Hello,In this issue, you can read the article "What the Paris Finance Summit Must Do" by Sébastien Treyer, Executive Director of the Institute for Sustainable Development and International Relations and Bertrand Badré, &nbsp;former managing director of the World Bank, is CEO and Founder of Blue like an Orange Sustainable Capital and the author of Can Finance Save the World?Enjoy your reading.

The best articles on finance at Aposto, curated by our editors. Topics include micro and macro economic developments, market reports and more. 

The best articles on finance at Aposto, curated by our editors.

Aposto Finance

This is the moment to articulate a reform agenda that is ambitious enough to give the Global South real hope for the future.

What the Paris Finance Summit Must Do

<div dir="ltr" fr-original-style="" itemprop="abstract" style="box-sizing: border-box;">While debt has risen across advanced and developing economies alike, the problem is most acute in low- and middle-income countries where debts were already too high before the COVID-19 pandemic. Worse, offering relief to these societies has become harder than ever.</div>Today, you can read the article "A World of Debt" by Anne O. Krueger, Senior Research Professor of International Economics at the Johns Hopkins University School of Advanced International Studies and Senior Fellow at the Center for International Development at Stanford University.Enjoy.

While debt has risen across advanced and developing economies alike, the problem is most acute in low- and middle-income countries where debts were already too high before the COVID-19 pandemic.

A World of Debt

Hello,In this issue you can find the article "Inflation in the Eurozone: is it persisting or falling?"Enjoy your reading

Supposing that tensions don’t return to these highly volatile markets, the baseline effect (that’s to say, with the transitory effects removed) in the months to come will be ever more favourable, thus lowering global inflation.

Inflation in the Eurozone: is it persisting or falling?

Hello,In this issue, you can find the article 'A Better Year for Stock Markets?' by Jim O'Neill, former chairman of Goldman Sachs Asset Management, former UK treasury minister, and a member of the Pan-European Commission on Health and Sustainable Development.&nbsp;Enjoy your reading,Aposto Editorial Team

An old finance-industry heuristic and recent developments in the real economy may have weakened the pessimists' case.

A Better Year for Stock Markets?

Hello,In this article you can find the article 'Rescuing Economic Growth in Highly Indebted Developing Countries' by Dani Rodrik, Reza Baqir, and Ishac Diwan. Enjoy your reading,Aposto Editorial Team

This year may prove devastating for the developing world, as more and more countries find themselves engulfed in debt crises. 

Rescuing Economic Growth in Highly Indebted Developing Countries

Hello,In &nbsp;this issue, you can find the article 'A China Optimist's Lament' by Stephen S. Roach, former chairman of Morgan Stanley Asia, faculty member at Yale University and the author, most recently, of <a fr-original-style="" href="https://yalebooks.yale.edu/book/9780300259643/accidental-conflict/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Accidental Conflict: America, China, and the Clash of False Narratives</a> (Yale University Press, 2022).Enjoy your reading,Aposto Editorial Team

Article by Stephen S. Roach

A China Optimist’s Lament

Hello,In this issue, you can find the article 'COVID and the Chinese Social Contract' by Joschka Fischer, Germany’s former foreign minister and vice chancellor. Fischer was a leader of the German Green Party for almost 20 years.Enjoy your reading,Aposto Editorial Team

While China's top-down authoritarian strategy initially seemed effective, the regime's zero-COVID policy ultimately proved to be fatally flawed. Article by Joschka Fischer.

COVID and the Chinese Social Contract

Hello,In this issue, you can find the article 'Sleepwalking Into a Global Trade War' by Anne O. Krueger, former World Bank chief economist and former first deputy managing director of the International Monetary Fund. Krueger is a Senior Research Professor of International Economics at the Johns Hopkins University School of Advanced International Studies and Senior Fellow at the Center for International Development at Stanford University.Enjoy your reading,Aposto editorial team

For 70 years after World War II, global growth was underpinned by ongoing efforts to boost international trade by eliminating self-defeating trade barriers.

Sleepwalking Into a Global Trade War

Hello,In this issue, you can find the article 'Things Can Only Get Better for the UK' by Jim O’Neill, former chairman of Goldman Sachs Asset Management and former UK treasury minister.Enjoy your reading,Aposto Editorial Team

Article by Jim O'Neill

Things Can Only Get Better for the UK

Hello,Today, you can read the article 'Can India Fulfill Its Potential?' by Carl Bildt, former prime minister and foreign minister of Sweden.Enjoy your reading,Aposto Editorial Team

Article by Carl Bildt, former prime minister and foreign minister of Sweden.

Can India Fulfill Its Potential?

Ekonomi hakkında yayımlanmış makalaler ve yayınlar

Ekonomi

By Sébastien Treyer &amp; Bertrand Badré.PARIS – Lack of investment for sustainable development in the world’s poorest, most vulnerable countries is one of the most pressing global issues today, especially now that many of these countries are in debt distress, or will be soon. The fallout from the COVID-19 pandemic, Russia’s war on Ukraine, and ongoing climate-driven disasters are preventing many developing economies from achieving liftoff and exacerbating the global economy’s structural asymmetries.This is the decade when we should be ratcheting up investments in sustainable development. In Sub-Saharan Africa, an additional <a fr-original-style="" href="https://www.worldbank.org/en/topic/competitiveness/publication/creating-jobs-for-africas-growing-population" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">two million decent jobs</a> must be created each month until 2035, just to keep up with growth in the working-age population. Yet major powers like the United States, the European Union, and China are paying scant attention to such challenges. Instead, they are focused on their own technological competition, reindustrialization, decarbonization, and zero-sum strategic maneuvering, all of which could aggravate conditions in developing countries.As Barbadian Prime Minister <a fr-original-style="" href="https://www.project-syndicate.org/columnist/mia-amor-mottley" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Mia Mottley</a> warns, the Global South, including its <a fr-original-style="" href="https://www.economist.com/middle-east-and-africa/2023/05/16/africa-faces-a-mounting-debt-crisis" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">emerging economies</a>, remains in critical financial condition, much like Europe after World War II. Back then, the US committed reconstruction funding equal to <a fr-original-style="" href="https://books.google.com/books?id=kGCfmmlGtPEC&pg=PA189#v=onepage&q&f=false" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">3%</a> of the recipient countries’ combined national incomes, because it knew that the investment would pay off both economically and geopolitically. Now, the Western countries that still dominate the Bretton Woods institutions must recognize that they, too, have an interest in effectuating global financial and institutional transformative, not just incremental, reform.Otherwise, the consequences would be catastrophic. The stage would be set for the proliferation of humanitarian disasters in many parts of the world, ecological breakdown, and China’s rise as the main power behind an alternative bloc of multilateral institutions that exist to serve its own interests. This scenario would ultimately leave everyone worse off, with fragmentation and competition between different rule-setters and institutions introducing zero-sum dynamics and destroying global public goods.To prevent such outcomes, Western countries must join the effort to transform multilateral financial institutions, even if doing so means ceding some of their own influence to others who have previously been marginalized. Those pursuing systemic reforms must resist the temptation merely to tweak current arrangements. The entire conversation about development should be reframed to account for neglected issues such as infrastructure and the role of the private sector and non-public financial flows.This is what the June 22-23 Paris <a fr-original-style="" href="https://nouveaupactefinancier.org/en.php" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Summit for a New Global Financing Pact</a> aims to do. But as important as the gathering is, it is also risky. If the only result is a hollow political declaration, the broader reform effort could lose credibility. That is why those in attendance must deliver a concrete blueprint that is ambitious but also realistic and feasible.The summit is asking the right questions, and it presents an opportunity for everyone to think imaginatively about novel solutions to today’s unprecedented challenges. The discussion should focus on three time horizons. The first is the day of the gathering, when governments must agree, for example, to a suspension of debt-servicing obligations for countries facing catastrophic climate events – as was done at the height of the COVID-19 pandemic.The second time horizon spans the next 18 months, through the rest of India’s and then Brazil’s G20 presidencies. Since it has been only six months since the Paris summit was announced, there has not been enough time to negotiate finalized agreements on critical political issues.Even so, the summit can create an impetus for such deal-making in the months ahead as governments find ways to overcome domestic obstacles to more robust action. For example, a preliminary agreement to improve the efficiency with which multilateral development banks deploy existing capital could open the door for greater capital contributions by donor countries in the future.The third time horizon covers the next few years, when far-reaching reforms to the global financial system will need to be implemented. To prepare the ground, the summit should explore the options for mobilizing different kinds of donors and tapping new funding sources, with an emphasis on creating new international taxation mechanisms.This would help broaden the debate beyond official development finance. Not only does the current financial system still favor carbon-intensive investments over sustainable projects; it also favors pure speculation (usually on arcane financial instruments and real estate) over productive investments in poorer countries.Recognizing how deep these problems run, UN Secretary-General <a fr-original-style="" href="https://www.project-syndicate.org/columnist/antonio-guterres" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">António Guterres</a> recently <a fr-original-style="" href="https://www.un.org/nl/desa/un-chief-outlines-strategy-reshape-global-finance-sustainable-development" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">proposed</a> a comprehensive program of measures to redirect “unproductive and unrewarding” finance and rebalance structural asymmetries in the global economic system. The Paris summit should help launch this debate so that it delivers tangible results – including public money to support developing countries – in the months and years ahead.This is the moment to articulate a reform agenda that is ambitious enough to give the Global South real hope for the future.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Sébastien Treyer is Executive Director of the Institute for Sustainable Development and International Relations (IDDRI). Bertrand Badré, a former managing director of the World Bank, is CEO and Founder of Blue like an Orange Sustainable Capital and the author of&nbsp;<a fr-original-style="" href="https://www.penguin.com.au/books/can-finance-save-the-world-9781523094219" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Can Finance Save the World?</a>&nbsp;(Berrett-Koehler, 2018).<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Copyright: Project Syndicate, 2023. <a fr-original-style="" href="http://www.project-syndicate.org/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">www.project-syndicate.org</a>

