Big business’s refrain over executive pay is so well-rehearsed it has become a mantra the rest of the workforce can probably recite off pat. These people work exceptionally hard and take risky decisions that should be rewarded just as failure will be rewarded with the sack. There is a global market for talent and businesses must pay the going rate. And whatever one feels about the payments it should be up to shareholders, not ministers, to set boardroom pay.
Well up to a point, Lord Copper – or perhaps more accurately Lord Browne who received £3.3m last year for his job of running BP. In fact arguments about rewards for success do not hold water. Research by the Work Foundation, an apolitical organisation, shows chief executive faces less risk of losing their job than their workers. One in seven companies changed CEO over the last year compared with one in four of their workers. With executive pay rising 28 per cent a year they certainly have little incentive to leave of their own accord.
Nor do the penalties for failure look that steep. The Work Foundation could find only one chief executive who was made redundant and he left with a £5m pay-off. An ordinary work can expect 0.58 per cent of their annual pay – or two days pay. Of course the UK is part of the globalised world. But while that has led to a fierce war between companies to hire the best executives, the opposite is true further down the ladder.
Thousands of workers have seen their jobs outsourced to countries such as India. If the job itself can’t be moved, companies are happy to bring in workers from Poland. This used to apply to plumbers and call centre workers but now affects lawyers, bankers and architects. With unemployment rising it won’t be long before it becomes an issue at the ballot box.
Sadly shareholder power is a myth when it comes to executive pay. The pay packages are set by non-executives directors who themselves are executives at other companies. The typical shareholder is no longer Sid of British Gas privatisation fame, but giant investment bodies that hold large chunks of the voting power of FTSE companies.
Over the coming weeks some £18bn of bonus is handed out to a select bunch of workers. Half of that is heading towards workers in the City of London. Even leaving aside the City of London, the rate of increase of the rewards for the directors of the largest UK companies has far outstripped those of their employees. Research by another apolitical research body, Incomes Data Services, shows the gap between the boardroom and the shop floor has doubled since the start of the decade.
The TUC looks intent on making 2007 the year of the backlash against executive pay. It points out that while company pay packets have doubled after inflation since 2000, ordinary employees have enjoyed a rise of just 6 per cent. Brendan Barber, its general secretary, has called for a national debate. Frankly that is a bit feeble. There are strong economic arguments on both sides over which there will never be an agreement.
Critics highlight the “obscenity” of such a wealth divide which appear to have no justification in productivity and which has created a parallel economy particularly in the London housing market. Advocates of a free market will warn that deterring successful managers and entrepreneurs coming to the UK will simply weaken the economy in the long run.
The fact of the matter is that pay is an issue of public policy. What is needed is action rather than more debate. The Government sets a minimum wage and makes it clear what wage increase it thinks lowly-paid nurses and teachers should get. The spotlight must now fall on the top earners.
This Government should be praised for doing more than its predecessors force boardrooms to be more accountable to shareholders. The failure of the current system is not the size of the sums involved – although those can be breathtaking – but the lack of a link between what they earn and the performance of their companies. No one sensible is calling for a maximum wage or a punitive tax.
There are two first steps the Government and the companies themselves must take. Terms of service should be cut to ensure departing directors cannot claim vast sums in lost earnings. Allied to that, boards must make basic pay a smaller share of the total package and increase the amount linked to performance targets. In the US basic pay makes up just 16 per cent of remuneration. The equivalent figure in the UK is 59 per cent.
That's a market solution. Surely bringing executive pay in line with performance is following free market rules to rather than upsetting them. That City can't argue with that.
December 28, 2006
December 22, 2006
Not a storm in a Thai cup
Thailand’s December 2006 currency crisis has already been deemed a storm in a teacup. That is a mistake. It is an early warning of the dangers posed by the global imbalances. That’s not because the Thai government’s botched attempt to constrain the surge in its currency will trigger a domino reaction through South East Asia in 1997.
Far from it. History does not repeat itself exactly. A decade ago Thailand was trying to put the brakes on a massive sell-off in its currency after a boom ran out of steam. The Thais took on the speculators and lost. This time they tried to curb the rise in their currency because of the volume of foreign money flooding in to bet on the future success of a powerful emerging economy.
So far, so similar to the run-up to the 1997 crisis. The difference this time is that most of the Asian economies run a flexible exchange rate system – apart from one. The elephant in the room is China. Foreign investors pile into the liberal economies of South East Asia, knowing their rights are more likely to be protected than they are in China.
