Aurelia Butler

Covid-19 in 2020 precipitated the largest one-year debt surge since the second world war, with global debt rising to $226tn. Borrowing by governments accounted for more than half of that increase, as the global public debt ratio jumped to a record 99 per cent of gross domestic product. This debt mountain now poses a monumental political economy challenge.Having largely expunged history from its processes, the modern economics profession tends to discuss public debt in jargon-ridden terms relating to personal utility maximising individuals and social welfare maximising governments. Yet in reality it is all about politics. As the Italian economist Alberto Alesina once remarked, public debt management boils down to whether to bleed the rentier, sweat the worker or tax the entrepreneur to tears. History offers the best lens through which to grasp the nature of today’s debt crisis. So much the better, then, that In Defense of Public Debt explores the rise of the sovereign debt market all the way from the Italian city states to the multitrillion global government debt overhang of the 21st century. In addition it offers a debt management primer rooted in historical experience.The authors show how over time governments moved from borrowing to provide the public good of national defence to borrowing to provide the public good of financial stability, while also financing railways, urban infrastructure and social capital, thereby underpinning economic growth. The resulting accumulation of debt makes it essential to restore capacity in order to handle any future military, health or financial crises. There are numerous ways to bring down the debt-to-GDP ratio. These include governments running primary budget surpluses — surpluses before interest — to pay off debt. If the growth rate exceeds the interest rate on the debt the ratio also declines. Inflation is another resort. And then debt can be restructured or written off. Which of these tools does more or less of the job largely reflects the balance of power between debtors and creditors.The authors point out that after the Napoleonic wars the decline in the British debt-to-GDP ratio from 194 per cent in 1822 to 28 per cent nine decades later relied chiefly on primary budget surpluses, which outweighed an adverse interest rate-growth differential. The franchise was limited then to 2.5 per cent and there was considerable overlap between public creditors and voters. Much the same dynamic applied to debt reduction in the US after the civil war and in France after the Franco-Prussian war.The broadening of the franchise in the 20th century changed that dynamic as demands emerged for state provision of social and income security. Two world wars also had to be financed. So after 1945, growth played a bigger part in debt reduction while governments kept interest rates low and maintained capital controls. Inflation also played a greater role, since it is a default solution in distributional struggles where politicians fail to reconcile conflicting interests through legislation.

Why, you might ask, does public debt need to be defended? One reason is that austere moralists dislike debt and fear the burden it might impose on future generations. The book cites John Boehner, who when he was speaker of the US House of Representatives, declared that debt arising from the financial crisis was immoral. Also Rand Paul, Republican senator from Kentucky, complained in 2020 that the US fiscal cupboard was bare. Similar sentiments prevailed in Germany during the eurozone crisis towards Greece and southern Europe more generally.Another reason is that some economists argued that fiscal retrenchment would be expansionary in the eurozone crisis because it would bolster confidence, although a 2011 IMF study poured cold water on this view.The authors have no illusions about the difficulties of addressing the current debt overhang given mounting political polarisation and anaemic growth prospects. Yet they could have been more critical of central banks’ debt-inducing monetary policies involving aggressive easing in response to successive crises unmatched by equal tightening during economic upturns. More thoughts would have been welcome, too, on the existence or otherwise of a debt trap whereby monetary tightening might now beget a perpetual cycle of financial instability, involving frequent returns to morally hazardous ultra-low interest rates.That said, this is a rich and absorbing narrative that makes an unanswerable case for the legitimacy of incurring massive debts to protect citizens against war, pandemics and financial crises. The snag is that retreating from current public debt levels is a political nightmare and tactically fraught. Policymakers’ current penchant for muddling through inspires little confidence in a benign outcome. [email protected] Defense of Public Debt by Barry Eichengreen, Asmaa El-Ganainy, Rui Esteves and Kris James Mitchener, Oxford University Press, £22.99, 320 pages More

