forced to default. It has no other source of money. Its access to markets is closed.

If a deal with the eurozone is not reached, Greece will default. The ECB would then reconsider the acceptability of claims on the government (be they direct liabilities or guarantees) as collateral for its lending to banks. Haircuts would certainly be raised sharply. The ECB would find it particularly hard to lend against collateral supplied by a government that has defaulted to itself. The knowledge that default is imminent has already accelerated a run on the Greek banks. Without a deal, therefore, banks will soon be forced to halt withdrawals.

The mood music coming from those engaged in these discussions is highly discordant. Alexis Tsipras, Greek prime minister, has accused bailout monitors of making “absurd” demands. On the other side are those equally determined not to grant concessions, foremost among them governments of member countries that have stuck to harsh commitments or are poorer than Greece. Meanwhile on the sidelines Jack Lew, US Treasury secretary, is reduced to pleading for flexibility, terrified of the consequences of another upset.

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It is not hard to see why it has proved so hard to reach a deal. As Goldman Sachs notes, the European authorities are negotiating on the basis of three principles: first, staying in the euro requires further economic adjustment by Greece; second, additional support must be conditional; third, external oversight is required to ensure compliance with those conditions. Yet the Greek government was elected on a promise to stay in the eurozone but without austerity, adjustment or external oversight. These positions are irreconcilable. Either one side gives in or Greece defaults. If Greece defaults, it will have a second round of decisions to make: namely whether to try to remain inside the eurozone, even without normally functioning banks.

Reaching a deal is not in principle inconceivable. While the eurozone will insist on monitored conditions, it has some flexibility on which conditions to insist upon. But Greece is viewed as a serial backslider. Some — the government of Spain, for example — are terrified that concessions would strengthen the credibility of domestic radicals. Thus, trust and tolerance are both exhausted. Meanwhile, the present Greek government might have to collapse and another one be formed before the country can make concessions.

So what might happen next? On the assumption that a deal cannot be agreed before midnight, so to speak, the Greek government will default, at least technically, and so the liquidity squeeze on the economy (and the recession) will intensify. The fiscal situation — already weakened by spending commitments, falling revenue and a weakening economy — would deteriorate further. This year, the primary fiscal balance (before interest) might be a deficit of about 1 per cent of gross domestic product, worse than the IMF forecast in April.

An important question is how to sustain the economy until either new agreements are reached or the Greeks abandon the euro. Adam Lerrick of the American Enterprise Institute suggests how liquidity might be sustained even if the banks were closed. Under his scheme, people would be able to use claims on deposits, to be called “deposit receipts”, in place of the euro notes and coins they would no longer be able to obtain from their bank. This would sustain spending in such a cash-dependent economy. These deposit receipts would be established as legal tender. Within Greece, therefore, these deposit receipts would be money.

Under this proposal there would be a limit on issuance, since receipts would be backed by existing deposits, one for one. Greeks would still have to make external payments in euros. The value of deposit receipts — a sort of Greek euro — would float against the euro as the demand for the latter rose and fell.

Such a scheme could cushion the Greek economy against a total collapse. It could also be a precursor to full exit, should a workable deal not be reached. Given the current political impasse, such an expedient may soon be needed.

It has long been my view that if a deal can be reached at all, it will take time. It will also require big concessions on both sides. But I believe that a deal should in principle be possible. It is also hard to exaggerate the significance of an exit — even of a country as small and annoying as Greece — for the euro project (however misguided) and so post-second world-war European integration. Once the euro is seen to be reversible, the economic forces driving integration reverse. Every crisis will become potentially lethal. The efforts of the ECB to eliminate exit risk will have been almost for nought.

This must be seen as a long game. All involved made mountainous mistakes in the run-up to the Greek crisis and again since then. To fail now would be to pile a new mountain of error on the old ones. They need instead to recognise and learn from those past blunders.

