5 augustus 2008

The Economist vindt haar tweede adem en zweert haar markthaat en Eurofilie eindelijk terug af...

Het Britse magazine “The Economist” heeft kennelijk opnieuw haar oude libertarisch-conservatieve drive gevonden, en dat is maar goed ook, want de laatste jaren stelde ik mij vaak vragen bij bepaalde van hun standpunten. De Europese Unie is terug iets dat bestreden moet worden, in plaats van bejubeld, en de vrije markt moet terug haar ingang vinden in de financiële sector, in plaats van allerhande contraproductieve overheidsingrepen.

In die optiek, sprak het artikel “Housing bill: A hair of the dog” over de nakende overheidsinterventies in de Verenigde Staten rond de overheidsfondsen Freddie Mac en Fannie Mae boekdelen.
Congress has been too lenient on Fannie Mae and Freddie Mac. It is hard to deal with an alcoholic. But most experts would agree that the answer is not to leave your credit card behind the bar, persuade the pub landlord to stay open till dawn and leave the inebriate to get on with it. Sadly that is how the American Congress, in its new housing bill, is treating those troubled mortgage groups, Fannie Mae and Freddie Mac. A rescue of the pair was inevitable. With some $5.2 trillion of debt owned or guaranteed by the duo, their collapse could have ushered in financial catastrophe. Nor could the government close Fannie and Freddie to new business and wind down their old operations. Without them, the mortgage market in America would shut.

But imagine that Fannie and Freddie had turned for financial support to Hank Paulson not as treasury secretary but in his old incarnation as head of Goldman Sachs. Goldman would have insisted that the companies paid a high price: shareholders would probably have been wiped out. Just look at the deal that Lone Star, a private-equity firm, has struck with Merrill Lynch to buy the latter’s dodgy mortgage-related assets: not only is Lone Star paying a mere 22 cents on the dollar, Merrill is lending it most of the purchase money. By comparison, the federal government’s negotiating skills look more like those of Donald Duck than of Donald Trump.

The housing bill imposes no changes in management or approach on Fannie and Freddie and no penalties on shareholders. The American taxpayer is instead given two flimsy protections. The first is that the treasury secretary will have the right to dictate terms if the government does have to stump up equity capital. In the past Mr Paulson could generally be trusted to do the right thing, but he will be gone in six months. The second protection is the creation of a new regulator. But the existing regulator has been hamstrung by Congress, thanks to the immense lobbying clout of Fannie and Freddie. Shamefully, a proposal to eliminate their lobbying budgets was not even put to a vote on the Senate floor. Government departments are not allowed to lobby Congress; why are these two firms, whose debts now have an explicit government guarantee, permitted to do so?

If Fannie and Freddie are too important to be allowed to collapse, and the American government is really responsible for their debts, then they should be nationalised. The current arrangement allows managers and shareholders to take all the profits and leave the losses to the taxpayer. If they were nationalised, Fannie and Freddie could be returned to the private sector when the housing market recovers. Privatisation should then create a much wider range of competing entities. It is not entirely clear why the core business of the enterprises - providing guarantees for mainstream (not subprime) mortgages - needs government sponsorship.

The bill does have some prudent parts. The plan to alleviate home foreclosures via a government guarantee both penalises the lenders (they must accept a loss of 10-20%) and gives the government a share of the upside if prices recover. But these provisions are voluntary and it seems unlikely that many lenders will go for them; an earlier scheme, requiring a write-down of only 3% for the banks, had few takers. The whole package is an attempt to throw government cash at a market that is already heavily distorted by tax breaks and subsidies. And it comes at a time when house sales, if not prices, look at last to be bottoming. Nationalisation, followed by speedy, full privatisation would have been so much better. Are there are any free-market capitalists left in Congress?
Naast twee interessante artikels over de beschuldigingen van corruptie aan het adres van de Republikeinse senator Ted Stevens van Alaska en de plannen van een Saoedische ondernemer om de Rode Zee te overbruggen en in zowel Djibouti als Jemen privé-steden neer te poten, kreeg ook de Europese Unie een veeg uit de pan.
The economic slowdown is testing all of Europe’s cherished economic philosophies. During the plague of 1665, Londoners sought to avoid infection by sniffing flowers and herbs, clearing deadly “miasmas” with smoke, killing cats and praying for neighbours whose sins were thought to have brought divine wrath. Only later did the horrid understanding dawn that nobody was immune.

Something of the same mood is starting to grip the European Union. One by one, countries across the block are in danger of succumbing to the global economic downturn. A big claim was made for the “European social model” - actually several different models - during the recent years of benign growth: that European countries generally tempered the efficiency of the markets with a commitment to social justice and equality that put places like America to shame.

If that claim was made of Europe’s models on the way up, it seems reasonable to study how they fare on the way down. The 15 EU nations that use the single currency - the euro area - offer an additional experimental advantage. Because they all share one currency and one monetary policy, an important variable has been taken out of the equation. Countries can no longer devalue their way out of trouble, for one thing. Instead, their underlying competitiveness and resilience is going to be put to the test.

