Aurelia Butler

PARIS (Reuters) – French President Emmanuel Macron hosts a summit on Thursday and Friday to pin down a roadmap for easing the debt burdens of low-income countries while freeing up more funds for climate financing.The summit brings dozens of leaders together in the French capital to forge a top-level consensus on how to progress a number of initiatives currently struggling in bodies like the G20, IMF-World Bank and United Nations.Ranging from debt relief to climate finance, many of the topics on the agenda take up suggestions from a group of developing countries, led by Barbados Prime Minister Mia Mottley, dubbed the ‘Bridgetown Initiative’.”We are moving to a world – I would call it the Bridgetown system of finance – (that) recognises that we have to massively upscale the public sector and focus that on building resilience and adaptation because it’s hard for that to be funded any other way,” said Avinash Persaud, a special envoy for Mottley on climate finance.Though binding decisions are not expected, officials involved in the summit’s planning said that some strong commitments should be made about financing poor countries.Nearly eighty years after the Bretton Woods Agreement created the World Bank and International Monetary Fund (IMF), leaders aim to squeeze more financing from multilateral lenders for the countries that need it most.In particular, there should be an announcement that a $100 billion target has been met that will be made available through the International Monetary Fund for vulnerable countries, officials said.The plan, first agreed two years ago at an African finance summit in Paris, calls on wealthy governments to lend unused special drawing rights to the IMF to, in turn, lend to poor countries.Governments are also looking at ways to allow the World Bank to use leverage to lend more to poor countries without putting its top AAA credit rating a risk.”We want to go farther and should be able to set targets to put more public money on the table,” a French presidency source said.RISING INTEREST RATESRising global interest rates have left a growing number of low-income countries dependent on IMF funding while the most distressed – Ethiopia, Ghana, Sri Lanka and Zambia – have had little choice but to default.A G20 ‘common framework’ for debt restructuring has proven painfully slow with western officials blaming China – now a major creditor after years of heavy lending – of dragging its feet.A source close to the Paris Club creditor nations said on Monday that the governments Zambia owes money to aim to make a debt restructuring proposal in time for the summit in what is widely seen as a test case for the much-criticised G20 restructuring framework.On top of interest rate stress, developing and emerging market countries are also struggling to secure the $1 trillion economists say they need by 2030 to finance carbon emission cuts, boost climate resilience and deal with damage from climate change.Persaud said support was also expected for the IMF and other multilateral development banks to offer $100 billion in currency risk guarantees to unlock private investment in poor countries for climate and development initiatives.Some leaders are expected to lend their weight to long-stalled proposals for a levy on shipping industry emissions ahead of a meeting next month of the International Maritime Organization, officials said.They said calls are also expected to be made in favour of disaster risk clauses in lending agreements, which allow a country to suspend repayments in the case of a disaster. More

