Saturday, October 29, 2005
Collective Security - political sensitivities
If collective security is possible, how should it be funded - the blog asked on 3 and 7 September.
Present funding arrangements have led to the huge variations in military spending by members of NATO and the EU.
The UK navy seems now to envisage a future outwith the collective security of NATO or the EU - hence it intends to rely indefinitely on the largesse of the national taxpayer. The details are here and here in today's Times. Thanks to EU Referendum. No collective security, no chance of central funding.
Update
Signs of more pressure in the UK Government to provide value for money from taxes - a parliamentary requirement for about 20 years. A replacement for Trident, the UK's nuclear deterrent, is in doubt. "The Treasury [sic] has also warned Mr Blair that it is worried about the potential high cost of replacing Trident, and its impact on the public finances". Link
Present funding arrangements have led to the huge variations in military spending by members of NATO and the EU.
The UK navy seems now to envisage a future outwith the collective security of NATO or the EU - hence it intends to rely indefinitely on the largesse of the national taxpayer. The details are here and here in today's Times. Thanks to EU Referendum. No collective security, no chance of central funding.
Update
Signs of more pressure in the UK Government to provide value for money from taxes - a parliamentary requirement for about 20 years. A replacement for Trident, the UK's nuclear deterrent, is in doubt. "The Treasury [sic] has also warned Mr Blair that it is worried about the potential high cost of replacing Trident, and its impact on the public finances". Link
Energy - Political sensitivities
The United States is blaming the Chinese for the global energy crisis. The Oil Drum has an interesting post and discussion on the matter today.
One contribution to the discussion:
The link to the Chinese press was very helpful. They challenge the accusation that China is destabilising oil markets.
The 'China Daily' says BP's figures show China consumed only 8 per cent of the world total in 2004; however the United States consumed a quarter of the total. Secondly, CD suggests China produced domestically 60% of its consumption; the US produced 40%.
Nevertheless, the competition for the vital and finite reserves is getting intense. Is the World Trade Organisation Ministerial in December the best forum to discuss, officially, this crisis?
One contribution to the discussion:
The link to the Chinese press was very helpful. They challenge the accusation that China is destabilising oil markets.
The 'China Daily' says BP's figures show China consumed only 8 per cent of the world total in 2004; however the United States consumed a quarter of the total. Secondly, CD suggests China produced domestically 60% of its consumption; the US produced 40%.
Nevertheless, the competition for the vital and finite reserves is getting intense. Is the World Trade Organisation Ministerial in December the best forum to discuss, officially, this crisis?
Tuesday, October 25, 2005
Energy - EU, NAFTA and the WTO
Energy trade is a key activity that is unlikely to receive the priority it deserves at Hong Kong in December (the 6th Ministerial meeting of the World Trade Organisation).
To illustrate the difficulties in store, the Institute for International Economics have this month published a book on the experience with NAFTA - a regional trade agreement. There is an alarming chapter on North America's difficulty in achieving common energy policies. Of the three nations (Canada, Mexico and the US), Canada seems to be the most liberal.
The fractiousness in NAFTA bodes ill for a common energy policy for the European Union's 25 nations.
Update
A summit of European leaders was held 27 October 2005 in London. A broad endorsement was given to the recommendations of the UK presidency, reports the FT.
The recommendations included: "A new European energy strategy, creating an integrated grid, developing a nuclear policy and pooling EU purchasing power". However details are few, although a Newsletter from the EC's 'DG Energy & Transport' will no doubt be issued. Who will meet the costs of the energy security is clearly an important issue - national public sectors, the private sector, or a new financing arrangement.
To illustrate the difficulties in store, the Institute for International Economics have this month published a book on the experience with NAFTA - a regional trade agreement. There is an alarming chapter on North America's difficulty in achieving common energy policies. Of the three nations (Canada, Mexico and the US), Canada seems to be the most liberal.
The fractiousness in NAFTA bodes ill for a common energy policy for the European Union's 25 nations.
