Comment, analysis and other offerings from Monday’s FT,
Edward Luce: The long haul in Washington gridlock
At this stage in America’s electoral calendar, hopes start to shift on to the year after next, writes the FT’s Edward Luce. “Nothing’s going to happen before 2013,” goes the refrain. In this (if not every) cycle, that is likely to be true. In what counts as an accomplishment nowadays, Washington last week staved off the latest in a straight flush of threatened government shutdowns by passing a bill to keep the federal system going until September. Congress also prolonged last year’s mini-stimulus by another two months. As with the earlier rounds of fiscal chicken that have dominated 2011, both moves were better than failure. But in the process they have pencilled two further possible showdowns into what was an otherwise sparse 2012 legislative calendar.
John Gieve: A better plan for Bank of England governance
Even if European leaders avert a disastrous collapse of the eurozone, the prospects for the coming year are bleak. Much of Europe, including the UK, seems to be slipping back into recession, writes Gieve, deputy governor of the Bank of England from 2006 to 2009. Growth was slowing anyway as confidence ebbed and real incomes declined but the ill-judged decision to give European banks nine months with the option of shrinking their balance sheets to raise core capital ratios to 9 per cent is adding a fierce credit squeeze to the mix. It is a painful illustration of how prudential measures can affect the broader economy and of the tensions that can arise between policies to stabilise the economy and policies to safeguard the financial system. It shows how desirable it is that both are decided together and therefore bears on the current discussions of the Bank of England’s governance.
Wolfgang Münchau: UK will fare better in this Anglo-French spat
Last week’s series of comparative statements were obviously co-ordinated. What I find intriguing about them is their sheer desperation, writes the FT’s Wolfgang Münchau. The French economic policy elite no longer understand the world. They genuinely believe that they are doing better than the British. The French private sector is in much better shape. The country is committed to the righteous path of fiscal austerity. So why should the rating agencies be downgrading France and not Britain? It is just not fair. Or is it?
Ronald McKinnon: Oh, for an Alexander Hamilton to save Europe!
To stem the unfolding sovereign debt crisis and save the euro, European summits seem to provide too little, too late, says McKinnon, a professor at Stanford University. A look back to the late 18th century could provide insights into what can be done to resolve a sovereign debt crisis. The solution to an American at least is clear: Europe needs not just a centralised finance ministry; it need its own Alexander Hamilton. After the revolutionary war in 1790 the fledgling US government was also facing paralysing gridlock between major protagonists over a huge, seemingly unsustainable debt problem. During the war, the taxing ability of most of the individual states had eroded, but to support George Washington’s army and cover ordinary government expenditures, many states – particularly in the north – had borrowed by issuing paper notes.
Eswar Prasad: India must not let slip its moment for reform
The Indian economy is in the doldrums: industrial output has stalled, inflation remains high, the rupee has plunged to an all-time low and foreign investors are retreating en masse, writes Prasad, a professor at Cornell University and a senior fellow at the Brookings Institution. Is this a temporary rough patch or is the shine coming off? India, like many other emerging markets, is not immune to global economic turmoil. Yet there is a palpable sense that the economy is losing its direction as political paralysis sets in, stalling reforms that the country desperately needs. After a few glorious years, when the economy seemed to have switched permanently to a high growth path, the domestic narrative was that India would soon decisively eliminate the growth gap with China. Unfortunately, rather than pushing forward with reforms to cement these gains, a sense of hubris set in.
Editorial comment: A plan that will not save Europe
Leaders emerged from the latest summit that should have rescued Europe with two main proposals in hand. The first was a set of stricter budgetary rules to form a “fiscal compact”. The second was a pledge to increase the International Monetary Fund firepower to help it rescue the troubled European periphery. The plan would require European Union countries to lend €200bn from their central banks. If this was forthcoming – a big if – it would supplement the €290bn the IMF can currently deploy. EU leaders hope that non-European countries will then match their contribution with a further €200bn.
Lex on bank accounting
Plan B, by definition, is no one’s first choice. But for accounting rules it is becoming the default option. Consider banks’ reporting of their derivatives holdings. US rules allow banks to present net exposures, while European banks, following international rules, publish gross numbers. If the five biggest US banks by assets had been made to switch to international rules, as America’s standard-setter had been considering earlier this year, their balance sheets would have swollen by about 40 per cent overnight. Last week, though, plan B was spelt out: no switch, and even longer footnotes.