(AP)
Friday’s events from the World Economic Forum feature an address by Mario Draghi, president of the European Central Bank, and sessions looking at the challenges faced by, and presented by, the fast-changing Arab world. Reports from FT writers in Davos and by Ben Fenton, Lina Saigol and Lindsay Whipp in London.
17.03: The Davos Live Blog is closing down now but for more reading and insight on today’s events, please visit the FT’s in depth page on the World Economic Forum.
16.41: Gideon Rachman, titular proprietor of this blog, has written his surmise from the earlier session on Syria.
16.16: Asked by the Amercian moderator of his panel session about corruption and banking regulation, Nigeria’s central bank governor Sanusi displays a little frustration:
He said: “We are the only country which has taken people out of banks and put them in jail. No bankers in your countries have gone to jail.”
16.12: Martin Wolf has recorded his view on the politics and economics at play in a “low-intensity” Davos this year:
16.04: At the emerging nations panel, Nigeria’s Central Bank governor Sanusi says Africa as a whole needs to examine its relationship with China.
The bulk of the goods consumed in Africa are made in China and we need to see China as a competitor. The real challenge is how to invest in education and infrastructure and then take advantage of that market and take it away from China. After all, Labour costs in China are much higher than in Africa.
15.50: Reflections from Nouriel Roubini at Davos:
15.45: A new panel on emerging nations at the crossroads is looking at whether Nigeria, Pakistan the Philippines and Turkey can replace the old vanguard BRIC countries this year.
Nigerian bank governor Sanusi Lamido Sanusi says a lot of the growth has come from the domestic market, agriculture in particular.
Alexandre Tombini, Brazil’s central bank governor, adds: “What we have this year is the prospect of growth above 3 per cent.
“What we see in Brazil is even with a slowdown, we have record low-unemployment and have reduced the level of poverty and we have a larger middle-class so there has been a major transformation in the country and this will continue. But we have to improve productivity, and we are reducing the cost of energy for both businesses and households.
15.16: Martin Wolf has sent this from Davos:
In a session posted on the WEF web site, Larry Summers, former chief economic adviser to Barack Obama, made the following comment on a natural test in macroeconomics.
Japan and UK are two high-income countries with their own currencies. The former is now embarked on a big Keynesian stimulus. The latter has embraced fiscal austerity. Thus, he argues, 3-5 years from now we will know the result of a big experiment in macroeconomic poilcy. If stimulus works, Japan will have had a strong recovery. If austerity works, the UK’s economic output will outperform Japan’s, to emerge from its slump with a better public debt position, too.
This is not a clean test. We do not know what would have happened, in either case, with alternative policies. Moreover, there are important differences between the two countries. Japan already has much more public debt than the UK. It also has much worse demographics. But it has a much stronger external position than the UK; its own people hold almost all its public debt; it starts from deflation, not inflation; and it has already run large fiscal deficits in the past, to get out of its long economic malaise.
Nevertheless, these divergent policies may add an important element to our understanding of how large economies escape slumps.
My guess? The Japanese policies will work in the medium term, but possibly not in the longer term: thus, they will fail to ignite long-term, private-sector-led growth. The UK policies will not work in the medium term: the economy will remain stuck in a slump.
But will the UK economy then recover strongly in the 2020s? I don’t know. But neither does the UK government.
15.02: Top business journalists at Davos are scrutinising Goldman’s CEO:
14.39: In the same panel discussion, organised by Bloomberg, Jin Liqun, head of China Investment Corp, the sovereign wealth fund, conceded he was a “little bit worried” about the dollar.
“The printing machine will have to slow down considerably in order for people to have confidence in the dollar,” [Jin] said
[But he added:] “I have confidence in the resilience of the U.S. economy. The U.S. can probably achieve a 2 percent growth rate.”
14.35: Ray Dalio, founder of Bridgewater, the heavyweight US investment fund, used a Davos panel to predict that investors will move into riskier assets during 2013.