Update
A summit of European leaders was held 27 October 2005 in London. A broad endorsement was given to the recommendations of the UK presidency, reports the FT.
The recommendations included: "A new European energy strategy, creating an integrated grid, developing a nuclear policy and pooling EU purchasing power". However details are few, although a Newsletter from the EC's 'DG Energy & Transport' will no doubt be issued. Who will meet the costs of the energy security is clearly an important issue - national public sectors, the private sector, or a new financing arrangement.
Saturday, October 22, 2005
Energy politics
In 'Isolationism' below (14 September), it was noted that the UK presidency of the European Union thinks a global solution is needed to satisfy the EU's energy requirements. The 'Update' suggests that this idea is going nowhere. Unless Russia's chairmanship of the G8 in 2006 can help.
Dependence for supplies on the vagaries of national politics seems the way ahead, for now. Earlier this month, the Economist reported on Russia's vast reserves of energy - on which the EU is becoming addicted:
"Last month, Mr Putin and Gerhard Schröder, Germany's chancellor, presided over the launch of Gazprom's latest mega-project: a €4 billion ($5 billion) pipeline that will run under the Baltic Sea to Germany, Gazprom's biggest foreign customer, and thence, eventually, to Britain."
[However supplies of vital energy will be subject to political stability in the exporting and transit countries:] "witness, most famously, the brief interruption in deliveries inflicted on Belarus in February 2004 after Alexander Lukashenka, its tragicomic president, irked Gazprom and Mr Putin once too often. Yuri Yekhanurov, Ukraine's new prime minister, visited Moscow last week, amid talk of an imminent tripling in his country's costs. Both Ukraine and Georgia—another country that is unpopular in the Kremlin, and which lacks Ukraine's transit leverage—are urgently scrambling to find alternative sources of energy."
Dependence for supplies on the vagaries of national politics seems the way ahead, for now. Earlier this month, the Economist reported on Russia's vast reserves of energy - on which the EU is becoming addicted:
"Last month, Mr Putin and Gerhard Schröder, Germany's chancellor, presided over the launch of Gazprom's latest mega-project: a €4 billion ($5 billion) pipeline that will run under the Baltic Sea to Germany, Gazprom's biggest foreign customer, and thence, eventually, to Britain."
[However supplies of vital energy will be subject to political stability in the exporting and transit countries:] "witness, most famously, the brief interruption in deliveries inflicted on Belarus in February 2004 after Alexander Lukashenka, its tragicomic president, irked Gazprom and Mr Putin once too often. Yuri Yekhanurov, Ukraine's new prime minister, visited Moscow last week, amid talk of an imminent tripling in his country's costs. Both Ukraine and Georgia—another country that is unpopular in the Kremlin, and which lacks Ukraine's transit leverage—are urgently scrambling to find alternative sources of energy."
Thursday, October 20, 2005
Reform of G7+1
Which public organisation should oversee the global economy, regardless of how national finances are independently audited?
One answer is an improved International Monetary Fund. In this connection, it's worth listing some of the comments and recommendations in a paper last month from the Director of the Institute for International Economics - 'A New Steering Committee for the World Economy?'
Quote
The Fund’s management and staff have courageously publicized the current global imbalances that increasingly threaten both the world trading system (via their impetus to protectionism) and the health of the international economy itself (via a large and perhaps precipitous fall of the dollar). However, the Fund has been impotent in seeking remedial action. . . [although] the Fund’s rules provide ample scope for initiative that have been totally ignored.
IMF policy on major issues has always been directed by an outside group: the G-7 since the late 1980s. . . The fundamental reason for the increasing ineffectiveness of the IMF over the past decade or so has been the ineffectiveness of its steering committee, the G-7. Reforms are needed . . .The G-7 has little credibility in counseling other countries to adopt responsible fiscal and exchange rate policies when it permits huge budget imbalances and massively misaligned currencies to persist in its midst without any serious effort to correct or even address them.