Written by Anne O. Krueger.WASHINGTON, DC – Recent headlines seem to augur a global debt crisis. The United States is teetering on the precipice of a <a fr-original-style="" href="https://www.npr.org/2023/05/22/1177570119/a-look-at-some-of-the-consequences-if-the-u-s-defaults-on-its-debt" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">self-inflicted default</a>. Egypt, Ghana, Pakistan, and many other countries are in&nbsp;<a fr-original-style="" href="https://www.reuters.com/markets/developing-countries-facing-debt-crisis-2023-04-05/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">grave financial difficulties</a>. Italy and Japan’s debt burdens have&nbsp;<a fr-original-style="" href="https://www.economist.com/special-report/2022/12/05/why-is-italys-public-debt-burden-so-big" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">grown heavier</a>. And the Chinese are delaying or hampering multilateral efforts to&nbsp;<a fr-original-style="" href="https://www.nytimes.com/2023/04/14/business/economy/china-debt-relief.html" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">restructure</a> low- and middle-income countries’ debt. The International Monetary Fund counts&nbsp;<a fr-original-style="" href="https://www.imf.org/en/Blogs/Articles/2022/04/07/restructuring-debt-of-poorer-nations-requires-more-efficient-coordination" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">41 countries</a> as being heavily indebted, and that does not include middle-income countries such as Argentina, Pakistan, and Sri Lanka.The concerns these stories have fueled are real, but there are fundamental differences between them. The US has the capacity to service its debts, and it has been a reliable borrower for many years. Its problem is political. By contrast, the question for poorer countries is whether, or how much, they can repay. Many heavily indebted low-income countries have debt levels that are already unsustainable or will be soon. Some have missed payments or announced that they will have to suspend debt service. Private lenders have responded by refusing to lend more.But this cohort of indebted countries can be broken down further into two groups. Some countries were in relatively satisfactory positions until COVID-19 forced them to borrow more to finance pandemic-related expenditures. International financial institutions have created special facilities to help these countries secure rapid additional financing, and to sustain normal financing as their economies recover.The other group already had high and rising debts before COVID-19, often because they had splurged on projects with low or negative rates of return. Sri Lanka is a case in point. A new government took office in 2019 and&nbsp;<a fr-original-style="" href="https://www.outlookindia.com/business/sri-lanka-lost-around-10-lakh-taxpayers-since-2019-tax-cuts-finance-minister-sabry-news-195205" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">cut taxes dramatically</a>, increasing already large fiscal deficits and borrowing even more. While ill-advised domestic policies – notably a&nbsp;<a fr-original-style="" href="https://apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName?fileName=Sri%20Lanka%20Restricts%20and%20Bans%20the%20Import%20of%20Fertilizers%20and%20Agrochemicals_New%20Delhi_Sri%20Lanka_05-14-2021" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">prohibition</a> on imported agricultural inputs – sharply reduced the country’s agricultural production, the government spent down its foreign-exchange reserves and then borrowed at higher interest rates (especially from China) until it could borrow no more.Because many heavily indebted countries&nbsp;<a fr-original-style="" href="https://www.project-syndicate.org/commentary/multidimensional-vulnerability-index-must-be-adopted-to-help-small-island-developing-states-by-ralph-gonsalves-et-al-2023-05" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">rely on imports</a> for essential food, medicines, and intermediate goods, an&nbsp;<a fr-original-style="" href="https://www.adb.org/sites/default/files/publication/863591/sri-ado-april-2023.pdf" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">inability to finance imports</a> during a crisis can result in factory closures and a sharp decline in economic activity – as happened in Sri Lanka. Until the afflicted country acquires the foreign exchange needed to finance renewed import flows, essentials will&nbsp;<a fr-original-style="" href="https://www.bbc.com/news/world-61028138" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">remain scarce</a>.In these cases, the IMF works with the government to formulate policies to enable the country to restore growth and creditworthiness. If the IMF did not insist on such reforms, it would merely be increasing the country’s indebtedness and postponing an inevitable reckoning. Hence, to ensure that the country follows through, the IMF generally disburses funds in tranches as reforms are carried out, with the initial disbursement enabling a resumption of import flows and debt servicing.Recognizing the impact of such crises on the poor, some observers have called for debt reduction and new funds to be offered without any condition that the country correct the policy failures that led to extreme indebtedness. But in assuming that new lending will help the poor, they fail to see that this is often a case of “throwing good money after bad.” In many cases, one reason why the country is poor is that its previously accumulated debt went toward low-productivity investments.Despite the long process that the IMF undertakes before agreeing to a program, additional complications may emerge after it is established. When the IMF deems a country’s debt burden too heavy for it to sustain its debt-servicing requirements, restructuring of sovereign debt must be part of the agreed IMF program and negotiated with private and public creditors. Sometimes, reforms and IMF money can help a country achieve growth and finance its debt service. But in other cases, the debt has become so large that it is unreasonable to expect the country to resume servicing it fully. To address this issue, officials from the creditor countries’ governments will meet and agree on debt-restructuring terms, which might include a reduction in the face value of the debt, a rescheduling of principal repayments, or even a grace period. Traditionally, private creditors will also participate in these talks and agree to a haircut on outstanding debt.But China’s rise as emerging and developing economies’&nbsp;<a fr-original-style="" href="https://www.reuters.com/markets/asia/china-development-loans-emerging-economies-hit-13-year-low-2021-study-2023-01-24/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">largest bilateral creditor</a> has frustrated matters. The Chinese have been reluctant to restructure debts, and have&nbsp;<a fr-original-style="" href="https://internationalfinance.com/did-chinas-debt-trap-destroy-sri-lankan-economy/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">insisted on lending</a> to debtor countries whatever they need to cover their obligations. If the IMF disbursed funds under those conditions, some portion of them would simply go to repay China, which would then be treated more favorably than other creditors.IMF programs therefore cannot be implemented until all creditors have reached an agreement on restructuring. Sri Lanka could not receive funds from the IMF for months because the Chinese refused to take a haircut on loans they had made. Instead, they wanted to lend even more money to Sri Lanka so that it could&nbsp;<a fr-original-style="" href="https://www.reuters.com/markets/asia/chinas-exim-bank-offers-sri-lanka-debt-extension-letter-2023-01-24/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">service its debt</a> (and increase its overall debt to China). Likewise,&nbsp;<a fr-original-style="" href="https://www.reuters.com/world/africa/ghana-zambias-debt-restructurings-going-diverging-directions-citi-2023-03-17/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Zambia’s restructuring</a> has been delayed since November 2020.True, China finally has made <a fr-original-style="" href="https://www.ft.com/content/93b679db-7e16-48fe-a98c-b7f1840a42eb" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">some arrangements</a> with several countries that would enable the IMF to disburse funds. But many other indebted countries still need to undertake policy reforms in accordance with an agreed IMF program, which means that more delays can be expected. One hopes that China will see that it is in its own interest to devise a smoother, faster process for policy reforms and debt restructuring.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Anne O. Krueger, a former World Bank chief economist and former first deputy managing director of the International Monetary Fund, is Senior Research Professor of International Economics at the Johns Hopkins University School of Advanced International Studies and Senior Fellow at the Center for International Development at Stanford University.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Copyright: Project Syndicate, 2023. <a fr-original-style="" href="http://www.project-syndicate.org/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">www.project-syndicate.org</a>

While debt has risen across advanced and developing economies alike, the problem is most acute in low- and middle-income countries where debts were already too high before the COVID-19 pandemic. Worse, offering relief to these societies has become harder than ever.