Good morning. EU energy ministers yesterday failed to approve a sweeping overhaul of the continent’s energy market after talks were derailed by disagreements between France and Germany on state aid for power producers (and whether French nuclear plants should get some).Today, our Brussels team sets out what to expect from the EU’s new “economic security strategy” to be unveiled today, and our Nordic correspondent has interviewed Norway’s prime minister, who’s calm about Turkey’s delay to Sweden’s membership of Nato.Shoring upUrsula von der Leyen won widespread praise in March for her clear-eyed plans to beef up the EU’s economic response to Beijing that has become “more repressive at home and more assertive abroad”. But it is one thing for the European Commission president to call for Europe to develop “new defensive tools”. It will be another to convince the member states to create them, write Sam Fleming and Andy Bounds. The commission’s new economic security strategy, which is due to be released today, will spell out the case for a strong toolkit to defend the EU’s interests, according to a draft seen by the Financial Times. But it is too soon to expect clarity as to how and when the bloc’s safeguards will actually be reinforced.That is hardly surprising, given the sensitivity of the topic. Part of the commission’s goal is to spell out what an economic security agenda might look like, and why it is needed, at a time when more liberal member states are wary that the EU is embarking on an overly interventionist and protectionist agenda. As the document makes clear, these are powers mainly wielded by governments. So the commission must explain the need to protect key technologies, respond to the weaponisation of trade policies, and “stress test” critical supply chains. It reflected, as von der Leyen said in her China speech in March, a push to determine “whether investments or exports are in our own security interests”. Two key policy questions have been hanging over the exercise: does the EU need to more strongly co-ordinate export controls in key technologies, and should the bloc police outbound investment in highly sensitive sectors? Member states have made it clear during discussions in recent weeks that they want to see a lot more evidence and analysis before moving forward in these areas. That in part reflects a push from big capitals to ensure Brussels goes its own way in defining its relations with China, rather than being overly influenced by the US, which has called for a tougher approach to Beijing.Draft conclusions for a summit of EU leaders next week reflect the mood of caution among member states, calling for “proportionate, precise and targeted answers” to security challenges. Today’s strategy only marks the starting point in that process. Chart du jour: Russia’s ‘Alligator’As Ukraine’s counter-offensive inches forward, a shortage of air defences has left Kyiv’s troops vulnerable to a new threat: Russia’s Ka-52 “Alligator” attack helicopter.Neighbourhood watchOnly Recep Tayyip Erdoğan knows when Sweden will officially join Nato, which requires his blessing. But for the country’s Nordic neighbours, the Turkish president’s nod is a mere formality, writes Richard Milne.Context: Sweden (alongside Finland) dropped a generations-old policy of military neutrality to apply for Nato membership after Russia’s full-scale invasion of Ukraine 16 months ago. But Turkey has not ratified its membership on concerns that Stockholm is not tough enough on terror groups.Nato hopes that Erdoğan will come to the alliance’s summit in Vilnius next month with a green light for Sweden. But even if not, Norway’s prime minister says nobody in the neighbourhood should lose any sleep waiting for him.“There will be no panic,” Jonas Gahr Støre told the FT. “Both Sweden and Finland were given very solid security guarantees by allies in the interim period. These guarantees still stand for Sweden.”“This should be settled, if not before, then in Vilnius. It’s not worth speculating on if doesn’t happen,” he said. “The Nordic co-operation continues, anticipating that Sweden will become a member. Only certain formalities need to wait until membership.”Turkey’s parliament has delayed the start of its summer recess, opening the possibility of ratification before Vilnius in response to Sweden enacting new anti-terror laws. Though Erdoğan last week suggested he still expects more from Stockholm.Finland became an official Nato member in April, meaning that Sweden’s three direct neighbours are inside the alliance, with five more on the other sides of the Baltic. “With Finland as a member, of course, it’s absolutely inconceivable that there’ll be any threat or attack against Sweden without Nato reacting,” Jens Stoltenberg, Nato’s secretary-general, said last week. “But of course, we continue to work hard to get Sweden in as soon as possible.”What to watch today Italian prime minister Giorgia Meloni meets French president Emmanuel Macron in Paris.EU-US meeting of justice and home affairs ministers, in Stockholm.Now read theseBackward step: Britain must pause its Northern Ireland ‘legacy’ bill, which threatens reconciliation, writes Ireland foreign minister Micheál Martin.Atlantic gulf: Europe has fallen behind the US and the gap is growing, from technology to energy to capital markets, writes Gideon Rachman.National conservatism: The New Right is on a roll in Europe. Can they govern — and remain democrats? More

China has cut benchmark lending rates for the first time in almost a year as policymakers push ahead with cautious monetary support in an effort to spur more robust growth in the country’s struggling economy.The one-year loan prime rate (LPR) was reduced by 10 basis points to 3.55 per cent, the People’s Bank of China said on Tuesday, while the five-year equivalent rate was lowered to 4.2 per cent from 4.3 per cent.The rates, which are set by major banks and influence the cost of borrowing for businesses and households, indicate authorities’ latest effort to shift the policy framework towards easing as concern mounts over the trajectory of the world’s second-biggest economy.China’s economy has failed to fully rebound six months after authorities unwound severe Covid-19 restrictions that had been in place for three years, with growth under pressure from trade headwinds and weakness in the property sector, which accounts for more than a quarter of activity.Last week, the PBoC cut the country’s medium-term lending facility, which affects banking sector liquidity, while Beijing unveiled additional tax breaks for businesses. Economists widely anticipate additional supportive measures to be rolled out in the coming months.China’s benchmark CSI 300 stock index was flat following the LPR announcement, while the Hang Seng China Enterprises index of Hong Kong-listed mainland companies dropped 1.9 per cent. Shares in property developers led losses after the five-year rate was cut by just 10 basis points.“The market was expecting up to [0.15 percentage points] on the five-year LPR, since it’s linked to mortgages and would help to boost the property market,” said Marcella Chow, a global market strategist at JPMorgan Asset Management. “The important thing right now is to boost confidence, so a better macro outlook and stronger property prices are key.”Economic data has disappointed in the months following China’s reopening, fuelling speculation over whether policymakers would remain cautious or pivot to more forceful stimulus measures to boost demand.Over the weekend, analysts at Goldman Sachs cut their forecast for China’s full-year economic growth to 5.4 per cent from 6 per cent, citing “persistent growth headwinds and constrained policy responses”. The government’s official growth target is 5 per cent, its lowest in decades, after the economy grew just 3 per cent last year.

