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passion & ambition




The president who loved summits  

2008-11-12 21:38:30|  分类: 次贷危机 |  标签: |举报 |字号 订阅

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WORLD leaders will gather in Washington, DC, for a special summit to discuss the global financial and economic crisis on Saturday November 15th. George Bush, America’s outgoing president, called the get-together of the G20 countries and big developing economies. The intention is to hammer out proposals to fix the world’s troubled financial system, amid demands for more transparency, better risk management and improved bank capitalisation. Nicolas Sakozy, the French president, may be disappointed in his calls for a wholesale reform of world capitalism.

The president who loved summits

Oct 23rd 2008 | PARIS

From The Economist print edition

How the French president has overturned the normal rules of diplomacy

Getty ImagesThe president who loved summits - shu4huan4 - 蜗牛新壳

TO UNDERSTAND just how much Nicolas Sarkozy has upturned French diplomacy, try inserting the name Jacques Chirac into the following report. The French president invited himself to Camp David (see picture), where he appeared alongside “dear George”, spoke warmly of “the great American nation” and called for a special summit of G8 countries to “refound capitalism” soon after the American presidential election. The Americans should host it, he declared, “because the crisis took off in New York”. President George Bush, appearing rather startled, limply agreed (the White House has since announced that the summit will meet near Washington, DC, on November 15th).

The whirlwind of emergency summits held or planned by Mr Sarkozy over the past few weeks has been positively dizzying. He wants to hold yet another European Union meeting (France occupies the rotating six-monthly EU presidency) to prepare for the new financial summit. At the end of this week he was due in Beijing for an EU-Asia summit, hoping to get the Chinese and others on board. All this has come after weeks of frantic shuttling, before the financial crisis hit, between Paris, Moscow and Tbilisi in efforts to mediate in the war between Russia and Georgia.

It is hard to recall that, only a few years ago, France’s voice went unheard not only in Washington but also in Europe. Europe was deeply split over the Iraq war in 2003-04. In the EU, France was undermined by its rejection of the constitutional treaty in 2005. Yet today Mr Sarkozy has put France—and Europe—back on the diplomatic map. To be sure, it is easier to behave like an alpha-male leader with a lame-duck American president. And gallingly, Mr Sarkozy has had to share the limelight over Europe’s bank-rescue plan with Britain’s Gordon Brown. But it is the French president who has had the EU mandate to act as globe-trotting European diplomat-in-chief. He has milked it for all it is worth.

Indeed, as Europe congratulates itself on its show of united leadership, the argument is increasingly being heard that it should entrench such a role. Recent events, goes the argument, show that Europe needs a permanent president, as proposed in the Lisbon treaty, which has been on hold since the Irish rejected it in a referendum in June. This week Mr Sarkozy argued that “the world needs a Europe that speaks with a strong voice”, and noted that this was difficult with a rotating presidency. José Manuel Barroso, the European Commission president (above, in the back of the golf-cart), made the same point in an interview with Le Figaro. Just think, some mutter darkly, what would have happened if the financial crisis and the war in Georgia had taken place under the preceding Slovenian presidency.

Yet there is an obvious flaw in this argument: it equates leadership with institutions. If Mr Sarkozy has appeared as a strong European leader, this is because of his political qualities and egotism, not because of the EU’s institutional arrangements. Indeed, it is possible to take precisely the opposite line over the Lisbon treaty: that Mr Sarkozy’s hyperactivism demonstrates that strong European leadership does not need a new institutional set-up; and even that to have had another worthy as permanent EU president would just have created another obstacle.

For the essence of Mr Sarkozy’s approach, at home and abroad, is not to allow the niceties of protocol to get in his way. He seems to have quietly forgotten that the G8 is currently chaired by Japan (the financial summit is now formally a G20 meeting). Nor was it EU orthodoxy to invite Mr Brown to a summit of euro-area members, since Britain is not one. But Mr Sarkozy’s unFrench, sleeves-rolled-up pragmatism means doing whatever it takes to get things moving. When his October 4th G4 summit in Paris on the financial crisis failed to prevent each-for-himself squabbling, he simply changed the format and tried again a week later. There are reports that he might want a job for himself as president of future euro-area summits.

