Comment, analysis and other offerings from Tuesday’s FT,
Otmar Issing: Slithering to the wrong kind of union~
The crisis of European economic and monetary union seems to confirm a long-standing belief that monetary union cannot survive without political union, writes Issing, president of the Centre for Financial Studies and a former member of the European Central Bank’s executive board. I belonged to a group that argued that the euro should have been preceded – or at least accompanied – by political union. Many observers are now interpreting the European Union’s manifold financial rescue measures to support Greece as a step in the direction of political union. Therefore, should people like me not be happy with this development? In fact, the opposite is true. Connecting the initial idea of a political union with developments currently under way is both logically flawed and politically dangerous. In short: a consistent concept of a political union should be based on a constitution, and imply a European government controlled by a European Parliament, elected according to democratic principles.
Kenneth Rogoff: The bullets yet to be fired to stop the crisis
Four years into the financial crisis, it is becoming increasingly clear that the biggest deficit is not in credit, but credibility, writes Rogoff, professor of economics at Harvard University. Markets can adjust to a downgrade of global growth, but they cannot cope with a spiralling loss of confidence in leadership and a growing sense that policymakers are disconnected from reality. What needs to be done to move away from the precipice? At the root of today’s credibility deficit is a failure to come to grips with the long, slow growth period that is typical of post-financial crisis recovery. Too many decisions, for example the recent withdrawal of monetary stimulus by the European Central Bank and the US Federal Reserve have been predicated on overly rosy growth projections.
Steven Rattner: Americans need more than small bore moves
Read what you choose into the gyrating US stock market, says Rattner, formerly counsellor to the Treasury secretary and lead auto adviser. Blame, if you like, the dysfunction in Washington and the unsatisfying deal that led Standard & Poor’s to remove America’s triple A rating. Or worry about Europe, lurching from one phase of its sovereign debt crisis to another. And of course, many investors fear that torrid growth in emerging market countries is slowing quickly. While these cross-currents weigh on stocks, the principal factor behind the swoon in equities is an American economy that is decelerating without a persuasive plan from either political party for addressing it. The economy is enmeshed not in a virtuous circle but in a vicious one, in which weak consumer spending helps restrain American companies from hiring, which in turn means fewer Americans at work generating spendable income, and so on.
Inside S&P’s homework disaster
President Barack Obama often talks of the need for Americans to hone their numerical skills if the US is to compete in the global economy. S&P’s botched downgrade must help his case: it is time for action when even the guardians of a nation’s credit rating struggle to carry a one. When the debt ceiling deal emerged last week S&P instructed their triple A team of analysts to crunch the numbers away from the media hubbub. Pizza boxes stacked up on the executive floor, while management braced for the backlash if the numbers guys came up with a downgrade verdict. Even so they must have been caught out by the ferocity of the reaction, writes FT Alphaville’s John McDermott.
Editorial comment: Desperate measure for desperate times
Eurozone leaders have vowed to do “whatever it takes” to ensure the euro area’s stability. The European Central Bank’s decision to buy Italian and Spanish bonds makes it the only eurozone institution to match such slogans with actions. The rest of the eurozone governing system – its elected heads of governments above all – must now show equal determination in order to solve this existential crisis. The ECB was right to reactivate its Securities Markets Programme, through which it has earlier made outright purchases of Greek, Irish, and Portuguese government bonds.
Lex: Investors search for havens
The phrase “safe haven” is tautologous; a haven is somewhere that is safe. It also at present seems chimerical. Are there any havens when the world’s safest financial instrument, the US Treasury bond, has been downgraded and the safest commodity – gold – is at an all-time high? In absolute terms, nothing is safe. But in relative terms, maybe there is safety to be found. Assume that the dollar continues to weaken; that the global economy also weakens; that inflation grips the emerging world, with stagnation in the west; and that investors fear a repeat of Lehman-style chaos.