Out of the Eurozone frying pan: into the emerging markets fire

Will current account deficits across Asia, should we worry about contagion to weak peripheral Eurozone countries?

With the Indian Rupee, the Indonesian Rupiah, the Turkish Lira all selling off 10 per cent or thereabouts versus the USD since the beginning of August, July and May respectively, one is beginning to be reminded of the Asian Crisis of the late nineties, when current account deficit currencies lead the collapse to a full-blown disaster.

Then, as now, hot money had flooded in, as a desperate search for excess returns lead investors to boldy go where a few had never been before. After all, current account deficit countries need that flow of money to stay solvent and now, classically, the flow is suddenly drying up, as the returns on ‘risk-free’ investments, such as US Treasuries, have risen dramatically, (well, risk-free in the sense that you’ll get all your money back if you hold to maturity).

Lack of policy credibility and slowing growth don’t help. The former took a dent last week in India, when the  central bank introduced controls over the amount of money Indian residents and companies can send overseas. The trouble with partial capital controls is that then everyone fears the imminent implementation of full capital controls, and gets their money out as soon as possible, thus weakening the currency, etc, etc. This in addition to three gold import tax hikes this year.

Personally, I feel the chances of a full-blown repeat of the Asian crisis are quite slim-generally speaking, hard lessons were learned then and impressive FX reserves have been accumulated during the good years, also public debt levels are lower and savings rates higher, although Indonesia’s FX reserves are not as impressive as some, but even there the better performance of the economy should mean that a quick dose of higher interest rates will calm things down.

Should we worry about potential contagion to weak Eurozone peripheral countries? I don’t think so, as the current-account balances of Greece, Italy, Portugal, and Spain have all virtually improved to zero, compared to India’s 4.8 per cent deficit.

There’s no doubt that the rising tide of global QE experiments, and Chinese overseas investment, had floated many ships, and that some of them will be left marooned in the mud as the Fed begins to taper down its Quantitative Easing, but whilst a repeat of 1997/98 is probably not something to lose too much sleep over, severe stress in such massive economies as India and Indonesia may, however, have a deleterious effect on regional and even global growth.

At the moment I’d still classify this as a low probability, Black Swan event, given the obvious growth in strength of the recoveries in the US, UK, Eurozone and China. The latter evidenced by the latest The Markit/HSBC flash manufacturing PMI for August of 50.1, versus market expectation for 48.2, (last month 47.7).

Remember, however, the generally accepted definition of a Black Swan event; low probability, sure, but high impact if it comes to pass.

Indian sand artist Sudarsan Pattnaik puts the finishing touches to his sand sculpture of a rupee coin in front of the Hindu Goddess Lakshmi. Photograph: STRDEL/Getty Images.

Chairman of  Saxo Capital Markets Board

An Honours Graduate from Oxford University, Nick Beecroft has over 30 years of international trading experience within the financial industry, including senior Global Markets roles at Standard Chartered Bank, Deutsche Bank and Citibank. Nick was a member of the Bank of England's Foreign Exchange Joint Standing Committee.

More of his work can be found here.

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Let's seize our chance of a progressive alliance in Richmond - or we'll all be losers

Labour MPs have been brave to talk about standing aside. 

Earlier this week something quite remarkable happened. Three Labour MPs, from across the party’s political spectrum, came together to urge their party to consider not fielding a candidate in the Richmond Park by-election. In the face of a powerful central party machine, it was extremely brave of them to do what was, until very recently, almost unthinkable: suggest that people vote for a party that wasn’t their own.
Just after the piece from Lisa Nandy, Clive Lewis and Jonathan Reynolds was published, I headed down to the Richmond Park constituency to meet local Green members. It felt like a big moment – an opportunity to be part of something truly ground-breaking – and we had a healthy discussion about the options on the table. Rightly, the decision about whether to stand in elections is always down to local parties, and ultimately the sense from the local members present was that it would be difficult  not to field a candidate unless Labour did the same. Sadly, even as we spoke, the Labour party hierarchy was busily pouring cold water on the idea of working together to beat the Conservatives. The old politics dies hard - and it will not die unless and until all parties are prepared to balance local priorities with the bigger picture.
A pact of any kind would not simply be about some parties standing down or aside. It would be about us all, collectively, standing together and stepping forward in a united bid to be better than what is currently on offer. And it would be a chance to show that building trust now, not just banking it for the future, can cement a better deal for local residents. There could be reciprocal commitments for local elections, for example, creating further opportunities for progressive voices to come to the fore.
While we’ve been debating the merits of this progressive pact in public, the Conservatives and Ukip have, quietly, formed an alliance of their own around Zac Goldsmith. In this regressive alliance, the right is rallying around a candidate who voted to pull Britain out of Europe against the wishes of his constituency, a man who shocked many by running a divisive and nasty campaign to be mayor of London. There’s a sad irony in the fact it’s the voices of division that are proving so effective at advancing their shared goals, while proponents of co-operation cannot get off the starting line.
Leadership is as much about listening as anything else. What I heard on Wednesday was a local party that is passionate about talking to people and sharing what the Greens have to offer. They are proud members of our party for a reason – because they know we stand for something unique, and they have high hopes of winning local elections in the area.  No doubt the leaders of the other progressive parties are hearing the same.
Forming a progressive alliance would be the start of something big. At the core of any such agreement must be a commitment to electoral reform - and breaking open politics for good. No longer could parties choose to listen only to a handful of swing voters in key constituencies, to the exclusion of everyone else. Not many people enjoy talking about the voting system – for most, it’s boring – but as people increasingly clamour for more power in their hands, this could really have been a moment to seize.
Time is running out to select a genuine "unity" candidate through an open primary process. I admit that the most likely alternative - uniting behind a Liberal Democrat candidate in Richmond Park - doesn’t sit easily with me, especially after their role in the vindictive Coalition government.  But politics is about making difficult choices at the right moment, and this is one I wanted to actively explore, because the situation we’re in is just so dire. There is a difference between the Conservatives and the Lib Dems. Failing to realise that plays into the hands of Theresa May more than anyone else.
And, to be frank, I'm deeply worried. Just look at one very specific, very local issue and you’ll perhaps understand where I'm coming from. It’s the state of the NHS in Brighton and Hove – it’s a system that’s been so cut up by marketisation and so woefully underfunded that it’s at breaking point. Our hospital is in special measures, six GP surgeries have shut down and private firms have been operating ambulances without a license. Just imagine what that health service will look like in ten years, with a Conservative party still in charge after beating a divided left at another general election.
And then there is Brexit. We’re hurtling down a very dangerous road – which could see us out of the EU, with closed borders and an economy in tatters. It’s my belief that a vote for a non-Brexiteer in Richmond Park would be a hammer blow to Conservatives at a time when they’re trying to remould the country in their own image after a narrow win for the Leave side in the referendum.
The Green party will fight a passionate and organised campaign in Richmond Park – I was blown away by the commitment of members, and I know they’ll be hitting the ground running this weekend. On the ballot on 1 December there will only be one party saying no to new runways, rejecting nuclear weapons and nuclear power and proposing a radical overhaul of our politics and democracy. I’ll go to the constituency to campaign because we are a fundamentally unique party – saying things that others refuse to say – but I won’t pretend that I don’t wish we could have done things differently.

I believe that moments like this don’t come along very often – but they require the will of all parties involved to realise their potential. Ultimately, until other leaders of progressive parties face the electoral facts, we are all losers, no matter who wins in Richmond Park.


Caroline Lucas is the MP for Brighton Pavilion.