European Central bank boss Mario Draghi came to London last month to criticise his fellow Italians.
In an unusually candid speech to an audience that included Bank of England governor Mark Carney, he lambasted his fellow countrymen for wanting Brussels to become a "transfer union", in which debts were pooled.
It was, he argued, a brazen attempt by Rome to offload its enormous public sector liabilities on its more solvent neighbours.
Draghi is one of many senior European policymakers who believe that southern European governments are lazy and corrupted by easy credit. It's a view he shares with Germany's finance minister Wolfgang Schäuble – Brussels' paymaster.
Without making a direct reference to Italian prime minister Matteo Renzi's administration, Draghi said austerity and reform forced nations to grow up and realise they must work for a living and stop relying on loans to pay the bills.
He and Schäuble want Renzi to stick to plan A. Making a broader point, he said the stability of the eurozone depended "not on having more flexibility" but on enforcing the existing fiscal rules.
"To unwind the consolidation that has been achieved, and in doing so, divest the rules of credibility, would be self-defeating for all countries," he said.
The speech came only a few months after Renzi's elevation to the premiership and his pitch to Brussels for greater flexibility. Renzi wants the commission to give him longer to institute reforms while he attempts to balance the books.
Then, last Thursday, Draghi told journalists at his monthly press conference that eurozone interest rates would be staying low for a long time to help the eurozone recover.
Appearing doveish and conciliatory, he added that he was prepared to make credit cheaper still with a version of quantitative easing (QE) but, switching to a more hawkish tone, he added that the time for flooding the banking system with cash, Bank of England-style, had yet to arrive. He is wrong. Italy, France and the Netherlands are already in trouble.
They need cheap loans to ameliorate the worst effects of difficult reforms. The Renzi administration is dealing with an economy in recession for a third time. The government's finances are getting weaker. One firm of analysts said last week that only with higher growth and higher inflation could Italy escape its death spiral.
The magic of inflation, for debtors, is that it devalues the debt and makes it easier to service. But it appears almost outlandish to forecast a return to the average 1.5% growth rate Italy saw in the 30 years running up to the crisis.
And, according to Fathom Consulting, even if that could be achieved, "it would still require an inflation rate in excess of the 2% target just to stabilise Italian debt as a proportion of GDP".
Fathom added: "With no growth, no inflation, and of course no currency of its own, something needs to give, and soon, if Italy is to continue to finance its vast national debt."
Just as Draghi was holding his press conference in Frankfurt, Italy's parliament was giving its final approval to Renzi's second package of support measures for the ailing economy.
These included a cut in energy costs for small companies and measures to spur lending to businesses. Unfortunately, many of the measures, weakened by numerous changes during a difficult passage through parliament, are likely to be ineffectual.
A tax credit for firms that make new investments in machinery, and new rules allowing insurers and credit funds to lend directly to business, follow an income tax cut of up to €80 a month for low earners, effective from May.
Draghi won't be impressed. He wants broader labour market reforms and an end to restrictions on setting up businesses, changes to tax rules that tie businesses in knots and an end to wasteful subsidies. Renzi has promised to tackle these in 2015.But without Draghi rolling out QE, he doesn't stand a chance.
Bad moment for bankers to go on the attack
Usually known for his mild manner and soft speech, HSBC chairman Douglas Flint struck an unlikely figure last week when he revealed a rebellious streak.
In uncharacteristically bold language, he warned regulators that they were forcing his bank's staff – 250,000 of them around the world – to work weekends and avoid taking any risks for fear of being hit with a huge fine.
Quite a claim – and one that is difficult for the chairman of Britain's biggest bank to substantiate. Yet no sooner had Flint finished his outburst (remember HSBC was fined £1.2bn for money-laundering offences in 2012) than rival Standard Chartered admitted it was facing its second fine in two years for breaching US rules.
The response from the Asian-focused bank? Ill-judged remarks by the head of its Asian business, Jaspal Bindra, lamenting that bankers who broke the rules on money laundering were treated like criminals rather than policemen. How wrong could Bindra be?
One of the constant cries in the wake of the 2008 banking crisis has been that none of the men at the top were jailed for the colossal mistakes that triggered the need for billions in taxpayer bailouts and plunged much of the developed world into recession. Bindra could not have misjudged the mood more. Neither could Flint.
As he lamented the time and effort being put into complying with new rules, regulators were admitting that policies to avoid another taxpayer bailout were not working.
Portugal had to step in with €5bn to bail out BancoEspírito Santo, and then US regulators tossed out as unrealistic and unconvincing the so-called "living wills" banks had drawn up, supposedly to demonstrate that they could be broken up in a crisis without having to draw on billions in government help. If there was time to stage a rebellion against a swathe of regulation, this was not it.
Yet the policymakers also have to share the blame. The crisis was six years ago. They have given bankers too much time to comply with new rules.
A profitable rail service?Better privatise it then
Before the privatisation of Britain's railways 20 years ago, even some members of the Conservative party recoiled from the idea, worrying that it smacked of free-market zeal triumphing over the cold reality of how the system worked.
Now the party is putting dogma first again with the rushed re-privatisation of East Coast when there are plenty of reasons to allow it to remain in public hands: one billion of them, in fact.
Results last week showed that the state-owned company behind the London-to-Edinburgh line has paid more than £1bn to the Treasury since taking over in 2009 from the private operator, National Express, that had reneged on its contract.
