NEWS,14.08.2012

Europe's Economic Crisis -- Follow the Politics

 

If you've been following the Eurozone's crisis but have found the economic technicalities trying (or worse, boring) don't despair. The roots of the crisis, the obstacles impeding solutions, and the consequences of success or failure are essentially political.The technicalities of bond yields, the implications of creating Eurobonds, the appropriate size and ground rules of the proposed European Stability Mechanism (ESM), the proper role of the European Central Bank (keeping inflation low vs. providing stimulus to economies crippled by massive unemployment and stalled growth), and the pros and cons of cutting budgets as opposed to running short-term deficits to create jobs and increase demand  these are all undoubtedly important. But ultimately the economic decisions will depend on what European leaders  those needing help and those able to give it  decide they can do politically.German Chancellor Angela Merkel leads the European Union's powerhouse and is certainly no economic neophyte. She knows that the downside of pushing Greece and Spain to slash public spending is that their unemployment rates could increase, thus reducing demand and preventing the economic recovery that will produce the increased tax revenues required to reduce their debt and increase their creditworthiness. She also understands that the worse things get in Spain, the more likely that the bond markets will make life untenable for Italy's leaders, and that the euro itself will then be in (greater) peril.Yet Merkel isn't an economics professor; she's a politician and, as such, can't ignore the political reality that German taxpayers are unwilling to guarantee bonds that will allow the Greek, Spanish, and Italian governments to borrow at lower interest rates, or to make big contributions to schemes that will enable them to revive their economies by spending more in hopes of creating jobs and boosting demand. On the streets of Stuttgart or Hamburg, it doesn't much matter what Keynes said. True, Germany's big export surpluses have been enabled in large measure by the big imports of the very European countries now being castigated for their profligacy. So it is in Germans' self-interest to help them recover. But imagine Merkel the politician making this pitch to the German electorate. For all the happy talk of the European Union having created a unity that has transcended nationalism, the reality is that that stubborn sentiment remains alive and well on the continent. Germans won't write checks or take big economic risks for foreigners (even of the European variety) who, as they see it, are suffering from self-inflicted wounds. Pumping huge sums of money  over 1 trillion euros since 1990  into the former East Germany was one thing; making sacrifices for Greeks and Spaniards, let alone for "Europe," is another. Likewise, while Greek and Spanish leaders understand that they must cut government spending, they can't keep doing so at the risk of losing ground to opposition parties that accuse them of succumbing to the diktat of a German-dominated EU and ignoring the plight of the poor, the unemployed, and the retired. Elections are not imminent in either country, but in democracies all politicians are exquisitely and perennially sensitive to polls, and the risk of social unrest in Greece and Spain is ever present. So imagine Greek Prime Minister Antonis Samaras telling his fellow citizens that, yes, he feels their pain, but that, unfortunately, it's the price they must now pay for their rampant tax evasion and attachment to social programs that had to be financed by running red ink. Picture Spanish Prime Minister Mariano Rajoy whose country's problems, unlike Greece's, stem from the insolvency of its banks rather than outsize government spending giving a national television address, the gist of which is that, yes, the bankers messed up and damaged the economy, but now everybody has to pay for the repairs and that bigger bills await. That refrain won't be well received at a time when a nearly a quarter of the Spanish workforce is jobless and feels that it's footing the bill for the blunders of well-heeled bankers.Politics also explains the roots of the Eurozone's crisis. A common economic explanation is that what's happening was bound to happen because the EU foolishly decided to create a monetary union without a fiscal counterpart. That's true as far as it goes, but the choice didn't result from economic illiteracy. Countries were simply unwilling to transfer that much political power to distant European institutions and bureaucrats. The primacy of politics applies to the future as well. It's in the political realm that we'll see the biggest results of the Eurozone's success, or lack thereof, in solving its economic crisis. If it succeeds, the idealistic post-World War II project of pan-Europeanism will survive, even if the Eurozone may not retain all of its current members. The coordination of domestic and foreign policies and EU enlargement will resume, albeit at a reduced tempo, and Europe will prove that it is indeed more than the sum of its parts. If it fails, European politics will be transformed as parties with nationalistic, populist, anti-immigrant platforms overshadow moderate ones. "European" positions on major global issues will prove elusive. NATO's unity and sense of purpose, already hard to maintain in a non-Soviet world, will fray as American presidents, facing their own budgetary pressures, push European allies to spend more on defense and the latter, preoccupied with domestic problems and facing inward-looking voters, refuse.So if you find the economic details of Europe's crisis soporific keep your eyes on the politics. That's the main event.

 

Eurozone economy shrinks by 0.2%

The eurozone's debt-ravaged economy shrank in the second quarter, having flatlined in the first, despite continued German growth which economists said could soon be snuffed out.The 17-nation currency bloc contracted by 0.2% on the quarter, data showed on Tuesday. Germany eked out growth of 0.3%, marginally beating forecasts, but its forward-looking ZEW sentiment index slid for a fourth month running, undercutting even the lowest estimate in a Reuters poll.Economists said worse is likely to come and even Europe's largest economy is unlikely to defy gravity for long unless decisive action is taken to tackle the bloc's debt crisis. "Growth turned out to be pretty solid. But this could be the last positive piece of news out of Germany for some time," said Joerg Kraemer at Commerzbank. "The German economy could contract in the summer. It is fundamentally in good structural shape, but can't decouple from the recession in the euro zone, plus the global economy has also shifted down a gear."Aside from a downward blip in the last three months of 2011, the eurozone has posted pretty consistent, albeit anaemic, growth over the past three years although some of its debt-laden members have been in recession for some time."Overall it confirms the idea that the euro zone is in a recession phase," Aline Schuiling, economist at ABN AMRO, said."What we see is a vicious circle of budget cuts, high interest rates in the periphery and sovereign debt rising," she said. "Policymakers are moving very slowly ... We expect another contraction in Q3."For France, it was the third consecutive quarter of zero growth. The central bank has already said it expects a mild contraction in the third quarter. "These figures are not excellent, but at the same time France is not in recession while the majority of its European partners are," Finance Minister Pierre Moscovici told Europe 1 radio. Safe-haven German Bund futures fell and European stocks rose after the slightly stronger than expected German and French GDP reports. The euro also rose though its climb was thwarted after the ZEW survey came in worse than expected. The think tank's monthly poll of economic sentiment slid to -25.5 from -19.6 in July. ZEW economist Christian Dick said the German economy would slow due to weak growth in its main export markets, but would not deteriorate sharply.Austria and the Netherlands almost matched Germany's performance, each posting growth of 0.2%. But Finland, one of Germany's northern European allies in pushing for austerity, suffered a 0.7% year-on-year (y/y)fall in GDP.EU Economic and Monetary Affairs Commissioner Olli Rehn said the European Union and European Central Bank (ECB) were ready to act if needed to shore up the currency bloc."To my mind it is clear that both the European Union and ... ECB are ready to take action once certain conditions are met and if there is a request by some member state," he said in an interview.Spanish and Italian bond yields have steadied since ECB President Mario Draghi promised to do whatever it takes to save the eurozone although a government would first have to ask for help from the bloc's rescue funds.For the countries at the sharp end of the debt crisis, the picture is bleaker still and as economies shrink, so do tax revenues, making deficit-cutting even harder to achieve.That has fostered a growing debate inside and outside Europe about the sense of austerity drives.Bailed-out Portugal's recession deepened with GDP diving by 1.2% on the quarter and Cyprus contracted by 0.8%. Figures released on Monday showed deficit-cutting measures helped to shrink Greece's economy 6.2% y/y in the second quarter. Economists say the slump will persist as the government scrambles to secure billions in additional cuts to keep bailout funds flowing. Italy's second quarter data last week showed the economy contracted 0.7% quarter-on-quarter, compounding the difficulties for Mario Monti's technocrat government as it tries to avoid a bailout. Spain's economy shrank 0.4% over the same period, pushing it deeper into recession. The big unanswered question is whether a weakening economy will make Germany, the EU's paymasters, less likely to support government rescue efforts for the broader eurozone. German Chancellor Angela Merkel has said repeatedly over the past year that she will do everything to save the euro, most recently after the ECB signalled it would intervene in the bond market to lower Spanish and Italian borrowing costs.Not all Germans support that course and the chancellor's room for manoeuvre appears to be shrinking at a time when both Greece and Spain may soon require new rescues. However, if ordinary Germans start to feel real economic pain, their response could be to demand their leaders sort out the crisis that is now finally knocking at their door."I have full trust in the German people and political leaders that they are fully committed to the euro," Rehn said.It is quite possible that Madrid and Rome will seek help from the euro zone's rescue funds and the ECB before the year is out. If so, most economists expect the German economy at least to rebound after a gruelling third quarter as confidence revives.Christian Schulz, an economist at Berenberg Bank in London, said it was vital to get a grip on the euro zone crisis. "We expect that the ECB has initiated a turning point with its signal of bond purchases," he said. "After a weaker summer the German economy will be able to grow faster again from the fourth quarter."