<div fr-original-style="" itemprop="articleBody" style="box-sizing: border-box;">In 2022, the annual inflation rate hit a record level (<a fr-original-style="" href="https://www.banque-france.fr/intervention/le-retour-de-linflation-dans-la-zone-euro-et-les-reponses-de-la-politique-monetaire" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">8.4%</a>) since the Eurozone’s creation in 1999, mostly because of disruptions in the global supply chain and by the energy crisis provoked by the conflict in Ukraine.Now the question that must be asked is whether inflation rates will rise or fall in 2023 and beyond. Indeed, a few factors seem to suggest that the <a fr-original-style="" href="https://theconversation.com/fr/topics/banque-centrale-europeenne-bce-24704" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">European Central Bank’s (ECB)</a> <a fr-original-style="" href="https://theconversation.com/fr/topics/inflation-28219" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">inflation</a> target of 2% could be reached if other circumstances don’t intervene to maintain it at high levels.<h2 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">Is the worst behind us?</h2>A decrease in the prices of raw materials could suggest that inflation will slow down. After inflation peaked at 10.6% (year-over-year) in October 2022, the most recent data in January showed a <a fr-original-style="" href="https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Inflation_in_the_euro_area" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">decrease to 8.5%</a>. The fall in raw material prices after historic highs is an important reason why prices are rising more slowly. Indeed, food, living and energy costs make up 35% of the global Harmonised Index of Consumer Prices (HICP).Supposing that tensions don’t return to these highly volatile markets, the baseline effect (that’s to say, with the transitory effects removed) in the months to come will be ever more favourable, thus lowering global inflation.<div data-id="17" fr-original-style="" style="box-sizing: border-box;"><h5 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;"> </h5></div><iframe src="https://datawrapper.dwcdn.net/8mHHg/1/" height="400px" width="100%" frameborder="0" fr-original-style="" style="box-sizing: border-box;"></iframe>Another factor might lead to a slowdown in the inflation rate: inflation expectations. In spite of what the public might think, these expectations are indeed one of the <a fr-original-style="" href="https://www.cairn.info/macroeconomie--9782100793259-page-356.htm" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">main engines behind rising prices</a> today. With this in mind, central banks carefully monitor consumer and professional forecasters surveys to evaluate sentiments about inflation.According to the ECB’s last report, <a fr-original-style="" href="https://www.ecb.europa.eu/stats/ecb_surveys/consumer_exp_survey/results/html/ecb.ces_results_january_2023_inflation.en.html" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">consumer forecasts</a> stand at 5.0% for this year while long-term inflation expectations are unchanged at 2.9%. At the same time, <a fr-original-style="" href="https://www.ecb.europa.eu/stats/ecb_surveys/survey_of_professional_forecasters/html/ecb.spf2023q1~af876c4cfb.en.html" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">experts</a> have revised their forecasts for HICP inflation for 2023 and 2024; and have increased them compared to the previous survey (the fourth quarter of 2022), to 5.9% and 2.7% respectively. In combination, these two indicators are a positive sign that inflation expectations in the medium term are well within ECB objectives, and that the scenario of inflation getting out control is unlikely (for the moment).Lastly, one mustn’t forget that monetary policies take some time to affect the economy, with effects kicking in <a fr-original-style="" href="https://www.ecb.europa.eu/press/key/date/2022/html/ecb.sp221011~5062b44330.en.html" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">12 months after at the earliest and at their strongest 24 month after</a>).Thus, we will only feel the impact of the ECB’s first interest rate rise (in <a fr-original-style="" href="https://theconversation.com/fed-et-bce-deux-rythmes-mais-une-meme-strategie-contre-linflation-185059" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">July 2022</a>) by mid-2023. If the economy of the <a fr-original-style="" href="https://theconversation.com/fr/topics/zone-euro-54680" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Eurozone</a> has shown some signs of slowing down in the last quarter of 2022, the “delaying” effect of a rise in interest rates will certainly have an impact on growth in 2023, which is <a fr-original-style="" href="https://www.imf.org/en/Publications/WEO/Issues/2023/01/31/world-economic-outlook-update-january-2023" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">expected to settle at 0.7%</a> after reaching 3.5% last year.Meanwhile, a number of arguments could lead us to believe that prices will stay high. First, inflation rates remain at more than 7% in the larger countries of the euro zone. Germany, France and Italy have not yet experienced a significant slowdown. In short, prices of European goods continue to rise.<h2 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">A spike in springtime ?</h2>Research on the <a fr-original-style="" href="https://www.ecb.europa.eu/pub/economic-research/research-networks/html/researcher_ipn_briefsummary.en.html" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">persistent nature of inflation</a> conducted by the ECB showed that prices are infrequently updated and on an irregular basis. This could lead to “secondary effects” and it could take a while for the inflationary impact of raw material prices to affect the wider economy. It’s not a surprise to learn that supply costs have not yet been entirely transferred to retailers or large supermarket chains. According to Michel-Édouard Leclerc, the head of the E. Leclerc brand, prices could spike “between April and June”.It’s also interesting to note that price rarely change for non-energy industrial goods and for services in particular. During her last <a fr-original-style="" href="https://www.ecb.europa.eu/press/pressconf/2023/html/ecb.is230202~4313651089.en.html" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">press conference on February 2</a>, the ECB president, Christine Lagarde, took care to emphasise that underlying inflation (other than food and energy) had hit 5.4% in December, a Eurozone record. Prices remain stubbornly high in the Eurozone (<a fr-original-style="" href="https://www.ecb.europa.eu/pub/economic-research/research-networks/html/researcher_ipn_briefsummary.en.html" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">more than in the USA</a>), which explains the hawkish attitude of certain ECB officials for whom <a fr-original-style="" href="https://www.ecb.europa.eu/press/inter/date/2023/html/ecb.in230208~028be3e58d.en.html" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">the fight against inflation isn’t yet won</a>.<iframe src="https://datawrapper.dwcdn.net/EVqDp/1/" height="400px" width="100%" frameborder="0" fr-original-style="" style="box-sizing: border-box;"></iframe><iframe src="https://datawrapper.dwcdn.net/QYBe3/1/" height="400px" width="100%" frameborder="0" fr-original-style="" style="box-sizing: border-box;"></iframe>Up until now, the wage-price spiral remains under control in spite of recurring problems of <a fr-original-style="" href="https://www.ft.com/content/b303207e-1513-4f01-920a-233dbf1a313d" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">labour shortage</a> in a few countries. However, the ECB expects that with a labour market that is still resilient at the beginning of this year, wages could increase even more.In the 1970s, the wage-price spiral following the oil crises was responsible for sticky inflation rates. In <a fr-original-style="" href="https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp414.pdf" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">a 2004 research paper</a>, I argue the extent of inflation persistence diminished when monetary authorities adopted inflation targeting policies, and that <a fr-original-style="" href="https://www.ecb.europa.eu/pub/pdf/scpops/ecb.op299~61d0565cfb.en.pdf" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">wage indexation</a> had become the exception rather than the rule. Meanwhile, as Christine Lagarde recognised, wages will constitute an important part of inflationary pressure in the months to come.<h2 fr-original-style="" style="margin: 0px; color: rgba(0, 0, 0, 0.85); font-weight: 500; padding: 0px; box-sizing: border-box;">Mistakes happen</h2>There is a <a fr-original-style="" href="https://www.bloomberg.com/news/articles/2022-07-14/ecb-is-judged-as-acting-late-after-its-long-goodbye-to-low-rates" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">consensus</a> that the ECB (as well as the US Federal Reserve, the Fed) was late in raising its key interest rate last year.Will we see more policy blunders from central bankers this year? In the <a fr-original-style="" href="https://www.ft.com/content/146647c0-8e0d-4497-8ea8-ea5f930d7fcd" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Financial Times</a>, the journalist Martin Wolf writes that as inflation had started to go down at the beginning of the 1970s, the Fed reduced its key rate too early. It is also interesting to note that short-term interest rates (financial products that ensure the purchase or sale of assets at a determined price and date) imply that the Fed, like the ECB, could <a fr-original-style="" href="https://www.bloomberg.com/news/articles/2023-01-16/ecb-interest-rates-seen-hitting-peak-of-3-25-before-cut-in-july" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">lower their key rates</a> as early as this year.To sum up, it is difficult today to say which factors will be the most important, particularly given the climate of <a fr-original-style="" href="https://theconversation.com/fr/topics/incertitude-23726" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">uncertainty</a> that monetary and budgetary authorities have no control over. Even if the general consensus is that there will be steady disinflation in the Eurozone, the global economy remains vulnerable to other unpredictable geopolitical shocks that could lead us back on a re-inflationary path similar to the 1970s. If history never repeats itself, it does often rhyme. That’s why humility and determination should be the guiding principles of those at the helm of monetary policy.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Written by <a fr-original-style="" href="https://theconversation.com/profiles/gregory-gadzinski-1385814" rel="noopener noreferrer" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Gregory Gadzinski</a>, Associate Professor of Finance, International University of MonacoTranslated from French by <a fr-original-style="" href="https://www.fleurmacdonald.co.uk/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Fleur Macdonald</a>.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">This article is republished from <a fr-original-style="" href="https://theconversation.com" rel="noopener noreferrer" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a fr-original-style="" href="https://theconversation.com/inflation-in-the-eurozone-is-it-persisting-or-falling-200003" rel="noopener noreferrer" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">original article</a>.</div>

