Entangled Alliances

18:45 BST: Well, the time has come for me to quit this epic live-blog, given that I’ll soon be entering my twelfth hour of continuous live-blogging.  I know; I know – Obama’s about to give his press conference. But I’m about to collapse; so that’s that. I hope you enjoyed the  random, disparate, often unhelpful observations from yours truly. I know I did – live-blogging’s great! There’ll be some more analysis tomorrow from Entangled Alliances, looking in more detail at the exact provisions of the groundbreaking G20 agreement: what they are, whether they’re good and whether they’ll actually change anything, as well as a look at how the G20 will benefit its main players. But for now, I’ll leave you with a fitting quote from BBC business correspondent Robert Peston:

There are no surprises in the deal announced today to reform the banking system, to prevent banks making the kind of risky loans and investments that precipitated the worst global economic crisis since the 1930s.

But it’s nonetheless a historic event that the world’s 20 most powerful economies have signed up for these reforms – because they represent the death knell for the Anglo-American doctrine that economies flourish when financial firms are left alone to do as they please.

Indeed.

18:32 BST: Buried under all the G20 news has been the potentially groundbreaking meeting between Barack Obama and Russian President Dmitry Medvedev, which resulted in an agreement to reduce the nuclear arms of both sides much further than the current agreement demands. This could be very important…

18:30 BST: A wise comment from the Guardian’s Andrew Sparrow (whose live-blog was probably better than mine but nowhere near as epic!):

I’ve been busy updating our main story, having sat through the opening of Brown’s statement. First reaction: I found myself sitting there thinking ‘David Cameron could not pull off an event like this’. That’s not because I think Cameron’s a lightweight. I don’t. It’s because the most important summit conclusions involve international finance, global trade and the inner workings of organisations like the IMF and there are probably very few prime ministers or presidents in the world who understand this stuff as well as Brown.

18:20 BST: Lest I be judged  by my comments below to have been a bit too harsh on the protests, I want to stress that I have great respect for most of them. I say most of them, because the anarchists were just so annoying. Proper anarchism is really cool. It’s an extremely sophisticated ideology . These guys, however, were just pathetic. Bad anarchists!  The majority of protests, however, made some good points.The fact remains, though, that they surely made no difference on the summit at all. If you want to get something changed, you focus on it like a laser and you don’t go off message. But the protests were never on message to begin with – from homelessness to climate change to ending the war to the death of capitalism; only a minority were  actually focused on the topics of the summit! The question becomes then – did they really want to influence the summit? Or did they just want to get their message out there in a sort of vague picture of defiance?  In their defence, however, you could respond that they never stood a chance anyway: governments don’t respond to the people anymore. No-one listened to Iraq protests, for example and they were very focused. So it’s an interesting debate. But I do think that they could have maybe stood a chance at getting some traction if they focused on one message and, you know, stuck to it.

18:13 BST: Here’s the full text of the communique, courtesy of the Guardian. There’s tonnes of details here…

18:10 BST: Oh and I forgot to add that hedge funds and other non-banking institutions will come under the aegis of this new Financial Stability board. Since the mysterious financing of hedge funds helped to exacerbate the mess, this is also good news; but again it all depends on how strong the regulation is…

18:05 BST: The headlines are focusing on the issues of tax havens and that $1 trillion figure, but there’s tonnes of other stuff that’s just as interesting. For example, there’s going to be a new Financial Stability Board that will work with the IMF to monitor the risk of banking transactions and impose limits on things like capital reserves and leverage requirements (not to mention executive bonuses.) This is absolutely crucial in getting the banks back on track and preventing such a crisis happening again, since it was an inherent failure in the banks’s ability to evaluate “systemic risk” that made the crisis so bad. This is pretty complicated and I’ll come back to this another time, but suffice to say it’s a good move – that is, as long as this new regulatory body actually has proper regulatory oversight.