It is not clear what would have happened had the Lisbon treaty been in force. Short of a heavyweight figure like Britain’s Tony Blair in the job, how would a middling EU president have dealt with Russia or the market meltdown? And how long would Mr Sarkozy have tolerated dithering before stepping in to take things in hand? “No doubt about it,” says one French diplomat, “he would have been in the plane with the EU president anyway.”

It takes unusual leadership qualities to get European countries to agree to anything, let alone to act beyond their national interests. Arguably, on the financial crisis, and after his first flop, Mr Sarkozy achieved the first, but not the second. His original idea for a common European bank bail-out fund was dropped in the face of German resistance to being seen to pay for others. The current rescue plans may have been co-ordinated, but the details are being decided by individual national governments, and no money is being pooled.

The remaining two months of the French EU presidency will test how lasting are Mr Sarkozy’s consensus-building powers. He may have proven his ability to charm, cajole and bully fellow Europeans into a show of unity. But he often leaves in his wake a few bruised egos and much disgruntlement. The Spanish, for instance, were offended to have been left out of his G4 meeting, to which he invited only Britain, Germany and Italy. The Germans were deeply angered earlier this year by Mr Sarkozy’s original plan for a Mediterranean Union that would have excluded them, as they have no shoreline on the sea.

With Europe facing recession, diverging interests may create fresh strains. It will be hard to secure an EU summit deal on climate-change targets in December, for instance (see article). Mr Sarkozy’s call for European sovereign wealth funds to protect companies from foreign predators was instantly attacked in Germany. His proposed “economic government” for the euro area, long pushed by France, was dismissed by Mr Barroso, who called the notion that such a body might give instructions to the European Central Bank “dangerous”. The EU’s divisions between free-market liberals and state interventionists will be exposed in rows over subsidies to industry, competition rules and capping executive pay. Mr Sarkozy has shown that he is not Mr Chirac when it comes to leading Europe during a crisis. But many old fault-lines in Europe remain.

Wolves at the door

Nov 6th 2008 | WASHINGTON, DC

From The Economist print edition

Financial mess and gathering recession dominate Barack Obama’s economic agenda

HE HAD always planned for the economy to be his priority. Just not this economy.

The president who loved summits - shu4huan4 - 蜗牛新壳

As candidate, Barack Obama crafted a platform to address the concerns that preoccupied voters earlier this year: high energy and health-care costs, stagnant middle-class incomes and rising foreclosures. But such problems pale beside the eruptions since August. America’s housing crisis has become a global financial panic; the economy, which was muddling along as recently as July, may be in its deepest recession in decades. Consumer confidence, as our chart shows, is at its lowest in more than half a century (except for a brief sharp dip in 1980).

Only twice since the 1920s has economic angst played such an important role in a presidential election—and both the previous occasions make imperfect templates (see table). When Franklin Roosevelt defeated Herbert Hoover in 1932, the Depression had been going on for three years, thousands of banks had failed and unemployment was 25%. When Ronald Reagan beat Jimmy Carter in 1980, inflation had been high for years, hovering at 12% as voters headed to the polls. The current crisis has been under way for little more than a year, the first failure of a big financial institution was in March and the latest figure for unemployment (in September) was just over 6%. Inflation this year topped 5%, mostly because of soaring petrol prices, and is now heading down.

The president who loved summits - shu4huan4 - 蜗牛新壳

What distinguishes today’s economic environment is that it is such a sharp break from a long period of low inflation and shallow recessions, an era lasting 26 years which some economists named “the great moderation”. Indeed, the median-age voter this year has known little else, notes Michael Barone, a political expert at the American Enterprise Institute. There have been financial upsets, such as the 1987 stockmarket crash and the 2001 dotcom bust. But they lacked the destructive power of this year’s financial tempest which has capsized banks, money-market mutual funds, insurers, hedge funds, car manufacturers—and countries as disparate as Iceland and Ukraine.

