Friday, May 13, 2011

Economics: Op-ed in the Irish Examiner 12/05/2011

This is the unedited version of my and Declan Ganley's op-ed in yesterday's Irish Examiner.

As you have undoubtfuly heard, I will be moving to a full-time role with StColumbanus AG - a Switzerland-based Asset Management company - on June 1, 2011. I will be setting up economic and financial markets research capabilities within the company and will remain based in Dublin, Ireland. I will also continue teaching in Irish universities and conduct academic research.

This blog will continue its independent existence.

"In December 2010, Olli Rehn joined those of us that had long been forewarning of financial contagion in Europe, when Mr. Rehn declared, “We have to stop the bush fires turning into a Europe-wide forest fire.” Yet the fires continue to rage on, fueled by ever increasing amounts of debt ultimately provided by European taxpayers, an unfairly disproportionate share of them being Irish.

Now, nearly 6 months later, the dead wood of Europe’s financial sector is far from secure against the potential of an even greater conflagration this summer. The ECB-supplied liquidity intended to douse the flames of many local bush fires sparked during the summer of 2010 has grown to proportions few had foreseen – proportions that few are willing to continue subsidizing as evidenced by the growing intransigence of some of Mr. Rehn’s compatriots in Finland who have said, “Enough”.

The Greek spark that initially lit the European forest fires of debt risks is now becoming a consuming fire – after collapse of the interbank lending, many sovereign borrowers today no longer can find a market for their debts. Contagion from the sick banks to the Governments’ balancesheets and now back to the banking system across the EU is nearly complete.

In the same way that planting new saplings is essential for forest management after a major forest fire, there is a need for new institutions to emerge now, in the midst of the crisis, to establish themselves in order to serve the economy in years to come and to grow into a more substantive role as the failed institutions are finally allowed to fail.

St. Columbanus AG is committed to a long-term vision for economic vitality based upon sound business and investment practices in order to create the commercial opportunities for growth and development necessary for a strong European future.

The approach of Switzerland as a global financial center is shifting; the old model of "tax-neutral" capital is fading. A new model of secure "tax-declared" capital is developing, based firmly on the
foundations of sound risk management and long-term investment strategies. Thus, throughout the current crisis, Switzerland continues to provide Europe its traditional role of a safe haven.
St. Columbanus seeks to participate in this push toward tax-declared assets/capital, to learn from it and to develop on the basis of Swiss financial model new products that can address the concerns of today’s clients.

In the past years, we have seen an overemphasis upon derivatives and exotic products that maximize profits for a few people, but to what real benefit of society as a whole? Our own analysis, as well as global market research, clearly show that ordinary investors today are now more concerned with safety, security, long-term growth, transparency and clarity of products and strategies.

On the other hand, failed model of financial engineering has taken hold of the policy responses to the crisis. This makes the world around us inherently less safe. Consider for example the new strikes in Greece as a sign of "social stability" made possible by the efforts to financially engineer Greece's balance sheet?

In our view, Europe today needs competition, and sound financial innovation that is in tune with the clients needs and not with the margin demands of the asset managers. We need to create and to sustain an healthy financial sector. Playing a part in this renewal is the long term vision of our asset management initiative. We will seek to fully participate on several levels in strengthening the fundamental financial landscape across Europe.

Returning to Mr. Rehn’s metaphor, a Forest take generations to grow and only hours to destroy. While a single undertaking like St Columbanus AG cannot be the sole driver of the change required to renew Europe’s financial health, we hope to play a role in this by planting one of the first saplings of the new asset management model.

Declan Ganley & Dr. Constantin Gurdgiev."