The Ides of March
One can almost detect a deadly hush, the core of the gathering storm. The downward trend of the global economy is beginning to resemble the direst of forecasts appearing in the market columns of this newspaper, while events of a monumental nature are expected at any moment in the Middle East arena. As America prepares to send its troops into action, the economy recorded the largest current account deficit on record - $435 billion - in 2002. The producer price index showed a record rise of +1.6% in January, while trade gaps with the nation's leading import partners, Germany, Japan and China - by far the largest at $125.2 billion - yawned. Manufacturing in key regions dipped. What is clear is that the US consumer is staggering under the burden of carrying not only the domestic economy, but also effectively much of the rest of the world's as well. A stumble may precede a lethal fall.
The woes of France and Germany are exacerbated by the now widely embraced belief that there will be no recovery of consequence in the value of equities this year, and the probability that markets have further yet to fall. In the UK the pension time bomb has finally exploded, with the 10 blue-chip companies which dominate the Scottish economy collectively exposed to a E6 billion hole. All of them may desert the market as a consequence, perversely leaving the UK's increasingly anaemic pension funds with even fewer places to regard as a store of value, and as they bail out of equities, incite yet further falls across the market.
The prospect viewed from this country is a grim one. The budget conjured from dreamland and approved by MPs just three months ago, is already fit only for the waste bin, which poor Grzegorz Kołodko - next in line for the Miller karate chop, or alternatively a public demonstration of hari-kari - has now been forced to effectively admit. It is either reform of the public finances and drastic cuts in government spending, or set aside any lingering prospects of growth this year. And that is the Master of Ceremonies at the ministry of finance speaking himself. Unfortunately, the deputy prime minister's apparent impressive conversion to market economics has come far too late. The administration will shy from any meaningful reforms for fear of disturbing voters before the European referendum, and to avoid inflicting further blows on the ruptured pelvic region of the SLD.
Just as so many market commentators whistled to keep their spirits up for excessively long in expectations of a global recovery, it may turn out to be the same in respect of the almost certain conflict in the Middle East. Viewing the legions now assembled, the assumption is that once (essentially) American firepower triumphs and the grotesque tyrant Saddam Hussein is removed, the global economy will spitfire back into action. This scenario is only correct if there has been a specific linkage all along between the global slowdown and American military ambitions overseas.
But this is not the case at all: the recession - and possibly even a slump - is propelled by cosmic forces which have long been at work, in some cases, such as Japan, for years. The string of corporate scandals in the states, which fatally imperilled faith in the value of equities, was a self-contained event isolated from foreign affairs. The refusal of major economies in Euroland (and Europe as a whole) to abandon jurassic labour and corporate policies siphons away what prospects for growth there might otherwise be. So the assumption that a sigh of relief will arise spontaneously from the world's markets once regime change has been achieved in Iraq is almost certainly misplaced.
The correct way to view Iraq is as an additional factor to an already disturbed situation. There will certainly be a bounce-back once the immediate shooting stops, but all will then hang on the reaction of the conservative Islamic world - which has little, if any, affection for Saddam Hussein's secularist and therefore heretical regime - to the arrival of such a massive foreign force. What the market will turn to worrying about is the duration of the American presence in Iraq, and if a new administration thus installed will survive without functioning beneath some kind of quasi-protectorate. The history of protectorates, to which the British and French bear bitter testimony, is not one that serves as especially encouraging in that particular region.
The government here no longer conceals that its prediction of 3.5% expansion this year was always hopelessly overoptimistic, and now continually shaves its predictions. The country has been in a technical "soft" recession for almost two years, and unless it returns swiftly to growth levels achieved in the mid-1990s, the economy risks de-stocking, and even deflation. The welcome F-16 offsets will deliver a supply-side boost, but they amount to the only cheerful prospect in sight. And the "offsets" from the EU will not deliver a direct boost to the budget until next year and, as no-one in government has openly said so far, are too small to have any significant effect.
Mr. Kołodko's conversion is either made very real, and endorsed very quickly by his colleagues, or the Ides of March may indeed convey a portentous meaning for the national economy. In any event it must inevitably be an exercise in damage limitation.
The woes of France and Germany are exacerbated by the now widely embraced belief that there will be no recovery of consequence in the value of equities this year, and the probability that markets have further yet to fall. In the UK the pension time bomb has finally exploded, with the 10 blue-chip companies which dominate the Scottish economy collectively exposed to a E6 billion hole. All of them may desert the market as a consequence, perversely leaving the UK's increasingly anaemic pension funds with even fewer places to regard as a store of value, and as they bail out of equities, incite yet further falls across the market.
The prospect viewed from this country is a grim one. The budget conjured from dreamland and approved by MPs just three months ago, is already fit only for the waste bin, which poor Grzegorz Kołodko - next in line for the Miller karate chop, or alternatively a public demonstration of hari-kari - has now been forced to effectively admit. It is either reform of the public finances and drastic cuts in government spending, or set aside any lingering prospects of growth this year. And that is the Master of Ceremonies at the ministry of finance speaking himself. Unfortunately, the deputy prime minister's apparent impressive conversion to market economics has come far too late. The administration will shy from any meaningful reforms for fear of disturbing voters before the European referendum, and to avoid inflicting further blows on the ruptured pelvic region of the SLD.
Just as so many market commentators whistled to keep their spirits up for excessively long in expectations of a global recovery, it may turn out to be the same in respect of the almost certain conflict in the Middle East. Viewing the legions now assembled, the assumption is that once (essentially) American firepower triumphs and the grotesque tyrant Saddam Hussein is removed, the global economy will spitfire back into action. This scenario is only correct if there has been a specific linkage all along between the global slowdown and American military ambitions overseas.
But this is not the case at all: the recession - and possibly even a slump - is propelled by cosmic forces which have long been at work, in some cases, such as Japan, for years. The string of corporate scandals in the states, which fatally imperilled faith in the value of equities, was a self-contained event isolated from foreign affairs. The refusal of major economies in Euroland (and Europe as a whole) to abandon jurassic labour and corporate policies siphons away what prospects for growth there might otherwise be. So the assumption that a sigh of relief will arise spontaneously from the world's markets once regime change has been achieved in Iraq is almost certainly misplaced.
The correct way to view Iraq is as an additional factor to an already disturbed situation. There will certainly be a bounce-back once the immediate shooting stops, but all will then hang on the reaction of the conservative Islamic world - which has little, if any, affection for Saddam Hussein's secularist and therefore heretical regime - to the arrival of such a massive foreign force. What the market will turn to worrying about is the duration of the American presence in Iraq, and if a new administration thus installed will survive without functioning beneath some kind of quasi-protectorate. The history of protectorates, to which the British and French bear bitter testimony, is not one that serves as especially encouraging in that particular region.
The government here no longer conceals that its prediction of 3.5% expansion this year was always hopelessly overoptimistic, and now continually shaves its predictions. The country has been in a technical "soft" recession for almost two years, and unless it returns swiftly to growth levels achieved in the mid-1990s, the economy risks de-stocking, and even deflation. The welcome F-16 offsets will deliver a supply-side boost, but they amount to the only cheerful prospect in sight. And the "offsets" from the EU will not deliver a direct boost to the budget until next year and, as no-one in government has openly said so far, are too small to have any significant effect.
Mr. Kołodko's conversion is either made very real, and endorsed very quickly by his colleagues, or the Ides of March may indeed convey a portentous meaning for the national economy. In any event it must inevitably be an exercise in damage limitation.