But of course the more money they pump into those economies the more those currencies will rise, in turn putting their exporters under an exchange rate pressure. The relevant exchange rate is with the dollar, the currency used by the region’s largest consumer, the United States. Rapid currency appreciation for one country simply means a loss of competitiveness in the US export market vis-à-vis China. The Americans won’t notice and the Chinese won’t care.
In other words as long Beijing holds down the yuan’s exchange rate with the dollar, then other smaller countries will be forced to accept a competitive disadvantage of try and take action to stem the rise in their currency. Given that Thailand saw its currency surge and then suddenly fall a decade ago, it is not surprising that the authorities tried to avert a repeat performance.
Many people have criticised the decision to impose a 10 per cent penalty on short-term foreign investment. It was heavy handed but what else was a small economy to do? It could have cut interest rates that would have stoked domestic inflation. They must also have decided against buying more dollars, perhaps because the current US exchange rate looks untenable.
The problem lies with the stand-off between the US and China. The US has a record trade surplus with China. Normally that would trigger a drop in the debtor’s currency to that of the creditor. But that’s not allowed to happen. The result is a surge in other Asian currencies. This unintended consequence is exactly the sort of spillover effect that the International Monetary Fund is now trying to target under its proposed new exchange rate surveillance system.
The IMF wants to refocus its surveillance operation to spot the spillover effects from one economy on to the global system rather than just worry about the domestic challenges of each of its 184 members. That is certainly the right approach to prevent the IMF making itself obsolete. But if it is find an agenda for the 21st century it needs to show it can spot the sort of tension currently playing itself out in South Asia.
Far from it. History does not repeat itself exactly. A decade ago Thailand was trying to put the brakes on a massive sell-off in its currency after a boom ran out of steam. The Thais took on the speculators and lost. This time they tried to curb the rise in their currency because of the volume of foreign money flooding in to bet on the future success of a powerful emerging economy.
So far, so similar to the run-up to the 1997 crisis. The difference this time is that most of the Asian economies run a flexible exchange rate system – apart from one. The elephant in the room is China. Foreign investors pile into the liberal economies of South East Asia, knowing their rights are more likely to be protected than they are in China.
But of course the more money they pump into those economies the more those currencies will rise, in turn putting their exporters under an exchange rate pressure. The relevant exchange rate is with the dollar, the currency used by the region’s largest consumer, the United States. Rapid currency appreciation for one country simply means a loss of competitiveness in the US export market vis-à-vis China. The Americans won’t notice and the Chinese won’t care.
In other words as long Beijing holds down the yuan’s exchange rate with the dollar, then other smaller countries will be forced to accept a competitive disadvantage of try and take action to stem the rise in their currency. Given that Thailand saw its currency surge and then suddenly fall a decade ago, it is not surprising that the authorities tried to avert a repeat performance.
Many people have criticised the decision to impose a 10 per cent penalty on short-term foreign investment. It was heavy handed but what else was a small economy to do? It could have cut interest rates that would have stoked domestic inflation. They must also have decided against buying more dollars, perhaps because the current US exchange rate looks untenable.
The problem lies with the stand-off between the US and China. The US has a record trade surplus with China. Normally that would trigger a drop in the debtor’s currency to that of the creditor. But that’s not allowed to happen. The result is a surge in other Asian currencies. This unintended consequence is exactly the sort of spillover effect that the International Monetary Fund is now trying to target under its proposed new exchange rate surveillance system.
The IMF wants to refocus its surveillance operation to spot the spillover effects from one economy on to the global system rather than just worry about the domestic challenges of each of its 184 members. That is certainly the right approach to prevent the IMF making itself obsolete. But if it is find an agenda for the 21st century it needs to show it can spot the sort of tension currently playing itself out in South Asia.
December 18, 2006
Ownership is set to become a powerful issue
Does it matter who owns the UK’s assets? What was until recently an issue for debate in the City of London and the corridors of Westminster has moved into the saloon bar.
Forget Spaniards owning our airports, a high street bank and a mobile phone company, the Icelanders have got their hands on West Ham football club. Oh yes, and Manchester United is in American hands. And a Dubai company is set to own Liverpool FC. What might once have brought people out onto the street now passes with a shrug of the shoulders. These teams already field Argentines, Norwegians and Frenchman so who on the terraces cares who the moneymen are.