By Jim O'NeillLONDON – Although it has been almost a decade since I gave up a full-time job in finance, markets – and market oddities – still fascinate me, especially when they send signals that run against a widely held consensus among analysts and investors. Given all the disappointments in 2022, the outlook for the new year is quite downbeat. Major corporations are announcing layoffs, and the International Monetary Fund is <a fr-original-style="" href="https://www.cnn.com/2023/01/02/business/imf-china-global-economy-recession-intl-hnk/index.html" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">forecasting</a> that at least one in three countries will experience a recession this year.The reasons for such pessimism are not hard to find. The big inflationary surprises of 2022 triggered a massive and rapid tightening of monetary policies in most major economies, and key central banks have continued to talk tough. Although the US Federal Reserve reduced the size of its interest-rate hikes from 75 basis points to 50 bps in December, it has <a fr-original-style="" href="https://www.pbs.org/newshour/show/after-raising-interest-rates-again-federal-reserve-warns-more-hikes-likely-in-2023" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">made clear</a> that more rate hikes are likely – and that a rate cut is not in the cards for 2023. Making matters worse, many other problems, like Russia’s war in Ukraine, continue to simmer, threatening supply chains, markets, and economies around the world.At some point in my career, I was introduced to an old almanac that offered an endless array of heuristics about US stock markets’ past performance. One nugget that always stuck with me is the <a fr-original-style="" href="https://www.project-syndicate.org/commentary/stock-markets-2022-five-day-rule-by-jim-o-neill-2022-01" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">five-day rule</a>: If the S&amp;P 500 index makes a net gain during the first five trading days of the calendar year, equities will perform well for the year overall. When I asked my colleagues to check it for the 1950-2014 period, they found that it held true more than 80% of the time.Well, in the first five days of 2023, <a fr-original-style="" href="https://www.marketwatch.com/investing/index/spx" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">the market rose</a> by just over 1%, which means there is over an 80% chance that it will be positive on the year – at least according to the five-day rule. But before you rush to buy your favorite stocks, let me add a few obvious caveats. First, the stock market tends to rise more than it falls: down years are nowhere close to as frequent as up years. This is not particularly surprising, considering the prominent role that equity markets play in finance.Second, the five-day rule is not airtight. There is almost a 20% chance that a rising market during the first five trading days ends up being down on the year. Ultimately, economic conditions, not some hoary heuristic, will determine the outcome. After all, why should the first five days be determinative of anything? It is understandable that many retail and institutional investors would want to signal confidence for the year, but there is no underlying economic reason why this period should be considered especially predictive.Nevertheless, other recent developments offer some cause for hope. Commentators may soon change their tune, and that could make investors more open to embracing a different collective narrative than the one that has been influencing their behavior so far. I can see three reasons why that could happen.First, despite the war in Ukraine, many commodity prices – including <a fr-original-style="" href="https://oilprice.com/Energy/Gas-Prices/Geopolitical-Risk-Premium-In-US-Gas-Prices-Is-Evaporating.html" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">natural gas</a> – fell significantly in the second half of 2022. That not only increases the probability that inflationary pressures will ease; it also means that companies and consumers’ disposable income is not as vulnerable as was previously assumed. Equally important, several high-frequency indicators for late 2022 and early 2023 have been better than expected, notably in Europe.Second, other inflation indicators have also been better than expected on both sides of the Atlantic, including the most recent US <a fr-original-style="" href="https://www.reuters.com/markets/us/view-us-payrolls-show-labor-market-remains-strong-wages-rises-cool-2023-01-06/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">wage-data series</a>. While the Fed and many other central banks insist that they will remain hawkish, I am reminded of something a famously successful US hedge fund manager once told me: The only thing you can know about the Fed is that it will change its message when the evidence changes. If the inflation picture continues to improve faster than Fed officials expect, they will change their view.Finally, one must not forget China, which suddenly abandoned its zero-COVID policy in December. Notwithstanding the massive surge in infections and hospitalizations, the end of lockdowns sets the stage for a big cyclical bounce in the Chinese economy – even with all the other structural challenges that Chinese authorities must confront. Recall that there was a similar post-lockdown rebound in many other countries (even the United Kingdom, despite <a fr-original-style="" href="https://www.project-syndicate.org/commentary/uk-economy-underperformance-post-brexit-winter-by-jim-o-neill-2022-12" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">all its other problems</a>).Investors will seek further clues in what happens next. If markets manage to remain slightly more bullish through the end of the month, I suspect many commentators’ views will also shift. Then it will be time to consider whether things are really looking up – or whether the five-day rule is best ignored.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a former UK treasury minister, is a member of the Pan-European Commission on Health and Sustainable Development.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Copyright: Project Syndicate, 2022.<a data-saferedirecturl="https://www.google.com/url?q=http://www.project-syndicate.org&source=gmail&ust=1672910938098000&usg=AOvVaw0KZ_gPIANNPZyrwxEWJw31" fr-original-style="" href="https://link.apos.to/c/9RnCQ5C7hs4X?c=nGyqdUfJBBfvSpIbqyl6E&sub=62b033905d379200061d8935&s=web" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">www.project-syndicate.org</a>