17:54 BST: A timely article over at Foreign Policy discussing whether protests ever work. I agree with its basic conclusion: protests have to be unified and targeted; and focused on changing the system not overthrowing it. The G20 protests were none of these things and so I’m afraid that they’ve had absolutely no effect whatsoever.

17:46 BST: Did Sarkozy and Merkel get their victory? Or was there never any “victory” to begin with? Everyone was in agreement over the basic regulatory provisions. and had been for weeks. The real controversy-  over the possibility of national stimulus packages – was won by Merkel and Sarkozy weeks ago, and so it was no surprise to see no such provisions today. However, Sarkozy must be feeling pleased that the language on tax havens was quite fierce. In the big picture, it’s not really much of an issue, but he’ll make a big deal of it, which is fair enough…

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photo credit: JFabra

If you Read Ed’s article on the need for stimulus packages in Europe you may have come across a debate Ed and I had over the nature and merits of a stimulus. Regardless of which side you fell on, there were further issues at stake than just economics. Economists like to see their subject as a science: numerical and evidence based, rational and objective. No doubt,  many of their research tools are scientific but economics is also the backbone of the modern world and often not an end in itself, more a vehicle for achieving other ends.

As James Surowiecki argues in the Financial Page of the New Yorker, economics is by no means a science and as the recession draws on, we’re able to examine the cultural memories that can and do direct economic courses of action. From recessions and inflations, each country will have its own preferences and fears that alter the importance attached to different parts of the economy.

In the US, the focus has fallen on the stimulus package and Paul Krugman has made the case that europe should follow suite. He makes a convincing case for a European stimulus package, but is it correct to lampoon European economic policy and decision making as woefully inadequate or to equate US economic policy so readily with Europe? Well in some sense yes, it’ s perfectly fair, the rationale for the stimulus is not so difficult,  it could even lead to greater gains if correctly invested in infrastructure which could grow economies in the future, from transport to broadband aswell as tiding Europe over during a recession. In fact, many economists, (despite what many think) advocate deficit spending. They argue that if done correctly it will more than pay itself back through the higher tax-receipts of the economic growth it will yield.

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photo credit: Mossaiq

They are two perennial problems facing the European Union: a lack of a clear, coherent vision for the future of European integration and a lack of any real leader to implement this vision. Answering “who is the head of the European Union?” is far more complicated than it should be. The President of the Commission? The head of the largest party in Parliament (joking)? Or perhaps the head of the European Council – the leader of the state which happens to hold the rotating EU Presidency?

This problem has suddenly got that much more difficult to answer, as yesterday the Czech government, the current holder of the Presidency, lost a vote of no confidence. How can you lose power in your country but retain it over a much wider area, the EU? According to EurActiv, the Czech Prime Minister Mirek Topolánek said “At the moment, this situation has no effect on the role of the president of the European Council,” in a statement issued by the Czech Presidency.

Three things support the Czech Republic’s retention of the Presidency. First of all, the post is actualy held by the rather outspoken President Václav Klaus. And secondly, as EurActiv also points out, “Governments of EU countries have collapsed while they were holding the Union’s reigns twice before – in 1993 in Denmark and in 1996 in Italy.” It continues, however, by pointing out that it has never happened in an economic crisis before – and this is no small crisis.

It is worth considering the extent to which these events led to Topolánek’s outspoken attacks on Obama’s stimulus package in the European Parliament today. Indeed, as the BBC reported:

He attacked the US’s growing budget deficit and the “Buy America” campaign, saying “all of these steps, these combinations and permanency is the way to hell”.

Maybe something was lost in translation – but that’s pretty strong stuff.

The third thing that really supports Klaus’ position is the fact that, because the President doesn’t really do all that much (as has been repeatedly demonstrated in the past), nobody really cares. Yes, the President of the Council theoretically has power to significantly drive the agenda, but it doesn’t really make that much difference (compared to the status quo) if he doesn’t. One area in which Klaus may be seen to have affected the agenda is through his country’s refusal to ratify the Lisbon Treaty – but even this may be seen more through the prism of domestic politics than a deliberately obstructionist policy as President of the Council. My point is – yes, he’s put something of a break on further integration, but there’s no reason to suspect that this wouldn’t have happened if hadn’t been in this European role.