Economists at Citi wrote in a report on the LPR cuts that “decisive support is necessary to avoid a confidence trap and keep growth on track”, adding that they “continue to see a measured stimulus package with a focus on property as both plausible and possible”.Other economic indicators pointed to sustained pressures on confidence. The results of a June survey released on Tuesday by Bank of America showed consumer sentiment had weakened further, with only about a third of respondents saying they planned to spend more over the next six months, compared with more than 40 per cent in April.The share of respondents expecting home prices to rise over the next year fell to just one in five, compared with one in three two months prior. More

Reserve Bank of Australia (RBA) Deputy Governor Michele Bullock said the jobless rate would need to rise to about 4.5% from the current rate of 3.6% to bring the economy back into balance, a rate still well below pre-pandemic levels. “Our goal is to return the labour market back to a level more consistent with full employment … We think this can be achieved if employment and the economy more generally grow at a below trend pace for a while,” said Bullock at the Ai Group in Newcastle. Bullock, when asked about further rate rises, said the Reserve Bank was not being “bloody minded” in tightening policy and it was not on a preset path, but remained on data-watch mode.The RBA has already raised interest rates by 400 basis points to an 11-year high of 4.1%, including a surprise hike earlier this month out of fear that inflation was becoming entrenched.Bullock also warned that if inflation were to become entrenched in people’s expectations, that would mean higher rates. “A deep and long-lasting recession would be likely, which would mean a substantial rise in the unemployment rate.”The RBA has projected inflation – which was running at about 7% – would return to the top of the bank’s target range of 2-3% by mid-2025, but warned risks are on the upside amid concerns about low productivity, fast rising labour costs, and stickiness in services inflation. More

Power and Progress: Our Thousand Year Struggle over Technology and Prosperity by Daron Acemoglu and Simon Johnson (John Murray/PublicAffairs)Technological progress does promise a better future. But it does not deliver one automatically. If the promise is to be achieved and costs contained, both the technology itself and, still more, its impact must be brought under social control. That finally happened, after bitter struggles, in the 19th and 20th centuries. It must be done all over again, argue the authors of this important book, if we are to reap the benefits and contain the costs of the new technologies of today and tomorrow.

A World of Insecurity: Democratic Disenchantment in Rich and Poor Countries by Pranab Bardhan (Harvard University Press)This book is both ambitious and brief. It also makes an important contribution to the burgeoning literature on the erosion of democracy worldwide. Bardhan, professor emeritus at the University of California, Berkeley, argues that this is due to growing economic, social and cultural insecurity. This explains the desire to “take back control”, which so often emerges in the rightwing populism we now see across the world. The solution, he argues, is a renewal of social democracy.

Free and Equal: What Would a Fair Society Look Like? by Daniel Chandler (Allen Lane)Chandler is an economist and philosopher at the London School of Economics. In this important book he has set out to use the radical ideas of John Rawls as a way to organise a society that is both free and fair. Rawls famously started by asking what sort of society we would choose if we did not know our place in it. Chandler starts from the same point and proceeds to build a blueprint for a better society. One does not have to agree with all of it to recognise that this is an important contribution.

