Some recent items of interest

July 29, 2016


IMF admits disastrous love affair with the euro and apologises for the immolation of Greece writes the always interesting Ambrose Evans-Pritchard in the Telegraph

“The International Monetary Fund’s top staff misled their own board, made a series of calamitous misjudgments in Greece, became euphoric cheerleaders for the euro project, ignored warning signs of impending crisis, and collectively failed to grasp an elemental concept of currency theory.

This is the lacerating verdict of the IMF’s top watchdog on the fund’s tangled political role in the eurozone debt crisis, the most damaging episode in the history of the Bretton Woods institutions.

It describes a “culture of complacency”, prone to “superficial and mechanistic” analysis, and traces a shocking breakdown in the governance of the IMF, leaving it unclear who is ultimately in charge of this extremely powerful organisation.

In an astonishing admission, the report said its own investigators were unable to obtain key records or penetrate the activities of secretive “ad-hoc task forces”. Many documents were prepared outside the regular established channels; written documentation on some sensitive matters could not be located.”

Needless top say Yannis Varoufakis has a commentary on the IMF reports entitled “The IMF confesses it immolated Greece on behalf of the Eurogroup”.

The full IMF report can be downloaded here.


May is right about reforming capitalism

Officials say it is more like a change of government than just a new PM, says Philip Stephens in the FT

I have a sneaking feeling that the appointment of Theresa May as Prime Minister may be one of those moments when one political chapter ends and another begins, as happened in 1979 and 1997. And just like 1979 the left seems to be fighting a civil war over the best way to fight what may turn out to be yesterday’s battles.


Q2 GDP: US and Eurozone economies sail into the doldrums says Jeremy Smith

“Today we had the first estimates for 2nd Quarter GDP for both the Eurozone (from Eurostat) and the United States (from the BEA). Both sets of data give cause for concern that the world economy – and in particular the so-called “advanced economies” are stuck somewhere in the doldrums between sluggishness and stagnation.

According to Eurostat, Q2 GDP in the Eurozone rose by just 0.3%, a little down on the Q1 0.4%. France managed just zero (after +0.7% Q1), while Germany is likely to have been lacklustre. Looking at the year-on-year position, GDP was up by 1.6% compared to the same quarter in 2015 – a really miserly performance given where one should be in the cycle, but heavily explained by the fact that the unemployment rate for June – also announced today – is still a vast 10.1%. It has been over 10% – save for one solitary month – since autumn 2009. While Spain’s unemployment fell by 57,000 on the month (but remains over 4.5 million), France’s sadly rose again by 20,000, and Italy’s by 27,000.”

Little attention seems to have been paid to recent IMF projections which predict that the UK, even after the impact of Brexit, will still grow faster than Germany, France Italy and Japan.


Francis Coppola is Gazing into the distance

“To me, the present situation looks a lot like the preparation for the handover of Hong Kong to China in 1997. In 1996, while working for a major global bank, I was involved in a project to transfer trading books from Hong Kong to London. Like many international businesses, we feared that Hong Kong would lose access to international markets once it returned to China, so we wanted to get our business out of there. We were by no means the only business planning to leave. Many people, too, did their best to leave: those with British passports came to the UK, while others went to Singapore. There was a general atmosphere of worry during the five years between the terms of the handover being agreed and the actual return of Hong Kong to China. And it had a dampening effect on Hong Kong’s economy.

But we were wrong. Leaving the UK did not end Hong Kong’s access to international markets. Nor did it result in the imposition of a repressive Chinese regime, as many feared. In fact, Hong Kong has become both the gateway to the largest market in the world and one of the world’s great financial centres in its own right. It remains a lively, cosmopolitan, multi-cultural place. And many of those who left out of fear before 1997 have returned, attracted by Hong Kong’s vibrant economy and its key role in the South East Asian marketplace.

Of course, the UK is very different from Hong Kong, and it is leaving rather than joining a major trading bloc. It all could go horribly wrong: the UK could lose large parts of its financial services industry and be unable to develop other industries to compensate. Rather than a vibrant future, it could face years of stagnation and decline. There are no guarantees. But it is entirely possible that, like Hong Kong, once the UK has completely cut the ties, investment could return and the economy start to grow again.”


In this recent interview Professor Steve Keen (one of my favourite economist) is predicting a recession in Australia in 2017 and says the Australian Reserve Bank does not know what it is doing on rates, that Australia has the most overvalued property market on the planet and the country is facing a massive credit crunch. He also think South Korea, Canada, Sweden and Norway, amongst others, are facing looming debt induced recessions.


Robert Tombs writes in the New Statesman about “The English Revolt Brexit, Euroscepticism and the future of the United Kingdom.”

“English voters have led – some would say forced – the United Kingdom towards exit from the European Union. Was this an English revolt, the result of an ­upsurge over decades of a more assertive, perhaps resentful, sense of English identity? At one level, clearly so. Surveys indicate that individuals who most often describe themselves as “English”, and regions where this is common, were more inclined to vote Leave on 23 June. Some of these are poorer regions where marginalised people think that their voices are more likely to be heard in a national democracy than in an international trading bloc, and for whom patriotism is a source of self-respect. But it would only make sense to regard Leave as essentially an English reaction if discontent with the EU were confined to England, or specifically linked with feelings of Englishness.

In fact, negative opinions about the EU, and especially about its economic policy, are now more widespread in other countries than they are in England. Polls by the Pew Research Centre last month showed that disapproval of the EU was as high in Germany and the Netherlands as in Britain, and higher in France, Greece and Spain. Though aggravated by the 2007-2008 crash and enforced policies of austerity, a decline in support was clear earlier. France’s referendum of May 2005 gave a 55 per cent No to the proposed EU constitution after thorough debate, and a now familiar pattern emerged: enthusiastic Europeanism was confined to the wealthiest suburbs and quarters of Paris, and the only professional groups that strongly voted Yes were big business, the liberal professions and academics.

Going far beyond the atavistic and incoherent English revolt that some think they discern, our referendum result is partly a consequence of transnational political phenomena across the democratic world: the disaffection of citizens from conventional politics, shown by falling turnouts for elections, shrinking party membership and the rise of new, sometimes extreme political movements; as well as the simultaneous detachment of a professional political class from civil society, and its consequent retreat into a closed world of institutions.

The EU embodies these phenomena in uniquely acute form. In several cases its central bodies have opposed – or, if one prefers, have been forced to deny – democratically expressed wishes. In Greece and Italy, the EU has enforced changes of government and policy, and in Denmark, Ireland and the Netherlands it has pressed countries to ignore or reverse popular referendums. Its own representative body, the European Parliament, has gained neither power nor legitimacy. Crucial decisions are taken in secret, making the EU a hiding place for beleaguered politicians as well as a source of lavish financial reward for insiders. In the words of the historian John Gillingham, Europe is now being governed by neither its peoples nor its ideals, but by a bank board. This is not the “superstate” of Eurosceptic mythology. Though it drains power and legitimacy away from national governments, it is incapable of exercising power effectively itself, whether to cope with short-term emergencies such as an inflow of refugees, or to solve chronic failings such as the creation of mass unemployment in southern Europe. The result is paralysis, the inability either to extricate itself from failing institutions or to make them work.”


Economist Michael Hudson, a long commentator and critic of the rampant financialisation of the last 35 years, explains in this video interveiw that Trump’s divergence from the conventional Republican platform is unravelling the neocons and neoliberals agenda in the Republican party.

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