Comment, analysis and other offerings from Friday’s FT,
Philip Stephens: Now the Franco-German question
Germany will have to learn leadership, and France followship. Both will find it a wrenching experience.
The rules of the European game changed for ever with the reunification of Germany, says the FT’s Stephens. It has taken the euro crisis to spell out the brutal implications. One has to feel some sympathy for Angela Merkel. Germany’s chancellor has been excoriated in turn for absent and for oppressive leadership. At one moment she is said to be standing idly by while the euro burns, and at the next of issuing teutonic diktats about the terms of its survival. Germany, the rest of us have been reminded, has always been too big for Europe. The new German question asks whether Europe – whether it is the European Union or a more closely integrated eurozone – can find a new equilibrium now that Germany is so visibly the preponderant power.
Martin Wolf: Mind the gap: the perils of forecasting output
The Office for Budgetary Responsibility is a welcome innovation within the UK policymaking framework. Too often governments have manipulated the numbers. The OBR should end such finagling, says FT columnist Martin Wolf. More important, it should end the fear of such finagling. Greater confidence in the probity of official forecasts is a public good. Yet it is crucial to distinguish probity from correctness. The OBR is honest and competent. How could it be otherwise with my former colleague Robert Chote at its head? But it might still be wrong. Economists just do not know very much. In the OBR’s November forecasts it further lowered potential output at the start of 2016 by 3.5 per cent. As a result, my colleague Chris Giles has estimated that the level of potential output forecast for 2017 is 18 per cent below that implied by the 1997-2008 trend. This is a huge fall.
Lawrence Summers: IMF must play its part in any euro solution
European leaders will meet on Thursday and Friday for yet another “historic” summit at which the fate of Europe is said to hang in the balance. Yet it is clear that this will not be the last meeting convened to deal with the financial crisis, says Summers, Charles W. Eliot university professor at Harvard. If public previews from France and Germany are a guide, there will be commitments to assuring fiscal discipline in Europe and establishing common crisis resolution mechanisms. There will also be much celebration of commitments made by Italy, and a strong political reaffirmation of the permanence of the monetary union. All of this is necessary and desirable, but the world economy will remain on edge. Given that Europe is the largest single component of the global economy, the rest of the world has a stake in helping to avoid major financial accidents. It also has a stake in aiding continued growth in Europe and ensuring that the European financial system supports investment around the world – particularly as cross-border European bank lending dwarfs that of banks from any other region.
Nicholas Stern: A profound contradiction at the heart of climate change policy
As the negotiations at the UN climate change summit in Durban reach the critical stage, we must not overlook a fundamental contradiction between the way global fossil fuel reserves are evaluated and long-term policy goals, writes Stern, I.G. Patel professor of economics and government at the Grantham Research Institute. By ignoring this contradiction, companies and markets, as well as governments, are undermining management of the huge risks that rising levels of greenhouse gases pose to their survival. At Cancùn last December, countries attending the last climate change summit agreed on curbing annual greenhouse gas emissions in order to avoid global warming of more than 2 centigrade degrees from the mid-19th century, which would carry unacceptably large risks.
Mattoo & Subramanian: Leave China out of a trade pact at your peril
When trade ministers meet in the World Trade Organisation in Geneva next week, they will arrive with a set of marching orders from their bosses, write Aaditya Mattoo and Arvind Subramanian, research manager at the World Bank and senior fellow at the Peterson Institute for International Economics. respectively. In Cannes last month, the Group of 20 leaders recognised that the present approach to the Doha round could not succeed and that the world would have to confront broader challenges facing the multilateral trading system. One of the biggest challenges is how to deal with the rise of China. Ministers, in our view, need to prepare for a new “China round” of multilateral trade negotiations.
Gavron and Tugendhat: We have to tackle the issue of executive pay
The recent findings of the High Pay Commission have highlighted the growing gap between the remuneration of top executives and their employees over the past 30 years, write Bob Gavron and Christopher Tugendhat, a Labour member of the House of Lords and a Conservative member respectively. Excessive executive pay increases are part of a long-term trend, it seems, and not just a one off – something Nick Clegg reinforced a few days ago when he said that the government would bring forward plans to tackle the issue. Last year, directors of some of Britain’s biggest companies saw their pay rise 49 per cent, while the pay of FTSE chief executives increased 43 per cent. Yet until recently the two political parties of which we are members have tip-toed round the issue. We have prepared a bill to be introduced into the House of Lords next year that may help to bring the issue of executive pay under control. The bill, which builds on one that we introduced in 2009 with the support of Lord Taverne, consists of three elements that, to be fully effective, must be taken together.
Editorial comment: Draghi shelves the big bazooka
Two months into his stint at the helm of the European Central Bank, Mario Draghi has followed a fairly orthodox view of the institution’s responsibilities and limitations. As European leaders gathered in Brussels for the latest summit aimed at shoring up the euro, the ECB’s new president announced a raft of measures to help the region’s deeply troubled banks. But he signalled that the region’s sovereigns would have to look to themselves for salvation. From December 21, the ECB will launch two new refinancing operations which will last three years and provide unlimited liquidity to European lenders. The collateral requirements banks must meet to make use of these facilities will also be relaxed.
Lex on EFSF reliance
This is no stress test, Lex says. The European Banking Authority on Thursday spelt out what banks could and could not do to reach its 9 per cent minimum core tier one capital ratio, its so-called sovereign buffer, by June. Investors may be relieved that the extra capital it wants banks to raise has risen by only €9bn, to €115bn, since its September update. But they should worry that the EBA labours under the delusion that Europe’s sovereign bail-out mechanism, the European Financial Stability Facility, will achieve its objective.