I regularly tune into 'Fighting Talk' on a Saturday morning, the weekly sports quiz broadcast on BBC Radio 5 Live hosted by the highly entertaining Colin Murray. The format of the show is fairly simple, four contestants, usually sports commentators, ex sportsman or comedians, compete to accumulate points by answering topical sporting questions. "Points for punditry," as Mr Murray would say as he awards his guests arbitrary points based upon their knowledge, extreme opinion and most importantly, the wit in their answer. The week's champion is decided when the two contestants with the most points compete in a final round known as 'Defend the Indefensible.' Here each finalist is read a statement which is contrary to popular opinion and asked to vigorously defend that statement for twenty seconds no matter how much they may disagree with it. Not an easy task, it takes a particular skill to defend statements which are often blatantly wrong or untrue.
Whilst listening to the broadcast this weekend, it struck me that perhaps the BBC should consider a special edition of Fighting Talk as we find ourselves in the midst of the latest collapse in market confidence. A show where the guests are four of the world leaders. I would propose Greece's Prime Minister George Papandreou, Christine Lagarde as Head of IMF, Germany's Chancellor Angela Merkel and the US President Barack Obama. Of course, the questions would be based on current political and economic events rather than sports. There would be much talk and the contest would be tight but personally I would like to hear Chancellor Merkel and President Obama face the 'Defend the Indefensible' challenge in the final. The question is what statements would we challenge them with?
Well, starting with Angela Merkel, I would ask her to defend the following statement: "No Eurozone Government should be allowed to default on their debt and the Euro should be defended at whatever cost." This is a statement which is very unpopular with German citizens who feel frustrated at what they perceive themselves to be - the Eurozone open cheque book. The second bailout for Greece in the early summer months clearly failed to reassure bond markets and their funding costs have not improved. Furthermore, whilst the European Central Bank (ECB) have an exemplary track record to date of controlling inflation, hiking interest rates twice this year against a background of rising commodity prices has proven to be a mistake. Whilst these hikes have increased borrowing costs for all, it has been particularly painful for both Italy and Spain.
Italy, along with other Eurozone members, exchanged their currency and monetary policy for lower interest rates within a single currency. Oh how they wish now that instead of tough austerity plans they could inflate and devalue to recovery with their own currency. This option is even more tempting to the Greek population who increasingly feel persecuted by the severity of austerity demanded by other Eurozone member states as they continue to fund Greek government debt. An 'orderly' default or a major restructuring of debt perhaps coupled with a voluntary departure from the Euro may suit the Greeks in the long term. A return to the Drachma is possibly the way to break the downward spiral that Greece is suffering as more budgetary tightening leads to lower growth, a higher budgetary deficit and increasing government bond yields. But Merkel and her fellow Eurozone leaders fear the consequences of a Greek default which they believe would inevitably result in another banking crisis unless preceded by a massive recapitalisation of the Eurozone banks.
Whilst listening to the broadcast this weekend, it struck me that perhaps the BBC should consider a special edition of Fighting Talk as we find ourselves in the midst of the latest collapse in market confidence. A show where the guests are four of the world leaders. I would propose Greece's Prime Minister George Papandreou, Christine Lagarde as Head of IMF, Germany's Chancellor Angela Merkel and the US President Barack Obama. Of course, the questions would be based on current political and economic events rather than sports. There would be much talk and the contest would be tight but personally I would like to hear Chancellor Merkel and President Obama face the 'Defend the Indefensible' challenge in the final. The question is what statements would we challenge them with?
Well, starting with Angela Merkel, I would ask her to defend the following statement: "No Eurozone Government should be allowed to default on their debt and the Euro should be defended at whatever cost." This is a statement which is very unpopular with German citizens who feel frustrated at what they perceive themselves to be - the Eurozone open cheque book. The second bailout for Greece in the early summer months clearly failed to reassure bond markets and their funding costs have not improved. Furthermore, whilst the European Central Bank (ECB) have an exemplary track record to date of controlling inflation, hiking interest rates twice this year against a background of rising commodity prices has proven to be a mistake. Whilst these hikes have increased borrowing costs for all, it has been particularly painful for both Italy and Spain.
