Of debt ceilings, damages, deficits and holidays in July
Ring a peal, hang out the bunting and crack open the champagne! The world as we know it has not come to an end. Europe is not about to drag global markets down the plug-hole. That privilege has now been passed back across the Atlantic where Congress has done the unthinkable and cancelled the July 4th recess in order to press ahead with the debt ceiling debate which is still in a log-jam.
They might just have to add a little bit extra because, if there is any truth in the New York Times’ report that the case against Dominique Strauss Kahn is just about to collapse, then the punitive damages for wrongful arrest which he might be seeking could be pretty eye-watering. How do you value the loss of career opportunity including the MD-ship of the IMF and very strong possibility, verging on probability, of becoming the next President of France? I, for one, have always doubted DSK’s guilt (I know, he’s not off the hook yet) but would be very happy to see his integrity restored. I wonder whether, if the case is in fact dropped, he might not be tempted to return to the mother country and begin to resurrect his political career.
Alas, back to the debt ceiling and the concomitant ratings risks. I was struck by a footnote in the daily review by Alex Moffatt of Joseph Palmer & Sons in Melbourne in which he mused: “I should have thought they would cut the rating if they DID increase the debt limit!” Not an unfair point.
Austerity is not a term that has entered into the American political dictionary yet – or not in that form of spelling – but the United States too has to address its twin deficits. The O’Bama strategy of spending his way out of economic weakness hasn’t worked particularly well. The deficit/GDP ratio has been running at an average of –8.7% throughout the current presidency as opposed to –1.8% through the profligate years under Dubya. Sure, it’s more than just a bit unfair to do a straight comparison given the seismic economic events which O’Bama walked into but that can only be treated as a fact and not as an excuse. Greece has had to accept spending cuts and tax increases. Congress is split between the Democrats calling for the latter and the Republicans calling for the former. Neither wishes to concede that both might be required.The US does not need more tinkering but a root and branch overhaul of government finance, as do many Western nations.
To achieve that, governments must first begin by addressing their citizens’ expectations. We have had an interesting example here in the UK where yesterday civil servants and teachers went on strike against higher pension contributions and later retirement ages. Broad popular support was unusually low as Fred Bloggs who works in the private sector is finally getting the message that when it comes to paying underfunded public sector pensions, he is himself the government and evidently reckons that there is nothing wrong with the employee contributions in the public sector being increased.
The public sector unions look to have hugely misread the public mood – they appear to have thought that everybody in the country is angry with the government over cuts and that therefore they were on solid ground. Deeper cuts in services in order to fund final salary pensions? Sorry chaps, no sympathy here. The unions have pinned all their colours to this flag and losing the pensions fight will weaken them for years to come. Private sector unions misread the 90s and paid the price. Is this the same era for the public sector? The 18th of June 2015 is the bi-centenary of the Battle of Waterloo – now there’s a deadline.
Anyhow, it’s that time of the week again. All that remains is for me to wish you and yours a happy and peaceful week-end. If you are Canadian, I wish you a happy Canada Day for today and if you’re American, I wish you a happy July 4th for Monday. May the Canucks celebrate their diversity while the Yanks celebrate their unity…
That’s the way they do it; believe me, I’ve done both.