Against this background, Mr Obama confronts three distinct though related challenges: the financial crisis, mortgages and foreclosures, and recession. Of these, the financial mess has to be dealt with first. “Problems in the financial system”, explains Douglas Elmendorf, an economist at the Brookings Institution, “evolve in a matter of hours, days and weeks.”

If Mr Obama is lucky, he will take office on January 20th with financial affairs more or less under control thanks to steps taken by Henry Paulson, the treasury secretary, and the Federal Reserve. The government is buying equity in banks and guaranteeing their debt, and the Fed has dramatically expanded its lending to all manner of borrowers. There are signs of success. Stocks have risen from their lows of a week ago. Banks are growing a bit more willing to lend to each other, judging by the decline in rates on three-month interbank dollar loans (although that rate remains extremely high in relation to the Fed’s target rate).

But for the healing to continue more government intervention will almost certainly be needed. As a slumping economy turns more debts bad, more financial firms will founder—and Mr Obama must decide whether to rescue them. He will press for conditions, such as lending commitments, which Mr Paulson shied away from.

The Treasury is expected to ask for the second $350 billion tranche of the $700 billion in bail-out funds. It may even need more as the list of supplicants grows. GMAC, the finance affiliate of General Motors, which said on November 5th that its mortgage unit might fail, is seeking access to the Treasury’s bail-out funds. Insurers want to qualify too. Sheila Bair, chairman of the Federal Deposit Insurance Corporation, a bank regulator, is pressing for more aggressive (and costly) measures to reduce foreclosures. Some non-financial companies, such as the carmakers, will also come close to bankruptcy. Their requests for help will get a sympathetic ear from Mr Obama.

Because of the extreme fragility of market confidence, the way the presidential transition is handled is crucial. Mr Obama’s preparations have been extensive and George Bush himself has prepared the ground for a smooth handover. The president-elect may name the main members of his economic team within days to reassure investors that the replacement of Mr Paulson will be seamless. Both Lawrence Summers, who held the office under Bill Clinton, and Timothy Geithner, the president of the Federal Reserve Bank of New York, are on the shortlist of candidates to take over. Mr Bush has even been urged to take the unprecedented step of nominating some of his successor’s team. But Stephen Hess, at the Brookings Institution, gives warning that this could force Mr Obama to compromise with the outgoing administration on important decisions.

Even if the worst of the financial crisis has passed (a dangerous assumption), the worst for the economy is almost certainly ahead. After their near-death experience, bankers have turned exceedingly cautious. A Fed survey released this week shows them tightening lending standards to consumers by a greater margin than at any time in the survey’s 40-year history, except for Mr Carter’s short-lived imposition of credit controls. General Motors says that last month’s car sales, relative to the population, have been the lowest since 1945.

The president who loved summits - shu4huan4 - 蜗牛新壳

How long, and deep, a recession?

The depth of the recession largely hinges on how long it takes for banks and private lenders to recover their appetite for risk. This, in turn depends on the course of home prices, loan losses and the ability of financial firms to raise capital. Some officials at the Fed think that the recession could be as mild as it was in 1990-91. If so, it would probably be over around mid-2009 and unemployment will peak somewhere near 7%. In a more pessimistic scenario, the recession would rival that of 1981-82, lasting into late 2009 with unemployment reaching 8-9%.

The Fed has brought previous recessions to an end by pushing interest rates low enough for long enough. Its job this time is harder. Though its interest-rate target has dropped to 1%, the benefits have been blunted by bankers’ and investors’ lack of capital and by their suspicion of customers’ creditworthiness. This has kept rates to corporate and household borrowers high. Corporate-bond yields are much higher now than 15 months ago when the Fed’s target stood at 5.25%.

