Fantastic stuff this week from CLSA’s Chris Wood (editor of the weekly GREED & Fear letter) regarding the ructions in Europe, and the fight over the next IMF chief.
The issue at its most basic is very simple. That is if Germany wants to maintain the more than 50 year old Euroland experiment, it is going to have to pay for it by moving towards fiscal integration as well as monetary integration. Meanwhile, this week’s extraordinary goings on in Manhattan should accelerate the time when the International Monetary Fund (IMF) is headed by a representative of the so-called “BRICs”. GREED & fear has to admit that Dominique Strauss- Kahn has proved extraordinary successful in re-inventing the IMF by using the recent financial crisis in the West to re-invent the role of the IMF, an institution which had outlived its raison d’être. Still recent events have reminded GREED & fear of the equally extraordinary conflict of interest posed by a leading French presidential candidate heading the IMF at a time when the institution has been so heavily involved in negotiating politically sensitive bailouts in the European periphery. The reality is that for the foreseeable future IMF bailouts are likely to be taking place primarily in the debt-infested West. For that reason alone it makes sense for the head of the institution to hail from the “emerging” world.
Meanwhile, some related observations from Beijing:
If Euroland wobbles continue to be at the centre of market attention, GREED & fear’s only direct contact with the issue has been nightmare traffic jams in Beijing caused by the police closing major roads to allow for official motorcades driving visiting European Council President Herman Van Rompuy around the city. This is probably the greatest influence this gentleman will ever have on people’s lives given that key policy decisions in Euroland will be made in Berlin and not in Brussels. Still the episode was a reminder to GREED & fear that Chinese people are willing to put up with a lot given the relaxed view of most drivers compared with a manically impatient GREED & fear. This in turn is a reminder that the Chinese people, and not just the PRC leadership, continue to put huge emphasis on the all-important goal of social stability. This is not a surprise given China’s history of the past 100 years. But it is a point worth remembering since in GREED & fear’s view it is still likely that coming months will see a classic neurotic market mood swing towards China where investors stop worrying about inflation and start worrying about the opposite. Indeed GREED & fear has picked up at this week’s 16th CLSA China Forum growing concerns about a potential “hard landing”.