Read more

Wikingowie w Roskilde

Legoland (wygrany wyścig straży pożarnych)

Safari Zoo w Givskud (bawół zatarasował przejazd)

W Danii mieszkaliśmy w Hasmark Strand, bez dostępu do interentu. Po powrocie do Polski przeczytałem komunikat grupy G20 i ze smutną satysfakcją stwierdziłem, że realizuje się scenariusz który przewiduję od dawna, czyli drugie dno globalnego spowolnienia spodowane kryzysem fisklanym. Od wielu miesięcy piszę o tym, że olbrzymie deficyty budżertowe są niebezpieczne i mogą doprowadzić do kolejnego kryzysu, podczas gdy MFW w kolejnych raportach podkreśla potrzebę podtrzymania eksapnsywenj polityki fisklanej (ciekawe co napiszą na jesieni). Coś się jednak musiało stać po kryzysie greckim, skoro w komunikacie po spotkaniu minsitrów finansów i banków centralnych grupy G20 napisano, że konsolidacja fiskalna ma najwyższy priorytet. Niestety jest już za późno i czekają nas turbulencje związane z kolejnymi obniżkami ratingów (przewiduję że Francja i Wielka Brytania stracą rating AAA w 2010 roku a USA w 2011 roku).

Ograniczenie wydatków i podwyżki podatków dokonywane w wielu krajach muszą doprowadzić do dwóch rzeczy: spowolnienia gospodarczego na skalę globalną i do strajków i protestów, w kolejnych miesiącach fala protestów przewali się przez Europę. Piszę o tym od kilku miesięcy, ale przypomnę, operacja Kasdandra dalej trwa i euro idzie na parytet w stosunku do dolara. Silne odwrócenie trendu nastąpi w 2011 roku, gdy USA stracą rating AAA na skutek braku odpowiedzialności fisklanej.

Mamy erę turbulencji. Co robić, jak żyć, pytał klasyk. Odpowiedź znajdziemy w Danii. Trzeba ograniczyć oczekiwania (zbyt wiele sobie nie obiecywać) i cieszyć się tym co mamy. Wzrost gospodarczy będzie wolniejszy niż się dzisiaj oczekuje, złoty słabszy, ceny akcji i stopy procentowe niższe. Ale jeżeli zachowamy pogodę ducha i dokonamy mądrych wyborów w 2011 roku, to już w w 2012 roku polska gospodarka może ruszyć z kopyta.

Hide it

Read more

My 2009 forecasts and their performance

• Crisis and recession.

All large industrialized countries will be in recession, with US facing the biggest output drop among large economies amid largest past excesses. Hard economic data will be very gloom for the entire 2009, but leading indicators will begin to flash a possibility of mild recovery here and there in 2010. But I do not expect a linear sequencing, there will be premature hopes and continued negative surprises, which will be reflected in major stock exchanges performance. Brace for continued rollercoaster rise, but this time around there will be both, sharp ups and downs. Global inflation will remain very low, dangerously low in some places in 2009, before it shows its ugly face again in 2010, 2011 at the latest.

In general it did materialize in 2009, with one exception, US did better in relative terms than I anticipated.

• Obama xiānsheng (先生,which is Chinese for Mr, Sir)

In line with IMF and Paul Krugman recommendations new US administration will embark on a massive spending plan, worth much more than one trillion dollars. On the international arena we will see a major breakthrough regarding US international initiatives. US will no longer act and the global policeman, or global policy agenda setter. It will become global policy agenda facilitator, bringing new global players together, and most notably China. There will be few dangerous places in the world in 2009, think of Palestine and Jewish-Arab conflict, or India-Pakistan affair. This sets the stage for more intense terrorist activities, which may constrain US president foreign policy options.

This was largely correct, with G20 meetings becoming most important global political event. Although recent collapse of the Copenhagen climate summit casts some doubts on whether US will keep its new policy course.

• Protectionism

With global growth faltering politicians in many countries will embark on protectionist path (import tariff on cars in Russia, broad import tariffs in Ukraine, import tariffs on steel in India already imposed in 2008). This will be very dangerous and can lead to a prolonged global recession. Combating protectionism will require major international diplomatic effort and understanding that free trade is one of the most important global public goods.

