1 The next crash is coming, with the same flaws as before (Heather Stewart in The Guardian) The next financial crisis is coming, it’s a just a matter of time – and we haven’t finished fixing the flaws in the global system that were so brutally exposed by the last one. That is the message from the International Monetary Fund’s latest Global Financial Stability report.
Massive monetary policy stimulus has rekindled growth in developed economies since the deep recession that followed the collapse of Lehman Brothers in 2008; but what the IMF calls the “handover” to a more sustainable recovery – without the extra prop of ultra-low borrowing costs – has so far failed to materialise.
Meanwhile, the cheap money created to rescue the developed economies has flooded out into emerging markets, inflating asset bubbles, and encouraging companies and governments to take advantage of unusually low borrowing costs and load up on debt.
The failure to patch up the international financial system after the last crash, by ensuring that banks in emerging markets hold enough capital, and constraining risky borrowing, for example, means that a new Lehman Brothers-type shock could spark another global panic.
The IMF’s warning echoes a chorus of others. The Bank of England’s chief economist, Andy Haldane, has argued that the world is entering the latest episode of a “three-part crisis trilogy”. Unctad, the UN’s trade and development arm, would like to see advanced economies boost public spending to offset the downturn in emerging economies.
The Bank for International Settlements believes interest rates have been too low for too long, encouraging too much risk-taking in financial markets. All of them fear that the global financial system is primed for a crisis. The failure of the world’s policymakers to get to grips with the shortcomings of the international financial system over the past seven years, suggests that any measures enacted now are likely to be too little, too late.
2 Standard Chartered ‘to cut 1,000 senior jobs’ (BBC) Standard Chartered bank, a London-based lender that makes most of its profit in Asia, could cut up to 1,000 senior jobs, according to an internal memo sent to staff. The move from chief executive Bill Winters is meant to cut costs.
The bank has grown very quickly since the financial crisis and some roles are now not needed, sources told the BBC. “We have already acted to reduce management layers, and a result will have up to 25% fewer senior staff,” the bank said in a statement.
Mr Winters told staff in the memo that about a quarter of senior managers, of director level or above, would be cut. There are about 4,000 bankers in the grades affected by the decision. The bank employs about 88,000 people in total. It has grown rapidly, from about 44,000 in 2005.
The bank has already shed some businesses, in Hong Kong, China and Korea, booking a gain of $219m and improving its capital position. Mr Winters also cut the dividend to help the bank strengthen its capital base – a safety net protecting it from unexpected financial knocks. He has also not ruled out raising more capital if needed.
3 Nobel Prize boosts Tunisia democracy (San Francisco Chronicle) It was the fall of 2013 and Tunisia’s newfound democracy was in grave danger. The assassination of a left-wing politician had prompted the opposition to walk out of the constitutional assembly. The government was paralyzed, the constitution unfinished and the country on the brink of war.
In nearby Egypt, which had followed Tunisia in a democratic revolution, a coup had just overthrown the Islamist government, and some sectors in Tunisia wanted to follow suit.
Then four civil society groups — the main labor union, the bar association, the employers’ association and the human rights league — stepped into the fray. Working together, they got the Islamists to agree to resign in favor of a caretaker government that would organize new elections, while the angry opposition returned to the table to complete the country’s constitution.
On Friday, that coalition — the National Dialogue Quartet — received the Nobel Peace Prize for its patient negotiating efforts, which carried Tunisia through an extended constitutional crisis and laid the groundwork for the only democracy that remains following the 2011 Arab Spring demonstrations.
The prize comes at an important time, as Tunisia faces a new crisis that is nearly as critical as the one it confronted in the fall of 2013: A pair of attacks against tourists earlier this year provoked fear and devastated Tunisia’s vital tourism sector, even as the faltering economy dragged support for the democratic process to historic lows.
The quartet was a long shot for the prize and none were more surprised than its actual members. Houcine Abbassi, the head of the labor union and the driving force in the 2013 negotiations, learned about the win from an Associated Press journalist. Growth in 2015 for Tunisia is expected to be flat or negative while unemployment is over 15 percent and inflation has been running around 6 percent.
Tunisia’s revolution was sparked by the self-immolation of a young itinerant fruit seller after he was harassed by police and occurred against a backdrop of high unemployment and economic troubles that have yet to be solved by the new elected governments. Many Tunisians complain that the revolution and democracy has brought them little improvements despite an increased freedom of expression, and young people in particular stayed away from the last election in droves.