The latest western efforts to boost cash flows to Afghanistan will do little to tackle the country’s growing humanitarian crisis without wider reforms to get money to ordinary people, aid agencies have warned.The US and the UK Treasury have issued clarifications in the past few days in a bid to reassure banks that payments for basic human needs including food, health and education would not violate sanctions against the Taliban leaders who seized power last year.But aid agencies said the effect would be modest without the release of frozen Afghan central bank reserves to restore interbank lending and foreign exchange transactions and stimulate a resurgence of the banking sector, and an unblocking of donor funds locked by the World Bank to kick-start the economy.While the latest guidance has eased banks’ concerns over penalties if some transferred funds ultimately passed through Taliban-controlled ministries, the heavy costs of due diligence meant many banks remained reluctant to resume operations.Martin Hartberg, UK director of the Norwegian Refugee Council, said: “Without a functioning central bank it will simply be impossible to get sufficient banks notes circulating in the economy, not just for aid agencies to scale up our humanitarian programmes, but for Afghan households and businesses to survive.”A survey that his group conducted of 72 non-governmental organisations in Afghanistan at the end of 2021 showed 85 per cent considered unblocking international bank transfers to be “critical” to their operations.Its analysis suggested a number of the country’s banks that sent funds to aid workers and local recipients were facing collapse.Matt Reed, chief executive of the Aga Khan Foundation in the UK, said: “Sanctions and the freezing of the banking system have had a chilling effect. Even if a bank makes transfers, there is a liquidity problem, with not enough money circulating for the economy to function. It’s important that the banking sector steps up. We can’t do this without them.”International aid made up about 80 per cent of the previous Afghan government’s budget. But after US and Nato forces left following the Taliban’s takeover in August, governments cut off aid and froze more than $9bn in central bank reserves held overseas.Sanctions that had been imposed on the Taliban were broadly applied to Afghanistan’s financial system and civil service, leaving banks unable to make transfers and disburse cash. A sharp drop in the afghani has stoked painful inflation in the import-dependent country.

Some Afghans have resorted to the underground hawala network to transfer money outside the banking system, but larger organisations and businesses have been unwilling to use this informal route as it is illegal in nearby countries including Pakistan. Dollars have been smuggled out of the country while the lack of currency printing presses has left hard currency in short supply.Separately, the World Bank’s board is not set until at least later this month to discuss calls to release more than $1bn in funds in its Afghanistan Reconstruction Trust Fund via a UN intermediary. The fund would support teachers, healthcare workers and other public sector employees who have been left struggling without pay for months.David Miliband, head of the International Rescue Committee, warned of the broader consequences. “What is crushing is the economic strangulation of the country. This is partly about public sector salaries but also private sector activity squeezed out by banking illiquidity and the chilling effect of sanctions. We are running up a humanitarian crisis very fast.”David Pitts from Crown Agents Bank, which transfers money into Afghanistan for the Aga Khan Foundation, said: “It’s no good having all the best humanitarian efforts and actors trying to find solutions if the underlying economy is not operating. If you can’t import basic foodstuffs, fuel and medical equipment, all good efforts will be undermined.”

