Belfast Telegraph

Financial crisis has shifted the goalposts for all

By Stephen King

I was asked the other day how the Spanish should respond to their crisis. “Easy,” I said, “so long as they beat Honduras and Chile, they'll be fine.” The World Cup is a tricky old thing. Only a few nations have triumphed.

Some have managed to win only when playing on home soil (England in 1966 and France in 1998). Others have won both at home and away (Germany, Argentina and, if we go back to before the Second World War, Uruguay and Italy). Only one team has failed to win at home yet has, nevertheless, consistently won everywhere else. That team, of course, is Brazil.

Over the years, the World Cup has become more difficult to win. In 1982, the number of teams competing in the finals rose from 16 to 24. In 1998, the number went up again, this time to 32, where it remains today.

But the competition provides entertainment in the most unexpected ways.

We learn from assorted pundits that England will have no difficulty beating the inexperienced Algerians — who hail from a country with sand and no grass — and that Fabio Capello, previously assumed to be a managerial genius, is now a clueless Italian.

In other words, the World Cup provides a wonderful opportunity to engage in the stereotypical nonsense that blights our understanding of the world. If England can't beat Algeria, it must be because England are rubbish.

These stereotypical beliefs are not unique to football pundits. They can also be found in the financial world. Europe's fiscal crisis can be blamed fairly and squarely on those lazy chaps living in Greece and Spain who, through the excessive consumption of ouzo and sangria, have failed to deliver the necessary austerity. Or maybe the crisis can be blamed on the Germans, whose desire for financial discipline is so great that it sounds almost deviant.

The financial crisis has shifted the goalposts, if you'll excuse the pun. Markets failed and governments ended up picking up the pieces.

Huge budget deficits are now creating a new sense of unease.

Who will bail out the governments? Will it be taxpayers and public sector workers, who will doubtless protest their innocence? Or, instead, will it be a government's creditors, who could be hit via inflation, currency depreciation or outright default?

If you're an out-and-out Keynesian, you might be inclined to argue that no-one will have to bail out governments. If an economy has settled down at a high unemployment equilibrium, all that's required is a fiscal jolt to move activity back to a bigger and better level consistent with full employment (and, in time, much higher tax revenues and, hence, lower government borrowing).

It's a bit like saying that England will succeed against Slovenia on Wednesday so long as they score more goals than the Slovenians: true but rather |pointless.

The “fiscal jolt” argument assumes that Western economies are entitled to follow a particular economic path, associated with rising prosperity year-in, year-out, just as England are entitled to win against supposedly “lesser” opposition.

If, however, an economy has been persistently living beyond its means for a decade or more, it's difficult to see how Keynesian policies, on their own, will take us back to the Promised Land.

One option for countries would be to sell their prized assets. The West cannot survive on IOUs forever. But which assets should |it sell?

Funnily enough, it's already made a start: football clubs are increasingly being auctioned off to the highest bidders in the emerging world. Perhaps it's a sign of things to come.

Stephen King is managing director of economics at HSBC

Belfast Telegraph

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