This is wholly in keeping with the UK’s ultra-liberal views of ownership. The last couple of years have seen BAA, O2, Abbey National, Allied Domecq, BOC and Pilkington be taken by overseas firms. At the same time the US has blocked a takeover of American ports by a company based in Dubai – that totem of free market thinking that wants to own Liverpool FC– because of fears of al-Qaeda infiltration.
Political hostility from Congress also scuppered two Chinese takeovers – Californian oil company Unocal and the appliance maker Maytag. In the US defending jobs has become a mantra in the run-up to next month’s mid-term elections. In Europe, EU member states have started erecting walls around their strategic companies such as energy and water suppliers and – in the case of France – protecting its yoghurt maker Danone from a takeover.
Brussels has imposed tariffs on Chinese imports: first clothes – the famous “bra wars” – and now shoes, ignoring the fact that these European industries are dying. Against this backdrop, talks on a global trade deal that could have opened up western food markets in particular to poor countries have collapsed. Western governments – the UK excepted - feel unable to sell a contraction in their farming industries to their voters.
But before we in Britain start feeling too pleased with ourselves, there are signs that the Government has realised there is a limit.
Talk of a takeover by the London Stock Exchange by NASDAQ has prompted the Government to rush through legislation aimed at maintaining UK-style regulation even if ownership changed. And while European governments were angst-ing about the ownership issue, London was given a dose of its own medicine. Speculation that Gazprom, the Russian state gas giant, might launch a bid for Centrica, the owner of British Gas, sent alarm bells ringing down Whitehall. Just imagine what consternation a bid by Gazprom for National Grid Wireless, the owner of the electricity supply infrastructure, would create.
There are very valid reasons for blocking such a bid. The Russian government has not shown itself to be a friend of democracy and liberalism – and that was before it was before it was accused of poisoning one its enemies on British soil.
Russia has made it clear since the start of the 2006 how it views its ownership of vast amounts of gas and oil reserves – as a geopolitical weapon. Ukraine, Georgia and several EU nation states have all found what it is like to live near the Russian bear.
There are therefore clear reasons for the Government to step in and block a takeover on national security grounds. There are plenty of banks, mobile phone operators and even airports in this country but only one national grid.
The problem for the UK Government is how to manage such as obvious U-turn – let alone doing it without creating a diplomatic incident. There is a recent precedent. We should remember that the UK, the only major member of the EU to welcome workers from the 10 new members in 2005, has partially closed the door to migrant workers from Bulgaria and Romania when they join the EU in 2007.
The increase of some 220,000 in the workforce over the last year combined with a rise in unemployment of 280,000 has raised the question as to whether poorly educated Brits are being chucked on the dole by sprightly eastern Europeans. But the Government must make sure it does not get dragged into the isolationist, protectionist maelstrom sweeping the continent.
October 2006 saw a clear but callous example. The mayor of the Italian city of Padua has built a three-metre, 85-metre long wall to separate a white working class estate from housing for new migrants. The centre-left central government realises it needs to do something to offset a falling birth rate and soporific productivity performance. But the council doesn’t like it.
As Raguram Rajan, economic counsellor to the International Monetary Fund, seen by many as the guardian of globalisation, told me at the IMF’s annual meetings - people get “scared” by globalisation. “Trade is perhaps the single most important contributor to world growth in recent years but equally, extremely hard to sell,” he says.
To date the UK has kept a clean sheet on the issue of ownership. At some point it will have to show the red card to an insalubrious bidder.
Forget Spaniards owning our airports, a high street bank and a mobile phone company, the Icelanders have got their hands on West Ham football club. Oh yes, and Manchester United is in American hands. And a Dubai company is set to own Liverpool FC. What might once have brought people out onto the street now passes with a shrug of the shoulders. These teams already field Argentines, Norwegians and Frenchman so who on the terraces cares who the moneymen are.
This is wholly in keeping with the UK’s ultra-liberal views of ownership. The last couple of years have seen BAA, O2, Abbey National, Allied Domecq, BOC and Pilkington be taken by overseas firms. At the same time the US has blocked a takeover of American ports by a company based in Dubai – that totem of free market thinking that wants to own Liverpool FC– because of fears of al-Qaeda infiltration.
Political hostility from Congress also scuppered two Chinese takeovers – Californian oil company Unocal and the appliance maker Maytag. In the US defending jobs has become a mantra in the run-up to next month’s mid-term elections. In Europe, EU member states have started erecting walls around their strategic companies such as energy and water suppliers and – in the case of France – protecting its yoghurt maker Danone from a takeover.
