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Monday, 23 October 2017

On selective memory

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Anthony Peters on Kennedy, eurozone solidarity and Obama.

Anthony Peters

Anthony Peters SwissInvest strategist

Friday marks the 50th anniversary of the assassination of US President John Fitzgerald Kennedy. I am, bless, of the Cold War generation and old enough to be able to answer the question “Do you remember what you were doing when you heard that JFK had been shot?” in the affirmative. Yes, this old goat even remembers – only just – the Cuban missile crisis and the fears that stalked the world, albeit surely not in their full implications.

To the post-war generation, JFK was like a breath of fresh air, a maker of hopes and aspirations and to put him in context for those for whom all this is just a black and white documentary, he was elected in November 1960, just 15 years after the end of the conflagration of World War II. In context, we are now 12 years since the events of 9/11. If the latter cast a shadow over life, imagine what the former had done.

It is hard to relive the Cold War – it was darned cold, believe me – but the spectre and the fear of Soviet aggression, whether rightly or wrongly, are not to be underestimated and the risks of mutual annihilation were perfectly present. And yet, all eras and all situations bring with them their own humour and a period joke was brought to mind this morning. Apparently a Soviet government official, in an era when candidates tended to find themselves elected with 99.7% of the vote, was arrested and charged with having published the final election results a week before the polls.

German scrutiny

Why this? I rose early and saw an interview on CNBC in which an interviewee assured us that German banks would all sail through the ECB sponsored stress tests which are set to be applied to the 128 leading banks in the eurozone next year. I would not wish to imply that the banks have not had enough time to clean up their balance sheets and to structure their capital and reserves sufficiently well in order to meet the criteria, but following the fiasco of the last set of stress tests when banks –which the world and his wife knew were back to the wall were passing – I would expect greater investor scrutiny.

Does anyone remember how we made two-way markets on the number of banks which would fail. I can’t accurately recall how many there actually were but if my memory serves me correctly, it was in the mid-single digits, a figure which at the time already was met by laughter and disdain. Hence the big show about doing it all again under the auspices of the most credible, if not only credible, institution within the eurozone, namely the ECB.

What has begun in the O’Bama White House, if anything, will surely remain in doubt for many years to come.

I tend to follow the utterings of Achim Duebel of FinPolConsult, the independent bankng think tank in Berlin, with the greatest of interest and find that he too appears sceptical of both the input and the outcome of new banking regulation and measurement. Although equally critical of German banks – they have more than enough to answer for when it comes to reckless lending – he appears to be the lone voice in the desert on the subject of committing German taxpayers to buying a pig in a poke or, as the Germans would have it, a cat in a bag by way of the much vaunted banking union. He evidently doubts the truthfulness of many of the great confessions and hence, if my understanding of his thinking is correct, fears something of a repeat of the smoke and mirrors which permitted many sovereign members of the eurozone to meet the Maastricht criteria. Once in, albeit on a raft of what can only be declared to be flagrant lies as Greece has proven, it’s too late to back-pedal. Once banking union is in place, there will be no going back either.

Escapeism

Meanwhile, Italian Prime Minister, Enrico Letta, has been busy “warning” Germany of the rise of anti-European (or should that be anti-integrationist) political parties and the role it has to play in helping the rest of the eurozone escape economic stagnation in order to counter these movements. Snr Letta called upon Germans to focus on “shared growth” and his line that “They know very well that they can’t stand alone in a desert, in a European desert around them…”.

However, it’s no secret that the German economy sits on something a see-saw. Its global export power is driven by the weakness in the rest of Europe and the corresponding value of the euro. How eurozone growth will balance with declining global competitiveness of German exports is uncertain. Letta criticises austerity policies which leads one to believe that any fiscal fruits of a broader Eurozone recovery would accordingly immediately be spent buying votes and not used for debt pay-down and financial consolidation. New day, new speech, same old arguments, same old problems.

Meanwhile, should anyone have the time amongst the flood of new issuance activity – phew, was it busy the past two days – may I recommend the article by Edward Luce in yesterday’s FT on the failing O’Bama presidency. It was odd that it coincided with the Kennedy anniversary. Politically, the Kennedy era is certainly better in memory than it was at the time (he just edged Richard Nixon by 120,000 votes in the 1960 election) and there were many doubts about the relationship of his bootlegging father, Joe Snr, and the mob, but that should not detract from the air of popular optimism which it generated.

The Sixties did not begin with the Beatles or on the streets of Paris but in the Kennedy White House. What has begun in the O’Bama White House, if anything, will surely remain in doubt for many years to come.

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