“There’s a lot of money in a place that’s getting a very bad return and in this particular year there’s going to be, in my opinion, a shift,” Dalio said today at a Bloomberg panel discussion at the World Economic Forum.
“The complexion of the world will change as that money goes from cash into other things. The landscape will change particularly later in the year and beyond.”
14.32: Lloyd Blankfein, chairman and CEO of Goldman Sachs, tells a Davos interviewer that he is “more of a shareholder than an employee”. It was reported last week that he received a bonus of about $19m including $13.3m in stock for his 2012 pay, according to “a person with knowledge of the matter”, Bloomberg says. In previous years, his total reward has reached $68.5m.
Asked if he would leave the bank if he was paid less, Blankfein said: “Not today, no.”
14.03: In an interview in Davos Francisco Gonzalez, chairman of Spain’s second biggest bank by assets, Banco Bilbao Vizcaya Argentaria, said there was “no question” but that Spain could carry on without a European bailout because sentiment about the euro had improved and markets recognised the country’s progress with economic reforms.
“Spain can survive — there is no question about that,” Mr Gonzalez told Bloomberg television. “Spain has addressed a lot of reforms over the last months and investors definitely understand that Spain is going in the right way.”
13.44: Boris Johnson’s words echo what Nick Clegg the UK deputy prime minister told the House magazine in an interview published on Friday:
[He] admitted the coalition [government ]made a mistake when it cut capital spending soon after it was formed in 2010.
“I think we’ve all realised that … in order to foster a recovery you need to try and mobilise as much public and private capital into infrastructure as possible. So what we’ve done since then, in effect, is come up with various surrogate ways in getting working capital into infrastructure.” Mr Clegg said, citing the Treasury’s £40bn of guarantees for infrastructure projects and £10bn for house building.
13.41: Boris Johnson has added to his Conservative colleague George Osborne’s list of things that make you go “um”.
The Mayor of London used a Davos speech to call on the government to “junk talk of austerity” and drive investment in housebuilding and infrastructure projects, according to the Press Association report of his address:
“We need to build the hundreds of thousands of homes that the city will need, because a concerted programme of house-building will drive the rest of the economy, with one in four SMEs (small and medium enterprises) in construction and I believe the growth boost would mean we could make that investment without damaging the UK’s triple A rating.”
Mr Johnson added: “We need to invest in the rail and road infrastructure that will get the workforce of London and the south east to their jobs on time and that is critical to our competitiveness.”
He added: “Lastly we need to remember confidence, we need to junk talk of austerity and recognise that the single biggest inhibitor of demand is lack of confidence and that if only some of the people in this room would invest some of the cash in their balance sheets we would see that confidence rewarded in a virtuous circle.”
13.19: Read the FT’s take on how the governor of the Bank of Italy has defended its handling of the derivatives crisis unfolding at Monte dei Paschi di Siena and confirmed that the central bank was collaborating with a judicial inquiry.
13.14: Yahoo boss’ Meyer muses: “You have to decide what the ontology of entities is.” (No, we don’t either.)
13.09: The FT’s economics editor Chris Giles posts this:
A fascinating private lunch on monetary policy coordination with fiscal
policy was true to the Davos style. Each table was asked to agree one
substantive policy proposal, even if it was feeble.The speakers included central bank governors former finance ministers and
leading academics.The two striking outcomes: the subject is live and important; and people
fundamentally disagree.One table’s proposal was a passionate defence of central bank independence
which they wanted codified and reinforced. Another table called for
transparency in the necessity of fiscal and monetary coordination.
13.08: Gordon Brown blogs on the WEF website: Target growth and avoid a lost decade.
13.05: ECB editor of Bloomberg tweets on an unhappy precedent for Mario Draghi’s earlier remarks:
13.04: The FT’s Brussels Bureau Chief Peter Spiegal has been leaked the communique for next week’s EU summit.
12.45: PA’s political editor Andrew Woodcock reports this: David Cameron and George Osborne were pictured eating out in at a restaurant in the Swiss resort of Davos on the eve of the release of GDP figures which showed Britain’s economy slumping into negative growth.