Brussels has imposed tariffs on Chinese imports: first clothes – the famous “bra wars” – and now shoes, ignoring the fact that these European industries are dying. Against this backdrop, talks on a global trade deal that could have opened up western food markets in particular to poor countries have collapsed. Western governments – the UK excepted - feel unable to sell a contraction in their farming industries to their voters.
But before we in Britain start feeling too pleased with ourselves, there are signs that the Government has realised there is a limit.
Talk of a takeover by the London Stock Exchange by NASDAQ has prompted the Government to rush through legislation aimed at maintaining UK-style regulation even if ownership changed. And while European governments were angst-ing about the ownership issue, London was given a dose of its own medicine. Speculation that Gazprom, the Russian state gas giant, might launch a bid for Centrica, the owner of British Gas, sent alarm bells ringing down Whitehall. Just imagine what consternation a bid by Gazprom for National Grid Wireless, the owner of the electricity supply infrastructure, would create.
There are very valid reasons for blocking such a bid. The Russian government has not shown itself to be a friend of democracy and liberalism – and that was before it was before it was accused of poisoning one its enemies on British soil.
Russia has made it clear since the start of the 2006 how it views its ownership of vast amounts of gas and oil reserves – as a geopolitical weapon. Ukraine, Georgia and several EU nation states have all found what it is like to live near the Russian bear.
There are therefore clear reasons for the Government to step in and block a takeover on national security grounds. There are plenty of banks, mobile phone operators and even airports in this country but only one national grid.
The problem for the UK Government is how to manage such as obvious U-turn – let alone doing it without creating a diplomatic incident. There is a recent precedent. We should remember that the UK, the only major member of the EU to welcome workers from the 10 new members in 2005, has partially closed the door to migrant workers from Bulgaria and Romania when they join the EU in 2007.
The increase of some 220,000 in the workforce over the last year combined with a rise in unemployment of 280,000 has raised the question as to whether poorly educated Brits are being chucked on the dole by sprightly eastern Europeans. But the Government must make sure it does not get dragged into the isolationist, protectionist maelstrom sweeping the continent.
October 2006 saw a clear but callous example. The mayor of the Italian city of Padua has built a three-metre, 85-metre long wall to separate a white working class estate from housing for new migrants. The centre-left central government realises it needs to do something to offset a falling birth rate and soporific productivity performance. But the council doesn’t like it.
As Raguram Rajan, economic counsellor to the International Monetary Fund, seen by many as the guardian of globalisation, told me at the IMF’s annual meetings - people get “scared” by globalisation. “Trade is perhaps the single most important contributor to world growth in recent years but equally, extremely hard to sell,” he says.
To date the UK has kept a clean sheet on the issue of ownership. At some point it will have to show the red card to an insalubrious bidder.
December 15, 2006
Why I still believe in Christmas (sales)
If shopping is the British national pastime, then forecasting Christmas and New Year trading is what passes for one in the City of London.
Already this is being billed as the worst festive trading season in living memory – as were 2002, 2003, 2004 and 2005. But in three of those four years the resilient British consumer defied the pundits. In 2002 and 2003 worried over the run-up to, and fall-out from, the Gulf conflict were overshadowed by a fall in interest rates to a 50-year low that encouraged shoppers to flash their plastic with abandon. In 2004 the pundits were right as rising interest rates and utility bills hit consumers’ wallets and optimism. But last December marked the rebound in spending and was the best month in an admittedly poor 2005.
So what of this year? The early omens are again poor. Interest rates and utility bills are still rising, after all. Two retailers – Woolworths and Debenhams – have issued profit warnings. FootFall, one of the outfits that records shopper numbers said retail traffic is at its lowest on record.
But it is too soon to stop believing in Christmas. There are three factors that explain why the high street might appear quiet at the moment. The first is the growing trend towards discounting – cutting prices – before Christmas. UK consumers are wily creatures and have learned to wait for shops to cut their prices. The British Retail Consortium describes it as a battle of nerves between shop and shopper.
The retailers themselves are not stupid. These are often selective price cuts – either on one day or one range. Sometimes it is just a marketing ploy, such as the 40 per cent discount by Thresher that is only a little better than the three-for-two offer they run for 52 weeks a year. So far the official figures show retailers have raised their prices compared with a year ago in the last three months, encouraging shoppers to wait until December. Growth has been weak but has not fallen.
Secondly the Internet has come into its own this year, both as a retail channel and, more importantly, as a price comparison.
