Comments on the battle raging over new financial regulation, developed in this column yesterday, are not complete without some reflection on the economic and strategic elements that can affect the choices we make. An analysis based exclusively on principles and dogma could overlook what is essential. In fact, positions are largely determined by real situations and by the constraints that these inflict upon us.
The Chinese example. Why does China, which hordes a staggering pile of dollars, not get rid of them all of a sudden by entrusting them to the markets, and seek on the contrary to come to an understanding with the United States? The answer is obvious: these dollars that have accumulated over the years thanks to trade surpluses - the fruit of endeavour by hundreds of millions of Chinese - represent most of the country's monetary reserves. The United States does not prop up the value of the dollar, which is left up to the markets to determine. If billions of dollars were suddenly to flood onto the market, the value of the dollar would collapse and China's monetary reserves (as well as those of several oil producing countries) would go up in smoke. Hence the famous quip by a former US finance minister: “The dollar is our currency but it is your problem”. Such a situation can explain China's efforts to get on with the United States and its support for the idea of a conventional international currency. It can also explain the attempts by other countries to give the price of oil and other goods quoted internationally in euros (attempts that the European Central Bank wisely closes its eyes to). Pending the advent of the world currency it recommends, China continues to buy US treasury bonds essentially in order to safeguard its trade outlets, while developing other strategies in parallel: - strengthened domestic consumption so that production does not slow down, and funding in dollars showered onto African countries.
The EU is not uniform. In the European Union, some attitudes are dictated more by national situations than by theories and principles. What British government could ignore the fact that the prosperity of the City is linked to financial activity, and that a large part of employment in London (restaurants, hotels, services, entertainment) depends on this? Who still espouses the theory that Europe should largely discard manufacturing activity by relocating it in third countries where wages are low?- and that it should only keep the so-called “noble part” of industry - product design, technologies, financial management and trade strategy. But this doctrine, that financial circles (British and from elsewhere), sought to impose a few years ago has fortunately been flattened.
While recognising the growing role of services and related activities in the European economy, it has been reaffirmed that the production of goods continues to represent the base of EU prosperity and that it plays an essential role for employment. Furthermore, some excessive relocation of production activities in third countries has now been put right, as other factors are just as important as the level of salaries, such as the qualification and training of labour, infrastructure, transport, etc. One can add to this the tendency of certain third countries not to tow the line when it comes to intellectual property. Nonetheless, member states where the weight of financial activity remains essential are naturally enough reticent to ban such practices.
Bureaucracy has its limits. The above considerations mean that some political movements advocate nationalising financial activity, and even certain productive activities, which would mean the end of the social market economy and free competition. Most political forces are opposed to developments along these lines, stressing that bureaucracy will never be able to effectively take over from private initiative in a technically advanced society. Bureaucrats are not physiologically able to take the appropriate initiatives. The USSR preceded the United States in the conquest of space but has never been able to produce satisfactory consumer goods, beginning with motor vehicles. A valid choice of investment to be financed cannot be made by a state-run banking bureaucracy subject to full political pressure. And the responsibility of failure and possible losses would fall on the States. The objective sought is for banks to give up the financial manoeuvring that abusively enriches certain privileged members of society to the detriment of the economy in general, and for banks to return to their true priority: - to finance the economy and tomorrow's projects, while remaining autonomous and shouldering the responsibility and the consequences of the choices they make.
(F.R./transl.jl)