Greenpeace press officer Ben Stewart, who was also dining at the Alte Post pizza restaurant, described the meal as “raucous” and said the Prime Minister and Chancellor were “laughing uproariously” and joking with London Mayor Boris Johnson.
A photograph which he posted on Twitter, showing the PM’s party of around 10 people seated round a long table, quickly sparked negative comments, with one former Labour special adviser branding the meal “pepperonigate”.
Damien McBride, who was a close aide to Gordon Brown at the Treasury and in 10 Downing Street, said last night that the fact the Chancellor was willing to be seen eating out in a restaurant suggested that “GDP must be positive tomorrow”.
When the figures were revealed, Mr McBride tweeted: “What on God’s Green Earth was Osborne doing eating pizza inDavos when he knew GDP was back in negative territory?”
The meal followed Mr Cameron’s speech earlier in the day to the World Economic Forum in Davos.
Asked whether Mr Cameron was embarrassed to be snapped enjoying himself in a restaurant the night before the release of bad GDP figures, the Prime Minister’s official spokesman told reporters: “The Prime Minister and Chancellor have been inDavos banging the drum for British business, entirely consistent with the case we have been making that this is a global race, and also making the case for the kind of open, free-trade global economy which the Prime Minister was talking about in his speech yesterday and which is so important to outward-looking economies such as the UK’s.”
The spokesman declined to discuss whether alcohol was drunk with the meal, saying only: “The Prime Minister and Chancellor and others had dinner last night.”
Greenpeace press officer Ben Stewart, who was also dining at the Alte Post pizza restaurant, described the meal as “raucous” and said the Prime Minister and Chancellor were “laughing uproariously” and joking with London Mayor Boris Johnson.
A photograph which he posted on Twitter, showing the PM’s party of around 10 people seated round a long table, quickly sparked negative comments, with one former Labour special adviser branding the meal “pepperonigate”.
Damien McBride, who was a close aide to Gordon Brown at the Treasury and in 10 Downing Street, said last night that the fact the Chancellor was willing to be seen eating out in a restaurant suggested that “GDP must be positive tomorrow”.
When the figures were revealed, Mr McBride tweeted: “What on God’s Green Earth was Osborne doing eating pizza inDavos when he knew GDP was back in negative territory?”
The meal followed Mr Cameron’s speech earlier in the day to the World Economic Forum in Davos.
Asked whether Mr Cameron was embarrassed to be snapped enjoying himself in a restaurant the night before the release of bad GDP figures, the Prime Minister’s official spokesman told reporters: “The Prime Minister and Chancellor have been inDavos banging the drum for British business, entirely consistent with the case we have been making that this is a global race, and also making the case for the kind of open, free-trade global economy which the Prime Minister was talking about in his speech yesterday and which is so important to outward-looking economies such as the UK’s.”
The spokesman declined to discuss whether alcohol was drunk with the meal, saying only: “The Prime Minister and Chancellor and others had dinner last night.”
12.42: More from IMF boss Christine Lagarde who says this isn’t the time for Europe’s leaders to relax and policy makers should take over the baton from central banks.
“Keep the momentum, it’s not time to relax,” Lagarde said today in an interview with Bloomberg Television’s Tom Keene and Francine Lacqua in Davos, Switzerland. “This is a really serious situation.”The euro-area crisis has shown signs of abating, with a report today showing German business confidence improved more than economists predicted this month. European Central Bank President Mario Draghi suggested this week that the worst may be over.Still, Lagarde cautioned that while “we avoided collapse,” economic-growth numbers “are not especially good anywhere except in the U.S., where the economy is picking up more nicely.”“Policies decided in 2012 are heading in the right direction,” Lagarde said. “Central banks have done what they could to act as firemen and now it’s for policy makers to take over the baton.”
12.41: The former chairman of the Financial Services Authority, Howard Davies, sends his Davos diary.
12.33: TD Securities says E200-225bn of LTRO will be repaid in Q1.