Partly correct. Many countries resorted to different forms of protectionism, but at the end of the day we avoided the worst, and most measures were kept within WTO scope of flexibility.

• New Bretton Woods / New G??

2009 will possibly become a milestone in forming new global governance structure, although the process will be long and last years if not a full decade. IMF will not be endorsed as a global stability supervisor unless major governance changes take place and BRIC countries receive more voting power. It is also unsustainable to have all head offices (IMF and World Bank) in Washington. With videoconferencing broadly available there is now room to relocate IMF/WB head offices to Europe and Asia. Such a move could indeed increase the odds of transforming outdated Bretton Woods governance model into a new one, that reflects 21^st century power structure. Consequently the old G7/G8 group should be replaced by new G8, with European Union having one seat. First informal meetings in such company may already take place in 2009.

Good forecast, new G20 group was created, but it fell short of my suggestions that the EU or at least Eurozone should be represented by one seat. IMF/WB reform was accelerated as predicted.

• Dollar

In 2009 dollar will begin its long term journey, once travelled by the British pound in early 20^th century.

Dollar did fall against euro in 2009, but the drop was somewhat smaller than I anticipated. However the was a deluge of articles in 2009 predicting dollar decline amid fiscal misery. So the trip has begun indeed, but with a small step in 2009.

• Climate change

2008 was a relatively good year, with relatively few climate disasters (UPDATE: according to Munich Re report 2008 was a terrible year regarding natural catastrophes, taking away some 220,000 lives, despite the fall in overall number of disasters by 22 percent to 750). However there is strong rising long-term trend of climate disasters, and if 2009 is just an average year we will see much more adverse climate than in 2008. This will speed up climate change politics, with US joining EU efforts to reduce greenhouse gasses emissions. Carbon emission rights trading will become the next big market and despite global investment recession, investments in renewable energy will go up and then will soar in 2010 with returning high energy prices.

Poor forecast. Copenhagen summit yielded no tangible agreement, but many countries made emissions reduction commitments. So far carbon trading is not the next big thing, it will come later. The forecast was premature.

• Commodity prices and Russia

2009 will be a recession year so commodity prices will remain low, reducing investment in traditional energy (oil in particular). With global energy demand recovering in 2010 this capacity constraints will begin to bite and oil prices will rise, possibly sharply. I think that this rise will take place in 2010, if recession is longer than in 2011. In such scenario Russia will continue to experience capital flight in 2009 and one cannot rule out that it will lose most of its 450bn currency reserves and will need IMF help again (or a loan from China?). 1998 déjà vu.

Good forecast, commodity process remained low for most of the year, Russia did experience capital flight and very deep recession. However foreign exchange reserves loss was smaller than I expected, and oil price rebound definitely helped.

• European Union / Euroland

Scary times. With Germany shrinking as much as 3 percent in some scenarios European Union and Euroland will face a once in a lifetime test, a survival test when it comes to European solidarity.  While Iceland, Denmark and even UK sends smoke signals to join using shortcuts, the real question is how European politicians will behave when truly hard times come, when deep recession and unemployment bite. We have already seen Berlusconi “buy Italian” campaign. 2009 will witness Mr Populist vs. Mr Economist, 12-round, heavyweight fight.

Good forecast, with Greece downgraded EMU fall apart talks resurfaced. UK and France received credit downgrade warnings, public debt is going though the roof.

• Poland’s strategy

By now ruling politicians understood that economic misery will last longer than one year and that 2010 may be more difficult than 2009. Prime Minister Tusk will run for president in 2010, so economic gloom may severely inhibit his chances to replace Kaczynski at country top post. It bodes well for government anti-crisis activity, as always when political incentives are right then economic and reform miracles can happen. So expect rapid implementation of government anti-crisis plan, with a lot of help offered for firms which will be deprived from access to bank credit. However, with fiscal picture rapidly deteriorating  Poland will likely delay its decision to join ERM2.

Mixed forecast. Government implemented a lot of … PR measures, and very little in reality. So called savings were shifts from budget to off-budget funds. Various programs (guarantees or labor flexibility enhancers) were not used at all by firms as too expensive or too rigid. Unemployment will continue to rise in 2010, but growth will inch up.