Now one of an unholy trinity of First Group, Virgin or the French SNCF is set to profit instead. Train firms argue that in the mysterious money-go-round of railway financing, a private operator could generate more for the government. But that didn't happen the last time they had the chance.
theguardian.com
In an unusually candid speech to an audience that included Bank of England governor Mark Carney, he lambasted his fellow countrymen for wanting Brussels to become a "transfer union", in which debts were pooled.
It was, he argued, a brazen attempt by Rome to offload its enormous public sector liabilities on its more solvent neighbours.
Draghi is one of many senior European policymakers who believe that southern European governments are lazy and corrupted by easy credit. It's a view he shares with Germany's finance minister Wolfgang Schäuble – Brussels' paymaster.
Without making a direct reference to Italian prime minister Matteo Renzi's administration, Draghi said austerity and reform forced nations to grow up and realise they must work for a living and stop relying on loans to pay the bills.
He and Schäuble want Renzi to stick to plan A. Making a broader point, he said the stability of the eurozone depended "not on having more flexibility" but on enforcing the existing fiscal rules.
"To unwind the consolidation that has been achieved, and in doing so, divest the rules of credibility, would be self-defeating for all countries," he said.
The speech came only a few months after Renzi's elevation to the premiership and his pitch to Brussels for greater flexibility. Renzi wants the commission to give him longer to institute reforms while he attempts to balance the books.
Then, last Thursday, Draghi told journalists at his monthly press conference that eurozone interest rates would be staying low for a long time to help the eurozone recover.
Appearing doveish and conciliatory, he added that he was prepared to make credit cheaper still with a version of quantitative easing (QE) but, switching to a more hawkish tone, he added that the time for flooding the banking system with cash, Bank of England-style, had yet to arrive. He is wrong. Italy, France and the Netherlands are already in trouble.
They need cheap loans to ameliorate the worst effects of difficult reforms. The Renzi administration is dealing with an economy in recession for a third time. The government's finances are getting weaker. One firm of analysts said last week that only with higher growth and higher inflation could Italy escape its death spiral.
The magic of inflation, for debtors, is that it devalues the debt and makes it easier to service. But it appears almost outlandish to forecast a return to the average 1.5% growth rate Italy saw in the 30 years running up to the crisis.
And, according to Fathom Consulting, even if that could be achieved, "it would still require an inflation rate in excess of the 2% target just to stabilise Italian debt as a proportion of GDP".
Fathom added: "With no growth, no inflation, and of course no currency of its own, something needs to give, and soon, if Italy is to continue to finance its vast national debt."
Just as Draghi was holding his press conference in Frankfurt, Italy's parliament was giving its final approval to Renzi's second package of support measures for the ailing economy.
These included a cut in energy costs for small companies and measures to spur lending to businesses. Unfortunately, many of the measures, weakened by numerous changes during a difficult passage through parliament, are likely to be ineffectual.
A tax credit for firms that make new investments in machinery, and new rules allowing insurers and credit funds to lend directly to business, follow an income tax cut of up to €80 a month for low earners, effective from May.
Draghi won't be impressed. He wants broader labour market reforms and an end to restrictions on setting up businesses, changes to tax rules that tie businesses in knots and an end to wasteful subsidies. Renzi has promised to tackle these in 2015.But without Draghi rolling out QE, he doesn't stand a chance.
Bad moment for bankers to go on the attack
Usually known for his mild manner and soft speech, HSBC chairman Douglas Flint struck an unlikely figure last week when he revealed a rebellious streak.
In uncharacteristically bold language, he warned regulators that they were forcing his bank's staff – 250,000 of them around the world – to work weekends and avoid taking any risks for fear of being hit with a huge fine.
Quite a claim – and one that is difficult for the chairman of Britain's biggest bank to substantiate. Yet no sooner had Flint finished his outburst (remember HSBC was fined £1.2bn for money-laundering offences in 2012) than rival Standard Chartered admitted it was facing its second fine in two years for breaching US rules.
The response from the Asian-focused bank? Ill-judged remarks by the head of its Asian business, Jaspal Bindra, lamenting that bankers who broke the rules on money laundering were treated like criminals rather than policemen. How wrong could Bindra be?
One of the constant cries in the wake of the 2008 banking crisis has been that none of the men at the top were jailed for the colossal mistakes that triggered the need for billions in taxpayer bailouts and plunged much of the developed world into recession. Bindra could not have misjudged the mood more. Neither could Flint.
As he lamented the time and effort being put into complying with new rules, regulators were admitting that policies to avoid another taxpayer bailout were not working.
Portugal had to step in with €5bn to bail out BancoEspírito Santo, and then US regulators tossed out as unrealistic and unconvincing the so-called "living wills" banks had drawn up, supposedly to demonstrate that they could be broken up in a crisis without having to draw on billions in government help. If there was time to stage a rebellion against a swathe of regulation, this was not it.
Yet the policymakers also have to share the blame. The crisis was six years ago. They have given bankers too much time to comply with new rules.
A profitable rail service?Better privatise it then
Before the privatisation of Britain's railways 20 years ago, even some members of the Conservative party recoiled from the idea, worrying that it smacked of free-market zeal triumphing over the cold reality of how the system worked.
Now the party is putting dogma first again with the rushed re-privatisation of East Coast when there are plenty of reasons to allow it to remain in public hands: one billion of them, in fact.
Results last week showed that the state-owned company behind the London-to-Edinburgh line has paid more than £1bn to the Treasury since taking over in 2009 from the private operator, National Express, that had reneged on its contract.
Now one of an unholy trinity of First Group, Virgin or the French SNCF is set to profit instead. Train firms argue that in the mysterious money-go-round of railway financing, a private operator could generate more for the government. But that didn't happen the last time they had the chance.
theguardian.com
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