The ladies are in charge

Harvard professor Carmen Reinhart has just been appointed as the new Chief Economist at the World Bank. The Chief Economist at the IMF, Gita Gopinath, has also come from Harvard University. Both ladies have collaborated with Professor Ken Rogoff, from the same university. They might all think alike which is not the best approach in times of crisis. Diversity and contradictory opinions are much more creative, at a time when we have to imagine a new economic order. But they are all for debt forgiveness when the challenge is too big to be managed, which is not a bad approach. And they have studied financial crashes and deep national crisis extensively.

People say that when two economists discuss there are at least three divergent opinions. In this case, let us see if both ladies can bring fresh ideas to their institutions. The IMF and the WB will be very much in demand in many countries in the post-Covid situation. They must propose an approach that goes beyond austerity and keeps investments flowing across the globe, particularly in the direction of poorer countries.

Don't panic and be prepared

The coronavirus is impacting the world economy in an extraordinary manner. Yesterday and today, the financial markets lost trillions of dollars. That’s about real people’s money as well as pension funds and other institutional investors. That’s wealth that simply evaporates. Every time a new person is found sick, here and there, specially in the most developed economies, that sends a shockwave across the markets. There is a massive reaction because the world has become a village and people are constantly on the move. Besides that, what is produced here needs components from afar and a supply chain that crosses half of the planet.

The key point at this stage is to be able to show to the public opinion that the epidemic can be contained. In addition, it is important to underline that most of the cases can be easily treated in the right hospital environment. Panic would bring a major global crisis.

They are often wrong but the salary is great

My daily tasks include a close scrutiny of the financial analysts’ opinions and forecasts. And I am very often amazed. The spectrum of views is so wide and the predictions are so often off track! With time, their forecasts are systematically contradicted by the facts, particularly at times like the present one when the unknowns are many. But they always have a good excuse. And they earn good salaries. All that makes me wonder, now and then, if I have not chosen the wrong career path. 

The risks of a political earthquake in Shanghai

The Shanghai Stock Exchange lost more than 25% of its value in the last three weeks. This is a major shock. If this trend continues the situation will develop into mass panic – many very small investors had borrowed money in the recent past to invest in the Shanghai bourse. It is therefore a major political issue for the authorities in Beijing. They have shown signs of serious concern. Action will be taken in the next few days, for sure. We should observe with great attention the measures they will put in place to respond to the matter. 

Greece´s way to hell

The end is close, preach those Christian fanatics that come to our doors, the Bible in their hands and the announcement of doom in their mouths. They are just in a mission to try to save us.

I thought of them today as I read the news about Greece. The end is close, the players seem to be saying. In this case, we know what they mean. But opposite of the preachers ‘approach, in the case of Greece many seem to be just waiting for it to happen. It is a bit as if different sides to this fate of gloom and doom would be relieved the day it happens.

The only problem is that once you reach the other side, hell can indeed be very bad. 

Greece´s very delicate position

Greece´s future is at play. One should be very clear about it. The new leadership will have to be very strategic in their negotiations with the key European actors. These actors have time and money and are in no rush to achieve an agreement. And they do not want to take any measure or agree on anything that might be perceived as a precedent, as a Pandora box.

The same cannot be said of the Greek side. They have little time and little money. They cannot engage in a very long process. Results will have to be achieved soon. And that puts them in a much weaker position. It is, in many ways, an almost impossible position. 

The financial snake and the golden ghost

At present the international scene is very unstable. People with lots of money and greedy egos seem to be particularly confused about the prospects. They have the financial resources, plenty of financial muscle, they get into the markets, buy loads of shares, then get nervous, and move out as swiftly as they came in.

That shows the volatility of the overall geopolitical situation.

It also shows that financial decisions and the related markets are now fully connected all over the world. Early in the morning, well before the beginning of the business day in Europe, people in London, Paris, Frankfurt, and Luxembourg will get all the data from stock exchanges and analysts in Asia. That gives then the trend for the day.

And vice versa. Tomorrow morning, big guys in Hong Kong, Shanghai or Tokyo will start their early hours by looking at the information coming during night from the US. And that will influence their decision making.

It is often the snake eating its own tail. 

Ukraine and the financial markets

The international financial markets seem to be less nervous about the crisis in Ukraine. This is a bit surprising at a time when nobody knows what could happen next in the Eastern regions of the country.

My reading is that they take the new situation, including the potential separation of those lands from the rest of Ukraine, as a fait accompli, something that will happen in any case. The people behind the key financial funds, those who define the trends, have now had enough time to move moneys around and adjust to the new game in Eastern Europe. 

Interdependence and new approaches to conflict resolution

During the last two or three days, there have been gigantic amounts of financial resources that have been transferred between countries as well as many selling operations in the stock markets. Financial assets owned by Russian entities have been moved out of American and European banks and transferred to what they consider to be safer havens. In addition, EU banks and funds have taken way from Russia many of their financial investments. There is a move away from the Russian currency, the rouble.

All this is precautionary. But it sends a very strong message, including to Vladimir Putin, that today´s economic and financial interdependence does require a different approach to conflict between major states. Diplomacy and compromise are more in line with today´s interests. 

Austria's general elections

Austria went to the polls this weekend for general elections. Outside the country not a lot of people have paid attention to the event. Therefore, they failed to notice a very serious increase in the popular support for the right-wing populists and the Euro-sceptics. Together they collected more than 30% of the votes.

This is bad news for those who would like to push for more European integration. However, the governing grand coalition of Social Democrats (SPÖ) and conservative People's Party (ÖVP) is expected to continue in power. They got 50.9% of the vote. This is small and one would not be surprised if some of their new policies are no more than an adaptation of what the Right-wingers and the Euro-sceptics have advocated during their electoral campaigns. One of those policy lines has to do with a tougher stance when it comes to bailing out other EU member states. 

Offshore

Today’s big news is the disclosure of the findings of an extensive worldwide investigation carried out by a large consortium of international journalists about offshore financial transactions. 

It is true that many of the identified operations are legal, in terms of the international law regulating financial and business activities. However, it is also a fact that a large number of those transactions are just a cover for criminal activities, including outright stealing of public monies by some very well-known government leaders.

It is too early to evaluate the impact of this wide-ranging investigative work. But one can expect a number of heavy political storms in the days ahead. But, I suspect that in the end the ones that will be prosecuted will be the smaller fish, the mere mortals, not the big leaders linked to political power.