Wednesday, August 28, 2013

We have a dream

50 years ago, Martin Luther King pronounced  his famous speech  at the end of a huge march of protest for civil rights on 28 August 1963. Those words changed the world and are still relevant today. Hundreds of  millions of people do not enjoy basic rights of freedom, equality and access to education and healthcare. 

Pdt Obama has delivered a speech to commemorate that march and reiterate the values and the spirit of that fundamental event. Just as the US prepares an attack to Syria...

Thursday, August 15, 2013

Europe should aim at unity and solidarity

The economic crisis does not only bring negative changes that have to be addressed with vigour. It is also a moment to look at new opportunities. In ancient Greek, krisis means decision or judgment to bring about (positive) changes. This is the dilemma that Europe has to face not only for its own cohesion but also in the global scene. 

Globalization has produced a multipolar world with new economic powers, the so-called Brics - China, India, Russia, Brazil- which have experienced high rates of economic growth. The rise of these countries has shifted the balance of power with the relative decline of  rich western economies characterized by an ageing population and lower growth potential than the emerging economies. In this scenario, Europe appears as disunited and afflicted by internal divisions - Northern countries, led by Germany are  reluctant to support southern economies in recession with the imposition of austerity policies, thereby aggravating the crisis in those countries and Europe as a whole. 

Yet, we need a more united and cohesive Europe, not only for improving living conditions of the weaker social groups, but also to play a driving role in the global arena.  Africa represents  a great opportunity for Europe both for its vicinity and its enormous potential for economic and social development. One of its main challenges is the scarcity of water which puts entire populations on the edge of survival because they cannot develop their agriculture and are thus forced to live in precarious health conditions. But to produce water, African communities need energy ; for this solar technologies can satisfy the energy needs in the poorest villages of which only a small fraction has access to electricity. The availability of affordable energy can allow a more efficient use of water resources and can thus support the development of agriculture and the production of food. Energy, water and agriculture are therefore, the three pillars on which  Europe could devise a large scale plan, not only of financial aid, but more importantly through targeted interventions for the provision and the installation of new energy technologies as well as technologies for the extraction and supply of water. These are medium to long term investments - between 10 to 20 years, which will generate substantial economic returns through the mechanisms of  endogenous development that they will bring about. 

Over the last 30 years, most African countries were forced to implement  'structural adjustment programs' through measures of liberalization and privatization of the agricultural sector. The paradox is that this sector, which is essential for the survival of entire communities was considered as a market activity like any other economic activity which did not need any regulation or public intervention. This has created an adverse context for developing agricultural and food activities and therefore a substantial damage for the economies of many African countries Now the World Bank has changed its position and recognizes the need for the State intervention in this sector - which is also based on the fact that all large economies provide subsidies to their agricultural sector. In this regard, the intervention of Europe on a larger scale can create the basic conditions to allow  local populations to exploit more efficiently their natural resources. In such strategy, the supply of energy and water play a crucial role. 

Europe has enormous opportunities to promote economic development both internally and in other parts of the world. But this will happen only if it will rid from selfish attitudes that lead to stagnation and impoverishment and put at risk the future of entire generations.  A Europe which promotes the well being of populations (not only of European ones) is also the only route to avert  the rise of  populism and nationalism. As Pope Francis said recently in Lampedusa, Europe should not tolerate the 'globalization of indifference' toward refugees and desperate people which have no other possibility than migrate to survive and escape from poverty often risking their lives. 

Monday, August 5, 2013

We need an independent rating agency

It's urgent to reform the current rating system with an independent agency to ensure more transparency and objectivity in the functioning of financial markets. But some still think that the existing system is a "necessary evil" in the absence of a better one.

The issue is that there is a gigantic conflict of interest. Like any private business, the rating agencies are traded in Wall Street; Moody's has Warren Buffett (the American richest man) as main shareholder and S&P is part of a diversified  conglomerate like McGraw Hill. We assume that they orient their judgments according to their investment needs or their client interests. The worrying thing is that they are accountable to their shareholders , not to the general public.

Their credibility was put in question when they just ignored the subprime bubble or gave a favourable rating to Lehman Brothers just before it was forcedinto bankruptcy in September 2008. In fact, they have a direct responsibility in the financial crisis, by giving wrong signals to the market and downgrading sovereign debts, without being totally objective in their assessments . The US government has denounced S&P for 5 billion $ after it downgraded the US debt in 2011. In Europe, several countries have been downgraded or bailed out with their debt rating being close to junk bonds and a higher probability of default in coming years. When  S&P downgraded the Italian debt to triple "B", the Italian Finance minister contested the logic of the US agency on the grounds that the   'unsolicited' rating helped the agency to increase its own influence and  financial gains.  

All this reinforces the conviction that we need a 'popular' agency, a body where the shareholders are the citizens and where the financial analysts are just civil servants, like the FED or SEC. This idea will, however meet strong political resistance. There are other options which are being explored, such as a system run by supranational bodies such as the OECD, the BIS (Bank of International Settlements) or the IMF (which is a lender of last resort for developing countries and therefore exposed to conflicts).

This issue will be on the agenda of the forthcoming G-20 summit in St Petersburg. Unsurprisingly, the proposal will be put forward by Italy - which leads the club of the 'southern periphery', the most affected area by the financial crisis. The rationale is to free these countries from the 'diktat' of financial markets and avoid in the short term a potential collapse of the eurozone system, with further defaults in Italy and Spain. This calls for more structural measures, such as a strong and rapidly operational Banking Union along with appropriate governance mechanisms. What is now certain is that we cannot leave the delicate task of rating the sovereign debt of the eurozone in the hands of private interests.