Nevertheless, it’s certainly not a great situation: the government of the country that holds the Presidency of the European Union has just collapsed, significantly (it seems) due to the way they’ve handled the economy. Which makes these problems that much more difficult to handle at a European level, when, despite the weak institutional powers, strong leadership could have a significant positive effect.

The Presidency will be held by the Czech Republic until a mere three weeks before European Parliament elections. It’s not a great advertisement for why people should care about – or engage with – the EU.

Update: Mark Mardell thinks it could have a bigger effect, particularly on ratification of the Lisbon Treaty, and sensitve negotiations over the Working Time Directive. Maybe this could indeed be Sarkozy’s moment to come to the rescue.. but don’t hold your breath

When domestic politics is getting you down, the international stage can prove a welcome diversion.  Just ask Bill Clinton.  But here in Britain we’re talking plummeting poll numbers, not impeachment, and the diversion of international economic policy, not cruise missile strikes.  Yes, what a breath of fresh air the international stage has been for Gordon Brown.  Far away from a seemingly insurmountable deficit in the polls, and rumblings in the Labour ranks, Brown has been reveling in a reputation as a far-sighted guru of economic policy, feted by the likes of Paul Krugman and fulfilling a boyhood dream (I’m with you Gordo) of addressing a Joint Session of Congress.  Next month, however, these two worlds will collide in a bold all-or-nothing attempt by Brown to merge the two currents of his premiership; an attempt to rescue his domestic political prospects and cement his role as a world leader in one fell swoop.  In April, the G20 is coming to town, and for Gordon Brown the stakes could not be higher.

photo credit: World Economic Forum

The London Summit, which will be held on one fateful day, April 2nd, is a follow-up to a session held last November in Washington D.C. – a session in which rather little was decided, except vague assurances about cutting taxes and increasing government spending.  The Prime Minister’s zeal was already clear at this stage.  He declared that the summit  was “the road to the new Bretton Woods. It is absolutely clear that we are trying to build new institutions for the future.”  For him, London is where the deal will be sealed.   His agenda is extraordinarily ambitious.  As the Economist sardonically put the issue:

The summit should not only stimulate the economy and renounce protectionism, but also bolster the IMF and other international financial outfits, revamp regulation, create an early-warning system for crises, and save the poor. It was as if Mr Brown thought the ailing economy would yield to an act of governmental will, if only it were colossal enough.

The Economist, ever pragmatic, argues that such overreach risks undermining the immediate necessities of global government stimulus and a united front against protectionism.  This pessimism seems to be borne out by the unenthusiastic noises coming from G20 capitals and an emerging transatlantic gulf in attitudes.  Below the fold, I look at the opposition to Gordon Brown’s plan for new financial institutions, and the implications for his domestic political fortunes.

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photo credit: AComment

When Barack Obama’s economic stimulus package passed into law last month, it was mostly greeted by economists as a much needed influx of government spending that should help to get the economy back on track . But among the plaudits were concerns about the effectiveness of the stimulus: specifically, it should’ve been bigger.

Now you might well question whether an $800 billion package could be described as “not big enough”. But it’s important to remember that around $300 billion of it was in the form of tax cuts – helpful to the families they were aimed at, no doubt, but not particularly useful in terms of job creation. Therefore, only $500 billion was actually in the form of direct government spending, and so when considering how much is needed to create enough jobs to get the economy back on track, only two thirds of the stimulus is actually “stimulus”. But even so, surely $500 billion is enough to get the job done?

Well, uh, no actually. It isn’t. The inadequacy of the stimulus, however huge it was, is made clearer every week as increasingly disastrous figures about the economy continue to be released. In his Monday New York Times column, nobel-prize winning economist Paul Krugman, calling for a second stimulus, points out that:

The administration’s budget proposals, released less than two weeks ago, assumed an average unemployment rate of 8.1 percent for the whole of this year. In reality, unemployment hit that level in February — and it’s rising fast.