• Poland’s growth outlook

My central forecast is 2- growth in 2009, and 1+ growth in 2010, conditional on government acting quickly and decisively. Exports and investments will decline in 2009, and private consumption will slow, despite tax cuts. Consequently government spending will have to go up, geared towards building hard and knowledge infrastructure, very needed and long overdue investment in the country future. If done well may keep Tusk as prime candidate for president, if done badly may cost him political future.

Good forecast. 2009 growth will likely by 1.6-1.7, and government did a good job spending EU funds on infrastructure. Also government spending went up like hell, from 42% of GDP in 2008 to expected almost 48% of GDP in 2010. I will revise my 2010 growth outlook upwards.

• Poland’s politics in 2009

While European Parliament elections in 2009 (4-7 June) will be a political non-event in Poland, I see a large likelihood that some important political processes will begin in 2009 and accelerate in 2010 before presidential elections. Firstly, the young generation (people who started their adult professional life after 1989) will have a stronger voice in Polish politics. Will they form their own party and score well in 2010 (president elections) and 2011 (parliament elections), it is still a tough call. But three things indicate that it can happen: (1) economic gloom and doom in 2010 will make people unhappy about the ruling party; (2) Obama way of winning, using internet and social networking shows that young, open minded, globally-minded generation can and should replace older layer, which is busy fighting yesterday wars that nobody understands.  Thirdly look at the following questions. Why after 20 years of reforms Poland is a laggard in global competiveness ranking, it fell last year from 68th to 76th place. Why after 20 years of reforms we still do have decent roads and railway tracks? Why Poland scientific output places us next to Albania at times when knowledge and innovation determine country future standard of living. Why at times when internet access is key to success, Poland has the highest digital exclusion rates in Europe? The why list is very, very long.

Who can do it? One obvious candidate to lead young generation is Rafal Dutkiewicz, president of Wroclaw. Lech Kaczynski has catapulted himself from Warsaw president to Poland’s top job, so it can be done. But Polska XXI was a false start, new opening cannot be done with old pricks. So unless Dutkiewicz rethinks his strategy, he is no challenge to Tusk.

Assessing this forecast is tough. European Parliament elections were non-event. We have not seen young generation forming their own voice in 2009, other political initiatives (Polska XXI, Polska Plus, others) proved non-events, and Rafal Dutkiewicz rightly pulled back. Will Andrzej Olechowski convince young generation to back his vision of presidency, it is too early to judge. Given very poor quality of economic and financial policy in Poland (with notable exception of EU funds spending) I do hope that new generation of leaders will emerge in 2010, but honestly I do not see the candidates yet.

Hide it

Read more

In good old days we had 3-5-3 banking. Banking was simple, almost dull business. We took deposits at 3%, gave loans to client we knew at 5%, and went play golf at 3 PM. 3-5-3 simple banking. Today we employ math and physics Ph.Ds to create banking products. It is high time to go back to SIMPLICITY and to 3-5-3 banking. Therefore I see very little hope for decent progress, for decent reform, and for avoiding crisis-prone environment unless we properly eliminate the key factor behind future crises, which is excessive COMPLEXITY of financial instrument. To achieve simplicity we need LESS REGULATION, not more, and we need SMART GLOBAL REGULATION. G20 leaders so far failed to grasp this simple truth, and, unfortunately, seem to march in the opposite directions of more complex regulation.

Another issue that escaped G20 leaders attention is CONCENTRATION of financial activity. So far large banks took over other large banks that failed to survive on its own. This is dangerous as large concentration of power of financial institutions was another key reason behind the crisis, for example powerful banks were able to influence regulation, were able to agree on rules of the game, to mention the fourteen powerful families from the Superclass, David Rothkopf book. Without solving the issue of concentration and complexity we will continue to live in dangerous times.

I would suggest two issues to be put on the global agenda for Canada meeting – LESS COMPEXITY and LESS CONCENTRATION:

-          G20 is too many to take binding decisions, have you ever see a company managing board with 20 members that is effective. With respect to financial stability there should be a much smaller group that provides recommendations to leaders. A good starting point would be to form a Global Financial Products Forum, that would make recommendations on the path towards SIMPLICITY in the area of financial products. It’s members should be USA, UK, Eurozone, China, Japan and representative of the world of Islamic finance. The mandate should be delegated to people who understand the global financial landscape and have experience in central banking or financial regulation, for example: Frederick Mishkin (USA), Willem Buiter (UK), Otmar Issing (Eurozone) , Yi Gang (China), and equally well qualified senior figures from Japan and the world of Islamic finance

-          GPFP presents a typology of financial risk that should suffice the needs of real businesses around the world regarding financing and asset allocation.

