Comment, analysis and other offerings from Wednesday’s FT,
Martin Sandbu: Beware the ECB’s brave new world
Jean-Claude Trichet, president of the European Central Bank, has torn up his institution’s implicit rule book by buying Italian and Spanish sovereign debt, writes the FT’s economics leader writer. Does this make him Europe’s great defender, who has turned back a near-fatal onslaught by market forces? Or is he rather a Molotov cocktail-throwing radical, tearing down the foundations of the eurozone’s social contract by opening the door to monetised public deficits? There is a more likely possibility: that for all its radicalism, the ECB’s action will not have much effect at all.
Joseph Stiglitz: How to make the most of the long malaise
The only good thing about the continuing barrage of bad economic news is that it could have been worse, writes the 2001 Nobel Prize in economics recipient and professor at Columbia University. All three rating agencies could have downgraded the US, stock markets could have fallen further and the US could have defaulted on its debt. The general view is now that in this, the next round of the Great Recession, there is a high risk of things getting worse, with no effective instruments at governments’ disposal. The first point is correct but the second is not quite right.
Jim O’Neill: Panic measures will ruin the Bric recovery
Perhaps not surprisingly given the coincidence of major economic issues in both Europe and the US, many respected commentators are arguing that the world is about to end, writes the chairman of Goldman Sachs Asset Management. Immense challenges now face the downgraded US and the eurozone, as it tries to keep its currency alive. Luckily, however, there are other important global players and economic drivers – most importantly China, and its worries about inflation.
John Kay: Loans to a king do not always pay
The market panic began when the US succeeded in reaching settlement, not when it failed to do so, writes the FT commentator. There is sense in this: the debate about the debt ceiling accelerated recognition that sovereign debt repayment is more about politics than economics. Businesses and individuals pay their debts because they have to, but sovereign borrowers are in a different category. Sovereign immunity follows the logic of sovereignty. The courts impose the authority of the king and, therefore, cannot be used against the king.
Stephen King: Rouble poses worrying parallels for euro crisis
By buying Italian and Spanish debt, the European Central Bank has certainly done the right thing, writes the group chief economist at HSBC. The rise in Italian yields over the summer was less a play on Italy’s own difficulties – high levels of government debt, a bit too much “bunga bunga” – and more a reflection of existential concerns over the euro’s future. By intervening in the eurozone’s bond markets, the ECB has become a lender of last resort following the precedent set by the Federal Reserve in late 2008 and through 2009. In a world characterised by growing financial panic, that has to be good news. Yet the ECB can only take things so far.
Quentin Peel: Merkel faces revolt over eurozone deal
Battle lines are being rapidly drawn up in the German Bundestag for what promises to be a bruising debate over the crisis measures to stabilise debt markets in the eurozone, writes the FT’s international affairs editor. Angela Merkel, the chancellor, and her finance minister Wolfgang Schäuble face a revolt among their own supporters in both the Christian Democratic Union and the Free Democratic Party, junior partner in the ruling coalition in Berlin, over the deal they agreed last month with their 16 eurozone partners in Brussels.
Editorial: London’s week of humiliation
Over the past four days, the state has lost control of England’s streets, says the FT. What began as localised unrest following the police shooting of a man in north London has exploded into an orgy of arson, looting and feral violence which has spread through the capital and to other English cities. The lawlessness has destroyed businesses in poor pockets of London and tarnished the city’s reputation the year before it is due to host the Olympic Games. The government must now do what is necessary to regain control of the nation’s streets.
Lex: The dollar
How valuable is the exorbitant privilege? asks Lex. The ratings downgrade of US sovereign debt has not erased the dollar’s special position – as the numeraire of international transactions, the currency of choice for storing trade surpluses and the instinctive home for money in troubled times. But it is a forceful reminder that the special status could some day be lost.
Analysis: Carmaking
The Germans are shaking up carmaking, going after competitors in every segment. With products such as BMW’s 1 Series and Minis and Audi’s A1, they are stealing small-car customers from the likes of France’s Peugeot and Citroën and Italy’s Fiat. They are building a lucrative business in China, now the world’s largest car market by volume, where drivers favour some of their most profitable vehicles: big executive saloons such as the Mercedes S-Class and Audi A8, available in special stretch versions for the chauffeur-driven kingpins of the Middle Kingdom. The Germans’ counter-cyclical success offers lessons to other companies seeking to survive and prevail amid a darkening corporate landscape.