On the first aspect, the latest official figures show that non-store sales – the category that includes online retail – posted the strongest, at 3 per cent on the month, reflecting a shift from bricks to clicks. But data on online sales are still relatively rudimentary and that could be an under-estimate.
Nikesh Arora, Google’s European Vice-President, says the Internet poses a threat to established brands that are not as nimble in their marketing as the army of new Internet-only retailers. In other words a profit warning by a blue chip retailers or supplier may tell us more about the company than about overall sales.
Lastly house prices, that inescapable part of the UK consumer economy, are providing a support to wealth, income and the feel-good factor. The Bank of England is quite right to query the direct link between property and retail sales. However both slowed together in late 2004 and early 2005 and rebounded together from September 2006 onwards. Add to that an expected record bonus round and you have a heady mix of income and wealth. A survey by Deloitte showed UK consumers intended to spend some 8 per cent more at Christmas this year than 2005.
Of course it is an unbalanced picture. Those households weighed down by rising utility bills are likely to be found in different parts of the country from those rolling in bonus payments.
There are other little odd factors that argue for a late spending spree. Christmas Day falls on a Monnday so retailers will get six unbroken days starting on 18 December. The warmest autumn for 180 years cut demand for winter clothing that should return.
The Bank of England will be watching sales volumes but its real focus will be on inflation. Even if retail sales do disappoint that will not stop it hiking rates in February. 2007 could be a tougher year for shops and shoppers alike.
Already this is being billed as the worst festive trading season in living memory – as were 2002, 2003, 2004 and 2005. But in three of those four years the resilient British consumer defied the pundits. In 2002 and 2003 worried over the run-up to, and fall-out from, the Gulf conflict were overshadowed by a fall in interest rates to a 50-year low that encouraged shoppers to flash their plastic with abandon. In 2004 the pundits were right as rising interest rates and utility bills hit consumers’ wallets and optimism. But last December marked the rebound in spending and was the best month in an admittedly poor 2005.
So what of this year? The early omens are again poor. Interest rates and utility bills are still rising, after all. Two retailers – Woolworths and Debenhams – have issued profit warnings. FootFall, one of the outfits that records shopper numbers said retail traffic is at its lowest on record.
But it is too soon to stop believing in Christmas. There are three factors that explain why the high street might appear quiet at the moment. The first is the growing trend towards discounting – cutting prices – before Christmas. UK consumers are wily creatures and have learned to wait for shops to cut their prices. The British Retail Consortium describes it as a battle of nerves between shop and shopper.
The retailers themselves are not stupid. These are often selective price cuts – either on one day or one range. Sometimes it is just a marketing ploy, such as the 40 per cent discount by Thresher that is only a little better than the three-for-two offer they run for 52 weeks a year. So far the official figures show retailers have raised their prices compared with a year ago in the last three months, encouraging shoppers to wait until December. Growth has been weak but has not fallen.
Secondly the Internet has come into its own this year, both as a retail channel and, more importantly, as a price comparison.
On the first aspect, the latest official figures show that non-store sales – the category that includes online retail – posted the strongest, at 3 per cent on the month, reflecting a shift from bricks to clicks. But data on online sales are still relatively rudimentary and that could be an under-estimate.
Nikesh Arora, Google’s European Vice-President, says the Internet poses a threat to established brands that are not as nimble in their marketing as the army of new Internet-only retailers. In other words a profit warning by a blue chip retailers or supplier may tell us more about the company than about overall sales.
Lastly house prices, that inescapable part of the UK consumer economy, are providing a support to wealth, income and the feel-good factor. The Bank of England is quite right to query the direct link between property and retail sales. However both slowed together in late 2004 and early 2005 and rebounded together from September 2006 onwards. Add to that an expected record bonus round and you have a heady mix of income and wealth. A survey by Deloitte showed UK consumers intended to spend some 8 per cent more at Christmas this year than 2005.
Of course it is an unbalanced picture. Those households weighed down by rising utility bills are likely to be found in different parts of the country from those rolling in bonus payments.
There are other little odd factors that argue for a late spending spree. Christmas Day falls on a Monnday so retailers will get six unbroken days starting on 18 December. The warmest autumn for 180 years cut demand for winter clothing that should return.
The Bank of England will be watching sales volumes but its real focus will be on inflation. Even if retail sales do disappoint that will not stop it hiking rates in February. 2007 could be a tougher year for shops and shoppers alike.
