| Economics focus: Green with envy
November 19, 2009 at 5:39 am
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| The tension between free trade and capping emissions STATEMENTS by Barack Obama on his travels through Asia have lowered expectations that December’s global summit on climate change in Copenhagen will lead to binding cuts in carbon emissions. The urgency of dealing with climate change means that many countries are drawing up national policies to limit emissions. Yet in a globalised world, where production is increasingly mobile across national borders, some worry that there is a fundamental tension between the effectiveness of such policies and a commitment to open trade. These carbon-reduction policies, such as America’s proposed cap-and-trade scheme, typically put a price on carbon in the hope that this will force producers to bear the costs that their activities impose on the climate. But if different countries cut emissions by different amounts, as is likely, then the price of carbon will vary across nations. If so, manufacturers in countries with tighter environmental rules will face added costs which foreign competitors do not. This could in turn prompt them to relocate some of their production to “carbon havens”, where the cost of polluting is lower. If enough production emigrates, global emissions might even increase. ... |
| Fund management: Payback time
November 19, 2009 at 5:39 am
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| The European Union lashes out at hedge funds and private equity “WHEN a fight breaks out in a bar, you don’t hit the man who started it. You clobber the person you don’t like instead.” That is the cynical verdict of a fund-management executive on the European Union’s proposed Alternative Investment Fund Managers directive. Even though the credit crunch was largely the fault of (highly regulated) banks, politicians seized the chance to have a pop at the unpopular hedge-fund and private-equity industries. The original draft, launched without proper consultation, contained some sensible rules on registration but threw in a bunch of protectionist proposals that would exclude American funds from marketing in the EU. A report commissioned by the European Parliament on the draft concluded that it was “poorly constructed, ill-focused and premature.” ... |
| China's exchange-rate policy: A yuan-sided argument
November 19, 2009 at 5:39 am
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| Why China resists foreign demands to revalue its currency PRESIDENT BARACK OBAMA, on his first visit to China this week, urged the government to allow its currency to rise. President Hu Jintao politely chose to ignore him. In recent weeks Jean-Claude Trichet, the president of the European Central Bank, and Dominique Strauss-Kahn, the managing director of the International Monetary Fund, have also called for a stronger yuan. But China will adjust its currency only when it sees fit, not in response to foreign pressure. China allowed the yuan to rise by 21% against the dollar in the three years to July 2008, but since then it has more or less kept the rate fixed. As a result, the yuan’s trade-weighted value has been dragged down this year by the sickly dollar, while many other currencies have soared. Since March the Brazilian real and the South Korean won have gained 42% and 36% respectively against the yuan, seriously eroding those countries’ competitiveness. ... |
| Buttonwood: Something's gotta give
November 19, 2009 at 5:39 am
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| Either central banks are wrong to keep rates low, or markets are wrong to expect recovery LIKE a truck rolling downhill, the rally in risky assets is proving hard to stop. Good economic news causes share prices to rise because it indicates the recovery is robust; bad economic news also causes prices to rise because it signals that central banks will keep interest rates near zero. Those low interest rates have probably been the main driver of the rally, encouraging investors to put their cash to work in search of higher returns. But other factors have been at play. Forecasts for corporate profits have been revised steadily upwards as analysts anticipate the benefits of economic recovery. ... |
| Rebuilding UBS: Ossie's casino
November 19, 2009 at 5:39 am
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| UBS wants to grow, but its supervisors want it to shrink “I’D LIKE to see us put more risk on the table and actually trade a bit harder.” In these times, such words from any banker might be enough to cause a little concern. Coming from the chief financial officer of a bank that is still clawing its way out of a $50 billion hole of accumulated losses and write-downs, they ought to set the fire alarms ringing. In fact, the gambling-for-redemption strategy outlined by UBS, Switzerland’s biggest bank, is winning the support of shareholders. That it is doing so neatly encapsulates a dilemma for regulators as they try to balance the contradictory goals of making banking safer while also making it profitable enough to attract investors and their capital. On November 17th UBS’s newish boss, Oswald Grubel, a hard-bitten veteran who was hauled out of retirement in February, outlined plans to turn the bank around. Mr Grubel (Ossie to his colleagues) hopes to repeat his success at Credit Suisse where, ironically, he had copied UBS’s strategy of combining private and investment banking with asset management. That the pupil surpassed its master and avoided its mistakes is largely due to Mr Grubel’s nose for risk and the decision to pull back from the American residential-mortgage market in 2006, even as UBS was upping the ante. ... |
| Public-sector finances: The state's take
November 19, 2009 at 5:39 am
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| Governments differ dramatically in how they tax—and how much they raise THANKS to the collateral damage from the financial crisis, government deficits have surged across the rich world. Once the recovery is entrenched this fiscal deterioration will need to be tackled. Although spending cuts could, and should, be the preferred route to prudence, taxes are all too likely to be part of the mix—at least judging from the experience of those countries that have already acted. Spain will raise its value-added tax rate (VAT) from 16% to 18%. Ireland has raised its top income tax rate from 41% to 46%. In both Britain and America current law promises higher future tax rates on wealthier folk. The economic consequences of raising taxes will depend not just on the scale of the tax increase, but also on how the revenue is raised. The less efficient the type of taxation, the greater the burden on the economy. There is already striking variation in the size of the state and the structure of taxation, both among advanced economies, and between them and their emerging counterparts. Comparing countries’ tax takes can offer useful clues to the most efficient ways to raise funds in future. ... |
| Spanish banks: Savings and groans
November 19, 2009 at 5:39 am
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| Misery for the cajas does not mean joy for the banks SPAIN’S banks face a grim 2010. True, the listed banks made over €4 billion ($6 billion) in net profits in the third quarter of this year. But most economists predict that Spain will not emerge from recession until the middle of 2010 at the earliest. Dwindling margins and lower loan volumes will squeeze profits just as bad loans peak on the back of an expected 20% unemployment rate. One small consolation, say the commercial banks, is that Spain’s unlisted savings banks, or cajas, are generally doing even worse. Spain’s 45 cajas have been fierce competitors to the banks, steadily taking market share over the years. They are mutually owned and controlled by a mix of depositors, employees and, above all, local politicians. By riding Spain’s decade-long construction boom and taking advantage of their strong local presence, they now own 56% of Spanish mortgages. Loans to property developers make up about one-fifth of their assets. ... | | |  |
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