By Dani Rodrik, Reza Baqir, and Ishac DiwanCAMBRIDGE – This year may prove devastating for the developing world, as more and more countries find themselves engulfed in debt crises. Several (Lebanon, Sri Lanka, Russia, Suriname, and Zambia) are already in default, and scores of others urgently need debt relief to ward off economic collapse and sharp rises in poverty.The prevailing response to debt crises is to negotiate complex packages involving the debtor country, international financial institutions (IFIs), and other external creditors. Domestic bondholders, labor unions, and others play a part, too, as they have their own interests to protect. The bargaining process among all these parties can be lengthy and feature significant domestic and global efforts to game the outcome by pushing a larger burden of losses onto others, even as debtor-country conditions continue to deteriorate.The rise of emerging markets as major bilateral official creditors has added further complexity to an already difficult process. China, India, countries in the Middle East, and others have not been part of conventional debt-resolution arrangements. Besides complicating coordination, heterogeneity among creditors can unleash more destructive processes led by self-fulfilling expectations, such as sudden capital-flow reversals and banking crises.The key to making debt deals more compelling to all parties is to design them in a way that unlocks growth opportunities. The prospect of large enough gains would attract all parties to the negotiating table, as they could share among themselves the benefits that such a package unleashes.Growth-promoting debt resolution <a fr-original-style="" href="https://www.researchgate.net/publication/5072847_External_Debt_Adjustment_and_Burden_Sharing_A_Unified_Framework" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">requires a three-sided deal</a>. Debtor governments can afford to invest in growth opportunities and cut unproductive and inefficient expenditures only if additional resources are provided. The IFIs can safely lend those resources only if the existing creditors agree to debt (and debt-service) reduction. The existing creditors, in turn, will provide debt relief only if the IFIs can apply effective conditionality to ensure that debtor governments maintain appropriate growth policies. With a new wave of debt workouts looming, some of the elements of such grand deals must be <a fr-original-style="" href="https://drodrik.scholar.harvard.edu/files/dani-rodrik/files/a_framework_for_debt_relief_cum_adjustment_packages_010523.pdf" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">updated and adapted</a> to new global realities.One key issue has to do with the nature of growth opportunities. Recent developments such as deglobalization, decarbonization efforts, and the demise of the export-oriented growth model have likely lowered the growth potential of low-income countries. This implies that debt-reduction bargains should not exaggerate the role of future growth, and that the cost of lost growth opportunities will have to be deeper debt reductions. But, equally important, future growth would be even lower in the absence of new investments that adjust the growth path to new realities.If new growth opportunities receive new financing and are profitable, they can lessen the need for debt reduction, by at least partly counteracting the effect of the trade-related decline in growth opportunities. These opportunities and funding needs are clearest and most substantial with respect to the green transition. Climate change is hurting growth prospects in low-income countries the most, owing partly to their geographical location, and partly to their populations’ greater vulnerability and inability to mitigate climate risks. Green growth is largely about implementing public policies to offset these negative forces. But it is also about taking advantage of new opportunities.Investments in <a fr-original-style="" href="https://hbr.org/2022/08/its-time-to-invest-in-climate-adaptation" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">adaptation</a> to climate change include projects to defend against sea-level rising, reduce the salinity of floods, bolster road and bridge infrastructure, and increase water conservation. Since global food prices are expected to vary more widely in the coming years, adaptation also includes improving food security. <a fr-original-style="" href="https://www.unep.org/explore-topics/climate-change/what-we-do/mitigation/climate-mitigation-finance" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Mitigation</a> in turn will focus on generating power in clean ways, using solar and wind technologies that require front-loaded investments.For this to happen, the approach of the IFIs must change. Conditionality must be adapted to the new development challenges. It must embrace the new growth agenda and shift its focus from an overemphasis on macroeconomic targets to socially acceptable policies that support the green growth imperative. Since the growth payoffs are likely to take longer, conditionality must be phased in accordingly.Moreover, the IFIs must take on a larger financing role, both directly and through efforts to leverage private finance through enhancements. More than in the past, the IFIs will need to provide new finance early on, until debtor countries re-establish a track record of creditworthiness and market access as they manage the transition to a new growth path. The investment needs of the green transition are much larger than the old-style reforms of the 1980s, which simply shifted resources from the public to the private sector to concentrate on a narrower set of public expenditures.Given valuable growth opportunities, the size of the IFIs’ loans and the amount of debt reduction needed can be negatively correlated. An ambitious lending program that financed an ambitious reform program should lead to high growth rates and thus require less debt reduction.Finally, the IFIs need to respond to the changes in creditor composition. Burden-sharing is more complex today, owing to the growth of private-market debt and the rise of new creditors (especially China, India, Russia, and a few others). If the new official creditors are going to be taking major losses on their claims, they might expect to have a greater say in how the principles for debt restructuring are developed. In the short term, the principles must be applied in flexible ways to facilitate progress. Over time, the significant changes in the official creditor landscape must be reflected in the composition of the boards of the IFIs.Economic growth remains an essential ingredient of successful debt deals. But even in the best of circumstances, developing countries’ growth is likely to be slower and more domestically oriented, requiring a combination of deeper debt reduction and longer time horizons. Realizing new investment opportunities will require new funding and new forms of conditionality. And new financing will have to come early and largely from the IFIs, until developing countries embark credibly on new growth paths.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Dani Rodrik, Professor of International Political Economy at Harvard Kennedy School, is President of the International Economic Association and the author of&nbsp;Straight Talk on Trade: Ideas for a Sane World Economy&nbsp;(Princeton University Press, 2017).Reza Baqir, a former governor of the State Bank of Pakistan, is a senior fellow at Harvard Kennedy School’s Mossavar-Rahmani Center for Business and Government.Ishac Diwan is Research Director at the Finance for Development Lab.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Copyright: Project Syndicate, 2023. <a fr-original-style="" href="http://www.project-syndicate.org/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">www.project-syndicate.org</a>

By Dani Rodrik, Reza Baqir, and Ishac Diwan

NEW HAVEN – I have been a congenital China optimist for most of the past 25 years. I first came to that view in the depths of the Asian financial crisis in 1997-98. The so-called <a fr-original-style="" href="https://documents1.worldbank.org/curated/en/322361469672160172/pdf/123510v20PUB0r00Box371943B00PUBLIC0.pdf" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">East Asian growth miracle</a> was in tatters and China was widely portrayed as the <a fr-original-style="" href="https://www.economist.com/leaders/1998/04/30/chinas-coming-recession" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">final domino</a> that would fall in what was then viewed as the first crisis of globalization. Having shuttled back and forth to the region during that period as Morgan Stanley’s chief economist, I had quickly come to appreciate the power of China’s market-based economic transition. So, in March 1998, I took a very different view on the pages of the Financial Times with my <a fr-original-style="" href="https://www.amazon.com/This-China-different-collection-growing/dp/B0006RXGGW?tag=namespacebran76-20" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">first published commentary</a> on China, “The Land of the Rising Dragon.”My argument, in a nutshell, was that China would supplant Japan as the new engine of post-crisis Asia. Japan was floundering in the aftermath of its post-bubble implosion, whereas a reform-oriented China had the wherewithal, determination, and strategy to withstand the currency contagion of a devastating external shock and sustain rapid economic growth. As <a fr-original-style="" href="https://www.nytimes.com/1998/06/26/opinion/chinas-dynamism-japans-inertia.html" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">China delivered</a>, boosted by its accession to the World Trade Organization in late 2001, and Japan sunk into its second lost decade, the Chinese economy took off like a rocket.It was the beginning of an extraordinary journey for me as Wall Street’s resident China optimist. In the spring of 1998, I spent a day in Seattle with then Chinese Finance Minister Xiang Huaicheng. He had read my piece in the FT and <a fr-original-style="" href="https://news.yale.edu/2012/05/02/qa-economic-prophet-now-showing-classes-how-theory-translates-practice" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">wanted</a> to exchange views on the Chinese and US economies. He implored me to think of China less in terms of legacy state-owned enterprises (SOEs) and more through the lens of a rapidly emerging entrepreneurial subculture driven by <a fr-original-style="" href="https://www.cambridge.org/core/books/capitalism-with-chinese-characteristics/CECD36DB2C3623DEE4670F7897BAA3CB" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">township-village enterprises</a> (TVEs).Xiang was kind enough to organize a subsequent tour of several TVEs in Fujian Province. The most impressive was the <a fr-original-style="" href="http://www.hengtonggroup.com/en/home/solutions/case_study.html" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Hengtong Group</a>, a rapidly growing producer of high-quality fiber optic and telecom cables. Loaded with state-of-the-art technology from the United States and Germany, and staffed with a surprisingly large number of college graduates, Hengtong was the opposite of China’s long-ossified SOEs.That experience whetted my appetite. I <a fr-original-style="" href="https://www.imf.org/en/News/Articles/2015/09/28/04/54/tr041019" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">deepened my research</a> into the seemingly paradoxical dynamism of China’s blended economy, with newly reformed and increasingly marketized SOEs starting to list shares in international capital markets in a balancing act with a rapidly growing private sector. Could China avoid the chronic problems that had long afflicted other blended systems, including Japan?This <a fr-original-style="" href="https://www.project-syndicate.org/commentary/china-s-turning-point-2011-02" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">same question was posed</a> by former Premier Wen Jiabao. I first met Wen in late 2002, a few months before his elevation to the premiership under President Hu Jintao. His curiosity impressed me more than his skills as a strategist, which had distinguished his <a fr-original-style="" href="https://yalebooks.yale.edu/book/9780300212655/unbalanced/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">predecessor</a>, Zhu Rongji.But Wen had the courage to spark a debate about one of China’s toughest problems: In a public press conference in March 2007, he warned that while the economy was superficially strong, it risked becoming “unstable, unbalanced, uncoordinated, and unsustainable.” To Wen’s great credit, he posed the paradox of the “Four Uns” just a few months before the eruption of America’s subprime mortgage crisis, which would culminate in the 2008-09 global financial crisis.At this point, I doubled down as a China optimist. The resilience of the blended system – the legacy of Deng Xiaoping’s “reform and opening up” – held the key to what I believed would be a powerful rebalancing of the Chinese economy. Wen’s Four Uns could be resolved only by a structural shift from exports and investment to consumer-led growth, from manufacturing to services, from surplus saving to saving absorption by investing in a long-deficient social safety net, and by shifting from foreign to indigenous innovation.China’s flexible, blended, increasingly dynamic private sector could do all that and more. In the years following Wen’s proclamation, China’s five-year plans aligned with this <a fr-original-style="" href="https://www.wiley.com/en-us/Stephen+Roach+on+the+Next+Asia%3A+Opportunities+and+Challenges+for+a+New+Globalization-p-9780470446997" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">rebalancing agenda</a>. The case for a structural transformation to a more market-based system was increasingly on track. Optimists, like me, felt vindicated.Then came Xi Jinping. At first, China’s fifth-generation leader seemed to be cut from the same cloth as the reform-oriented Deng. A sweeping set of reforms proposed at the <a fr-original-style="" href="https://asiasociety.org/policy-institute/avoiding-blind-alley-chinas-economic-overhaul-and-its-global-implications" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Third Plenum of the 18th Party Congress</a> in late 2013 was especially encouraging. But shortly thereafter, uncomfortable frictions started to creep into the rebalancing strategy.In 2017, Xi kicked off the 19th Party Congress with a regression to Marxist ideology that immediately became known as “<a fr-original-style="" href="https://www.scmp.com/comment/opinion/article/3189971/how-china-sacrificed-economic-growth-altar-xi-jinping-thought" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Xi Jinping Thought</a>.” Consumer-led rebalancing was de-emphasized. An anti-corruption campaign became less about purging wrongdoers from the party and more about eliminating Xi’s political rivals and consolidating his power. And Xi’s geostrategic muscularity broke from Deng’s low-key (“hide and bide”) posture and led to a major <a fr-original-style="" href="https://yalebooks.yale.edu/book/9780300259643/accidental-conflict/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">conflict with the United States</a>.But 2022 was the ultimate wake-up call for China optimists. Xi’s great-power gambit aligned China in an “<a fr-original-style="" href="https://www.project-syndicate.org/commentary/china-russia-cooperation-agreement-under-ukraine-pressure-by-stephen-s-roach-2022-03" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">unlimited partnership</a>” with Russia on the brink of the Kremlin’s unprovoked invasion of Ukraine. Xi’s stubborn insistence on an untenable “zero-COVID” policy tapped an undercurrent of dissent not seen in a generation. And the 20th Party Congress in October was less about Xi’s claim to an unprecedented third term as general secretary and more about his <a fr-original-style="" href="https://www.project-syndicate.org/commentary/under-xi-chinese-security-takes-precedence-over-economic-growth-by-stephen-s-roach-2022-10" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">fixation on security</a> in what he dubbed to be a threatening world of “perilous, stormy seas.”With a shrinking working-age population, China, until recently the world’s greatest growth story, needs an acceleration in productivity growth to reclaim that mantle. Yet Xi’s increased emphasis on security, power, and control <a fr-original-style="" href="https://www.foreignaffairs.com/china/xis-costly-obsession-security" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">undermines productivity</a> at a time when China needs it the most. The growth miracle can only suffer as a result.China had come close to the promised land. Its modern economy was on an extraordinary trajectory. The rebalancing agenda promised more to come. But Xi broke that promise. The political economy of autocracy has thrown cold water on those of us who used to be diehard China optimists.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Stephen S. Roach, a former chairman of Morgan Stanley Asia, is a faculty member at Yale University and the author, most recently, of&nbsp;<a fr-original-style="" href="https://yalebooks.yale.edu/book/9780300259643/accidental-conflict/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Accidental Conflict: America, China, and the Clash of False Narratives</a>&nbsp;(Yale University Press, 2022).<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Copyright: Project Syndicate, 2022.<a data-saferedirecturl="https://www.google.com/url?q=http://www.project-syndicate.org&source=gmail&ust=1672910938098000&usg=AOvVaw0KZ_gPIANNPZyrwxEWJw31" fr-original-style="" href="https://link.apos.to/c/6zN0uALJ7WFN?c=kpVlgmgCaW7vsGcAmKsWb&sub=62b033905d379200061d8935&s=web" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">www.project-syndicate.org</a>