Material World: A Substantial Story of Our Past and Future by Ed Conway (WH Allen)We are material girls and boys. Not only are we made of stuff, we are entirely dependent on stuff. In this brilliant book, the journalist Conway explains what this has meant and continues to mean by looking at six vital materials: sand, salt, iron, copper, oil and, more recently, lithium. To extract and use these essential materials we also need energy, lots of it. Now we wish to replace the fossil fuels we rely upon with carbon-free alternatives. Conway explains the enormity of the revolution this will require.

The Economic Government of the World, 1933-2023 by Martin Daunton (Allen Lane)In this ambitious and comprehensive book, Daunton traces out the history of the global economic order over a century. He explains the role of the US in shaping the ideology and institutions of the world economy from the Great Depression — via the Bretton Woods system, the Washington Consensus and the global financial crisis — to today’s renewed disorder. Ultimately, he shows, the global economic system is made and remade in response to the demands of politics, domestic and international.

Pricing the Priceless: The Financial Transformation to Value the Planet, Solve the Climate Crisis, and Protect Our Most Precious Assets by Paula DiPerna (Wiley)Prices play an indispensable role in guiding any complex and decentralised economy. But how can they work if the most valuable things of all — the atmosphere, oceans and wildlife that protect, feed and delight us — remain unpriced? This is the challenge addressed by DiPerna’s book. Money must be made and compensation paid in return for preserving, not destroying, these uniquely valuable resources. A market economy that fails to do this cannot deliver genuine prosperity.

Building Tomorrow: Averting Environmental Crisis with a New Economic System by Paddy Le Flufy (First Light Books)It is important to consider radical new ideas. Kate Raworth’s idea of “doughnut economics” was a good example. In this provocative book, Le Flufy builds on her ideas, along with those of the “circular economy” and “sovereign money” to design a new way of organising the economy. It is reasonable to doubt whether the transformation he recommends is feasible within a relevant time horizon. But it is also easy to see that environmental constraints must indeed be internalised within decentralised decision-making if planetary limits are to be respected.

Why Empires Fall: Rome, America and the Future of the West by Peter Heather and John Rapley (Allen Lane)Western hegemony is in decline. So, how should the west deal with this new world, with a rising China and an increasingly independent periphery? The authors of this fascinating book argue that it was a question faced by an earlier western hegemonic power, the Roman empire. It collapsed. But what the west needs now is simple realism: it “cannot make itself great again in the old terms”. Instead, western powers must “get on with constructing the new, less self-aggrandising world order which would in fact defend their (and everyone else’s) interests more effectively”. Amen.

The Collapse of Antiquity: Greece and Rome as Civilization’s Oligarchic Turning Point by Michael Hudson (Islet)This is Hudson’s second volume in a trilogy on the political economy of debt. The first, . . . and Forgive Them Their Debts, was on the ancient near-east in the bronze age. It discussed the role of debt forgiveness in stabilising ancient polities. In this one, Hudson explores the rise of the rentier oligarchies of classical Greece and Rome. Debt reduced the independent peasantry to penury and peonage and turned republics into despotisms. The final book will be on how debt is now poisoning our world.

The New China Playbook: Beyond Socialism and Capitalism by Keyu Jin (Viking)Born and raised in Beijing, Jin is a professor at the London School of Economics. This makes her one of a small handful of professional economists who understand China from the inside. In this book, she writes that what we are watching in Xi Jinping’s China is the emergence of a “new playbook”. This playbook represents a search for a “new equilibrium”, which “involves striking a balance between greater equality and market incentives, security and growth, self-reliance and continued engagement with the West”.

The Tyranny of Nostalgia: Half a Century of British Economic Decline by Russell Jones (London Publishing Partnership)This depressing but fundamentally realistic book describes in persuasive detail the recurrent failures of British economic policy — the capriciousness and short-sightedness that led at long last to the decision, as ridiculous as it was absurd, to leave the EU. Behind these failures, suggests the author, lies a persistent tendency to ignore the realities of the country’s situation and the choices that need to be made if the long slide is to be halted.