A meeting of high officials and academics that I recently attended to discuss these issues reached the profoundly depressing conclusion that there is virtually universal agreement on the diagnosis of the current problem but virtually no possibility of governmental action until the inevitable crisis hits.
[In detail]
1. the G-7 can hardly expect to forge a coordinated and hence effective response to the global imbalances, even if it wants to, without the participation of China and preferably several other key Asian countries (at least Korea and India) as well.
2. the G-7 is equally ill equipped to deal with the global energy problem. . . the G-7 consists primarily of importing countries and could hardly expect to work out legitimate and hence effective solutions that require cooperation and joint leadership with the major oil exporting countries, presumably via OPEC.
3. the G-7 has failed to produce a "sustainable and comprehensive solution" for the Argentine default, the largest single episode of its type in modern history with potentially huge precedential effects for the management of future debt crises.
[Nevertheless, one option for reform of the G7 is to] build on the existing G-20, which has been meeting at the level of finance ministers and central bank governors (and their deputies) since 1999. This group would add six more countries: Argentina, Australia, Indonesia, Korea, Saudi Arabia and Turkey. The additions would include several oil exporters, including the most important one, and three major Muslim countries. Since the European Union is already counted separately, the group could be slimmed to a G-16 by dropping the four individual Europeans.
One crucial political factor must be addressed before choosing among these options. The G-7 has come to refer to itself in recent years (though not at its outset) as the group of "leading industrial democracies." . . . Much of the resistance to China’s addition to the G-7/8, particularly in the United States, has been based on the continued authoritarian nature of its political system. Similar questions could be raised about Saudi Arabia, which (like China) is nevertheless already a member of the G-20. [But these details may all be irrelevant if the object of the group is to manage effectively the global economy.]
Unquote
Perhaps the UK chair of the G8 for 2005 (and EU president) should hold a summit before the year-end to discuss the proposals for improving the regulation of the global economy.
One answer is an improved International Monetary Fund. In this connection, it's worth listing some of the comments and recommendations in a paper last month from the Director of the Institute for International Economics - 'A New Steering Committee for the World Economy?'
Quote
The Fund’s management and staff have courageously publicized the current global imbalances that increasingly threaten both the world trading system (via their impetus to protectionism) and the health of the international economy itself (via a large and perhaps precipitous fall of the dollar). However, the Fund has been impotent in seeking remedial action. . . [although] the Fund’s rules provide ample scope for initiative that have been totally ignored.
IMF policy on major issues has always been directed by an outside group: the G-7 since the late 1980s. . . The fundamental reason for the increasing ineffectiveness of the IMF over the past decade or so has been the ineffectiveness of its steering committee, the G-7. Reforms are needed . . .The G-7 has little credibility in counseling other countries to adopt responsible fiscal and exchange rate policies when it permits huge budget imbalances and massively misaligned currencies to persist in its midst without any serious effort to correct or even address them.
A meeting of high officials and academics that I recently attended to discuss these issues reached the profoundly depressing conclusion that there is virtually universal agreement on the diagnosis of the current problem but virtually no possibility of governmental action until the inevitable crisis hits.
[In detail]
1. the G-7 can hardly expect to forge a coordinated and hence effective response to the global imbalances, even if it wants to, without the participation of China and preferably several other key Asian countries (at least Korea and India) as well.
2. the G-7 is equally ill equipped to deal with the global energy problem. . . the G-7 consists primarily of importing countries and could hardly expect to work out legitimate and hence effective solutions that require cooperation and joint leadership with the major oil exporting countries, presumably via OPEC.
3. the G-7 has failed to produce a "sustainable and comprehensive solution" for the Argentine default, the largest single episode of its type in modern history with potentially huge precedential effects for the management of future debt crises.
[Nevertheless, one option for reform of the G7 is to] build on the existing G-20, which has been meeting at the level of finance ministers and central bank governors (and their deputies) since 1999. This group would add six more countries: Argentina, Australia, Indonesia, Korea, Saudi Arabia and Turkey. The additions would include several oil exporters, including the most important one, and three major Muslim countries. Since the European Union is already counted separately, the group could be slimmed to a G-16 by dropping the four individual Europeans.