By&nbsp;Joschka FischerBERLIN – In October, the Communist Party of China convened its 20th National Congress, primarily to confirm President Xi Jinping’s hold over the country’s leadership. Everything went according to his plan: the CPC’s top governing body, the Standing Committee, is now staffed only by his most devoted henchmen. With Xi having secured a third term as general secretary – and thus as president – one man now has absolute power in China for the first time since the days of Mao Zedong.Gone is the principle of collective, term-limited leadership that Deng Xiaoping introduced following Mao’s death – a time when China was just beginning its massively successful modernization phase. Yet, as recent history shows, the return to one-man rule in a country of 1.4 billion people represents one of the greatest risks to China and its status as a rising superpower second only to the United States.Yes, under Xi, the Chinese regime’s power has increasingly seemed unlimited and unrestricted, owing to massive investments in state-of-the-art digital mass surveillance and social control systems. Yet the CPC’s strength is not based only on all-encompassing “smart” repression. Rather, it is the result of the party’s tremendous successes in modernizing China.Toward the end of the twentieth century, China integrated itself into the world economy, becoming its “extended workbench” and its number-one exporting country. China then leveraged this growth to develop a highly efficient mixed economy, with a growing private sector operating alongside the traditional party-controlled state sector. The results were phenomenal: China consistently recorded massive annual growth rates, lifting hundreds of millions of people (especially in the coastal regions) out of absolute poverty and into a newly emerging middle class.As China became richer, it increased its military power and pursued more dominant positions on the technological frontier. Within the space of just a few years, its technological successes – born predominantly of the private high-tech sector – made it a serious rival to US Big Tech. For a few years in the late 2010s, it seemed to be only a matter of time before China would replace the US as the world’s largest economy and overwhelmingly dominant technological superpower.Then came the COVID-19 outbreak in Wuhan in late 2019. Despite some Chinese authorities’ efforts to cover up the emerging epidemic, it soon became the entire world’s problem. On March 11, 2020, the World Health Organization <a fr-original-style="" href="https://www.who.int/director-general/speeches/detail/who-director-general-s-opening-remarks-at-the-media-briefing-on-covid-19---11-march-2020" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">declared</a> the outbreak to be a pandemic, and the global economy ground to a halt as countries locked down to contain the spread of the virus.But different countries adopted different strategies over the medium term, depending on their respective cultural and historical traditions. The open, democratic societies of the West, for example, embraced transparency and relied on voluntary self-isolation and the rapid development of effective vaccines. Three years later, their populations are now largely immunized – though many people have died.By contrast, China relied from the beginning on draconian containment measures. Under its zero-COVID policy, every detected infection resulted in forced, closely supervised quarantines for all those affected. For a long time, this strategy seemed superior to the Western approach. China had far fewer deaths, and because it had isolated itself from the rest of the world, its domestic economy also recovered faster than those of the US and Europe. Accordingly, many around the world began to suspect that authoritarian command economies are better equipped for such crises than are the West’s messy, pluralist liberal democracies.But this view has proved to be deeply mistaken. We now know that China’s zero-COVID policy required a suspension of the social contract between the CPC and the people. Xi seems to have overlooked the fact that today’s China – at least the large metropolises that drive the economy – is not the China of the 1960s and 1970s.The new China simply is not suited for policies that require the authorities to shut down entire mega-cities with no notice, often locking workers in factories for weeks at a time. Moreover, owing to China’s position in the world economy, self-isolation was always going to be costly. Not only did zero-COVID create enormous disruptions in international supply chains; it also caused considerable damage to China’s own export sector.Xi wanted to use the pandemic to demonstrate the superiority of the Chinese system over the declining West. Yet this meant that, out of nationalistic arrogance, he refused to import the vastly superior Western mRNA vaccines. With China’s huge population remaining under-vaccinated and unprotected, lifting the zero-COVID measures was bound to be risky.But so, too, were the never-ending lockdowns. Just weeks after the 20th Party Congress, public frustration exploded across China’s large metropolises. Protesters held up sheets of white paper to decry the CPC’s censorship regime, and the “revolt of the blank sheets” spread like a bushfire. Xi had clearly overreached.How could China’s seemingly all-powerful autocrat understand so little about the social contract on which his power rests? For all its difficulties, liberal democracy – with its transparency and self-imposed limits – has once again proved more efficient and resilient than autocracy. Accountability to the people and the rule of law is not a weakness; it is a decisive source of strength. Where Xi sees a cacophony of clashing opinions and subversive free expression, the West sees a flexible and self-correcting form of collective intelligence. The results speak for themselves.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Joschka Fischer, Germany’s foreign minister and vice chancellor from 1998 to 2005, was a leader of the German Green Party for almost 20 years.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Copyright: Project Syndicate, 2022. <a fr-original-style="" href="https://link.apos.to/c/6zN0uALJ7WFN?c=Twpzsz9F83PXH_zkxlyou&sub=62b033905d379200061d8935&s=web" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">www.project-syndicate.org</a>

In response to the COVID-19 pandemic, different countries adopted different strategies, depending on their respective cultural and historical traditions. While China's top-down authoritarian strategy initially seemed effective, the regime's zero-COVID policy ultimately proved to be fatally flawed.