Eurozone narrowly escapes recession

The eurozone economy narrowly skirted recession in the first half of the year, but austerity programmes across the region and a debt crisis weighing ever more heavily on its periphery suggest the reprieve will be short-lived. Gross domestic product (GDP) shrank by 0.2% in the second quarter from the first after risk-averse businesses and consumers reined in spending, European statistics agency Eurostat said on Tuesday. Quarterly growth flatlined in January-March, meaning the region averted the two consecutive quarters of contraction that define a recession. Eurostat revised up the year-on-year GDP figure for that period to zero from a 0.1% contraction. Europe’s debt crisis intensified during the second quarter, with Greece coming closer to an exit from the single currency and Spain struggling with a banking crisis that pushed its borrowing costs to danger levels. Analysts agree the gloomy picture is not about to change. “What we see is a vicious circle of budget cuts, high interest rates in the periphery and sovereign debt rising,” said Aline Schuiling, an economist at ABN AMRO. “There is still a lot of uncertainty related to the crisis.” A decline in GDP from the end of last year levelled off in the first quarter of 2012 as exports offset a plunge in investment and inventories. “The economy is avoiding recession by the skin of its teeth, but it will be a temporary reprieve,” Kenneth Wattret, economist at BNP, said. “You could argue we have one leg in the recession already,“ said Martin Van Vliet, economist at ING. “Leading indicators point to a further contraction in the third quarter, so we might indeed see a technical recession.” Tuesday’s flash GDP estimate for the second quarter was in line with the average of economists’ expectations as polled by Reuters. Industrial production, a key component of GDP, fell 0.6% in June from May and 2.1% compared to June 2011, another reading from Eurostat showed. This was slightly above forecasts of a 0.7% and 2.2% fall respectively. Earlier on Tuesday, Germany posted modest growth in the second quarter, while France stagnated, as Europe’s core gets drawn further into to the debt crisis. German analyst and investor sentiment also dropped for a fourth straight month in August, undercutting even the lowest forecast in a Reuters poll, a survey showed on Tuesday.

NEWS,13.08.2012

An Impediment or an Opportunity for Peace?

 