12.15: 
12.05: Here’s the FT’s story on UK banks paying back more of their Long Term Refinancing Operation than analysts expected.
11.51: Sheryl Sandberg, Facebook’s chief operating officer says companies should talk to young women employees and let them know they will be supported when they have children. Christine Lagarde, IMF boss, urges women to accept and enjoy their difference to men.
11.26: Around 25 activists and a big, fake polar bear, have occupied a Shell service station in Davos to protest against Royal Dutch Shell’s oil drilling in the Arctic.
11.06: A reminder of what the silicon valley hotshot looks like:
11.02: Demand for the livestream to watch Yahoo ceo Marissa Mayer proved so intense it crashed, tweets Henry Blodget, editor and ceo of Business Insider magazine.
10.57: Analyst reaction to the UK’s surprise Q4 GDP slump is coming in.
Chris Williamson, chief economist at Markit, said it remains too early to tell if the economy will triple-dip.
But today’s numbers have greatly increased the risk of a new recession and a downgrading of the UK’s AAA credit rating. As such, the data pile ever more pressure on the Chancellor to seek ways to revive the economy in the March Budget.
10.54: Worrying times for the Davos-attending Ivan Glasenberg, chief executive of Glencore, the world’s biggest commodities trader by revenues, as his Swiss home has been the target of an explosives attack, apparently by anti-capitalist protesters. The letterbox of his home in Rueschlikon, on Lake Zurich, was “destroyed in an explosion”, according to Bloomberg.
It is not clear if the letterbox was attached to a door or free-standing. No-one was injured and police are investigating. Switzerland is not generally known for its hostility to capitalists.
Police reports
10.41: Activists protesting at Shell’s drilling activities in the Arctic have occupied one of the company’s service stations in Davos. They have a model polar bear with them.
10.33: The FT’s main story on the GDP figures, which is leading the website home page at the moment, can be read at this link.
10.29: Here is Chris Giles, FT economics editor, with his first analysis of Mario Draghi’s words at Davos:
Mario Draghi has laid out his vision for the euro and European Central
Bank. While 2012 was “the year of relaunching the euro”, he said 2013 was the year of implementation. Believing the hard work still needed to save the euro as absolutely worth it, he laid out the steps still needed. Notable was that these were essentially political and, if it comes to pass, the ECB can rather put its feet up and watch others do the heavy lifting this year.
What does he want?
First, continued fiscal consolidation – front-loaded to regain market confidence, concentrated on current spending, not increased taxation or public investment cuts.
Second, structural reforms. The focus on supply side action has become very attractive to central bankers because it removes any obligation to raise demand themselves. Mr Draghi sees supply side reforms as increasing competitiveness, exports and jobs. He was not specific about policies, nor how quickly he expects them to affect growth and jobs.
Third, no change in the ECB’s framework to maintain price stability, which he said was sufficient. Commenting on the Federal Reserve’s attempts to steer private sector expectations towards investment by committing to keep policy loose until unemployment falls below 6.5 per cent, he said: “We have given plenty of evidence that we can do the same within the existing framework”.
So apart from sitting back and relaxing and watching his prediction that calmer financial markets will be reflected in a restoration of eurozone growth in the second half of year, what is on his agenda? The most concrete thing was building the capability of the proposed single supervisor of banks in Frankfurt. He said this would be separate from the monetary policy function of the ECB, but even here there did not appear to be much urgency. Work is “still at a preparatory stage,” Mr Draghi said.
Mr Draghi harbours hopes for a quiet year, but experience suggests these will be dashed.
10.24: George Osborne, the chancellor, has been buttonholed in Davos and asked about the worse than expected GDP figures for Q4 2012. He was unabashed, Reuters reports.
“We can run away from these problems or we can confront them,” Osborne told reporters in Davos. “I’m determined to confront them so we go on creating jobs for people.”
10.21: In another session at the forum, Lloyd Blankfein, chief executive of Goldman Sachs, says he thinks the financial crisis is easing.