Italy, along with other Eurozone members, exchanged their currency and monetary policy for lower interest rates within a single currency. Oh how they wish now that instead of tough austerity plans they could inflate and devalue to recovery with their own currency. This option is even more tempting to the Greek population who increasingly feel persecuted by the severity of austerity demanded by other Eurozone member states as they continue to fund Greek government debt. An 'orderly' default or a major restructuring of debt perhaps coupled with a voluntary departure from the Euro may suit the Greeks in the long term. A return to the Drachma is possibly the way to break the downward spiral that Greece is suffering as more budgetary tightening leads to lower growth, a higher budgetary deficit and increasing government bond yields. But Merkel and her fellow Eurozone leaders fear the consequences of a Greek default which they believe would inevitably result in another banking crisis unless preceded by a massive recapitalisation of the Eurozone banks.
Next up would be President Obama, who I would ask to defend the following: "With a Presidential Election next year, the US should continue with unconventional measures to create employment and stimulate economic growth." Well, the latest unconventional measure announced by the Federal Reserve last week was Operation Twist, a tool last used in the 1960's, taking its name from the dance craze at the time made infamous by the Chubby Checker classic hit. The objective is to twist the yield curve by selling short term government debt held on the Fed’s balance sheet and using the proceeds to buy longer term government debt thus reducing the cost of borrowing for mortgage holders and businesses. The optimism earlier this year for stronger US economic growth waned over the summer as commodity price inflation and supply chain disruption following the natural disaster in Japan weakened the recovery. The debt ceiling debate where brinkmanship failed to prevent the ratings agency Standard & Poors' downgrading of US debt did very little to improve the confidence of investors in the US political system. Indeed, more recently this has spread to the US administration who have attacked Eurozone leaders on the speed and decisiveness of their handling of the current crisis, clearly a case of people in glasshouses!
With a weaker economy, both the US Administration and the Federal Reserve have been using much rhetoric of reassurance. However the financial markets are yet to be impressed, they are looking for bold action rather than just talk. Companies in the US are sitting with large piles of cash on their balance sheets, they no longer require cheap money if they don't have the confidence to reinvest what they already have on deposit. Households are continuing to pay down debt and consumers prefer to spend less given the uncertainty about their future. Obama is after a second term in the White House and given the campaign trail has already started, he would clearly welcome any fiscal stimulus to help.
So who would be crowned champion in this special edition of Fighting Talk? Well that’s the decision that the financial markets are awaiting. I am sure that both Chancellor Merkel and President Obama would turn in good performances. Let’s face it, they have been getting in a lot of practice of late. However, financial markets are understandably reluctant to take these words at face value as they remain sceptical that policymakers are capable of resolving the current crisis. There is criticism that policy on both sides of the Atlantic has been too incremental and not bold enough. This is a time for decisive action from our world leaders, they must be prepared to leave their concerns about popularity with voters at the door. What is needed is collaboration and co-ordinated global action. Equity markets appear good value by most measures whilst bond markets look expensive. To my mind, the catalyst for change is a reappraisal of future economic growth. This growth may come from Asia and Emerging Markets as we see global inflation begin to peak and an improvement in confidence encouraging companies in the West to reinvest, creating jobs and consumer demand. There was another G20 meeting in Washington over the weekend to discuss the ongoing crisis, I am sure there was much fighting talk, but it is action not words that is much needed now.
John Husselbee
North
27th September 2011
With a weaker economy, both the US Administration and the Federal Reserve have been using much rhetoric of reassurance. However the financial markets are yet to be impressed, they are looking for bold action rather than just talk. Companies in the US are sitting with large piles of cash on their balance sheets, they no longer require cheap money if they don't have the confidence to reinvest what they already have on deposit. Households are continuing to pay down debt and consumers prefer to spend less given the uncertainty about their future. Obama is after a second term in the White House and given the campaign trail has already started, he would clearly welcome any fiscal stimulus to help.
So who would be crowned champion in this special edition of Fighting Talk? Well that’s the decision that the financial markets are awaiting. I am sure that both Chancellor Merkel and President Obama would turn in good performances. Let’s face it, they have been getting in a lot of practice of late. However, financial markets are understandably reluctant to take these words at face value as they remain sceptical that policymakers are capable of resolving the current crisis. There is criticism that policy on both sides of the Atlantic has been too incremental and not bold enough. This is a time for decisive action from our world leaders, they must be prepared to leave their concerns about popularity with voters at the door. What is needed is collaboration and co-ordinated global action. Equity markets appear good value by most measures whilst bond markets look expensive. To my mind, the catalyst for change is a reappraisal of future economic growth. This growth may come from Asia and Emerging Markets as we see global inflation begin to peak and an improvement in confidence encouraging companies in the West to reinvest, creating jobs and consumer demand. There was another G20 meeting in Washington over the weekend to discuss the ongoing crisis, I am sure there was much fighting talk, but it is action not words that is much needed now.
John Husselbee
North
27th September 2011
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