There is an ongoing debate in and outside of Israel as to whether or not this is the right time to forge peace with the Palestinians in light of the regional upheavals and instability. The peace process, at this juncture, is hopelessly frozen while the expansion of the Israeli settlements and the continued internal Palestinian strife and factionalism increasingly dims the prospect of reaching an agreement. That said, the Arab Spring, which has triggered the rise of the Arab youth against their governments and has been accompanied by uncertainty, is not an impediment but an opportunity to solve the Israeli-Palestinian conflict based on a two-state solution. The reality on the ground strongly suggests that maintaining the status quo will be particularly detrimental to Israel.Those inside the Netanyahu government who suggest that now is not the right time to seek a peace agreement with the Palestinians because of the regional turmoil and the existential threats that Israel now faces are both misguided and disingenuous. On the contrary, given the threats from Iran and its surrogate Hezbollah and the potential consequences of a failed state in Syria, it is a particularly critical moment for Israel to forge peace with the Palestinians. By doing so, Israel would be in a position to focus on the vastly more serious threats emanating from its real adversaries and would prevent the rise of a Palestinian fifth column, should Israel become mired in these regional conflicts. To enhance their positions, those who oppose peace now offer three faulty arguments to justify their stance.First, the Palestinians cannot be trusted and Israel "correctly" points to the precedents of the partial disengagement from the West Bank between 1993 and 2000, the complete withdrawal from southern Lebanon in 2000 and the withdrawal from Gaza in 2005. From the Israeli perspective, all of these moments attest to the Palestinians' inability or unwillingness to forge a permanent peace, despite having ample opportunities.Second, due to Palestinian factionalism and infighting, there is no credible partner with whom Israel can negotiate as the Palestinians have been unable to sustain a unity government. The Netanyahu government is convinced that even if an agreement is reached, it will still prove transient.Third, there are extremist Palestinian groups, such as Hamas, Islamic Jihad and others, along with non-Palestinian factions, including Hezbollah and Al Qaeda, that are vehemently antagonistic toward Israel and remain committed to its destruction.However, none of the three arguments above can pass careful scrutiny. These types of arguments are used as excuses and a cover for the Netanyahu government's deep conviction that the Jews have an inherent right to whole "land of Israel". This remains an indefatigable nonstarter to reaching a peace agreement that requires significant territorial concessions, including the conversion of Jerusalem to the capital of Israeli and Palestinian states. From the Netanyahu government's perspective, the conditions of no peace and no war that currently prevail are preferable to a compromise of the Jews' historical rights and through a strong and determined will, Israel will eventually triumph.In light of the reality on the ground, which both the Israelis and the Palestinians alike must face by virtue of their inevitable coexistence, Israel must act now because the passage of time may well be to its detriment, if not its very existence. There are three critical issues that increasingly work against Israel.Considering Israel's demographic situation, its evolutionary path has shifted radically as emigration from Israel over the past two decades (about one million) is roughly equal to the immigration into Israel for the same period. This, along with low birth rates relative to the Palestinian population, continues to erode the sustainability of Israel's national character as a Jewish state. Should this growing demographic imbalance between the Jewish and Palestinian populations continue, Israel will be forced to either establish a single state (an unacceptable proposition for them as it will instantly make the Jewish population a minority) or resort to apartheid policies that will be vehemently rejected by the international community.In recent years Israel has been fortunate that Gaza and the West Bank were generally quiet with limited resistance to the occupation and only marginal rocket attacks from Gaza that the Israeli military was able to handle with ease. Maintaining the occupation, however, and the continuance of the creeping expansion of the settlements, coupled with the uprisings of Arab youth against their own governments, now make it only a matter of time before the Palestinians will be inspired, if not forced, to rise against the occupation. They will not remain indefinitely passive, as they clearly see that the longer they wait, the more their land will be consumed, resulting in an irreversible reality on the ground that will deny the rise of an independent and viable state.Moreover, Israel will continue to face intensifying pressure from the international community due to the perpetuation of the status quo, which will dramatically increase Israel's isolation. For the United States and the European Union, who continue to be steadfast supporters of Israel, the lack of progress has a destabilizing effect on the region, which directly and indirectly impacts their national strategic interests and undermines Israel's national security. Israel should not be surprised if its closest allies, especially the U.S., decide to advance their own frameworks for peace largely based on prior Israeli-Palestinian negotiations in an attempt to save Israel from charting its own disastrous path.In a broader context, Israel's current enemies, specifically Iran and Hezbollah, will continue to exploit the Israeli-Palestinian conflict to their advantage. To counteract this encroaching threat, Israel can at least begin to neutralize its antagonists' positions by taking steps that open the door for a negotiated solution and normalization of relations with the Arab states by accepting the Arab Peace Initiative as a basis for negotiations. While this strategy may not initially and necessarily change the principle objection to Israel's very existence by actors such as Iran and Hezbollah, Israel could shift the geopolitical conditions in the region in its favor. As I was convincingly told time and time again by top Arab officials, the Arab states are prepared to move toward establishing full diplomatic relations with Israel once an Israeli-Palestinian peace is achieved. They cite the changing dynamics in the region in the wake of the Arab spring and the ensuing battle between Sunnis led by Saudi Arabia and Turkey and Shiites led by Iran who seeks regional hegemony.Despite the complex situation that Israel finds itself in, the basic question remains: how much longer can it sustain its present course without experiencing horrific and self-inflicted wounds? Israel must face the inevitable now while it is still in a strong position to negotiate an agreement with the Palestinians, a population that has, and can continue to, withstand the test of time. Unlike the precipitous withdrawal from Southern Lebanon and Gaza, any agreement with the Palestinians should be made with the Palestinian Authority in the West Bank and should be based on a quid pro quo that would involve phased withdrawals from the West Bank over a few years in order to foster mutual trust and normalization of relations while ensuring Israel's national security.Set against the context of the Arab Spring, Israel remains an oasis of stability with its economic, military and technological advantages continuing to strengthen over time. The inability of the Palestinians to change the dynamics in their favor has deepened the Israelis' complacency while removing any sense of urgency to solve the conflict, as they remain intoxicated by their military prowess and the deceptive calm before the storm. Simply put, passively waiting for the region to achieve a modicum of stability while Israel further entrenches itself in the territories is a non-starter as the Arab upheavals are not a fading phenomenon and will remain an engine of change for years, if not decades, to come. The Palestinian's turn will come sooner than expected.I must emphasize that the Palestinians, by their own violent actions and hostile public utterances, have directly contributed to the Israelis' skepticism and deepening of their conviction that the Palestinians are not partners to be trusted nor are they a population with whom they can negotiate a lasting peace. That said, it is up to Israel not to allow past experiences to blur its vision for the future and it must now chart its own future course by ending the occupation under specific "rules of disengagement" with the Palestinian Authority. Israel must never abandon the principles of equality and human rights regardless of race, color or religion, as they are the very basis on which the state arose from the ashes of the Holocaust.Netanyahu will eventually have to answer to the Israeli public as to what he has achieved over the past four years. The Israelis must now determine whether or not Netanyahu has made the conflict with the Palestinians considerably worse since he took office in 2009 and what price Israel will have to pay for his misguided and ominous policies.

Greek economy shrinks 6.2%

The Greek economy, struggling in a fifth year of recession, shrank 6.2% in the second quarter compared with a year earlier, official data showed on Monday.The economy contracted 6.5% in the first quarter, worse than the initially given 6.2%, according to revised figures issued in June.The Bank of Greece expects the economy to shrink 4.5% for 2012 as a whole, following a 6.9% drop last year.The country is relying on two financial rescue packages backed by the EU, the International Monetary Fund and the European Central Bank worth around €240bn for its economic survival.Last year, private creditors agreed to write-off more than €100bn in debt, roughly half the amount they were owed, as part of a second bailout programme.Harsh austerity measures and economic reforms linked to the aid agreements have taken their toll on the economy, with unemployment hitting record highs.The conservative-led coalition government has yet to finalise spending cuts of about €11.5bn in order to unlock its next aid installment worth some €31bn.

UK tourism slumps during Olympics

The Olympics brought less tourist money to recession-hit Britain than officials promised, a trade group said on Monday, with a majority of businesses reporting losses from last year A survey of more than 250 tour operators, hoteliers and visitor attractions found that tourist traffic fell all over Britain, not just London, said UK inbound, a leading trade association representing British tour operators said. The survey said 88% of British tourism-oriented businesses reported some losses during the games compared with the same period last year. Officials are still tallying up the total number of tourists who came to or avoided  London this summer. The capital normally sees about 1.5 million tourists on average in August, but UK inbound and other trade groups say a significant number have chosen to steer clear of London, and even the rest of Britain because they thought it would be too busy. The official visitor figures won't be available until September. Tourism officials say that international Olympics visitors to London, including athletes, officials and tourists, totalled about 300 000. Domestic spectators from Britain made up the majority of people visiting games venues Restaurants and shops have complained that these games visitors did not spend as much money on food and shopping as typical summer tourists. "The people who came to the Games really didn't do very much sightseeing, didn't do very much shopping, didn't do very much eating out,"said Miles Quest, a spokesperson for the British Hospitality Association.London's hotels have hit about 80% occupancy, not more than typical August rates, Quest added.Visa, the only credit card accepted at the Olympics, reported that international visitors to Britain spent more than £450m ($705m) on their cards during the first week of the games, up by 8% on the same time last year.Around £12.7ms were spent on Visa cards in London restaurants last week, an increase of almost 20% on a year ago.