By Anne O. Krueger&nbsp;WASHINGTON, DC – The world is embroiled in a megacrisis comprising the COVID-19 pandemic, Russia’s war in Ukraine, high inflation, recession fears, and rising debt distress across emerging markets and developing countries. The last thing we need is an additional source of economic harm. But that’s what we may get, in the form of another destructive trade war.Trade wars are immensely damaging because the countries involved tend to retaliate by erecting ever-higher trade barriers. This vicious cycle was blamed for greatly prolonging the Great Depression in the 1930s, which is why the United States led the effort to develop a new world trading system after 1945, setting the stage for the most successful period of global economic growth in history. For 70 years, global commerce was underpinned by the rule of law, with an international organization – the General Agreement on Tariffs and Trade, which was succeeded by the World Trade Organization – ensuring impartial adjudication of disputes.But starting in 2017, Donald Trump’s administration effectively withdrew US support for the WTO and started a trade war with China. In addition to slapping discriminatory tariffs on imports, it also imposed more sweeping levies on items such as steel and aluminum, dubiously citing “national security” concerns. Though most trade lawyers believed these measures to be illegal under WTO rules, US trading partners abstained from retaliation in the hope that the next administration would roll back Trump’s protectionist policies.Unfortunately, US President Joe Biden’s administration has neither rescinded Trump’s trade measures nor restored important WTO functions such as the dispute-settlement mechanism. And if that wasn’t bad enough, this year’s US Inflation Reduction Act (IRA) and CHIPS and Science Act will inflict so much damage on major trading partners and allies that they will almost certainly have to retaliate. The US will then find itself in a trade war not only with China but also with its own allies, and the world will be confronted with yet another major crisis: the breakdown of the international trading system.Both the IRA and the CHIPS Act are openly protectionist and discriminatory, violating agreements that the US has made through successive rounds of multilateral tariff-reduction negotiations. For example, the IRA provides a <a data-saferedirecturl="https://www.google.com/url?q=https://www.jdsupra.com/legalnews/the-ira-s-electric-vehicle-and-battery-3876820/&source=gmail&ust=1672910938098000&usg=AOvVaw30Bh2lGb-DcF85fUvefIs0" fr-original-style="" href="https://www.jdsupra.com/legalnews/the-ira-s-electric-vehicle-and-battery-3876820/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">$7,500 subsidy</a> to US purchasers of electric vehicles, provided that they are both made in America and composed predominantly of American parts (and these components must include batteries, which <a data-saferedirecturl="https://www.google.com/url?q=https://www.livemint.com/auto-news/battery-swapping-for-electric-vehicles-and-ways-to-lead-the-change-11652604393940.html&source=gmail&ust=1672910938098000&usg=AOvVaw0iaXTarC1E_tRqJFSWEq4g" fr-original-style="" href="https://www.livemint.com/auto-news/battery-swapping-for-electric-vehicles-and-ways-to-lead-the-change-11652604393940.html" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">constitute</a> 40% of EVs’ cost. Similarly, the CHIPS Act allocates $52 billion to finance investment in “fabs” (chip-making factories) built by private companies in the US.It is doubtful that the EV subsidy, which strongly discriminates against foreign-made cars (as well as batteries and other auto components) from the European Union, the United Kingdom, Japan, and South Korea, is warranted. Nor is it likely to fulfill its intended purpose of “creating good jobs” and accelerating the shift away from internal combustion engines.The CHIPS Act is even less likely to achieve its backers’ desired results. There is already a looming semiconductor supply glut, and that has led some leading producers (both American and foreign) to declare that they will follow through on plans to build new production facilities <a data-saferedirecturl="https://www.google.com/url?q=https://www.wsj.com/articles/intel-shows-limits-of-chips-act-11659105553&source=gmail&ust=1672910938098000&usg=AOvVaw2xCiqlAzEJVrQ1wtYMGoJl" fr-original-style="" href="https://www.wsj.com/articles/intel-shows-limits-of-chips-act-11659105553" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">only if they receive subsidies</a>.From the perspective of foreign political leaders, the auto industry is too economically important for them to stand by and do nothing in the face of unfair US practices. They simply cannot allow their own auto-assembly plants to lose market share as a result of US subsidies. As French President <a data-saferedirecturl="https://www.google.com/url?q=https://www.project-syndicate.org/columnist/emmanuel-macron&source=gmail&ust=1672910938098000&usg=AOvVaw3hDYQox2SveWOo70Gr01Nj" fr-original-style="" href="https://www.project-syndicate.org/columnist/emmanuel-macron" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Emmanuel Macron</a> <a data-saferedirecturl="https://www.google.com/url?q=https://www.bangkokpost.com/world/2450187/macron-blasts-biden-subsidies-at-start-of-us-state-visit&source=gmail&ust=1672910938098000&usg=AOvVaw3N-Pt2B6y7B_HKW2whVOkX" fr-original-style="" href="https://www.bangkokpost.com/world/2450187/macron-blasts-biden-subsidies-at-start-of-us-state-visit" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">made clear</a> to Biden during his recent state visit at the White House, America’s unilateral protectionism risks triggering a broader trade war. Equally, other governments are under mounting political pressure to subsidize chip production in response to the recent US moves, and several foreign manufacturers are <a data-saferedirecturl="https://www.google.com/url?q=https://www.project-syndicate.org/commentary/taiwan-tsmc-must-balance-diversification-with-deterrence-by-jason-hsu-2022-12&source=gmail&ust=1672910938098000&usg=AOvVaw3taVtPXfGMHv-Hb_6aaVxm" fr-original-style="" href="https://www.project-syndicate.org/commentary/taiwan-tsmc-must-balance-diversification-with-deterrence-by-jason-hsu-2022-12" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">announcing</a> plans to build factories in the US to avoid the unfair competition.If the IRA and CHIPS Act go into effect on January 1, as planned, America’s allies will almost certainly retaliate, which in turn will invite US countermoves. And far from being confined to autos and semiconductors, this tit-for-tat escalation could affect more and more export categories, increasing the scale of the economic damage. Macron has already <a data-saferedirecturl="https://www.google.com/url?q=https://www.barrons.com/news/macron-urges-eu-to-act-more-quickly-to-counter-us-subsidies-01671093608&source=gmail&ust=1672910938098000&usg=AOvVaw0ilkNwOwy36x2V5Ah7rO-E" fr-original-style="" href="https://www.barrons.com/news/macron-urges-eu-to-act-more-quickly-to-counter-us-subsidies-01671093608" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">indicated</a> that Europe should start discriminating in favor of its industries.The world’s major trading powers must act quickly to prevent the eruption of a full-blown trade war. The chips issue should be taken to the WTO, and the US should abide by a likely ruling that the subsidies are illegal. Chip producers could jointly agree on a pact specifying export rules for machinery and chips and an enforcement mechanism. The US could substitute much-needed additional investment in education and training, which would enable domestic producers to hire well-trained workers more readily, for some of the physical investment now contemplated.The new facilities under construction are for chips already in production, and inventories of those chips could be built up in lieu of investment in new fabs, especially now when demand for chips seems to have fallen. It is highly unlikely that all of the machinery and knowhow embodied in other countries’ production of machines to make chips and of chips themselves can in any event be brought back to the US. Any of these measures would almost certainly achieve results closer to the US objectives than the subsidies currently envisaged.For EVs and batteries, too, foreign and domestic producers must compete on a level playing field. Car-exporting countries could subsidize all purchasers of new EVs by the same amount as the Americans; the Biden administration could seek an amendment to the law to provide subsidies to purchases of all EVs, including imports. In addition, the American domestic content requirements for batteries would also need to be adjusted.As with chips, any of these measures would enable a far superior outcome for the global economy. Protectionism sets the bar low.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Anne O. Krueger, a former World Bank chief economist and former first deputy managing director of the International Monetary Fund, is Senior Research Professor of International Economics at the Johns Hopkins University School of Advanced International Studies and Senior Fellow at the Center for International Development at Stanford University.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Copyright: Project Syndicate, 2022.<a data-saferedirecturl="https://www.google.com/url?q=http://www.project-syndicate.org&source=gmail&ust=1672910938098000&usg=AOvVaw0KZ_gPIANNPZyrwxEWJw31" fr-original-style="" href="http://www.project-syndicate.org/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">www.project-syndicate.org</a>

For 70 years after World War II, global growth was underpinned by ongoing efforts to boost international trade by eliminating self-defeating trade barriers. Sadly, the United States started dismantling this source of shared prosperity under Donald Trump, and it has now accelerated the process under Joe Biden.