Pursued Economy: Understanding and Overcoming the Challenging New Realities for Advanced Economies by Richard C Koo (Wiley)Koo has been the most original thinker in macroeconomics of the past two decades. The fact that so few people recognise this is a tragedy and a scandal. At the heart of his ideas is the role of balance sheets. In this book, he complements the idea of the “balance sheet recession” articulated in his 2008 book The Holy Grail of Macroeconomics, with the idea of the “pursued economy”, in which the fundamental problem of rich countries is a lack of investment opportunities and consequent weakness in borrowing and demand.

We Need to Talk About Inflation: 14 Urgent Lessons from the Last 2,000 Years by Stephen D King (Yale)Until recently, central banks were worried that inflation was too low. Now, they are worried about the opposite. Are they right to worry or is the upsurge of recent years still to be viewed optimistically, as a purely transitory phenomenon? In this historically informed and lucid book, King, senior economic adviser at HSBC, explains that the optimistic belief might indeed be true, but there is good reason to believe it is not. Above all, inflation is never truly dead. At best, it is sleeping.

Best Things First: The 12 Most Efficient Solutions for the World’s Poorest and Our Global SDG Promises by Bjorn Lomborg (Copenhagen Consensus Centre)Lomborg is the essential provocateur, the person who declares that the emperors of global policy priorities too often wear no clothes. In this book, he offers an alternative: 12 policies that can be shown to generate extraordinarily large benefits and impose remarkably small costs. Focus then on tuberculosis, education, maternal and newborn health, agricultural research and development, malaria, e-procurement, nutrition, land tenure security, chronic diseases, child immunisation and skilled migration. Read. Be provoked. Enjoy.

India Is Broken: A People Betrayed, Independence to Today by Ashoka Mody (Stanford University Press)Mody’s moral and intellectual courage is extraordinary. Not for him is the notion that India, now the world’s most populous country, is on the path to shared prosperity and stable democracy. Instead, he sees a distorted economy and a failing polity. “The grim reality,” he asserts, “is that to employ all working-age Indians, the economy needs to create 200mn jobs over the next decade, an impossible order after the past decade of declining employment numbers.” This book is a valuable corrective.

My Journeys in Economic Theory by Edmund Phelps (Columbia University Press)In this enchanting book, Phelps, winner of the Nobel memorial prize in economics for his contributions to macroeconomics, recounts his life as an original thinker. Phelps is that rare thing nowadays, an economist who is also both a moralist and a true intellectual. This is what has made his contributions so significant: he is thinking new things and also important and uplifting things, most recently how innovation is an essential part of the good life.

The Power of Money: How Governments and Banks Create Money and Help Us All Prosper by Paul Sheard (Matt Holt Books)Sheard, former vice-chair of S&P Global, explains that much of what is conventionally thought about money and monetary policy is wrong: governments do not run out of money, but demand may exceed available resources; banks do not intermediate money, but create it; monetary and fiscal policies are not independent, but are joined at the hip; and cryptocurrencies do not serve the functions of money, but are speculative assets. The book is that rare combination: both sensible and provocative.Martin Wolf is the FT’s chief economics commentatorJoin our online book group on Facebook at FT Books Café More