One crucial political factor must be addressed before choosing among these options. The G-7 has come to refer to itself in recent years (though not at its outset) as the group of "leading industrial democracies." . . . Much of the resistance to China’s addition to the G-7/8, particularly in the United States, has been based on the continued authoritarian nature of its political system. Similar questions could be raised about Saudi Arabia, which (like China) is nevertheless already a member of the G-20. [But these details may all be irrelevant if the object of the group is to manage effectively the global economy.]
Unquote
Perhaps the UK chair of the G8 for 2005 (and EU president) should hold a summit before the year-end to discuss the proposals for improving the regulation of the global economy.
Wednesday, October 12, 2005
International protection and economic stability
Central banks could certainly help to audit the public finances of a nation. However they might need protection from the national politics. But the resulting 'checks and balances' would at least assure the international monetary authority (ECB or IMF?) that the figures are in order.
Another major concern is trading imbalances around the world. Should they be levelled? On a key difficulty, Brad Setser produced helpful paper.
"I have rattled on and on about how China's current account surplus is on track to reach 6, 7 or even 8% of China's GDP. . . But that ain't nothing compared to Saudi Arabia. Its current account surplus is forecast to be close 30% of GDP in 2005 by the IMF (other forecasts put its surplus above 30% of GDP), up from 13% in 2003 (and a deficit in 1998?). The average surplus of a Middle Eastern oil exporter is around 20% of their GDP. . ."
Another major concern is trading imbalances around the world. Should they be levelled? On a key difficulty, Brad Setser produced helpful paper.
"I have rattled on and on about how China's current account surplus is on track to reach 6, 7 or even 8% of China's GDP. . . But that ain't nothing compared to Saudi Arabia. Its current account surplus is forecast to be close 30% of GDP in 2005 by the IMF (other forecasts put its surplus above 30% of GDP), up from 13% in 2003 (and a deficit in 1998?). The average surplus of a Middle Eastern oil exporter is around 20% of their GDP. . ."
Economic and financial stability
Do nations still accept that "the world needs a strong and effective IMF as the principal multilateral institution responsible for international economic and financial stability"?
This is question one in last month's paper from the Institute for International Economics, referred to below.
The IIE's question is addressed here. Brad Setser suggests the IMF is impotent at present: "IMF efforts to get China to allow its exchange rate to appreciate significantly would have exactly as much impact over Chinese policy as IMF efforts to get the US to reduce its budget deficit. Zero."
Nevertheless, he thinks the IMF must be more aggressive if it is to have global credibility.
But other events are moving the focus. Today's FT reports that Hungary's "central bank. . . has blown the whistle on its own government's attempt to mask the country's deficit. So Hungary's estimated public deficit for this year has now been revised sharply upwards from 3.6 to 6.1 per cent of gross domestic product."
Protect the independence of central banks? Difficult, but it's a way forward for economic stability in the global economy.
This is question one in last month's paper from the Institute for International Economics, referred to below.
The IIE's question is addressed here. Brad Setser suggests the IMF is impotent at present: "IMF efforts to get China to allow its exchange rate to appreciate significantly would have exactly as much impact over Chinese policy as IMF efforts to get the US to reduce its budget deficit. Zero."
Nevertheless, he thinks the IMF must be more aggressive if it is to have global credibility.
But other events are moving the focus. Today's FT reports that Hungary's "central bank. . . has blown the whistle on its own government's attempt to mask the country's deficit. So Hungary's estimated public deficit for this year has now been revised sharply upwards from 3.6 to 6.1 per cent of gross domestic product."
Protect the independence of central banks? Difficult, but it's a way forward for economic stability in the global economy.
Friday, October 07, 2005
Rewriting the rules of the global economy
Perhaps the International Monetary Fund is unfairly criticised.
The government of the United States is criticised this week by the private sector for protectionist policies; which are discouraging FDI.