But isn’t Obama’s stimulus meant to make 3.5 million new jobs by the end of 2010?

3.5 million jobs almost two years from now isn’t enough in the face of an economy that has already lost 4.4 million jobs, and is losing 600,000 more each month.

Oh. Bummer. Okay, so the situation’s really bad, but do we really need another stimulus package? Martin Feldstein, professor of economics at Harvard, has looked at the numbers and concluded that yes, we do. His article’s worth a read but I am nothing if not a prolific summariser, so here’s the cliff notes version, which includes the “things Feldstein doesn’t say because he forgets we’re not all economists”:

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photo credit: jurvetson

Bernard: Well the party had an opinion poll done and it seemed all the voters are in favour of bringing back National Service.

Sir Humphrey:Well have another opinion poll done showing the voters are against bringing back National Service.

We all use polling but recently  two issues stood out where we ought to be more careful in their use. The first is a false interpretation of what the data shows, the second is the flaws of using polling data on a complex issue to support your argument.

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Obama’s stimulus bill is finally law, all 787 billion dollars of it.  On Friday, the final version of the bill passed the House 246- 183 and the Senate 60-38. Once again, not a single house Republican voted for it. In the Senate, it only got three GOP votes.   It’s been a long, arduous process as Republicans did their best to try and sabotage America’s best hope of getting its economy back on track. But now the stimulus package is law and, though its not quite as big as it should have been, it’s still a great piece of legislation.

However, now the dust has settled on a bruising legislative battle it looks like there has been a casualty. Bipartisanship is dead, long live bipartisanship:

White House aides say they have concluded that Obama too frequently lost control of the debate and his own image during the stimulus battle. By this reckoning, the story became too much about failed efforts at bipartisanship and Washington deal-making, and not enough about the president’s public salesmanship.

For Obama’s next act, the program is the same as he has been planning for months: New Deal-style plans to rescue struggling homeowners and rewrite regulations on the financial markets, plus a budget proposal that lays the groundwork for sweeping health care reform.

But the strategy to promote these items is getting an emergency overhaul. Obama plans to travel more and campaign more in an effort to pressure lawmakers with public support, rather than worrying about whether he can win over Republican votes in Congress.

Obama has obviously finally noticed what the rest of us have been screaming at him : bipartisanship isn’t working. To celebrate the President’s epiphany I present to you five truisms that might have persuaded the president that bipartisanship is, well, pretty rubbish really:

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Given the latest developments in the saga of the U.S. Stimulus Package, many are now asking whether it isn’t about time the filibuster was abolished.  To recap: in order to secure a filibuster proof majority for the Senate version of the bill, Democrats have allowed a centrist coalition of senators to cut over $80 billion of valuable job-creating provisions from it, thus guaranteeing three Republican votes.

The question of abolishing the filibuster has never been more pressing than at the present, where America is faced with an absurd, almost Daliesque situation: A Democratic Congress and White House allowing (largely) Republican Senators to strip jobs from the legislation that is America’s best hope of stemming the rise in unemployment caused by the biggest crisis since the Great Depression.

First, a quick primer. The filibuster is an archaic Senate rule that allows a lone senator to defy the majority by endlessly debating a piece of legislation, thus preventing a vote on it. In order to end a filibuster, there must be a “cloture vote” – three fifths of the senate, or 60 senators, is required for cloture. It has a rather accidental history (for a brief breakdown, read Matthew Yglesias’s article on it)  and most of its life it has been used sparingly; yet in recent times it has taken on the form of a oft-used partisan tool that arguably obstructs Congress from getting much done.  In the 1960s, no Congress had more than seven filibusters. The 110th Congress, which just ended, featured 137.

