Comment, analysis and other offerings from Monday’s FT,
Clive Crook: Fed must fix on a fresh target
A prevailing misconception about US economic policy is that no good options remain, writes the FT’s chief Washington correspondent. Fiscal policy is all used up. With interest rates at zero and its balance sheet engorged, the Federal Reserve is powerless too. Revised figures for recent growth show a failing recovery – and there is nothing anybody can do. This is wrong. Policymakers could act if they chose to. Over the next few months, it is especially important that the Fed shows some gumption – but the point applies more broadly. Politics, not economics, has neutered US policy.
Gillian Tett: The Swiss enter Alice in Wonderland territory
Last week, something astonishing happened in Switzerland, writes the FT’s US managing editor. In the London interbank offered rate market – where traders bet on future rates – implied Swiss interest rates plunged into negative territory. Yes, you read that right: if you want to lend Swiss francs or make a deposit in the next year, you must pay for that privilege, or so the Libor market implies. The normal assumptions of finance have been turned upside down; call it Alice in Wonderland economics.
Jim Flaherty, Pravin Gordhan, George Osborne, Tharman Shanmugaratnam and Wayne Swan: Global recovery requires political courage
A new global response is therefore needed to support a sustainable recovery, write the Canadian, South African, UK, Singaporean and Australian finance ministers. Credible fiscal consolidation in countries with large deficits must be matched by a rebalancing of global demand in order to support growth. The world faces a crisis of confidence. We all knew the recovery from the global financial crisis would be prolonged. However, the more serious malaise today is the lack of confidence in efforts by governments to address the structural problems that underpin weak growth, high unemployment and unsustainable fiscal balance sheets. A new global response is therefore needed to support a sustainable recovery. Credible fiscal consolidation in countries with large deficits must be matched by a rebalancing of global demand in order to support growth.
George Soros: Three steps to resolving the eurozone crisis
A comprehensive solution to the euro crisis must have three major components: reform and recapitalisation of the banking system; a eurobond regime; and an exit mechanism, writes the chairman of Soros Fund Management and of the Open Society Institute. Financial markets might not offer the respite necessary to put the new arrangements in place. Under continued market pressure, the European Council might have to find a stopgap arrangement to avoid a calamity. It could authorise the ECB to lend to governments that cannot borrow until a eurobond regime is introduced. But only one thing is certain: these three problems must be resolved if the euro is to be a viable currency.
Editorial: The dangers of youth’s labours lost
If proof were needed of the incendiary consequences of persistently high youth unemployment, it has been in ample supply recently – most dramatically in the Arab uprisings, says the FT. There were, of course, many factors behind that region-wide explosion of popular discontent. But among the most potent was the seething frustration with a system in which upwards of 40 per cent of youths could not find work. The looting that ravaged English cities last week happened in a country where one in five young people is jobless. The picture in the US is no better. In continental Europe it is worse.High youth unemployment is associated with ills such as higher crime rates and lower health levels. A year of unemployment early in a career can permanently reduce a worker’s earning power. So what can be done?
James Lamont: Economic vulnerability mars Singh’s record
When Manmohan Singh tops the battlements of Delhi’s Red Fort on Monday to deliver India’s independence day address, many expect him to lament the high-profile corruption scandals that beset his administration, writes the FT’s Delhi bureau chief. One columnist, Kiran Bedi, a former senior police officer, has dared the prime minister to seek “redemption” from his country’s 1.2bn people. Another urges him to declare personal disappointment in scandals that have mired the telecoms industry, the Commonwealth Games and the top brass of the military. But as Mr Singh speaks from the Mughal-era ramparts, it is his economic defences that look most vulnerable.
Lex: Israeli economy
About one in 30 Israelis – about 250,000 in all – is out on the streets, writes Lex. Initially inspired by a Facebook campaign against rising cottage cheese prices, the heaving mass now demands nationwide social reforms and more affordable living. The cause is the country’s vast economic inequality; the effect is falling share prices. Since the protests started, investors have fled companies owned by Israel’s wealthiest tycoons on fears that the government may call for a split-up of their conglomerates. In the last month, Scailex has underperformed the market by 28 per cent; Discount Investment and Koor by about 35 per cent each.