BRIC should be a chance for European political construction

by Véronique Queffélec on avril 19, 2011


This article has been written by Bertrand Chokrane, MIT Economist PhD.

Austerity plan is nonsense in Europe. We see it with the English situation where even before they trigger their austerity plan, they have reduced the standard of living of the English median than it was under Thatcher in 1981 which itself had reduced the level of Median life of English to that of an English middle of the nineteenth century. Today, with the end of the shoot hegemony of the United States and the disappearance of Japan, the exit route is no doubt a renegotiation of the debt of France or the eurozone.

Transform it into government bonds over 50 years, with possibility to go out to citizen subscribers every 3 years with a rate two times higher than the rate of an investment over savings account. We must get out of an election period short-term approach for a more planned economy. Do not ask the impossible for citizens, but do little more than what is possible and explain it to them.

Interesting fact to know on the famous convergence criterion of 3% out of Bercy when it was calculated 15 years ago. It was a rather odd figure, because even numbers are less credible. If the head of the National Accounts in charge of the case had said 7% or 9%, this would have happened. The problem he faced was that the policy needed a figure, and no one had accurate data on specific countries, or even a guide line. Therefore, no assumptions and no data, with a bit of pressure a figure in Bercy was issued, especially when it came to Europe and the French leadership on the matter. It was also closed very shortly after the office of National Accounts Department at Bercy, and my friend Georges BARTHES DE RUYTER head of the of office National Account had to retire.

However, it is fine to have to go through a workout, because today no country spends bar maturity of long-term repayment of debt. I see a clear scenario of the type of the Mexican crisis of 1982.

The Mexican debt crisis of August 13, 1982 was for me one of the historical u-turn of economic and financial organizations of the late 20th Century, which nobody is referring to. Yet, by its rapid rate of spread, the international financial system and in particular the banking sector was more than justified by then the threat of systemic crisis scenario. Like most previous debt crises, the phenomenon of “oil stain” was reviewed here, followed by systemic risks.

In the last four months of 1982, following the suspension of payment by Mexico of its debt service, 39-indebted countries applied to redevelop their debt with the Paris Club (eg G8 or G20 today) countries accounted for almost 75% of emerging countries’ debt.

To escape the crisis, groups of countries have been trained in the same example as the CARTAGENA group (11 countries) to try to rescue the creditors from the principle of non-negotiation of debt rather than case by a case basis, but grouped.

The scale, the crisis posed to the global economy a “systemic risk”. The possibility of a suspension of payment by a small number of debtor countries was obvious. Mexico, Brazil and Argentina threatened of bankruptcies in the international banking system and U.S. in particular. These three countries had a debt on U.S. banks alone accounting for 135% of capital of these banks. In 1982, banks were too involved in both developing and under-capitalization.

Despite some isolated bank failures, the risk of breaking the international banking system was not materialized. Systemic risks were fake.

It’s the same for European debt. This is not with a policy of austerity and rigor that politics will solve the problem of the debt repayment schedule, which will become insurmountable for France in 2013. This is precisely the time to put on, as did the Mexicans in ‘82, European governance and to provide the ECB with political power. It should not be less or more Europe, we need a governance it to even negotiate with our largest creditor: China. In addition, the renegotiation of a debt is not an erasure of it, but it rather gives a chance to repay the lender without strangling its population.

A systemic crisis is something invented by the US bankers who already have problems inherent to their balance down to speed up intervention of central bankers.

Moreover, US key stock benchmarks are slowing cyclical highs as wariness over inflation and concerns about Libya and Japan to keep a lid on underlying optimism regarding the global economy.

The FTSE All-World equity index is down 0.2 per cent to 228.2, a stone’s throw from February’s post-credit crunch high of 228.9, while US stock futures suggest the S&P 500 will open down 0.1 per cent, leaving it less than 1 per cent below this year’s peak.

European equities are a touch firmer, with the FTSE Eurofirst 300 up 0.1 per cent, helped by strength in energy stocks.

But Moody’s has cut its credit rating on Portugal from A3 to Baa1, another reminder that the Eurozone’s fiscal woes still fester, and this looks to be weighing on the euro, which is down 0.3 per cent to $1.4181. Expectations that the European Central Bank will raise interest rates on Thursday will be underpinning the single currency, however.

The yen is down 0.3 per cent to Y84.35 versus a broadly stronger dollar after Asian investors reacted wearily to images of radioactive water pouring from the Fukushima Daiichi nuclear station into the ocean off Japan. The Nikkei 225 shed 1.1 per cent in a quiet session for the region because of public holidays in China, Hong Kong and Taiwan.

The FTSE Asia Pacific index is down 0.6 per cent, though excluding Japan, the region is up 0.1 per cent, with the Kospi in Korea adding 0.7 per cent. This was a record high for Seoul and came as foreign investors were net buyers for the 15th consecutive session in the belief that South Korea was well placed to take up the slack from a dislocated Japanese manufacturing base in an otherwise economically robust region.

Broader sentiment has been boosted by yet another M&A deal, a developing trend that has provided added impetus to the recent risk asset rally, with Texas Instruments paying $6.5bn in cash to buy National Semiconductor. The move has lent support to global semiconductor makers, which had been under pressure after the Semiconductor Industry Association said the three-month average for global chip sales had fallen 1.1 per cent to $25.5bn in February from the previous month.

But traders’ enthusiasm is being crimped by growing signs that the market is becoming more worried about inflation. Some investors have decided that this can best be expressed through silver.

The grey metal has hit another 31-year high of $38.77 an ounce and is now at $38.72. Gold is also benefiting from the same trade and is up 0.1 per cent to $1,438 an ounce, not far from February’s record of $1,444.

Ben Bernanke, Federal Reserve chairman, said on Monday that although he thought the recent jump in prices was “transitory”, inflation expectations must be watched “extremely closely”.

He will have had oil prices and their derivatives such as gasoline prices in mind. On that front, there is no let-up on Tuesday, with the Brent crude contract down 0.2 per cent on the session but still above $120 a barrel as Middle East supply concerns weigh. West Texas Intermediate, the US benchmark, is off 0.4 per cent but at $108.07 remains near a 30-month high.

With such inflationary pressure bubbling away, US Treasury yields are unsurprisingly firmer, up 1 basis point to 3.43 per cent, and the debt complex will be looking out for the release at 19.15 BST of the minutes recording the Fed’s March monetary policy

Investors will be interested to see if they set out the reasoning that led to the Fed’s decision to start press conferences and give insight into how close the FOMC is to wanting to tighten policy.