NEWS,12.08.2012

Israel - Iran threat dwarfs all others

The threat from Iran dwarfs all other challenges the Jewish state faces, Israel's prime minister declared on Sunday, as high-level hints of a possible Israeli attack on Iran's suspect nuclear programme mounted. One indirect indication came on Sunday, when Israel's military began sending mock text messages to cell phones warning of incoming missiles, part of a nationwide experiment that is to continue through Thursday and reach hundreds of thousands of cell phone users. Last week, defence officials confirmed that Israel's top-tier missile defence system has been upgraded."All threats directed at the Israeli home front are dwarfed by another threat, different in its magnitude and substance, and so I have repeated and shall repeat: Iran must not be allowed to obtain nuclear weapons," Prime Minister Benjamin Netanyahu told his Cabinet on Sunday.The prime minister's opening statement at the Cabinet meeting is open to reporters, providing him with a channel for a weekly public message.Sceptics say Israel is rattling its sabres as part of a diplomatic campaign but would hesitate to actually attack Iran, because of the real possibility that it could trigger an all-out war targeting Israel from several directions at once.Tehran insists its nuclear program is peaceful and designed to produce energy and medical isotopes, but Israel, like much of the international community, thinks it could be a cover to build bombs.Netanyahu said earlier this month that Israel has not decided whether to launch an attack. But he and other leading Israeli officials have noted that tough international sanctions have not pressured Iran to abandon its suspect uranium enrichment programme - a process that has civilian uses but could also be used to build bombs.Some senior officials have suggested in the past that Israel cannot wait beyond early fall to strike, as Iran moves key facilities into fortified underground bunkers out of the reach of Israeli bombs.Over the weekend, a senior "decision-maker" widely identified as Defence Minister Ehud Barak was quoted by an Israeli newspaper as saying that "the sword hanging over our neck today is a lot sharper than the sword that hung over our neck" before the Jewish state went to war with three Arab nations in 1967.Although Israeli leaders haven't explicitly threatened to attack, they have been saying for years that they would not tolerate a nuclear Iran, and "all options are on the table." The US has a similar policy.Standing beside US Defence Secretary Leon Panetta earlier this month, Netanyahu warned that time was quickly running out to stop Iran from achieving nuclear capability.The United States has said it would be prepared to use military force to prevent Iran from becoming a nuclear power. But with its superior fire power, it could wait longer than Israel could to strike at Iran's underground facilities, and experts have judged Washington has more than a year to act.Another factor in the timing could be the US presidential election in November, where a Mideast flare-up sending oil prices soaring could harm President Barack Obama's re-election chances.White House spokesperson Jay Carney said over the weekend that Obama "remains committed to preventing Iran from acquiring a nuclear weapon," but that the US still thinks there is time to persuade Iran through sanctions and diplomacy.While Netanyahu and Barak have concentrated on the perceived nuclear threat, critics of an attack - including a recently retired spymaster and previous internal security chief - have warned of its repercussions.At best, they say, Israel could set back Iran's nuclear development for two to three years, and at worst, trigger a harsh retaliation from Iran and its proxies in Lebanon and Gaza - and possibly set off a region-wide war.

Swiss banks sweat tax fall-out

 

Swiss banks hoping to atone for decades of complicity in tax evasion may be left to sweat it out for months as the United States and Germany ponder the right level of punishment.Switzerland has long dodged US accusations of hiding money for wealthy Americans. But now eleven Swiss banks are under investigation in the United States and there is pressure too from Europe where burdened taxpayers want scalps after numerous banking scandals. The Swiss need a deal to remove the taint from their financial industry.However, Washington must factor forthcoming elections into its thinking, and Germany is delaying ratification of a tax deal key to Switzerland’s efforts to strike similar agreements elsewhere in Europe. So the Swiss may be in limbo for a whileThe wait is painful for a country which counts on banking for 7% of its economic output: until Swiss banks know how much information they need to share with foreign tax authorities they will struggle to attract new clients.As a result the share prices of its top banks - Credit Suisse and Julius Baer are among those being investigated - are falling as investors fret about earnings.“We are prepared to sign a settlement with the US for the Swiss banks today. We feel we have made a constructive proposal to the US but it is up to them to accept it or not,” said Switzerland’s Finance Minister Eveline Widmer Schlumpf.“This depends on whether the US is willing to reach a settlement before or after their elections, which is unclear at the moment,” she said.Both Widmer-Schlumpf and chief negotiator Michael Ambuehl have dampened expectations for a US deal by November, stoked as recently as last month by the finance minister herself.“There is an open window after the summer lull, but it’s relatively tight. Otherwise, I think we’re looking at next year,”  said Martin Naville, chief executive of the Swiss-American Chamber of Commerce in Zurich.Switzerland’s efforts to spur along a deal include tentatively agreeing with the US Foreign Account Tax Compliance Act, an anti-tax evasion law known as Fatca.The rules on enforcing Fatca have yet to be finalised, but many Swiss bankers see it as a crippling blow that effectively prevents their clients from investing in US securities.Acquiescing to Fatca was a tactic to build goodwill for a Swiss bank deal, a source close to the talks said.But the strategy doesn’t seem to be paying off.Washington is now pushing banks in Switzerland to divulge names and financial details of wealthy Americans hiding money in their accounts, spurred on by success in 2009 when UBS handed over data to avert a criminal indictment.“Contrary to what may appear as inactivity, the US is in fact keeping the pressure on Swiss banks, which are like mice before a snake,” said Martin Janssen, professor of finance at the University of Zurich. “The US is really maximising its position here.” The tension is such that Swiss bankers are afraid they will be personally targeted by US officials if they leave the country, after Credit Suisse and Julius Baer handed over employee names to US authorities. Originally a gesture towards cooperation, the move now has many Swiss bankers hunkered down at home, fearful of arrest and extradition if they leave Switzerland.

 

UK economy misses out on Olympic gold

 

With the London Olympics set to wrap up on Sunday, analysts said Britain's recession-hit economy was unlikely to have won a major boost from the Games that have been a triumph for the nation's athletes.While Britain's construction sector benefited hugely before the Olympics, experts have said the 17-day sporting spectacle had not delivered significant financial rewards and neither was it expected to in the months and years ahead.Mary Rance, chief executive of tourism body UKinbound, said the Olympics which have cost British taxpayers £9.3bn ($14.5bn) to stage have failed to lift her sector."From a positive perspective, the Olympics have been a catalyst for huge investment in infrastructure in London," Rance told AFP.But she added: "All the signs are that the Olympics have not delivered additional visitors to London and the UK. In fact, it is expected that numbers may well end up having fallen by well over 30%." Following claims in the first few days of the Games that they had turned London into a ghost town, British Prime Minister David Cameron urged people to "come back into the capital".And his words seem to have made an impact, with retailers across London's main shopping district in and around Oxford Street reporting an increase in sales and a higher footfall in the days after Cameron's remarks.In the run-up to the Olympics, which began on July 27, commuters and tourists were warned to stay away amid fears that London's transport system could not cope with millions of extra people descending on the capital.The Games had long been heralded as a key boost to the British economy but industry body the European Tour Operators Association said tourist numbers had fallen "dramatically" in the first few days of the Games."Hotels have been cutting their prices and many shopping areas, restaurants, theatres, attractions and entertainment venues have seen a significant reduction in business," added Rance. "Although it must be said that shopping centres like Westfield Stratford City, next to the Olympic Park, have benefited significantly - and over recent days visitors seem to be returning to central London," she added.Businesses complained of being sidelined as tourists made a beeline for the Games and avoided the capital's other attractions and shopping destinations, while non-sports fans opted to stay at home or delay their trips.The Bank of England's chief economist Spencer Dale last week said the Olympics would provide only "a small positive contribution" to the British economy. "There may well be some extra spending from tourism, but as many of us know there has also been travel disruption, more people are going on holiday. So I think those effects are small."But the contribution from ticket sales and TV rights may lead to a very small boost to GDP in the third quarter."Britain's Office for National Statistics has already said that Olympic tickets sold last year would be incorporated into gross domestic product figures for the third quarter, despite the bulk having been paid for last year.Asked about the long-term benefits to the economy from the Olympics, Dale said: "Those type of effects are a lot harder to try and work out and I don't think it will have a material impact in our projections."Analysts have said the Games could added 0.3 percentage points to British output in the third quarter, or July to September period.

