Comment, analysis and more from Wednesday’s FT,
Martin Wolf: Merkozy failed to save the eurozone
If the most powerful country in the eurozone refuses to recognise the nature of the crisis, the eurozone has no chance of either remedying it or preventing a recurrence, writes Wolf. Yes, the ECB might paper over the cracks. In the short run, such intervention is even indispensable, since time is needed for external adjustments. Ultimately, however, external adjustment is crucial. That is far more important than fiscal austerity.
Raghuram Rajan: Europe’s pain must be widely shared
In the best of worlds, distressed countries would default as soon as private markets stopped funding them, and they would impose the losses on private bondholders, writes the professor of finance at the University of Chicago’s Booth School. In the world we live in though, if the view is that Italy and Spain are solvent, or are too big to fail, then official funding should be structured so that it gives these countries their best chance. The simplest solution is that official funding should be treated no different from private debt – best achieved if official sources buy country bonds as they are issued (possibly at a predetermined yield) and agree to be treated on par with private creditors in a restructuring. As the country regains market confidence, the official funding can be reduced, and eventually the bonds sold back to the markets.
John Kay: Picking financial models
The anthropologist Edward Evans-Pritchard described the fallacy of “if I were a horse”, writes Kay. Since we have not been, and never will be, horses, our speculations are unlikely to connect with reality. We should not use categories derived from our own experience to interpret behaviour in a different culture and environment.
Heinrich Winkler: The fall of the Berlin Wall to a US of Europe
Many commentators say that Friday’s summit is the very last chance for the eurozone leaders to resolve the crisis, and even save the currency union, says the author and professor emeritus of history at Humboldt University. But what the euro and the EU need, is neither activism nor fatalism. They need a well-considered concept for the future – a concept that can restore the credibility of the European project.
John Plender: Banks face long path out of the woods
Monday’s Franco-German deal for a new set of eurozone fiscal rules finally delivered some modest relief to benighted investors in bank shares, who have been subjected to intense misery in recent months, writes the FT’s Plender. By the weekend, following Friday’s European Union summit, we will have a clearer notion of whether eurozone governance has been put on a solid and durable footing that measures up to the scale of the sovereign debt crisis. Whether bank shares will be out of the woods if the omens appear good is another matter.
Global Insight: Sarkozy rides through the storm
Considering the series of previous failed initiatives to end the crisis and the pernicious effect it is having on the economy (unemployment in France has hit 9.8 per cent and some are predicting recession next year), Mr Sarkozy is weathering the political tempest better than might be expected, writes the FT’s Hugh Carnegy. With just over four months to go until he faces the first round of a presidential election, his supporters have not given up hope that he can still buck the ominous trend of voters turning out eurozone governments and win back the Elysée in the spring.
Beyondbrics: Brazil’s recessionary silver lining
So Brazil could be headed for a technical recession after it reported an admittedly very slight contraction in economic growth for the third quarter of 0.04 per cent compared with the previous three months, says Joe Leahy of the FT. Is there any reason to panic?
Lex on the S&P warning and the EFSF
With the future of the eurozone in doubt, the idea that any of its strongest members is still a top-notch credit must be fanciful, says Lex. If the eurozone’s core loses its triple A status – which looks likely if there is not significant progress at this weekend’s summit – the bloc’s finances could become unsustainable. It may not come to that, however.
Inside Business: Who is afraid of the big bad box store?
For about 48 hours, Manmohan Singh, the prime minister, appeared to have pulled off India’s first major economic reform for years, notes the FT’s James Lamont. A cabinet decision to allow foreign retailers to own majority holdings in local supermarket chains, and to own outright single brand stores, had promised to shake up a sector that universally condemns consumers to open vegetable markets and pokey stores. This soon backfired spectacularly.
Editorial: UK life sciences boost
Britain’s edge in life sciences is under threat as emerging markets offer cheaper research facilities and easier access to patients for the costly clinical trials that make or break experimental drugs, says the FT. Pfizer’s decision earlier this year to close its UK research facility was a wake-up call that reputation alone will not guarantee Britain’s advantages. So it is right that the government has responded with measures this week to energise innovation and investment.