A good crisis should never be wasted.
But by doing everything in their power to help Greece to avoid defaulting on billions of dollars in debt, that is precisely what the masters of the euro zone and the IMF are doing.
A financial crisis of this magnitude, one that has grown in ferocity and scope since it first appeared in the US housing market some four years ago, requires an equally fearsome remedy.
There is no easy way out. Yet, to see the Greek parliament this week vote for tax increases, spending cuts and more loans from the IMF and Brussels, you would think the embattled nation had discovered the lost secrets of Houdini.
The Greek parliament on Wednesday approved an austerity plan that allowed the country to be granted the next €12 billion (Dh44bn) tranche of bailout loans from the EU and the IMF. Without those funds Greece would have been forced to default on its debt within weeks, it was said.
The measure included some €28bn of spending cuts and tax increases for the next five years - a high price to pay as such burdens on companies and individuals are at best likely only to inspire further recession, not the kind of dynamism Greece needs to grow its way out of trouble.
More than 50,000 Greek businesses went bankrupt last year - squeezing those that are left even harder will doubtless force thousands more to the wall.
The austere terms of the deal aside, a bailout is no cure for an economy in such dire straits.
Indeed, to even talk about a bailout is to ignore the reality that Greece cannot pay its debts under the original terms and has had to seek outside help. It has defaulted in all but name.
In fact, the €110bn programme has more in common with a Ponzi scheme than an economic solution and is making the country's problems only worse. Greece is borrowing €110bn from Europe to meet repayment requirements on some of its €350bn or so of debt. In so doing it is digging an even deeper hole while condemning generations of Greeks to a future defined by economic misery.
To draw another parallel with the American end of the economic crisis, Greece is like the hapless subprime mortgage holder at the height of the housing bubble who remortgaged time and again to meet payments and avoid losing the house. But, in actual fact, the house was lost the day the deed was signed.
Those irresponsible mortgage holders were living beyond their means just as Greece has been since it scraped into the euro zone by the skin of its teeth in 2000. Greece has to find its true place in the global economy. It is a small country with unemployment running at about 15 per cent. GDP stands at about €310bn or so and gross external debt at more than €530bn. That massive debt to GDP imbalance is where the problem lies.
What we are seeing in Greece today, and what we are trying to ignore in Spain, Portugal, Italy and Europe's other economically weak nations, is failure caused by a complete disregard for the perils of excessive debt.
And we have been disregarding them for centuries.
Niall Ferguson, the historian, has pointed out that Greece - and the other euro failures - have been dodging debt bullets for more than 200 years.
Since 1800 Greece has defaulted on its debts on five occasions, and has spent a total of 51 years in the past two centuries dealing with the ramifications of default.
Portugal is as bad. The country has defaulted six times in that period but fares slightly better than Greece at dealing with the problem as it spent only 11 years cleaning up after itself.
Spain, though, is the worst offender in the euro zone, with 13 defaults since 1800 and 24 years of debt-induced doldrums.
It seems some never learn and it is about time they did.
Greece needs to leave the euro, default on its debt and redenominate in drachmas - its pre-euro currency - forcing creditors to take a massive haircut. Otherwise it will never get straight. Such a solution is perhaps even more important for the rest of Europe, which will be dragged further and further down by the likes of Greece if they remain joined at the hip.
Europe has not been faced with this sort of economic disaster since the end of the Second World War. Then, Germany was allowed to default on its debt and forgo reparations and so start from scratch economically. And look how it prospered.
If Greece is forced off the bailout drug and into debt default rehab - no walk in the park admittedly - perhaps it could become a similar economic success story in a generation or two.
Only then would we be able to say the crisis has been well spent.
jdoran@thenational.ae
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A foster couple or family must:
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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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What should do investors do now?
What does the S&P 500's new all-time high mean for the average investor?
Should I be euphoric?
No. It's fine to be pleased about hearty returns on your investments. But it's not a good idea to tie your emotions closely to the ups and downs of the stock market. You'll get tired fast. This market moment comes on the heels of last year's nosedive. And it's not the first or last time the stock market will make a dramatic move.
So what happened?
It's more about what happened last year. Many of the concerns that triggered that plunge towards the end of last have largely been quelled. The US and China are slowly moving toward a trade agreement. The Federal Reserve has indicated it likely will not raise rates at all in 2019 after seven recent increases. And those changes, along with some strong earnings reports and broader healthy economic indicators, have fueled some optimism in stock markets.
"The panic in the fourth quarter was based mostly on fears," says Brent Schutte, chief investment strategist for Northwestern Mutual Wealth Management Company. "The fundamentals have mostly held up, while the fears have gone away and the fears were based mostly on emotion."
Should I buy? Should I sell?
Maybe. It depends on what your long-term investment plan is. The best advice is usually the same no matter the day — determine your financial goals, make a plan to reach them and stick to it.
"I would encourage (investors) not to overreact to highs, just as I would encourage them not to overreact to the lows of December," Mr Schutte says.
All the same, there are some situations in which you should consider taking action. If you think you can't live through another low like last year, the time to get out is now. If the balance of assets in your portfolio is out of whack thanks to the rise of the stock market, make adjustments. And if you need your money in the next five to 10 years, it shouldn't be in stocks anyhow. But for most people, it's also a good time to just leave things be.
Resist the urge to abandon the diversification of your portfolio, Mr Schutte cautions. It may be tempting to shed other investments that aren't performing as well, such as some international stocks, but diversification is designed to help steady your performance over time.
Will the rally last?
No one knows for sure. But David Bailin, chief investment officer at Citi Private Bank, expects the US market could move up 5 per cent to 7 per cent more over the next nine to 12 months, provided the Fed doesn't raise rates and earnings growth exceeds current expectations. We are in a late cycle market, a period when US equities have historically done very well, but volatility also rises, he says.
"This phase can last six months to several years, but it's important clients remain invested and not try to prematurely position for a contraction of the market," Mr Bailin says. "Doing so would risk missing out on important portfolio returns."
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The Federal National Council is one of five federal authorities established by the UAE constitution. It held its first session on December 2, 1972, a year to the day after Federation.
It has 40 members, eight of whom are women. The members represent the UAE population through each of the emirates. Abu Dhabi and Dubai have eight members each, Sharjah and Ras al Khaimah six, and Ajman, Fujairah and Umm Al Quwain have four.
They bring Emirati issues to the council for debate and put those concerns to ministers summoned for questioning.
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