Britain escaped a deep downturn in late 2009 but fell back into recession at the end of 2011. Latest official data showed GDP slumped 0.7% in the second quarter from the first three months of this year.Meanwhile the nation's coalition government, which has been hosting country leaders such as Russian President Vladimir Putin on the sidelines of the Olympics, said it hoped to strike trade deals during the event.And it believes it can generate £13bn of business, including almost half coming from foreign direct investment, over the next four years as a direct result of the Olympics.But Slavena Nazarova, economist at French bank Credit Agricole, said the longer-term target was "a little exaggerated" given that Cameron had not included the greatest benefit thus far - the boost to the construction sector as a result of transforming a disused part of east London to host much of the Games.

NEWS,11.08.2012

Globalization and the Lessons of History

 

As the U.S. economy struggles to recover from the worst recession in 70 years, we face a new, much more challenging world. Economic globalization means that more countries are exporting their goods, generating first-rate research, and attracting investments: besides China, we compete with Brazil, India, South Korea, and Turkey. Although terrorism, elections, and natural disasters dominate headlines, globalization has been the most powerful trend over the last thirty years. Despite the recession, it shows no sign of abating. Dealing with globalization may tempt us to see other countries as simply our competitors or worse, as our enemies. If we are to deal with globalization more wisely, the lessons of history are crucial to understand.Globalization is not completely new. A century ago, the world economy went through a similar dramatic expansion. "For economic purposes all mankind is fast becoming one people," wrote James Bryce in 1903. For the first time, a world wide web of telegraph lines, centered on London, sent news and prices around the globe. The United States became an industrialized country because of millions of immigrants and a mountain of European investment. Tragically, the first era of globalization ended badly in two world wars, Communism, fascism, the Great Depression, and the Cold War. Why? Those who suffered from rapid economic change were often recruits for violent solutions; war could undo decades of economic progress. In short, those who gained from economic globalization became complacent about the need to maintain it and cavalier about the costs it generated. Old industries declining, migration, social problems in rapidly expanding cities all of these occur almost inevitably with economic growth. If social policies do not cushion the costs and help people adjust to the changes set off by economic growth, the entire system supporting economic growth can be undermined. At the same time, international peace and cooperation have been crucial to economic globalization. Prosperity in the long run depends on peace. The first era of globalization occurred in the late nineteenth century because Europe experienced the longest period of peace in its history. Only one, brief war the Crimean War occurred among more than two of the Great Powers. World War One broke out in part because leaders in Germany thought they could use violence to strengthen their country's position in the world economy. Instead, they nearly destroyed the entire world economy, and brought on more war. By the time Europe stabilized again, after a second, more awful war, the world economy was no bigger than it had been 35 years earlier, with a much larger population to feed.History also teaches us that we can do better. Nothing illustrates that nations can learn from the past as much as the difference between what the United States did in 1919, at the end of the First World War, and what we did in 1945-48, after the Second. In 1919, we turned our back on Europe and its problems. The world economy limped along and eventually collapsed into the Depression, while the unsolved problems of the War led to dictatorships and more war. After 1945, we did better. The United States created a range of international institutions in the late 1940s the UN, IMF, World Bank, NATO, the alliance with Japan, and the GATT, the forerunner of today's World Trade Organization. We also helped Europe set up what eventually became the European Union. With all their imperfections, these institutions and the cooperative agreements they support still provide a framework for worldwide economic growth. Because of them, we can travel, send money, buy and sell goods, and communicate among the nations of the world in a way that would have been unimaginable just a few decades ago.In tough times, it may be tempting to turn our backs on the rest of the world or to think that economic growth, once begun, runs on its own. But we depend on our global economic ties for future growth. By investing in our greatest resource  people  and improving our transportation and communications infrastructure, we can compete much more effectively than by tariffs or trade disputes. The history of the last century teaches us that dealing with the inevitable costs of globalization and working to maintain a peaceful world order are essential to all of us. Our generation has an opportunity to make great gains from a return to worldwide economic growth  but we must distribute the gains more fairly and work to build a cooperative international order. Our competitors are also our customers and our potential partners in a better world.

Federal Investigators Punt On Goldman Sachs Prosecutions

 