Martin Wolf

Fonte: FT

What Fifa tells us about global power

It is half-time in the match between the US justice system and Fifa. In the first half, the Americans took a shock early lead, with the unexpected arrest of several of Fifa’s leading players. But world football’s governing body struck back with a defiant equaliser — re-electing its discredited president, Sepp Blatter.

The ultimate outcome of this match will be of interest all around the world, and not just to football fans. President Vladimir Putin of Russia has denounced the Fifa arrests as yet another example of the abuse of American power. His reaction illustrates that the Fifa struggle has become a highly visible test-case of one of the central questions in world politics — is the US still powerful enough to call the shots in global organisations? Or is the sole superpower’s grip on global institutions slipping?


Fifa, of course, is a niche organisation. But the same questions of whether ultimate power still lies in the west applies to much more systemically important global institutions such as the International Monetary Fund, the UN and its sub-organisations including the UN Human Rights Council. It is also increasingly a question in the network of non-governmental organisations that provide the wiring for the world economic system; from Swift, the organisation that handles international financial transfers between banks, to Icann which regulates the internet.

Until last week, Fifa looked like the archetype of an international organisation that was slipping out of the control of the west. Bids to stage the 2018 and 2022 World Cups from England, Spain, the Netherlands, the US and Australia had been rejected in favour of Russia and Qatar. The western press was full of accusations of corruption at Fifa. But Mr Blatter and his acolytes brushed them aside.

The dramatic arrests in Zurich changed this picture of western powerlessness. This was something that only the US could or would do. Switzerland has launched its own investigation but is unlikely to have acted alone, without prompting from the FBI in ­Washington.


But what allowed America to act in this way? Is that US power transferable to other domains? And is it slipping?

One key fact is the centrality of the American financial system to the world economy — something that in turn rests on the importance of US-based banks and the role of the dollar as the pre-eminent global reserve currency. The US has standing in the Fifa cases because allegedly corrupt transactions were made through banks operating in the US.

On other occasions, it is not just the direct use of the US financial system that drags outsiders into America’s net. Some US sanctions regimes force foreigners to obey American law, even outside the US, or to be subjected to sanctions themselves. Swift, for example, is based in Belgium. But had Swift’s directors refused to obey US law imposing sanctions on Iran, they risked being refused entry to America. So they chose to co-operate.

This is the kind of power that no other country can yet wield. China, for instance, is a huge market and is not averse to using its market-power to threaten countries that do things Beijing dislikes, such as meet the Dalai Lama or recognise Taiwan. The renminbi is not a global currency however and access to the Chinese financial system is not yet critical to a global business. Nor does a threat to bar an individual from travelling to China have the chilling effect of a potential travel ban to the US. (As for the Russian travel bans, issued last week on 89 EU citizens, few would regard these as an unbearable imposition.)

Could this change? Possibly. But it would probably require the Chinese currency to become a global reserve currency to rival the dollar. That is why the IMF’s decision later this year about whether to include China in the basket of currencies from which it makes up its special-drawing-rights will be keenly watched. Such a move would be a visible step along the road to turning the renminbi into a global reserve currency. That, in turn, might ultimately threaten the dollar’s unique global position — and the power that it confers on the US.

The US may oppose any IMF move to elevate the status of the renminbi. It will have to tread carefully, however. Opposition that was based on the fact that China’s currency is not yet fully convertible could well be seen as legitimate. Opposition that looked like little more than an unjustified effort to hang on to a privileged position could end up weakening the US.

For the final lesson of the Fifa affair is that America’s power does not just rest on the size of its market or the power of its military. Its justice system also still possesses a moral authority that stems from its roots in an open, democratic and law-governed society.

The justice dispensed by the US system can seem rough, particularly given its use of threats and plea bargains. But if the US Department of Justice says there is a serious case to answer, it still carries global credibility. The same benefit of the doubt would not be extended to a prosecutor in Moscow or Beijing.

China is certainly closing the wealth gap with America, just as Asia is closing the gap with the west. But the reputation of American institutions for integrity remains a vital intangible asset. It is that reputation that allowed the US to tackle Fifa.


Gideon Rachman


Fonte: FT