The driving force of Europe's economic policy is the "European project" of political integration. That goal is reflected in the EU's current focus on creating a "fiscal compact", which would constitutionalise member states' commitment to supposedly inviolable deficit ceilings. Unfortunately, the compact is likely to be another example of Europe's subordination of economic reality to politicians' desire for bragging rights about progress towards "ever closer union".
The plans for a fiscal compact have evolved rapidly in recent months, shifting from a politically unpopular "transfer union" to a dangerous plan for fiscal austerity and, finally, to a modified version of the defunct Stability and Growth Pact of 1997. In the end, the agreement that will emerge this year will do little, if anything, to change economic conditions in Europe.
Angela Merkel, the German chancellor, initially proposed the "transfer union", in which Germany and other strong euro-zone economies would transfer funds year after year to Greece and other needy countries, in exchange for the authority to regulate and supervise the recipient countries' budgets and tax collections. The German public rejected the idea, while Greek officials and the Greek public rejected the idea of German control over their country's fiscal policy.
The next step was the fiscal plan that was agreed on in Brussels at the end of last year, which abandoned a transfer union in favour of an agreement that each euro-zone country would balance its budget.
But how, exactly, should the balanced-budget requirement be defined? Jorg Asmussen, the German member of the European Central Bank's executive council, stressed that a balanced budget meant just that. Even if a country ran budget deficit because a cyclical downturn caused a fall in tax revenue and an increase in social transfers, it should be required to raise taxes or cut spending to restore a balanced budget.
Fortunately, this recipe for creating future European depressions was rapidly dropped.
The most likely form of the fiscal compact now seems to be a mild agreement requiring each country to "balance its budgets over the business cycle". Failure to comply would in principle lead to automatic financial penalties, but it is difficult to imagine how such failure could be determined in a country such as Spain. At what future point would Spain, with a persistent unemployment rate of more than 15 per cent, be required to raise taxes and cut social transfers? Ordering Spain to do so might rest with the European Commission, making it a political decision, rather than the "automatic" technical requirement that its proponents promise.
If this is the essence of the fiscal compact that is eventually agreed on, it will have no predictable effect on euro-zone countries' behaviour. Its only effect will be to allow the euro-zone's political leaders to claim that they have created a fiscal union and moved Europe closer to the political union that is their ultimate goal.
But a fiscal union conceived in this way is completely different from how most people understand the term. In the US, the central government collects about 20 per cent of the country's GDP and pays out a similar amount. That centralisation of taxes and spending creates an automatic stabiliser for any region that experiences an economic downturn.
There is no similar process in the euro zone. Although the current European political process will not create strong fiscal discipline, financial markets are likely to force euro-zone governments to reduce their sovereign debts and limit their fiscal deficits. In the single currency's first decade, private investors' belief in the equality of all euro-zone sovereign bonds kept interest rates low in the peripheral countries, even as their governments ran up large deficits and accumulated immense debt. Investors will not repeat that mistake.
Financial markets will now enforce what the euro-zone political process cannot achieve. The EU's fiscal compact, whatever its final form, will be little more than a sideshow.
Martin Feldstein, a professor of economics at Harvard University, was chairman of president Ronald Reagan's council of economic advisers and is a former president of the US national bureau for economic research
* Project Syndicate
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Keane on …
Liverpool’s Uefa Champions League bid: “They’re great. With the attacking force they have, for me, they’re certainly one of the favourites. You look at the teams left in it - they’re capable of scoring against anybody at any given time. Defensively they’ve been good, so I don’t see any reason why they couldn’t go on and win it.”
Mohamed Salah’s debut campaign at Anfield: “Unbelievable. He’s been phenomenal. You can name the front three, but for him on a personal level, he’s been unreal. He’s been great to watch and hopefully he can continue now until the end of the season - which I’m sure he will, because he’s been in fine form. He’s been incredible this season.”
Zlatan Ibrahimovic’s instant impact at former club LA Galaxy: “Brilliant. It’s been a great start for him and for the club. They were crying out for another big name there. They were lacking that, for the prestige of LA Galaxy. And now they have one of the finest stars. I hope they can go win something this year.”
Afghanistan squad
Gulbadin Naib (captain), Mohammad Shahzad (wicketkeeper), Noor Ali Zadran, Hazratullah Zazai, Rahmat Shah, Asghar Afghan, Hashmatullah Shahidi, Najibullah Zadran, Samiullah Shinwari, Mohammad Nabi, Rashid Khan, Dawlat Zadran, Aftab Alam, Hamid Hassan, Mujeeb Ur Rahman.
THE SIXTH SENSE
Starring: Bruce Willis, Toni Collette, Hayley Joel Osment
Director: M. Night Shyamalan
Rating: 5/5
Essentials
The flights
Return flights from Dubai to Windhoek, with a combination of Emirates and Air Namibia, cost from US$790 (Dh2,902) via Johannesburg.
The trip
A 10-day self-drive in Namibia staying at a combination of the safari camps mentioned – Okonjima AfriCat, Little Kulala, Desert Rhino/Damaraland, Ongava – costs from $7,000 (Dh25,711) per person, including car hire (Toyota 4x4 or similar), but excluding international flights, with The Luxury Safari Company.
When to go
The cooler winter months, from June to September, are best, especially for game viewing.
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
Mane points for safe home colouring
- Natural and grey hair takes colour differently than chemically treated hair
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- When choosing a colour (especially a lighter tone), allow for a natural lift of warmth
- Most modern hair colours are technique-based, in that they require a confident hand and taught skills
- If you decide to be brave and go for it, seek professional advice and use a semi-permanent colour
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