By 2006, Goldman Sachs traders knew that the investments packed with subprime home mortgages they had been selling at big profits for the last few years were more dangerous than they were letting on.Internally, they characterized these offerings as "junk,""dogs,""big old lemons" and "monstrosities." Nevertheless, the bank congratulated itself for successfully offloading the mortgage bonds onto others. The head of the bank's mortgage department extolled its success in reducing its subprime inventory, writing that his team had "‘worked their tails off to make some lemonade from some big old lemons.” These findings, included in the report released by the Financial Crisis Inquiry Commission nearly two years ago, helped inform at least one major regulatory enforcement action against the bank: a $550 million settlement with the Securities and Exchange Commission for misleading investors about the risks of a product known as Abacus. For a while, it seemed that a string of similar enforcement actions involving other mortgage investment products, whose eventual collapse in value brought down the housing market and very nearly the American economy, were imminent. On Thursday, Goldman Sachs announced in a regulatory filing that the SEC had dropped its investigation into a $1.3 billion mortgage bond known as Fremont Home Loan Trust 2006-E, even though it indicated earlier this year that charges were likely. Later in the day, the Department of Justice said it was ending its own Goldman investigation, launched after a congressional investigation chaired by senators Carl Levin (D-Mich.) and Tom Coburn (R-Okla.) issued a report that found Goldman Sachs sold investments "in ways that created conflicts of interest with the firm’s clients and at times led to the bank's profiting from the same products that caused substantial losses for its clients.”"The department and investigative agencies ultimately concluded that the burden of proof to bring a criminal case could not be met based on the law and facts as they exist at this time," the Justice Department said in a statement late on Thursday. Reuters reported that David Wells, a spokesman for Goldman Sachs, said in an email, "We are pleased that this matter is behind us."The SEC did not immediately respond to a request for comment. For industry critics, the decisions to drop the investigations are the latest indication that the federal government's law enforcement response to the greatest financial catastrophe since the Great Depression will end with a whimper. "I'm shocked but not surprised," said Simon Johnson, a former chief economist at the International Monetary Fund, and a Huffington Post contributor. "It reflects a pattern of failing to hold these large institutions accountable. To not even try sends a double signal, that there are different standards for us and for Wall Street."Johnson said he still holds out some hope for a grand settlement that would provide some financial compensation for the homeowners most damaged by the inflated pricing that came as a result of the bubble built by Wall Street.Neil Barofsky, the former special inspector general for the Troubled Asset Relief Program, and a frequent critic of the Obama administration's handling of the financial crisis, said in an email that the announcements are "a stark reminder that no individual or institution has been held meaningfully accountable for their role in the financial crisis." "Without such accountability, the unending parade of megabank scandals will inevitably continue," Barofsky said. Of the two federal agencies, the record of the Department of Justice in pursuing financial crisis cases is the thinnest. So far, the Justice Department has brought just one case, which ended when a federal jury in 2009 acquitted two Bear Stearns hedge fund managers accused of lying to investors about the soundness of the securities they were selling. After that, the Justice Department decided not to pursue cases against two men whose actions most Wall Street observers agree brought on the crisis: Angelo Mozilo, the former head of the defunct mortgage giant Countrywide and Joseph Cassano, who ran the financial products division at AIG.The SEC's track record has been a bit better, at least in terms of dollar recoveries. The regulator won about $2 billion in penalties since 2008 in financial crisis-related cases, including a record $67.5 million from Mozillo. The agency has been dogged, though, by complaints including from federal judge Jed Rakoff that its penalties are too small, doesn't target individuals and doesn't require defendants to admit guilt as part of settlement agreements. In May, the SEC dropped its probe of Lehman Brothers, even though an independent examiner appointed by the bankruptcy court of the defunct bank concluded that there were "actionable claims" against senior Lehman officers for using an accounting tool known as Repo 105 to book billions of dollars in phony sales to disguise the true extent of the bank's financial woes. Financial cases of any stripe, especially those that involve complex transactions involving structured finance products, are difficult to prove, said Arthur Wilmarth, a banking law professor at George Washington University. Even so, he said, he believes the SEC could have brought additional cases against Goldman Sachs that involved conduct similar to the Abacus deal. The agency could prevail in civil penalty actions by showing that Goldman "intentionally or recklessly misled investors," he said. That, in essence, is the argument made by another regulator the Federal Housing Finance Agency which filed a lawsuit against Goldman over the Fremont investment and other offerings last year. Goldman bankers knew that Fremont, a subprime lender, was selling it mortgages certain to fail, the suit alleges.Goldman knew of the originators’ abandonment of applicable underwriting guidelines and of the true nature of the mortgage loans it was securitizing," the lawsuit claims. The decision to drop the Goldman Sachs investigation also comes on the heels of a disappointing loss for the SEC in one of the very few trials involving a Wall Street executive accused of misleading investors about a mortgage product. A few weeks ago, a federal jury acquitted Brian Stoker, a mid-level Citigroup executive, of wrongdoing over his role in selling a $1 billion mortgage bond. In an unusual move, however, the jury included a note with its verdict urging the agency not to give up. “This verdict should not deter the SEC from continuing to investigate the financial industry, review current regulations and modify existing regulations as necessary,” said the statement, which was read aloud by Judge Jed Rakoff.

NEWS,10.08.2012

Alleged US 'mercenary' held in Venezuela

President Hugo Chavez said Venezuelan authorities have detained a US citizen and are interrogating him, suspecting he could be a "mercenary" plotting to destabilise the country if the opposition loses the upcoming presidential election. Chavez did not identify the man on Thursday night nor detail the accusations against him. But the case has the potential to ratchet up longstanding tensions between Venezuela and the US less than two months ahead of Venezuela's presidential election.Chavez said the Hispanic man was detained on 4 August while crossing into Venezuela from Colombia. He said the man was carrying a US passport with entrance and exit stamps from countries including Iraq, Afghanistan and Libya.A US state department official, who spoke on condition of anonymity because he wasn't authorised to speak publicly, said the US government as of Friday morning had not been notified of the arrest by the Venezuelan government.He said that if the detained man is in fact a US citizen, American officials expect "Venezuela will uphold its obligations under the Vienna Convention on Consular Relations and grant US consular officials access to any detained US citizen without delay".Opposition lawmaker Pedro Pablo Alcantara scoffed at the president's allegations that government foes would attempt to stir up trouble if Chavez is re-elected to a new six-year term.Alcantara accused the government of encouraging violence against its adversaries in the past while backing groups that have attacked opposition marches."It's the president who has promoted violence," he said.Chavez has repeatedly accused the US government of plotting against him during the past decade, though he usually has provided few specifics of such claims."He has all the appearance of a mercenary," Chavez said of the detained man, speaking during a campaign rally in the coastal state of Vargas on Thursday. "We are interrogating him."The man tore up part of a notebook in his possession when he was detained, Chavez said.Chavez suggested, without offering evidence, the American might have been recruited by government opponents to instigate violent protests if opposition presidential candidate Henrique Capriles loses the 7 October election.

From Global Pariah to Green Giant: Does Germany Hold a Key to Our Sustainable Future?

 

If you aren't scared by climate chaos predictions, you aren't paying attention. Last month Bill McKibben told us that if we use up fossil fuel reserves we'll overshoot five times over what a livable Earth can withstand. This month climate scientist James Hansen tells us the "grim picture" he painted 25 years ago "was too optimistic."So, the task of multiplying what is working to keep fossil energy in the ground seems more urgent than ever. And what is working? Within my lifetime  i.e. since the 1940se the German state, an international pariah silencing citizens and perpetrating mass murder, has become an international hero, showing a path to freedom from fossil fuels that relies on widespread citizen participation.In the early 1990s, Germany had virtually no renewable energy, so I was astonished to learn that in 2010 Germany  slightly smaller in area than Montana and hardly a Sunbelt  generated almost half the world's solar energy. How could this happen? In part the answer is Germany's innovative public policy called the Feed-in Tariff. It rewards households for becoming renewable energy producers by obligating utilities to buy electricity from installations like a solar panel or small windmill at a price guaranteeing a good return. And the approach is going global. Germany's rapid expansion of renewable energy reflects not only its state policy but also citizens mobilizing on a large scale. Consider the vision and courage of one Ursula Sladek.In the Black Forest community of Schönau, Ursula, mother of five, was deeply shaken by the 1986 Chernobyl nuclear accident. But instead of just fighting nuclear power, she chose to create an alternative. By 1997, she and neighbors had raised the millions of euros needed to buy out the area's private power grid and turn it into a clean-energy co-op. Now with over 1,000 owners, the co-op uses and supports decentralized renewable power like solar and wind for 120,000 customers, including households and factories. It's shooting for a million customers in three years. And as of 2011, all of Germany got on board with Ursula, as it joined about a dozen countries that oppose nuclear power. Something is working in Germany. But why is it working? For me, Germany demonstrates that sane steps to carbon freedom are possible where democracy functions -- where private industry is not in control of public policy.Consider this: In a recent global study of the effectiveness of laws governing money's role in politics, on a scale of 100 Germany scored highest at 83. And the U.S.? We tied Tajikistan for the sad score of 29. Several key elements of the German system reduce the power of concentrated wealth:Since 1958, political parties have received government funding. Private donations are encouraged as well, in part by tax breaks: Individuals may deduct from taxable income half their donations below €3,000 (twice that for joint returns). Or they may claim a tax credit of €825 (€1,650 for joint returns). Private and corporate contributions are not limited but transparency laws are strict: Contributions of more than 10,000 euro per year must be disclosed. Moreover, in Germany, corporations and large private donors (who, if like the U.S., would typically represent corporate interests), don't wield the power over media messages they do here. As in most of Western Europe, Germany prohibits paid political advertising. Citizens learn about issues mainly from media interviews and discussions with politicians because "broadcasters have the mandate to inform the public on political matters...," notes a Library of Congress, Law Library summary. Over six decades, Germany's political rules have evolved to reduce three conditions -- concentrated power, secrecy, scapegoating -- proven to bring out our species' worst, whether throughout our long history or in lab experiments where we've been the guinea pigs. Rules like those above help to enhance their opposites: dispersion of power, transparency and mutual accountability. Of course, no system is perfect, and democracy has no endpoint anyway. But in this example, and so many others, we have glimpses of what works to create democracy that includes citizen voices.Bringing the lesson home, we realize that we can and we must place every urgent call to block fossil fuel exploitation and to reward renewable development within the frame of democracy itself.We can rally each other to credible steps to create real, accountable democracy now -- steps that can succeed in the foreseeable future. Since we can't wait for a Supreme Court majority that grasps that democracy depends on politics freed from corporate dominance, we must move now for legislation enabling public and/or citizen-financed campaigns so that candidates don't have to use any corporate money. The approach has worked for three state legislatures. At the same time, we can vote for those supporting measures that mandate disclosure of the sources of money in political contests: DISCLOSE Act and the Shareholder Protection Act. Among proposals to enable candidates to run for office un-beholden to corporate funders, I am working to figure out where to put my energies. If you want to know where I land, please e-mail us at infoATsmallplanetDOTorg with "money in politics" as the subject line.For me, Germany is a powerful reminder of how rapidly positive change can happen. Its dramatic transformation during my lifetime tells me that that solutions, whether to genocide or ecocide, require democracy.

