Comment, analysis and other offerings from Wednesday’s FT,
The eurozone was launched on a wing and a prayer, writes the FT’s Martin Wolf. The wing has fallen off and the deities are not listening to prayers. Everyone focuses on averting a crash. But it is as vital to ask how to fly securely. How, then, did the eurozone fall into its plight? A part of the answer is that it lacked mechanisms for handling crises, that its members have diverged hugely and that it was blighted by its early successes.
Editorial comment: A slippery rescue
It is not only the execution of Greece’s deficit reduction plan that has been slipping. So has the determination of its official creditors – the eurozone and the International Monetary Fund – to hold Athens to the commitments it has made. The decision to “merge” the public accounts for 2011 with those for 2012, for the purpose of assessing Athens’ compliance with the conditions in the international rescue plan, is a fudge. Its only plausible function is to postpone the point at which the rescuers must decide on the consequences of Greece missing its targets. In the meantime, however, the eurozone desperately insists to be judged on what it says and not on what it does, says the FT.
Lex: Emerging markets, decoupling decoupled
Choose your milestone. On Tuesday, as the S&P 500 dropped into a bear market, so emerging markets completed a year of underperforming the developed world. Despite evidence that emerging economies are logging far stronger growth than the developed world, emerging market stocks are now available at a slight discount, reversing a norm that had held since 2007, says Lex.
Analysis: US tax system, a return to reform
Ron Wyden, a Democratic senator from Oregon, does not try to conceal his disgust, writes the FT’s James Politi. It is not at the salad on which he chomps from a plastic box or even the rain streaming down the windows of the Dirksen office building on Capitol Hill. The object of his ire is, however, something that has come to be just as fundamental to life as food and the weather. “Our current tax system,” he says, “is an anti-growth mess.” Mr Wyden has been fighting for years for a dramatic overhaul of the tax code, a main pillar of America’s economic structure. But now, he argues, the case for making big changes is more powerful than ever, with the recovery close to stalling and both fiscal and monetary policy either exhausted or severely constrained.
EU ministers look at bank aid plans
European Union finance ministers are examining ways of co-ordinating recapitalisations of financial institutions after they agreed that additional measures were urgently needed to shore up the region’s banks, write the FT’s Peter Spiegel and Alex Barker. Although the details of the plan are still under discussion, officials said EU ministers meeting in Luxembourg had concluded that they had not done enough to convince financial markets that Europe’s banks could withstand the current debt crisis.
European banks deliver profit warnings
Some of Europe’s biggest banks have delivered yet more bad news to investors with Deutsche Bank leading a round of profit warnings – the result both of a collapse in eurozone trading activity and ever steeper funding costs. Josef Ackermann , Deutsche chief executive, revealed the bank had abandoned a long-standing €10bn pre-tax profit target for 2011, due to a “significantly lower than expected” result at its investment bank in the three months to end-September, sending the group’s shares down 4 per cent to €24.64. He also announced 500 job cuts, writes the FT’s Patrick Jenkins.
Dexia déjà vu: parallels with Bear Stearns
News that Franco-Belgian bank Dexia is being supported by the state should prompt déjà vu. We have indeed seen it before: Dexia was one of the first banks rescued after Lehman’s collapse. Perhaps, though, Dexia – this time getting loan guarantees and state support for a “bad bank” – matters more than it seems. Like Bear Stearns in 2008, it is a warning of bigger troubles ahead. Consider some parallels with the collapse of Bear. Bear, reliant on wholesale funding, ran into trouble after losing access to funding. Money market measures of willingness to lend to eurozone banks have in the past three months risen exactly as much as their US equivalents in early 2008, writes the FT’s James Mackintosh.