Comment, analysis and other offerings from Wednesday’s FT,
Martin Wolf: The pain in Spain will test the euro
One definition of insanity is to do the same thing over and over again and expect different results, writes the FT’s Martin Wolf. Germany’s determination to impose a fiscal hair shirt on its eurozone partners did not work in the “stability and growth pact”. Is it going to work in the “treaty on stability, co-ordination and governance” agreed last week? I doubt it. The treaty reflects the view that the crisis was due to fiscal indiscipline and that the solution is more discipline. This is far from the whole truth. Rigorous application of such a misleading idea is dangerous.
Ian Bremmer and Clifford Kupchan: How to keep pressure on Iran and avoid rise in oil prices
Benjamin Netanyahu’s meeting with President Barack Obama on Monday went as well as could be hoped, write Bremmer and Kupchan, president and practice head at Eurasia Group respectively. The Israeli prime minister stressed his oft-repeated desire for the US to establish “red lines” for Iran, but avoided any appearance of a disconnect with Washington. Mr Obama promised that the US would watch Israel’s back and continue to deploy the latest tool in its diplomatic arsenal: financial sanctions, in this case powerful disincentives to importing Iranian oil. So we are unlikely to see an Israeli military strike soon, as Mr Netanyahu seems willing to give sanctions time to work.
Larry Tabb: Investors will shoulder price of bank regulation
Mea Culpa? Yes, the banks did wrong, says Tabb, founder and chief executive of Tabb Group. They became overlevered; hopped-up on greed, they took on more credit than a loan shark would have extended. When the bets turned sour, they went cap in hand to the taxpayer. Once bailed out, the banks threw petrol on the fire by not being contrite, hoovering up cheap cash, paying bonuses as if there were no tomorrow and refusing to develop a set of even the least offensive business restrictions. So what did legislators and regulators do?
Jonathan Chait: Welcome to the GOP’s great political experiment
In 2005 Mitt Romney decided to run for president, and set about making himself acceptable to the Republican party’s conservative base. He reversed his pro-choice stance, abandoned his support for cap and trade, and discovered a set of almost brutally nationalist foreign policies, writes Chait, a political columnist for New York magazine. The journey from centre-right to right-right nearly killed him, but he made it. Announcing his exit from the 2008 race before the Consevative Political Action Committee, he was introduced to wild applause as a “conservative’s conservative”.
Chandran Nair: We should stop talking of an Asian century
As economic power shifts from west to east, talk of an Asian century is once again in the air, says Nair, author of ‘Consumptionomics’. President Barack Obama’s unveiling of a new defence strategy with the Asia-Pacific region at its heart merely underlines the trend. The US clearly wants to ensure its “exceptionalism” allows it to keep playing a leading role in what almost everyone believes will be the world’s centre of economic gravity. Such thinking is muddle-headed. No region or nation will dominate the 21st century. The next century will not be Asia’s – or anybody’s. Even if China and India become economic powerhouses, they will not be able to dominate global politics the way the west – particularly the US – did in the 20th century.
Ian Birrell: Forget mansions and lower the 40p tax band
Every successful leader of the postwar age in Britain has understood a basic truth of politics: success depends on winning over the strivers and showing them you are on their side, notes Birrell, a former speech writer to David Cameron, is a political commentator. As David Cameron’s strong personal ratings show, he remains successful in reflecting voters’s hopes despite the handicap of his wealthy background. But as he is constantly reminded by his party’s internal polling and by Andrew Cooper, his director of strategy, the next election swings on the cause of fairness.
Lex on corporate debt
It looks like a complete no-brainer for companies to take advantage of cheap debt. Dollar-denominated corporate bond rates hit a record low last week of 3.27 per cent, according to Barclays Capital. And while US investment grade issuance last year was still about one-third below that in the two years before Lehman, and one-fifth lower in Europe, according to Dealogic, many companies are lapping up negative real interest rates. In January, London-listed beer group SABMiller placed $7bn of bonds, $1bn of which pay a coupon of just 1.85 per cent. And in the US, wireless provider AT&T last month placed $3bn, $1bn of which will pay just 0.875 per cent.
Editorial comment: Law meets politics in the eurozone
The eurozone’s chosen solutions to the debt crisis often involve taking a legalistic hammer to club down politics wherever it rears its unpredictable head. The futility of this approach was exposed when the new fiscal compact ran headlong into political reality before the ink on the treaty paper had dried. On the day the treaty was signed by all EU members bar the UK and the Czech Republic, Mariano Rajoy, Spain’s new prime minister, said he would no longer target the 4.4 per cent deficit agreed with EU counterparts for 2012. Worse than expected growth led to a bigger than planned 2011 deficit. Rather than aggravate the recession, Mr Rajoy now aims for 5.8 per cent.