Global elite ponders a return from the brink

 

The atmosphere may be more positive than a year ago, but a sense remains of tensions and conflicting interests

GATHERED MORE than 5,000 feet above sea level in the remote Alpine resort of Davos, global political and business leaders are discussing the nascent recovery of the world’s economy after a prolonged period of turmoil and drama.

The atmosphere may be more positive than a year ago, when many feared an imminent double-dip recession, but the sense remains that uncertainty clouds the outlook. Yet as progress is made in the titanic battle to resolve the worst financial crisis since the second World War, there is a clearer sense now as to who the ultimate winners and losers may be.

Listen in to any number of debates in a crowded conference centre as prime ministers, presidents and Nobel laureates mingle with chairmen and chief executives from the corporate scene and it is the patterns of recovery that absorb them and not the question of bringing economic freefall to a halt. That alone marks a key advance, a corner turned after the disruption that shook the world in the wake of the Lehman collapse. Drill down a little, however, and the picture that emerges is one of a scene beset by tensions and conflicting interests.

In the developed economies of Europe and the US, it is the reliable old conundrums of debt, deficits, inflation and unemployment that preoccupy, only more intensely than before. From these flow the euro crisis, the beleaguered American public finances and the deepening of bank regulation to avoid any repeat of the 2008 debacle.

In booming developing markets, relentless growth proceeds apace. “I will not call China and India as emerging. We are re-emerging, because together we contributed 52 per cent of the GDP of the world, until the 17th century,” said Anand Sharma, Indian minister for industry and commerce.

Such expansion brings with it the prospect of prosperity for millions of people as they are lifted from poverty. While many business chiefs on the other side of the great global divide see almost boundless opportunity in all that, political leaders and other analysts fret about the seepage of jobs and influence. For some here, this raises questions about the very fundamentals of the world’s economic models. Others are merely here for business reasons.

Davos, of course, is a social event for many. For all the lofty themes discussed in public and private conference rooms, the annual trek to Switzerland presents unrivalled opportunity for informal contact with people they might seek to strike deals with one day. The key point here is professional seniority. This is a forum for global business, companies with private jets and chalets at their disposal, the type of organisations that might invite Bill Clinton to address their clients. To be here is to demonstrate success, and the hunger for more.

The real world may be at a remove from all that, but it is the problems of real life that dominate the World Economic Forum. Over dinner in a comfortable hotel two nights ago, economic gurus Joseph Stiglitz, Bob Shiller, Simon Johnson and Carmen Rheinhart discussed before a private audience “The Perils of Economic Prediction”. Again and again, said an attendee, they returned to the problems thrown up by the sovereign debt in the euro zone. Ireland’s dire predicament was mentioned. It came up repeatedly in other meetings too.

The question of burning senior bondholders in Irish banks emerged again yesterday when George Soros, one of the biggest beasts in global finance, said it would be “unjust if Irish taxpayers bore bailout costs without losses to bondholders.

This is a familiar theme, raised first by Nouriel “Dr Doom” Roubini in the opening public session of the forum. In private at least, senior bankers question the thesis that a unilateral move in this direction is remotely feasible. To contemplate same, they warn, would be to court grave peril and contagion.

Soros posed a bigger question, however, raising doubt about the inviolability of the 17-country euro zone as we know it. European leaders must address the two-speed economies of the euro or threaten the edifice of the single currency. Although he said he did not believe this would happen, it remains a recurring theme of the present debate.

Roubini, for example, said there was “a rising risk that some of the weaker members” might leave the euro within five to 10 years.

It was to such warnings – less often heard these days than a year ago, to be fair – that French president Nicolas Sarkozy issued a blunt rebuttal yesterday. “Chancellor Merkel and myself never – and listen to me carefully here – never will turn our backs on the euro. We will never drop the euro. The euro spells Europe. The euro is Europe,” he said.

Sarkozy’s tone underscores mounting confidence in political and business circles that Dr Merkel, ever cautious, will soon back moves to reinforce the euro zone bailout fund. The negotiation may have some weeks to go but European Commission vice-president Viviane Reding expressed confidence to The Irish Timesthat a deal is in sight. “We always reach agreement, but in order to make it interesting before we have to fight a lot, but in the end of course we will reach an agreement.”

Sarkozy matched the verve of his defence of the euro when challenged by JP Morgan chief Jamie Dimon on the scope of moves to tighten bank regulation. “Don’t be accusatory of us. We will be reasonable, but we will be wise,” Sarkozy snapped back.

“The world has paid with tens of millions of unemployed, who were in no way to blame and who paid for everything.”

Dimon had the bearing of a man on a charm offensive. He praised the efforts of politicians to confront the euro crisis and said JP Morgan chose to maintain big exposures to Europe as the debt crisis grew. Debt restructuring would be a bad idea.

A man with a crucial interest in that debate, Greek prime minister George Papandreou, told a question-and-answer session that he was not contemplating such a departure.

At the same time, Papandreou sought to cast his own perspective on the debate on the strength of the emerging economies, saying it was important to recognise the rules of the game were different elsewhere.

“Low wages, no collective bargaining in some of these countries, lack or any kind or small protection of pensions or health services, the capability to easily degrade the environment for production purposes; these all do give a competitive edge. It’s not the only thing that’s at play but it is a part,” he said.

“We are seeing on the one hand a race to the bottom at the level of the middle class, and they are being squeezed, and the working class. And at the top we’re seeing a race to the top, to concentrate more wealth and more riches. That is unsustainable.

“Politically, I believe we are at a tipping point, where we could see – and there are signs in Europe [of] – more nationalism, more racism, anti-Muslimism, anti-Semitism, fundamentalisms of all types, populisms.”

This from a man who faced wave after wave of national strikes last year as Greeks took to the streets in protest at the unrestrained austerity his administration is implementing.

A year ago Papandreou came to Davos to make the case that his country was not bust. Much has changed since.

WORLD ECONOMIC FORUM: WHAT IS IT?   

THE WORLD Economic Forum holds an annual meeting at the Swiss ski resort of Davos which is attended by leading business people, politicians, academics and celebrities.

The event has been running since 1971, when it was formed as the European Management Forum and attracted a couple of hundred senior European business people.

Over the years the event started to cover more economic and social issues. In 1987 it was rebranded as the World Economic Forum. According to the website for this week’s event, Davos “provides a rethinking of our systems and exploration of strategies and solutions that have positive transformational implications”.

Perhaps because of having such lofty goals, Davos does not deliver stunning conclusions or great political advances. Instead the attraction of the event is largely to do with networking in an informal setting with other influential people.

The cost of attending the invite-only event also ensures that it is largely the preserve of the elite, although some attendees, such as selected Young Global Leaders, are invited to come along for free.

For the business people wanting access they will need to join the forum which costs 50,000 Swiss francs (€38,500) for the basic membership while a ticket for the conference events will be at least another 18,000 Swiss francs (€13,800).

The real action at Davos doesn’t usually happen at the formal conference. Many companies and individuals hold lavish parties and dinners and for regulars, this is the real value of Davos.

Google, for example, has thrown parties for hundreds of guests with no expense spared – from oxygen bars to flying in musicians and bartenders specially for the event.

The Davos event was founded by Kalus Schwab, a Geneva-based business professor, who remains chairman of the forum to this day.

JOHN COLLINS