Historically, presidents have had little influence over short-term economic growth, and certainly less than the Fed’s chairmen. But with monetary policy muffled, Mr Obama will bear more of the responsibility for fighting recession by way of fiscal policy. Congressional Democrats are already pressing for up to $150 billion in stimulus measures, such as aid to states and infrastructure spending. Mr Obama incorporated those goals in a two-year $175 billion proposal and may join forces with Congress to pass such a package in a “lame duck” session before inauguration day. Some advisers and outsiders want him to do even more. Economists at Goldman Sachs think that up to $500 billion in stimulus (3.5% of GDP) is necessary to offset the drop in private spending induced by tighter credit.

With stimulus of this magnitude, the costs of the bail-out and the recession’s withering effect on tax revenue, the budget outlook is dreadful; next year’s deficit could top $1 trillion. Given the alternative—an even worse recession—even deficit hawks will hush their protests.

But the president-elect has precious little breathing room. He faces momentous and unpleasant choices. One deadline is the expiration of Mr Bush’s tax cuts at the end of 2010. Mr Obama had originally promised to extend them for all but the wealthiest 5% of households, whose higher taxes (along with a withdrawal of troops from Iraq) would finance tax credits and health-care subsidies to working-class families. The Tax Policy Centre, a research group, puts the cost of his health-care plan alone at $1.6 trillion over ten years. His more liberal supporters will expect him to keep those promises. But with a deficit threatening to exceed the post-war record of 6% of GDP (set in 1983), such largesse risks revolt by the financial markets, a point that Mr Obama’s more conservative advisers will doubtless make.

In 1993 Mr Clinton, facing similar tension, ultimately sided with the deficit hardliners. If anything, the pressures on Mr Obama are even more acute. With baby-boomers about to retire in growing numbers, the cost of America’s public-health and retirement programmes, if left unchanged, will rise from 8% of GDP now to 19% by 2050. Some economists dream that the time is ripe for a grand bargain that reforms the tax code, entitlements, and health care simultaneously, boosting productivity, raising revenue, expanding health-care coverage and putting the budget on the path to long-term balance.

Towards sterner regulation

Mr Obama also faces big decisions on reconfiguring America’s system of financial regulation. The ad hoc takeovers, bail-outs and guarantees of recent months have vastly expanded the federal safety-net and increased potential taxpayer liability by trillions of dollars. The Fed and Treasury plan to wind down most of these programmes over the next two years, but it is tough to wean investors and banks from federal guarantees once granted. With six firms controlling three-quarters of America’s $14 trillion in banking assets, “We have developed…a very serious too-big-to-fail problem,” Ben Bernanke, the Fed’s chairman, acknowledged last month.

Since none of these firms, or any financial company of systemic importance, can be allowed to fail, more intrusive supervision that limits risk-taking and thus profitability is inevitable. To replace the system of ad hoc rescues, Mr Obama’s advisers may press for rapid action on a formal “resolution regime” enabling the federal government to take over and wind down firms. The bail-out law requires him to decide by May how to regulate derivatives and hedge funds. Eventually, he must also decide whether to merge or reassign the responsibilities of America’s multiple federal and state regulators. The Fed has taken on extensive new powers in the past year—which may not be healthy either for the financial system or for the Fed, whose principal duties are to maintain stable prices and jobs. Mr Obama’s views on such questions will influence who he appoints to fill the three vacancies on the Fed’s seven-member board, and whether to reappoint Mr Bernanke whose term expires in 2010.

Economic problems abroad will also jostle for Mr Obama’s attention. The financial crisis has destabilised many emerging economies whose companies had participated in the credit boom. The International Monetary Fund’s $253 billion in resources could soon be critically stretched if other countries join Iceland, Hungary and Ukraine in seeking financial support.

The challenges facing Mr Obama are momentous; so is his potential. His solid mandate and strengthened majorities in Congress equip him with huge political capital. There is no shortage of problems demanding that he spends this capital.

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