-          Anything outside this scope is subject to small Tobin tax levied on every transaction above certain size. Revenues from this tax are used to fund the global regulatory body, which employs the best minds in the financial sector, such that their competencies and skill far outpace skill of those who create toxic financial instruments. Only when regulators have global reach and are very well paid, they will be able to act timely and effectively

-          Actions should be taken to break biggest financial institutions into smaller units, and in order to prevent the effect of “too interconnected to fall” we should design effective circuit breakers, to prevent domino effects.

We all want effective and safe financial markets. In the past decades effective meant less safe. It is high time to reverse this dangerous path. The only way to achieve this is less complexity and less concentration. We should return to 3-5-3 banking.

Hide it

Read more

- incentives should be created to avoid excessive risk taking

- strengthen regulatory regimes

- ensure that ALL participants and ALL products are regulated

- make regulation counter-cyclical

- deal with non-cooperative jurisdictions (including homes banks offering to secret accounts)

- reform Bretton Woods institutions, give greater voice to developing countries

- broaden the Financial Stability Forum membership

Adopted action plan, to be implemented by G20 finance ministers in cooperation with the IMF, important parts are below:

- improve accounting standards, create unified best practices

- create single, high quality global accounting standard

- by 31 March 2009 propose recommendations that mitigate pro-cyclicality of financial regulation

- all G20 members will undertake FSAP review

- definition of capital adequacy should be harmonized

- regulators should review rating agencies adoption of standards

- enhance OTC electronic markets for CDS contracts, force market participamts to support OTC market

- improve risk management and reporting, Basle Committee should develop new stress testing models

- standard setting bodies should react faster to financial innovation

- improve tax information exchange

- regulators should strengthen cross-border crisis management skills

- IMF should take a leading role in drawing lessons from the crisis

- IMF should get more funds

- IMF vote and quota should be changed to give emerging markets more influence

On other issues leaders stated their commitment to deal with other issues (energy security, global warming, food security, poverty, …)

Leaders stated that they will refrain from raising new barriers to investment and trading in goods and services.

The next G20 meeting will take place again by 30 April 2009.

* * *

Now few comments of mine.

There is nothing new or unexpected in the statement. There is no new money committed, G20 just says that IMF, WB and other multilateral banks resources will be review and countries stand ready to increase them. To get the numbers right recall that IMF firing power is 250bn dollars, while developed countries have already allocated some 9 trillion dollars to crisis fighting (governments 7tr – including guarantees, as estimated by the Bank of England in recent financial stability report ) and 2tr in central bank lending against dodgy collateral). In other words there are a lot of words and no meat in the statement, so markets may be disappointed, but lets see what will be the opening in Asia on Monday.

The statement presents worries that emerging markets may be shut off from foreign funding. It is worth remembering that Robert Lucas Jr. has already identified a puzzle (called Lucas puzzle after him) that capital flow from emerging markets to developed markets, against the economic theory. Since Lucas paper this trend intensified massively. So the real problem does not lie with the US and European banks and funds that would stop lending to emerging markets and buying their shares, the real problem is that emerging markets financial institutions should stop buying US debt and should
invest much more in the emerging markets as a group. So the top priority should be creating deep and liquid markets in Asia and in the Gulf, that would provide excellent market infrastructure, top corporate governance standards and legal protection. Statement is silent on this aspect of solving the crisis.

Finally, I am of the opinion, that if you have something very important to say, and the whole financial world is waiting, you should say it on one page in a plain language. When business people adopt the action plan, the give precise framework and set performance measures, so that you know whether the plan implementation goes well. When politicians create action plan, it is in a fuzzy language over a hazy horizon. Then they can go home and every leader can interpret the statement in his/her homeland in line with local political needs. I am not sure we have time for this standard political communication in crisis times.

Hide it