A widely read 2005 study by Bruegel, a think-tank in Brussels, divides long-standing members of the EU into four groups: Mediterraneans, Continentals, Anglo-Saxons and Nordics. Two criteria were used to judge each: their success at getting lots of people into work and their ability to keep citizens out of poverty. The author, André Sapir, found that Mediterranean countries (eg, Greece, Spain and Italy) fail on both counts. Their social spending is skewed towards old-age pensions, and employment policies are focused on making it hard to fire people already in work. The result is low employment rates and a poor record of helping people escape poverty.

Continental countries (France, Germany, Belgium and the like), with their generous welfare systems, are good at helping people avoid poverty, but less good at getting them into work. The Anglo-Saxons (Ireland and Britain) have high employment rates but lots of inequality. Only the Nordics (Denmark, Finland, Sweden, plus the Netherlands) are hailed as combining the best of both worlds. The tough love of Danish “flexicurity” has won special praise in recent years, thanks to its apparent success at protecting workers (with things like welfare payments and government retraining schemes), rather than the jobs they currently hold (it is rather easy to hire and fire Danes).

Three years on, at least one country from each of Professor Sapir’s four groups is in serious trouble. Denmark (an honorary member of the euro zone, with its krone firmly pegged to the single currency) recently became the first EU state to enter a formal recession, thanks in part to a housing bust. The bursting of property bubbles is also causing misery in Ireland and Spain, with an estimated 1.5m unsold homes in Spain alone.

In France the housing market is looking soft and almost every index of French economic confidence is plunging, including one particularly important one - household spending on food. Underlining the gravity of the crisis, Le Monde reports that French holiday-makers are eating sandwiches (a wretched English invention) instead of decent leisurely lunches this summer. Even Germany, which never underwent a housing boom, is reporting its lowest levels of business confidence since 2001. This is bleak news given that Germany pulled off some painful reforms during the boom years - controlling state spending, restructuring big companies and holding down real wages.

Such diversity points to two immediate lessons: macroeconomic cycles matter more than politicians will admit, and the slowdown is not all about Anglo-Saxon sinfulness. When the credit crunch hit Ireland and Britain, the response from much of Europe was tut-tutting about “contagion” from America to other countries tempted by the quick profits of “financial capitalism”. Schadenfreude does not do justice to the mood of EU officials and ministers as they watched Britain’s Prime Minister, Gordon Brown, struggle with his country’s first bank run in a century after years spent lecturing Europeans about deregulation.

But Professor Sapir, for one, stands by his calls for structural reforms in Europe. He argues that talk of “contagion” has been left behind by events. All manner of financial institutions are now in trouble, not just those in Anglo-Saxon countries. To that must be added rising inflation. “In a sense, it would be easier if everything were contagion,” he says. Countries with big financial sectors have so far suffered more, he concedes, but that is because they are intrinsically more volatile, not because their economic model is based on fraud and illusion. If Europe’s problems are not only caused by the excesses of financiers (though some bad and stupid behaviour cannot be denied), what can the model-watchers learn from a wider crisis? One question is whether the countries whose policies they admired during the good times are more resilient in hard times.

Denmark’s model of kindly rigour is still delivering extremely low unemployment, despite negative growth. Tell Danes on the street that they are in recession, and they will look at you strangely, says Torben Andersen of Aarhus University. The real test of the Danish economy may not be whether it avoids recession, but its determination to recover from such a crisis. If things get nasty, predicts Professor Andersen, some politicians will want to ease tough measures that push Danes back into work. In other words, when all other things are equal, the fit should fare better than the frail. This is true of economies as well as of people. Nobody wishes for an epidemic, but if one really is about to strike, Europe is in for a revealing few years.


2 Comments:

At 5/8/08 10:21, Anonymous Anoniem said...

@ Vincent

Ik kan verkeerd zijn, maar ik heb de indruk dat The Economist gewoon met de wind meedraait.
Het afzwakken/dumpen van haar vrijhandelsprincipes gebeurde iets voor dat Tony Blair aan de macht kwam. Nu dat "The Broon" electoraal heel slecht scoort, keert The Economist terug naar de missie die Walter Bagehot destijds bij de oprichting van The Economist voor ogen had.
Beter laat dan nooit, maar hopelijk blijft The Economist deze keer haar principes trouw. Anders haak ik als lezer weer af, net zoals in de periode van Tony Blair.

Belgica Dividenda Est

 
At 6/8/08 20:10, Anonymous Anoniem said...

@Belgica Dividenda Est

Ik neem het The Economist niet kwalijk dat hij met de wind meedraait, dit getuigt van aanpassingsvermogen...en dan zie je ook wat breder. Gewoon op je standpunt blijven staan, lijkt mij niet intelligent. 'Blijven staan' trouwens in het algemeen niet...het getuigt van angelsaksisch empirisme om zich aan omstandigheden aan te passen, en af en toe een loopje te nemen met dure eden en principes.

links rechts!

 

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