“My investing self tells me that the worst is over by far,” Blankfein said, but he added that there remain risks in the system that might “disappoint” investors.
Asked about the UK’s move towards a referendum on continued membership of the EU, the Goldman chief said he thought the debate healthy, but that leaving the union would harm Britain.
10.15: Davos is also discussing the Arab Spring and the continuing disaster of Syria today, as Gideon Rachman, the FT’s chief foreign affairs commentator, tweets:
10.12: The Office of National Statistics release on the preliminary Q4 GDP figures can be read here.
10.11: Or if you prefer your chart-based sorrow to be a bit longer-term (and easier to read), try this one:
10.09: Here’s a UK GDP chart to make British readers feel solemn this morning:
10.07: Draghi fans can read an FT profile of the ECB president at this link.
10.06: Mario Draghi’s interview session has now finished. We’ll pick over the bones of what he has said in upcoming posts.
10.05: Ben Chu, economics editor of The Independent, tweets:
10.03: Draghi has credited OMT and the long term refinancing operation with removing euro risk and avoiding a credited crunch respectively.
10.00: “Hesitation in undertaking fiscal consolidation doesn’t pay; it is very very costly,” Draghi says.
09.58: Mario Draghi says that “fiscal consolidation” of the eurozone is inevitable. He has said this morning that the eurozone is still some way from reaching its ideal position of having an area-wide deposit guarantee scheme.
09.57: John Gapper, FT business blogger, sends this, germane to the eurozone debate:
The euro is in danger of destroying the European Union by creating tensions between debtor and creditor countries inside the currency union, George Soros has warned.
Mr Soros, chairman of Soros Fund Management and the Open Society Institute, told a dinner in Davos that the euro was “here to stay” as a result of interventions by the European Central Bank and the fact that Germany “will always do the minimum to preserve the euro.”
But he said that Europe risked “a permanent division into centre and periphery” as a result of the dependence of debtor countries in southern Europe on financial backing from Germany.
He compared Germany’s infuence in the eurozone with the postwar world in which the US was the dominant economy and the the developing world was “subject to sharp discipline.”
“The divison of europe into creditors and debtors with debtors in a subordinate position is contrary to spirit in which the EU was created, as a voluntary association of equal states. Now it is almost compulsory,” he said.
Mr Soros reitereated his criticism of Germany’s “austerity” policy and said presusre was building on currencies as Japan weakened the yen and quantitative easing was adopted by central banks outside the eurozone.
The euro was likely to rise as a result, increasing tensions. “There is an incipient war on currencies which may force the ECB to change its position. Currncies have been remarkably stable in the past few years and there is the possibility of fireworks.”
Mr Soros described the pledge by David Cameron, the prime minister, for a future referendum on EU membership as “a very dangerous gamble.” He said that the UI was “being pushed to one side” within Europe.
09.55: Draghi says the framework for OMT will stay in place as long as it is needed. But the long term objective for the ECB is the “mutualisation of risk”. That is a political decision which involves changes to financial supervision regimes as well as joint fiscal policies, Draghi says.
09.50: The UK GDP figure put in context by RBS analysts:
09.49: Draghi won’t be drawn on what or when the ECB might take steps to bail out the banking system in the eurozone, the so-called Outright Monetary Transaction.
09.47: This year is the year of implementing the decision taken last year, Draghi says. Inflation is under control. “If governments persevere in structural reforms principally, as well as fiscal consolidation… we will see a recovery in the second part of this year.”
09.46: Asked if we have reached a turning point in 2013, the European Central Bank president says that for the euro area the most important thing is to overcome the fragmentation of the area.
“We have to maintain price stability but we have to go back to a fully integrated financial and capital market,” he says. “Financial markets are enjoying a new sense of relative stability, no matter which indices you look at. The background is considerably more favourable than last year. [We] think level of economic growth is stabilising at relatively low levels and we foresee growth in the second half of the year.”
09.43: Mario Draghi is being interviewed on the main stage of Davos now. He has just said that 2012 was the year of the “relaunch of the euro”. But he says there is more work to do to put momentum back into the collective economy of the eurozone.