December 2, 2006
The two-dollar pound
Even a stopped clock tells the right time twice a day. But until the final week of November 2006 economists who or years have forecast a collapse in the dollar must have been tempted to throw their watches away. At last, perhaps, their time has come.
Five years ago the International Monetary Fund among many others began to flag up the dangers that the huge deficits being amassed by the United States would eventually trigger a collapse in its currency. Since then, however, the dollar has proved impervious to terrorist attacks, a US-led war and a sharp and prolonged rise in oil prices.
The fall against the euro and the pound was not life-threatening on its own. But it was significant precisely because there was no specific trigger provided by the economic news. Investors ignored this week’s spate of corporate takeovers to ditch their dollar holdings.
Why should we care? As the dollar falls so the pound goes up and transatlantic festive shoppers will be able to snap up good bargains down Fifth Avenue – perhaps at the long awaited $2-pound level. They had better make the best of it. The US is in hock to the rest of the world, which has been happy to fund its record trade deficit by buying dollar assets to make sure the books balance.
But if foreign investors decide that imbalanced growth between an indebted West and cash-rich East, particularly China, cannot be sustained, they will want to get out quick. If they rush to sell their dollar assets, the dollar will fall in value. This will force Americans to use more of their dollars to buy the same record volumes of imports, in turn putting up prices on Main Street and forcing the central bank, the Federal Reserve, to raise interest rates.
The US economy is already slowing and sharp rises in interest rates could transform its stagnant housing market into a financial disaster zone. A consumer-led recession would hit those countries that have done well by selling to Americans. If the US sneezes, the rest of the world catches a cold; if the US succumbs to a cold then the rest of the world will get the flu.
On this side of the pond Mervyn King, the Governor of the Bank of England, has said that the last 10 years have been a NICE decade – Non-Inflationary Consistent Expansion. He warns it may be replaced by something more nasty. Certainly yesterday’s falls in share prices reminded investors that stock markers are not a one-way bet.
Finally after years of issuing its warnings over the dollar, the IMF is taking action. It has launched multilateral talks to allow big players such as the US and China to talk frankly in private about the possible ways to reduce these imbalances without triggering the market reaction they do dread.
Gordon Brown has played a major role in ensuring that this initiative won full political support. When Mr Brown moves on – either to Number 10 or the backbenches – his successor must make sure that countries do not allow the timetable for a more stable world lapse.
Five years ago the International Monetary Fund among many others began to flag up the dangers that the huge deficits being amassed by the United States would eventually trigger a collapse in its currency. Since then, however, the dollar has proved impervious to terrorist attacks, a US-led war and a sharp and prolonged rise in oil prices.
The fall against the euro and the pound was not life-threatening on its own. But it was significant precisely because there was no specific trigger provided by the economic news. Investors ignored this week’s spate of corporate takeovers to ditch their dollar holdings.
Why should we care? As the dollar falls so the pound goes up and transatlantic festive shoppers will be able to snap up good bargains down Fifth Avenue – perhaps at the long awaited $2-pound level. They had better make the best of it. The US is in hock to the rest of the world, which has been happy to fund its record trade deficit by buying dollar assets to make sure the books balance.
But if foreign investors decide that imbalanced growth between an indebted West and cash-rich East, particularly China, cannot be sustained, they will want to get out quick. If they rush to sell their dollar assets, the dollar will fall in value. This will force Americans to use more of their dollars to buy the same record volumes of imports, in turn putting up prices on Main Street and forcing the central bank, the Federal Reserve, to raise interest rates.
The US economy is already slowing and sharp rises in interest rates could transform its stagnant housing market into a financial disaster zone. A consumer-led recession would hit those countries that have done well by selling to Americans. If the US sneezes, the rest of the world catches a cold; if the US succumbs to a cold then the rest of the world will get the flu.
On this side of the pond Mervyn King, the Governor of the Bank of England, has said that the last 10 years have been a NICE decade – Non-Inflationary Consistent Expansion. He warns it may be replaced by something more nasty. Certainly yesterday’s falls in share prices reminded investors that stock markers are not a one-way bet.
Finally after years of issuing its warnings over the dollar, the IMF is taking action. It has launched multilateral talks to allow big players such as the US and China to talk frankly in private about the possible ways to reduce these imbalances without triggering the market reaction they do dread.
Gordon Brown has played a major role in ensuring that this initiative won full political support. When Mr Brown moves on – either to Number 10 or the backbenches – his successor must make sure that countries do not allow the timetable for a more stable world lapse.
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