NEWS,09.08.2012

China's inflation slows to 1.8% low

Chinese inflation hit a two-and-a-half-year low in July, official data showed on Thursday, giving the government further policy leeway to boost weakening growth. The country's consumer price index (CPI) rose 1.8% year-on-year (y/y) last month, the National Bureau of Statistics said, the fourth straight month of y/y easing and the lowest level since January 2010.The slowdown potentially gives authorities more ammunition to light a fire under the world's second-largest economy, which grew 7.6% in the second quarter for its worst performance since the height of the global economic crisis in 2008-2009.Authorities this year have taken measures including the rare step of slashing interest rates twice in quick succession while also lowering requirements for how much money banks must keep in reserve.Chinese leaders, including Premier Wen Jiabao, have expressed concern over the weakness in the economy and have hinted that the government may need to take further action to bolster growth.Sun Junwei, China economist at HSBC in Beijing, said the figure was in line with expectations and confirmed that inflation overall is trending downward."In general, China's inflation will likely be moderate and controllable in the future, which offers room for China to further loosen its (monetary) policy," she said.Sun added that if other economic data due out later on Thursday comes in worse than expected there could be a further cut in interest rates or bank reserve requirement ratios in August.China is scheduled to announce July figures in industrial production, fixed asset investment and retail sales later Thursday.Helping suppress the overall consumer price index was a decline of 0.9% in prices for transportation and telecommunications, according to the data.Inflation for the first seven months of 2012, meanwhile, was 3.1%, the bureau said."Inflation continues to peel off rapidly, highlighting an output gap that the government is trying to plug with rising state investment," economists at IHS Global Insight said in a report after the release of the July data.Producer price inflation (PPI), a leading indicator, declined 2.9% in July from the same month last year for the fifth straight month of contraction.Producer prices "continue to highlight the severe deflationary pressure rippling across the country", IHS Global Insight said, noting that "deflation, not inflation, is the greatest short-term threat to the Chinese economy".

Eurozone GDP to fall by 0.3% this year

The eurozone economy will contract by 0.3% in 2012 before recovering more slowly than expected next year to expand by 0.6%, a poll conducted by the European Central Bank (ECB) revealed on Thursday. The data came from the Survey of Professional Forecasters which the ECB carries out on a quarterly basis. It was published in the Frankfurt-based bank's monthly bulletin.The previous SPF survey predicted a 0.2% contraction for eurozone gross domestic product (GDP) this year and a 1% expansion in 2013.Recession-inducing austerity measures in some euro countries and "higher uncertainty" over the resolution of the single currency's debt crisis were "the main factors behind the downward revisions," the ECB said.Forecasters also said that eurozone unemployment would stay at its current high of 11.2% throughout 2012 and increase to 11.4% in 2013. Inflation was projected to fall from 2.3% to 1.7% over the same period.The ECB said it expected "weak" economic activity both in the second and third quarter of 2012 and only a "very" gradual recovery afterwards. "Risks surrounding the economic outlook for the euro area continue to be on the downside," it noted.The European Union statistical office, Eurostat, is to publish GDP figures for the second quarter of the year on Tuesday.

India's shock fall in industrial output

India's industrial production contracted by a shock 1.8% from a year earlier in June, as manufacturing output shrank in Asia's third-largest economy, official figures showed on Thursday, The data underscored the massive job ahead for India's new pro-market finance minister, P. Chidamabaram, who pledged this week to "restart the growth engine" of India's sharply slowing economy.Manufacturing output, which accounts for three-quarters of the index of industrial production, fell 3.2% from a year earlier in June, according to the government data.Manufacturing has been undermined by high interest rates to combat stubbornly high inflation, falling business confidence and Europe's debt crisis which has hit exports.The 1.8% shrinkage in output by factories, mines and utilities in June was the third contraction in four months and followed a revised 2.5% production rise in May.The industrial output reading was far below analysts' expectations, which were for an increase of 0.80%, according to a Dow Jones Newswires poll.The weak performance is likely to pile pressure on the central bank to ease interest rates to spur growth.The bank has said it wants inflation to come down before cutting borrowing costs, but Chidambaram has already indicated he wants lower rates, saying "sometimes it is necessary to take carefully calibrated risks".The weak numbers come as the left-leaning Congress-led government is under pressure over a string of graft scandals and its attempts to liberalise the still inward-looking economy to spur growth have led to gridlock in parliament.India's once-booming economy grew just 5.3% between January and March, its slowest annual quarterly expansion in nine years.Capital goods output, an important investment indicator, slid 27.9% in June from a year earlier.Goldman Sachs economist Tushar Poddar, who recently pared his full fiscal year growth forecast to 5.7% in contrast to the central bank's expectation of 6.5% expansion, saw more tough times ahead."Weak monsoons are also likely to impact rural consumption demand and exacerbate weakness in investment demand," Poddar said ahead of the data.Citibank has said if a nationwide drought is declared, which would be the country's third in a decade, growth could be as low as 4.9% as hundreds of millions of farmers depend on the annual rains for their income.

NEWS,08.08.2012

Will Manufacturing Make China a Democracy?