Obviously there are serious, albeit transient, political considerations to be taken into account when talking about abolishing the filibuster. Back in 2005 the Republican majority Senate, faced with Democrats willing to filibuster the President’s judicial nominees, mulled over the idea of bypassing the rule – the so called “nuclear option” . This, it was agreed, would have been very “bad” for Democrats. Now, faced with obstructionist Republicans that show no signs of wanting to work with Obama, nuking the filibuster suddenly seems like it would be “good” for Democrats. But an argument based on the current political status quo should never be allowed to make it out the gate, at least not if we are concerned with rules that are based on timeless considerations.

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I’m not going to post every article I think is good, but this article by Steven Pearlstein, Business Columnist for the WashingtonPost is a king among among articles. Read it here.

photo credit: jmtimages

Right now, Obama’s struggle with congressional Republicans feels a bit like a classic movie with the new sheriff. You know, the new friendly Sheriff comes into town, he’s polite, courteous almost to a fault, he tries to be friends, but instead all the powers regard him as a pushover.  They overreach, treat him with contempt, and carry on their old bad habits.

You see, Obama came into Washington after sweeping up the nation with a campaign of hope and a new direction, he promised bipartisanship – dined with conservative pundits, he had a cocktail party with congressional leaders from both sides, he backed this up with more meetings and urged both sides to find some common ground. In return the House Republicans delivered a stunning zero votes, zero, not one house Republican thought the necessity of the stimulus outweighed the cons.

That’s one punch to the face but hey, it might take these guys some time to get used to the new sheriff  and the House is more partisan anyway. The Senate, is the more measured and balance chamber, the wise musings of  men committed to the good of America regardless of party….

But wait, Senate Republicans  bemoan the lack of tax cuts, they want tax cuts to have close to  1:1 ratio in the stimulus.

TAX CUTS! Talk about a broken record.  Still our Sheriff labours on hoping that the Senate can get their act together, probably at this point casting a glance at Minnesota and the devoted public servant that is Norm  Coleman. Who, having no chance of winning has worked tirelessly to ensure the people of Minnesota stay as unrepresented for as long as possible (FiveThirtyEight has the latest here).  Obama labours on, surely they see the danger the US economy is in, surely they must see how a stimulus could work? Heck, even many of their own back it; even devout pork-fighter Palin (couldn’t resist) backs it.

But instead they delay and propose pointless alternatives that need to be cleared. Then, perhaps the final straw, they start pushing around his deputy, Hilda Solis, not once but twice. Nobody, but nobody should pick on the deputy. Oh, and to add insult to injury, guess who’s sniping from the sidelines?

Obama had even given some advance notice – a polite warning shot: ” I won” he noted, as they bemoaned his stimulus. He pointed out his electoral landslide, which in no small part was a vote on the economy,  a landslide that swept many of these Republican Senators states. But they didn’t listen.

Then the fightback begins.  With support from the White House, tired of the delays in Solis’ confirmation hearings, Unions and Hispanic support groups are pushing back. This is followed by the big gun, an open asault on the lunacy of the Republicans, to get the Bill passed.

The Result: This: essentially a minor victory for Republicans who not only trim down spending in areas such as education and science (both vital to the economy and jobs), but get to keep their taxes.

Hopefully our Sheriff has learnt from this experience, as Ed pointed out in an earlier post, there is no point meeting someone half way when their starting point is a terrible idea. They wanted tax cuts, Obama’s Bill actually started with tax cuts, but Republicans then sought to massively expand on the tax cuts, (claiming the whole bill was spending and framing it so by their huge presence in the media). Obama, remember, has also promised not to directly repeal the Bush super tax cuts, in light of the recession.

So despite effectively having had two rounds of tax cuts for free, receiving an electoral hammering and facing a President with exceptional popularity, Republicans defiantly watered down the parts of the stimulus which would actually stimulate the economy and demanded more tax cuts to boot.

He’s got a bloody nose for sure, Nate Silver’s excellent article underlines the cost to Obama of failing to sell his plan (his own punches were too late). But Obama shouldn’t give up on bipartisanship.  He probably got skinned in the first round, but he’s got brilliant media strategists of his own.  Next time he needs to get out early to frame the debate and give Republicans less room for manoeuvre.