Brussels has stumbled in its attempts to further beef up its economic safeguards against rivals, including China, as EU member states demand more evidence before endorsing tighter rules. The European Commission has been pressing EU capitals to consider a regime to scrutinise outbound investments, alongside a better-co-ordinated system of export controls in highly sensitive technology.But a draft of the EU economic security strategy, seen by the Financial Times, suggests that more analysis is needed before legal proposals are put forward as Brussels considers how best to enhance its trade and investment controls.“There is a general reluctance [among EU capitals] to go too far,” said one EU official. “Caution and prudence is the word from the member states — let’s not jump ahead of ourselves when it comes to proposing new instruments like outbound investment screening.”Only 19 of the 27 member states screen inward investment, and scrutinising outbound investment would take the EU into highly sensitive territory. While the US has long been debating the idea, the Biden administration has yet to announce its own regime. Commission president Ursula von der Leyen has been calling for a policy of “de-risking” from China after warning of a “deliberate hardening” of Beijing’s strategic stance, which she said had become “more repressive at home and more assertive abroad”. The EU, she said in March, needed to ensure that its companies’ capital, expertise and knowledge were not used to enhance the military and intelligence capabilities of the bloc’s “systemic rivals”, of which China is one. However, member states, including Germany and France, are wary of sticking too closely to the US line, as they defend their extensive trade and business links with China, the world’s second-biggest economy.Washington is also calibrating its approach after years of deteriorating relations. Secretary of state Antony Blinken on Monday said that his country had made “progress” in stabilising bilateral relations. Both countries “have an obligation to manage this relationship responsibly”, he said during a trip to Beijing. The commission’s economic security strategy, which was still being finalised on Monday evening, will probably aim to kick-start a debate rather than putting forward detailed new policy instruments, officials said. “We need a clear-eyed view of the risks and their evolution over time,” a draft of the EU document says. “This is why the commission and member states will deepen the analysis of critical supply chains and sensitive technology hotspots, stress test them and establish the level of risk.”One EU diplomat said capitals had given “a relatively unenthusiastic response” to the new tools during discussions with the commission. “There’s recognition that some sort of framework is necessary, but caution in what it would mean. Nobody wants it to be used as another tool for protectionism,” the diplomat said. “Everyone agrees we need to do something but they want this to be a very considered process” given how high the stakes are, said another EU diplomat. Accordingly, the strategy will probably emphasise the importance of analysing the main risks and identifying possible gaps in its economic policy arsenal, rather than rushing to new proposals.Among the areas of focus are better coordination of export controls in areas of highly sensitive technology and a linked regime for the screening of outbound investment. But any new EU powers will have to be highly targeted and narrow, said another EU official. The commission was attempting to strike a “very fine balance” as it keeps member states on board. “What we will propose is just the first step in the whole process,” said the official. “We first need to have a shared understanding of the risks we face and then the best tools for addressing them.” Even the Dutch government, which has announced that it would limit the export of the most advanced chipmaking machines to China, has expressed caution over the ideas. Liesje Schreinemacher, enterprise minister, said screening was a “very heavy instrument” and Brussels should provide evidence of why it was needed.“We are in many countries in the top five largest investors in the world. So that would be quite a test for us.” If it is necessary it should be limited to “strategic sectors” such as ports, telecommunications and healthcare, she said.Brussels is under pressure not to fall behind the US as Washington considers its own approach. After the latest meeting of their joint Trade and Technology Council in May the two sides declared that “appropriate measures designed to address risks from outbound investment” could be considered to complement existing tools of export controls and inbound investment screening. More

BENGALURU (Reuters) – Bank Indonesia (BI) will keep its key interest rate unchanged at 5.75% for a fifth consecutive meeting on Thursday and for the rest of the year, as inflation eased in May and was expected to decline further, a Reuters poll of economists found.After peaking around 6% in September, inflation gradually eased to reach the upper end of BI’s 2-4% target range last month, suggesting BI can wait and watch, even as policymakers in the U.S. and Europe are likely to continue tightening policy.All 34 economists in the June 14-19 Reuters poll expected the central bank to hold its benchmark seven-day reverse repurchase rate at the conclusion of its June 21-22 meeting.Nearly two-thirds of respondents, 15 of 23, said the key policy rate would remain at that level for the rest of 2023, with eight economists expecting a rate cut this year.”Bank Indonesia was one of the first central banks in the region to pause its tightening cycle earlier this year. We believe BI will carry out an extended pause to shore up support for the Indonesian rupiah,” said Nicholas Mapa, senior economist at ING.Mapa added BI would “only consider cutting policy rates should global central banks opt to ease monetary policy.”Similar to its regional peers, BI was expected to leave rates where they are for the remainder of the year as rate cuts would lead to a weaker currency and higher imported inflation.The Indonesian rupiah, one of the best-performing Asian currencies, is up over 4% against the dollar this year.”While the central bank’s next rate move is likely to be a cut, the timing of an easing pivot will depend on external conditions, with clear signs that the U.S. Fed is at least on a prolonged pause a pre-requisite, in our view,” said Khoon Goh, head of Asia research at ANZ.”Our base call is for BI’s first cut to materialise in 2024; robust consumer sentiment and flush liquidity conditions in the banking system also suggest no urgency for a quick pivot.”Median forecasts showed a 25-basis-point rate cut to 5.50% in the first quarter of 2024, a slight downgrade from the 50-basis-point cut expected in a May poll. More