Video: How the 20-year war changed Afghanistan | FT Film More

ZURICH (Reuters) – Credit Suisse (SIX:CSGN) will face charges in a Swiss court on Monday of allowing an alleged Bulgarian cocaine trafficking gang to launder millions of euros, some of it stuffed into suitcases.Swiss prosecutors say the country’s second-biggest bank and one of its former relationship managers did not take all necessary steps to prevent the alleged drug traffickers from hiding and laundering cash between 2004 and 2008.”Credit Suisse unreservedly rejects as meritless all allegations in this legacy matter raised against it and is convinced that its former employee is innocent,” the bank said in a statement to Reuters.In the first criminal trial of a major bank in Switzerland, prosecutors are seeking around 42.4 million Swiss francs in compensation from Credit Suisse, which added that it would “defend itself vigorously in court”.The case has attracted intense interest in Switzerland, where it is seen as a test for a potentially tougher stance by prosecutors against the country’s banks. The indictment runs to more than 500 pages, and centres on relationships that Credit Suisse and its ex-employee had with former Bulgarian wrestler Evelin Banev and multiple associates, two of whom are charged in the case. A second indictment in the case charges a former relationship manager at Julius Baer with facilitating money laundering.A legal representative for the ex-Credit Suisse employee, who cannot be named under Swiss privacy laws, said the case was unjustified and his client denied wrongdoing.A lawyer for the two alleged gang members, who face charges of multiple counts of misappropriation, fraud and forgery of documents in the Swiss federal court but cannot be named under Swiss privacy laws, declined to comment. A lawyer for the former relationship manager at Julius Baer did not respond to requests for comment. Banev, who does not face charges in Switzerland, was convicted of drug trafficking in Italy in 2017 and then in Bulgaria in 2018 for being part of a criminal organisation active in trafficking tonnes of cocaine from Latin America. He vanished, but was arrested in September in Ukraine, from where Bulgarian prosecutors are seeking his extradition to face charges of setting up an organised criminal group and drug trafficking, Interpol’s red list of wanted persons shows.Banev and his legal representatives could not be reached for comment. A lawyer who represented Banev in his Bulgarian trial said she was no longer representing him. Julius Baer, which is not facing charges, declined to comment on the case. CASH IN CASESThe former Credit Suisse employee brought at least one Bulgarian customer who was an associate of Banev with her when she joined Credit Suisse in 2004, prosecutors allege in the indictment.The customer, who was later shot dead as he left a restaurant with his wife in Sofia, Bulgaria in 2005, had begun placing suitcases full of cash in a safe deposit box at Credit Suisse, the indictment says. Prosecutors allege the gang used so-called smurfing, where a large sum of money is broken down into smaller amounts which are below the anti-money laundering alert threshold, to launder money, putting millions of euros in small-value bills into safety deposit boxes and later transferring them into accounts. Although Swiss private banks have since adopted much tougher anti-money laundering so-called know-your-client checks after international pressure, the defendants said this was standard practice at the time the deposits were made.The prosecutors allege the former relationship manager, who left Credit Suisse in 2010 after being detained for two weeks by police in 2009, helped conceal the criminal origins of money for the clients by carrying out more than 146 million Swiss francs in transactions, including 43 million francs in cash. “Our client is being unfairly accused, because Swiss law requires that a person be implicated in order to condemn a bank,” attorneys at law firm MANGEAT LLC, representing the ex-employee, told Reuters. “She is innocent, outraged by the accusations. We will plead for her full and complete acquittal.”Credit Suisse disputes the illegal origin of the money, a source familiar with its thinking told Reuters, saying that Banev and his circle operated legitimate businesses in construction, leasing and hotels.The Swiss bank, which the indictment says considered Bulgaria as a high-risk country at the time, plans to draw attention to calls made by its compliance department to Swiss prosecutors after Banev was temporarily arrested in Bulgaria in April 2007, the source added.Credit Suisse is hoping that the court will view that its compliance department’s move was a sign of the bank taking its anti-money laundering obligations seriously and of cooperating with prosecutors in the matter.In June 2007, the prosecutors asked Credit Suisse for information on accounts held by Banev and his associates in response to a request from Bulgaria, the source added.Noticing a series of withdrawals, the bank’s compliance department asked prosecutors whether to freeze the accounts, but were told not to do so in order not to tip the clients off, according to the source. By the time prosecutors gave Credit Suisse the go-ahead, much of the money had been withdrawn.The prosecutors’ office declined to comment on Friday, saying the matter was now in the hands of the court.The second indictment filed by federal prosecutors against the former relationship manager at Julius Baer, which is being tried in the same court case, alleges some of the funds were transferred to another Swiss bank.The former relationship manager, who left a few months after the transfers took place, is charged with facilitating money laundering.The bank had refused to accept a suitcase filled with cash from the defendants, the indictment says. More

(Reuters) – Australia and New Zealand Banking Group on Monday joined rival Westpac in flagging lower margins and warned of a first-half hit from “softer” performance in its markets business, sending its shares to a near one-year low.ANZ did not disclose a profit figure for the quarter and said group net interest margin declined by 8 basis points, but added that rising interest rates in New Zealand would relieve some pressure in the second quarter.Australian lenders are battling squeezing margins in the face of steep competition in mortgage lending, spurred by record low interest rates in Australia through the COVID-19 pandemic. Westpac warned on its margins last week.ANZ said “softer” revenue in its markets business in October would hit first-half results, even though the unit’s performance in subsequent months was in line with trends seen over fiscal 2021.While it reversed A$44 million ($31.2 million) in bad debt provisions during the quarter, changes to provide Australian retail and commercial customers lower fee options would reduce annual operating income by about A$140 million, it added.”Given the uncertain impacts of reduced activity on asset quality going forward, we expect that the bad debt benefit will likely be looked through and investors will focus on the softer than expected revenue print,” Citi analysts said in a note.ANZ shares sank as much as 5% to A$25.73, its lowest since Feb. 17, 2021, while the broader market was 0.7% lower.In the Australian home loan space, ANZ said it had made “solid progress” to improve its systems, with application times for simple loans now in line with other major lenders.The bank, which has steadily lost Australian home loan market share since 2019, said in October it aims to grow its home loan book in line with its larger peers by the end of the current business year.ANZ also said it would consider expanding its A$1.5 billion buyback, as it reported a common equity tier 1 (CET1) ratio of 11.6% as at Dec. 31.($1 = 1.4136 Australian dollars) More