 

The other day, I had lunch with an economist I respect and admire. I asked him, what would it take for China to become a modern democracy and build a strong middle class? OK. I didn't ask him that. I told him that China would need strong institutions of civil society, and a deeper sense of Social Contract to become a stable modern democracy with a dynamic middle class.In America's early history, we had strong institutions of civil society, such as free press, good education, and strong national identity. We wrote individual freedoms into our Constitution. We had respect for the rule of law, not much bribery, respect for science, and technical progress. We had social and economic mobility, opportunity and fairness. Well, at least for white males who owned property. But you see where I'm going with this. A robust civil society gives voice to workers, families and communities. It serves as a counter-balance to wealthy and powerful economic interests.China has a rich culture and strong national identity, but income inequality is growing in China, no free press, no unions, no environmental groups, and no real political system to make tough tradeoffs between wealthy powerful economic interests and the public good. Workers have no economic bargaining power. China's leaders have limited respect for the rule of law, and little willingness to enforce rule of law. China has done an exceptional job of acquiring the means of production. Not so much for human rights, labor rights, public health, or environmental protections. My economist friend told me, "No! Not buying it." China will modernize simply through economic transformation. I'm not sure what he meant, exactly. Maybe he meant that industrialization and democracy were the same thing, more or less. You get one with the other. My point was that you don't get one with the other. You might get a banana republic. You might get Egypt or something like Egypt, or Victorian England without a history of individual freedoms. Russians got plutocracy, corruption, murdered journalists, and a political system with zero credibility. You might get a lot of things, depending on what kind of civil society you have. National politics is really a contest between short-term investor interests and long-term public interests. Investors will act in their short-term interest. Public good often works in the long term. Market forces will not protect public good. For that, you need an effective political system. Colombia is a poster child for dysfunctional political and economic systems. Their culture and national identity are proud enough, but working Colombians are kidnapped, intimidated and killed routinely, as punishment for political involvement. Prosecutors, judges and justice ministers live in the shadow of violence. The last thing Colombia needed was a so-called Free Trade Agreement, which increases rights and powers for global businesses and weakens rights and powers for civil society. Now, Colombia faces worsening inequality and more social disruption. Japan, Germany, Korea, Singapore, Taiwan, and other modern democracies have strong social cohesion, strong institutions of civil society and strong middle classes. These outcomes are not accidental. They are the result of deliberate political choices these countries made. I asked my friend about China becoming a modern democracy. My real question wasn't about China, or Colombia, for that matter. I was really asking about America. What happens to our prosperity, our middle class, and our institutions of civil society? In the last 30 years, our civil society has weakened. Political and economic power are concentrating in the hands of the top 1%. Our respect for science has been replaced with ideology and denial. We disparage public education, and public employees. Our social cohesion is so weak that we envy our neighbors who still have pensions. Rule of law is becoming situational - it doesn'treally apply to big banks or foreclosure robo-signers. Political campaigns are so expensive that elected officials literally cannot afford to govern for the public good. They can only govern for the wealthy and powerful. Within this 30-year decline for civil society, our so-called free trade policy steadily lowers the bar for democratic political process, substituting global business interests for public interest.In his new book, Nobel laureate economist, Joseph Stiglitz, calls globalization, as we've managed it, "global governance without global government." In Western democracies, we solve tough social and political problems through a political process. However, in so-called free trade agreements, global businesses write the rules, then we send disputes to anonymous tribunals. Democratic problem-solving does not happen in the trade agreements. It won't happen in Colombia. I don't see how it will happen in China. It's becoming more difficult in America. This is really about political and economic power. In the conclusion to his book, Stiglitz offers two possibilities. One is that we in the 99%, can recognize our predicament and reclaim our political birthright. Alternatively, the 1% can recognize their "self-interest, properly understood," and lead the way back to a sustainable democracy. Stiglitz traces this back to Alexis de Tocqueville in 1835. Americans understood a basic fact: looking out for the other guy isn't just good for the soul - it's good for business. The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn't seem to have bought: an understanding that their fate is bound up with how the other 99 percent live. Throughout history, this is something that the top 1 percent eventually do learn.Yeah. That would be good.

 

Blair concerned about UK exit from the EU

Former British Prime Minister Tony Blair told a German newspaper he was "deeply worried" Britain might opt to leave the European Union in a referendum, particularly if too many powers were transferred to Brussels without democratic legitimacy.Talk of Britain leaving the EU was once far fetched, but the euro zone debt crisis and the prospect of the currency bloc forging a closer political union have convinced some senior UK politicians it is time to demand a new relationship with Brussels.Current Prime Minister David Cameron said last month it was a "perfectly honourable position" to call for an immediate referendum on Britain's EU membership - something polls show a majority of British people would vote to reject - but that he would never campaign for an "out" vote because leaving the EU would not serve British interests.Blair told Die Zeit it was clear that the euro zone crisis would lead to a "powerful political change of the EU", adding: "And on this point, I am deeply worried that Britain could decide by referendum to leave the whole process.""If more competences are transferred to the EU, then its democratic legitimacy must be built up too," he said, according to a German transcript of the interview which is due to be published on Thursday. "Britain must play a strong role in this. Because we need a balance between European institutions and the nation states.""If this is done wrongly, we could create a political crisis that could become just as a big as the euro crisis. People will not go along with the abolishment of the nation state."Cameron has tried to stave off demands for an immediate vote on Britain's EU membership by holding out the prospect of a referendum some time in the future and by promising a new relationship with the EU.He vetoed a new EU fiscal treaty in December, forcing euro zone states to set their new rules outside the formal EU structure, while using its institutions.Sceptics say EU regulations shackle Britain's $2.5 trillion economy and that leaving the 27-nation bloc would allow London to restore its sovereignty while saving billions of dollars in membership dues.However, supporters of membership argue Britain would lose influence if it left the EU, its biggest trading partner, and that its economy would still be influenced by rules made in Brussels anyway.

HK Airlines to quit London service

 

Hong Kong Airlines will end its service between Hong Kong and London due to poor demand, reports said on Wednesday, another blow to the carrier after authorities banned its expansion. "The last flight from London to Hong Kong will be on September 10," Hong Kong Airlines General Manager Albert Chan told Dow Jones Newswires, meaning the service will have run for just seven months. The airline uses three Airbus 330-200 planes for the flights which are fitted exclusively with business-class seats. The service costs around HK$10m ($1.3m) a month to run, the South China Morning Post newspaper reported. The airline did not immediately respond to requests for comment.The move followed an unprecedented aviation authority ban last month on the airline's expansion, limiting the types of aircraft the company can operate until the airline meets all safety requirements for operating a larger fleet.The airline said it supported the conditions, adding they were sensible for a company at their stage of growth."Given the profitability of our regional routes, we believe that we now have the optimal fleet to continue to build a business... focused on Asia Pacific," an HKA spokesperson told AFP on Monday.Hong Kong Airlines was established in 2006 and operates 21 aircraft flying to locations in mainland China and international destinations ranging from Tokyo to Bangkok.HKA flights were severely delayed and cancelled when a typhoon lashed Hong Kong last month, leaving hundreds of passengers stranded.