"President George W. Bush should issue a policy statement—just as presidents Carter and Reagan did—to indicate that FDI is welcome. The United States should continue to negotiate and ratify bilateral investment treaties and investment provisions in trade agreements so as to establish ground rules for fair treatment of investment. . . And while the president should fully utilize his authority to block foreign acquisitions that genuinely threaten US national security interests, America should welcome all other FDI with open arms."
Bilateral treaties in a global economy - this surely creates big problems for the IMF. Anyway, it would help in the short-term for the WTO to list the 'national security' exceptions it allows to restrict free trade.
And then, there's the need for independent financial audit.
The government of the United States is criticised this week by the private sector for protectionist policies; which are discouraging FDI.
"President George W. Bush should issue a policy statement—just as presidents Carter and Reagan did—to indicate that FDI is welcome. The United States should continue to negotiate and ratify bilateral investment treaties and investment provisions in trade agreements so as to establish ground rules for fair treatment of investment. . . And while the president should fully utilize his authority to block foreign acquisitions that genuinely threaten US national security interests, America should welcome all other FDI with open arms."
Bilateral treaties in a global economy - this surely creates big problems for the IMF. Anyway, it would help in the short-term for the WTO to list the 'national security' exceptions it allows to restrict free trade.
And then, there's the need for independent financial audit.
Monday, October 03, 2005
Washington Consensus - changes?
The Institute for International Economics arranged a conference in September 2005 to consider how to improve the International Monetary Fund.
As an introduction, the IIE prepared a paper, and the MD of the IMF replied to the issues later.
The IIE suggests that instruments should be devised to increase the IMF’s leverage over the exchange rate policies for all nations, and over the economic policies of major industrial countries. And it was said the preferred IMF steering committee is not the old G-7 but the G-20, slimmed down to include one seat for the European Union.
The MD of the IMF focused on economic growth. Rodrigo de Rato said the world needs to move away from a pattern of growth where investment in most of Asia is too low, and high consumption in the U.S. is financed by rapidly increasing debt, and where growth of domestic demand in Europe and Japan is too weak.
But a key problem is how to persuade powerful nations to accept that the UN's IMF should command their economies, as was effectively agreed 60 years ago when nations signed the UN Charter. Do nations still accept that "the world needs a strong and effective IMF as the principal multilateral institution responsible for international economic and financial stability"?
Update
The US certainly support the IMF, now. Per the FT: Frustrated with the lack of meaningful exchange rate adjustment by China and some other Asian economies, the US Treasury has called on the International Monetary Fund to be more ambitious in its surveillance of exchange rates and warned that the "perception that the IMF is asleep at the wheel on its most fundamental responsibility – exchange rate surveillance – is very unhealthy both for the institution and the international monetary system".
As an introduction, the IIE prepared a paper, and the MD of the IMF replied to the issues later.
The IIE suggests that instruments should be devised to increase the IMF’s leverage over the exchange rate policies for all nations, and over the economic policies of major industrial countries. And it was said the preferred IMF steering committee is not the old G-7 but the G-20, slimmed down to include one seat for the European Union.
The MD of the IMF focused on economic growth. Rodrigo de Rato said the world needs to move away from a pattern of growth where investment in most of Asia is too low, and high consumption in the U.S. is financed by rapidly increasing debt, and where growth of domestic demand in Europe and Japan is too weak.
But a key problem is how to persuade powerful nations to accept that the UN's IMF should command their economies, as was effectively agreed 60 years ago when nations signed the UN Charter. Do nations still accept that "the world needs a strong and effective IMF as the principal multilateral institution responsible for international economic and financial stability"?
Update
The US certainly support the IMF, now. Per the FT: Frustrated with the lack of meaningful exchange rate adjustment by China and some other Asian economies, the US Treasury has called on the International Monetary Fund to be more ambitious in its surveillance of exchange rates and warned that the "perception that the IMF is asleep at the wheel on its most fundamental responsibility – exchange rate surveillance – is very unhealthy both for the institution and the international monetary system".