09.36: UK GDP figures have just come in and they’re disappointing:
- 4th quarter gross domestic product falls 0.3 per cent quarter-on-quarter versus market estimates of just a 0.1 per cent decline.
09.30: Bloomberg has interviewed Goldman Sachs president Gary Cohn. Bloomberg writes:
Debt markets that have seen junk-bond yields drop to record lows may face a “substantial repricing” if interest rates spike or investors begin pulling money out of fixed income, Cohn, 52, said in an interview yesterday .
09.25: Richard Lutnick, CEO of global financial services firm Cantor Fitzgerald has been talking to CNN and been really quite frank. From the story:
Looking ahead to 2013, Lutnick says the biggest risk to global growth is the U.S. hitting the debt ceiling — whether in the short- or long-term. “Off the fiscal cliff we go. We (the U.S.) are irrational and we are silly… we are dopey.”
09.21: Alphaville’s Mme Davos Deville hasn’t given up pondering the big question of the forum:
09.19: Martin Wolf, the FT’s chief economics commentator, has just sent us this from Davos:
For the second year in a row I attended a private dinner organised by a well-known hedge fund. Participants were senior European officials, well-known economists, investors and spouses.
Last time we were asked what we would pay for a contract that would pay $100 if the eurozone broke up within five years. Break-up was defined as departure of a country or countries with an aggregate GDP of at least 10 per cent of Eurozone aggregate GDP. (So this would require the departure of a big country.)
Last year, the average price of such a notional contract was $26. This year, the average price was down to $8. So the perceived chances of a break up among these informed insiders has fallen dramatically. Thank you, Mario, Mario and Angela! But the response of one hedge-fund investor was that he would certainly buy this contract at such a low price.
A new contract was also opened this time on Brexit. The question was whether the UK would have voted to leave the European Union inside 5 years. This time the average price was $40 – a very high probability, in other words.My prices? $20 on the eurozone contract (a substantial decline from last
year, in fact) and $35 on Brexit.
09:10: Patrick Jenkins, the FT’s banking editor, sent us this dispatch late last night, from the streets/corridors of the mountain resort:
Such is the parallel universe of Davos that you get blithe about passing
world leaders and giants of business in the street. Heading to the FT’s
Davos party on Thursday night, though, there was an added twist when I
found myself as the only person going through the airport-style security
scanner with Bill Gates (and his minder) on their way to the rival
Microsoft party. As I stripped off my coat and emptied phone and
Blackberry from my pocket, Mr Gates just strode through without pause or
bleep, proving that he has either invented a phone that can pass through
security scanners undetected or that he just doesn’t carry one. Weird or
wonderful.
08.30: Draghi is up soon, due to speak 09.30am (10.30am in Davos), and he will be talking about lessons from the past and what challenges lie in the years ahead.
Among the other big names on the stages today, we have Carlos Ghosn, Renault and Nissan chief executive on a panel talking about emerging markets at 3.30pm (4.30pm in Davos), and Sheryl Sandberg of Facebook and Christine Lagarde of the IMF discussing women in economic decision making at 10.00am (11.00am in Davos).
Meanwhile, we have had some economic data out of Japan, showing that consumer prices, excluding fresh food fell 0.2 per cent in December year-on-year, adding fuel to prime minister Shinzo Abe’s firey push to get the Bank of Japan to end deflation – a heated topic at Davos.
We are also awaiting GDP figures out of the UK, where expectations are for a quarter-on-quarter dip of 0.1 per cent.
As our markets commentator Jamie Chisholm has written:
“If the number is weaker than the expected quarter-on-quarter dip of 0.1 per cent, the traditional reaction, of course, would be for gilt prices to rise and yields fall.”
We’re also expecting IFO data out of Germany. Economists are predicting business confidence to rise for a third month in January.
For views and opinions on the European Union from Peter Spiegel, Joshua Chaffin, Alex Barker and Stanley Pignal, follow the