The International Olympic Committee admitted that conditions for athletes forced to isolate owing to testing positive for coronavirus had not met expectations, after German team officials complained of limited access to food and internet in quarantine. Christophe Dubi, executive director of the Olympic Games, said most concerns over isolation had been addressed but admitted that improvements were needed after German officials called conditions “unacceptable”. “It should not happen, and we want to make sure it does not,” Dubi told reporters yesterday, adding that organisers “cannot be complacent” as they try to conduct the Games in line with Beijing’s zero-Covid policy. Dirk Schimmelpfennig, chef de mission of the German Olympic team, said he was working with Chinese and IOC officials to get three athletes in isolation facilities cleaner rooms, training equipment and regular delivery of food and PCR tests.More from the Beijing Games: The Beijing Winter Olympics opened with a subdued ceremony that exemplified the closed nature of the games and the country’s attempts to defeat coronavirus.NBC paid billions for exclusive US rights to the Games, but the American television network faces declining audience interest.Have you been watching the Olympics? Tell me what you think of the Games so far at [email protected]. Thanks for reading FirstFT Asia — Emily Five more stories in the news1. EU draws up energy contingencies amid tension in Ukraine Brussels is examining how to shield consumers from a potential energy crisis as part of plans to protect Europe’s households, businesses and borders from the fallout from a Russian military escalation in Ukraine. More on Russia-Ukraine conflict: French president Emmanuel Macron has signalled he will recognise Russian security concerns without abandoning support for Ukraine’s sovereignty when he meets Vladimir Putin in Moscow today.2. India declares 2 days of mourning after Bollywood star’s death Lata Mangeshkar, one of India’s most revered cultural figures, died on Sunday at the age of 92. Mangeshkar, who was admitted to hospital last month with Covid-19 and later suffered from multiple organ failure, will be given a state funeral.

Lata Mangeshkar dominated Bollywood music, singing tens of thousands of songs in a career that mirrored the history of independent India © JAGADEESH NV/EPA-EFE/Shutterstock

3. China companies try to list in US following clampdown A handful of companies are seeking to become the first China-headquartered businesses to go public in the US since July, in a test of regulators’ willingness to accept new listings after clampdowns on both sides of the Pacific. 4. Outrage over Indian arrest of prominent Kashmiri journalist Indian authorities have provoked a backlash by arresting the editor of a leading Kashmir-based news site, a decision that has alarmed civil society advocates who say Prime Minister Narendra Modi’s government is throttling press freedom. 5. Rupert Murdoch’s News Corp hit by cyber attack Rupert Murdoch’s News Corp, owner of the Wall Street Journal, is investigating a cyber attack that it suspects was linked to China and accessed journalists’ emails and documents. Coronavirus digestBoris Johnson should be given “time and space” to lead, UK business secretary Kwasi Kwarteng urged, as the prime minister tries to woo Tory backbenchers.Opinion: Covid entrepreneurs can lead a new wave of creative destruction, John Thornhill writes. Emma Jacobs says that hybrid work will weaken employee loyalty.The Omicron variant has sparked European health staff shortages, but so far has spared ICUs.

The day aheadIndonesia GDP Economists predict that today’s fourth-quarter GDP figures will show that south-east Asia’s largest economy grew 4.9 per cent in the fourth quarter, according to a Reuters poll. (Reuters)Asia PMI figures IHS Markit purchasing managers’ index data will be released for the region.Anniversary of the Maastricht treaty Today marks 30 years of the treaty, which established the EU and laid the foundations for monetary union. It also fuelled concerns among those opposed to further political union, arguably sowing the seeds of Brexit.What else we’re reading and listening to ‘Kim doesn’t just want more missiles, he wants better ones’ Of all North Korea’s missile systems tested in recent weeks, it is the development of a new generation of manoeuvrable weapons designed to evade missile defence systems that has most intrigued defence experts. Related read: China and Russia’s hypersonic weaponry threatens US early warning system, writes William Schneider, Hudson Institute senior fellow.

Tokyo reckons with the memory of its notorious ex-governor The recent death of Shintaro Ishihara, a rampant nationalist who made offence-giving an art form is a reminder that the city loves a rebel, writes Leo Lewis. The nuclear power dilemma: where to put the lethal waste France is the last bastion of nuclear power in Europe. But even there, there’s high sensitivity surrounding the technology as the country explores new ways to dispose of radioactive materials. Public opposition remains as fierce as ever.Does Peloton trick us into working out? This week, the FT Weekend podcast looked at the Peloton phenomenon. Host Lilah Raptopoulos and San Francisco correspondent Patrick McGee explore the behavioural science behind why we don’t exercise and the tech that tricks our brains into doing it anyway.Six things I wish I’d known about money when I was 20 Even after a decade of investing, Ken Okoroafor, co-founder of The Humble Penny still struggles to work out what to do. But it’s even harder for younger people, taking their first steps in investment at this tricky time. Here are six tips he wishes he had known earlier.TravelWriter Pico Iyer has been visiting Kyoto for more than 30 years — but the last few months have offered a fresh perspective during a winter without tourists.

© Alamy | A monk at Chishaku-in More