LONDON – A friend recently forwarded me an email from a client who was bemoaning the state of the United Kingdom and questioning whether it still met the standards of a G7 country. In response, I joked that since the population chose to leave the European Union, the country has been in the dismal position his client described, but maybe it cannot get much worse from here. A contrarian might want to buy the pound on the grounds that the mood will improve as things become marginally less disappointing.In fact, gallows humor aside, it would be a risky bet, because there is ample evidence to suggest that the country will be very challenged unless there are bolder policies. The reasons fall into three broad, interrelated categories, starting with Brexit.Britain has been paralyzed in many ways both by the decision to leave the EU and by the way it was done. Mainstream politicians and the current government are too scared to admit that Brexit has significantly harmed the economy. Nor will they even discuss the possibility of mimicking membership in the EU’s single market through the alignment of regulatory and trade policies.As a tactical matter, the current government’s reluctance is vaguely understandable, given <a fr-original-style="" href="https://www.bloomberg.com/news/articles/2022-12-13/sunak-would-lose-uk-seat-under-poll-giving-labour-20-point-lead" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">current opinion polls</a> and persistent pressure from avid Brexiteers like Nigel Farage. But Labour, too, has remained relatively quiet. Although Labour leader Keir Starmer was one of the most <a fr-original-style="" href="https://www.nytimes.com/2017/11/24/world/europe/starmer-britain-brexit.html" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">articulate advocates</a> of remaining in the EU, the party seems not to want to re-litigate the issue now that it is already ahead in the polls.Is this wise? All those cutting-edge analysts who presciently warned that disgruntled voters would be pleased if the UK left the EU are now pointing to signs that some of the same voters <a fr-original-style="" href="https://www.independent.co.uk/news/uk/politics/brexit-poll-regret-economy-rejoin-eu-b2242226.html" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">regret</a> the decision, or at least the way it was carried out. There is certainly little doubt that Brexit has indeed been bad for the economy. Standard economic indicators – real (inflation-adjusted) <a fr-original-style="" href="https://data.worldbank.org/indicator/NY.GDP.DEFL.KD.ZG?locations=OE-GB" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">GDP growth</a>, <a fr-original-style="" href="https://www.ippr.org/news-and-media/press-releases/uk-business-investment-fell-to-lowest-rate-in-the-g7-after-corporation-tax-cut-to-19-per-cent-ippr-finds" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">investment</a> levels, the size of the <a fr-original-style="" href="https://www.economicsobservatory.com/how-has-the-uks-pandemic-labour-market-compared-with-other-g7-countries" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">labor force</a> – all show that the UK has underperformed relative to its peers in recent years.Before the 2016 Brexit referendum, I could see why many might have wanted to leave the EU, even if it would almost certainly be an initial negative for the economy. I didn’t believe that the EU was the single most important issue facing the country. I was more worried about the UK’s dreadful <a fr-original-style="" href="https://www.ft.com/content/e7a8cb3a-efcc-4d62-962b-d284545c14f6" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">productivity</a> performance and staggering <a fr-original-style="" href="https://commonslibrary.parliament.uk/how-big-are-regional-economic-inequalities-in-the-uk/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">regional inequalities</a>. Though I favored Remain, I was at least open to the idea that leaving the EU would provide the political shock necessary to tackle these problems.But while four subsequent prime ministers have claimed that they would address the country’s investment and productivity challenges, none has done so, either because they didn’t survive in power long enough or because they were never sincerely committed in the first place.That brings us to the UK’s second big problem: our <a fr-original-style="" href="https://www.evidenceinvestor.com/uk-equity-funds-fared-dreadfully-in-the-recent-dowturn/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">investment performance</a> remains dreadful relative to most of our peers, and it is hard to see how productivity will improve in the absence of a major change. The Brexit-induced shock to both trade and the labor supply has made the creation of a new investment program even more urgent.In 2022, Liz Truss’s short-lived government claimed it would boost productivity through old-fashioned tax cuts, but we know how that <a fr-original-style="" href="https://www.project-syndicate.org/commentary/pound-weakening-uk-us-fiscal-monetary-policy-factors-by-jim-o-neill-2022-09" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">turned out</a>. Now, her replacement, Rishi Sunak, has been concentrating on <a fr-original-style="" href="https://www.livemint.com/news/world/rishi-sunak-eyes-50-billion-of-tax-hikes-spending-cuts-for-his-new-economic-plan-11666949776584.html" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">fiscal responsibility</a> while paying little attention to the still-urgent need to boost investment spending. While his government has restored some confidence in financial markets, it has not offered any new hope for the economy. Worse, it could be <a fr-original-style="" href="https://www.bbc.com/news/uk-politics-62064552" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">two years</a> before the next election.In the UK and across other advanced economies, there is a clear case to be made for much bolder policies to force the private sector to boost investment spending. The case for bolder public investment spending is even stronger. As long as such a program is well articulated, transparent, and endorsed by non-partisan organizations (such as the UK’s Office for Budget Responsibility and the National Infrastructure Commission), financial markets will respond positively.The third big problem is <a fr-original-style="" href="https://www.instituteforgovernment.org.uk/blog/how-government-can-make-progress-levelling-despite-tight-budgets" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">regional inequality</a>. Here, there is still hope for building a broad-based consensus around bold solutions. Notwithstanding the ongoing factional political battles, the current government seems to recognize that it must get serious about devolving more economic policymaking authority and stimulating investment in the country’s less prosperous areas. Moreover, though Labour largely ignored the problem of inter-regional inequality for many years (ever since the days when I chaired the Cities Growth Commission in 2013-14), the party has finally <a fr-original-style="" href="https://www.theguardian.com/inequality/2022/jul/24/can-labour-think-big-and-make-levelling-up-work" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">woken up</a>.“Leveling up” the UK’s underperforming regions still holds massive promise. As we showed in the David Cameron government’s <a fr-original-style="" href="https://www.bbc.com/news/magazine-32720462" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Northern Powerhouse plan</a>, the UK is <a fr-original-style="" href="https://www.project-syndicate.org/commentary/northern-powerhouse-community-investment-by-jim-o-neill-2019-05?barrier=accesspaylog" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">well positioned</a> to capitalize on its excellent universities, alternative energies, and other reliable sources of innovation and growth.The UK economy desperately needs new, forward-looking leadership. The political party that takes the leveling-up challenge most seriously could enjoy a long stint in office.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a former UK treasury minister, is a member of the Pan-European Commission on Health and Sustainable Development.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Copyright: Project Syndicate, 2022. <a fr-original-style="" href="http://www.project-syndicate.org/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">www.project-syndicate.org</a>

By Carl Bildt STOCKHOLM – In 2023, India will <a data-saferedirecturl="https://www.google.com/url?q=https://www.bloomberg.com/news/articles/2022-07-11/india-may-surpass-china-as-world-s-most-populous-nation-in-2023&source=gmail&ust=1671548582019000&usg=AOvVaw1wRZvzRxOaHda0UMOnsL5g" fr-original-style="" href="https://www.bloomberg.com/news/articles/2022-07-11/india-may-surpass-china-as-world-s-most-populous-nation-in-2023" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">overtake</a> China as the world’s most populous country. And while China has <a data-saferedirecturl="https://www.google.com/url?q=https://asia.nikkei.com/Spotlight/The-age-of-Great-China/China-s-aging-population-leads-to-predictions-of-17-year-supremacy&source=gmail&ust=1671548582019000&usg=AOvVaw34hwK6qflvXYg093sZRu7O" fr-original-style="" href="https://asia.nikkei.com/Spotlight/The-age-of-Great-China/China-s-aging-population-leads-to-predictions-of-17-year-supremacy" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">already passed</a> its demographic zenith and begun to age, India’s ascent will continue for decades.To be sure, after <a data-saferedirecturl="https://www.google.com/url?q=https://www.nytimes.com/1992/03/29/world/a-revolution-transforms-india-socialism-s-out-free-market-in.html&source=gmail&ust=1671548582019000&usg=AOvVaw2vRraD7UyL4eXxHP6pDk8s" fr-original-style="" href="https://www.nytimes.com/1992/03/29/world/a-revolution-transforms-india-socialism-s-out-free-market-in.html" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">abandoning</a> its socialist model in 1991, India has struggled to boost its economic growth, whereas China’s four decades of “reform and opening” have lifted hundreds of millions of people out of poverty and brought high-income status <a data-saferedirecturl="https://www.google.com/url?q=https://asia.nikkei.com/Economy/China-on-verge-of-high-income-status-after-wealth-measure-jumps-20&source=gmail&ust=1671548582019000&usg=AOvVaw1V64xwqewApCKMijyQdg9_" fr-original-style="" href="https://asia.nikkei.com/Economy/China-on-verge-of-high-income-status-after-wealth-measure-jumps-20" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">within sight</a>. As a result, its economy is now <a data-saferedirecturl="https://www.google.com/url?q=https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations%3DCN-IN&source=gmail&ust=1671548582019000&usg=AOvVaw0mEz3hBwN3wQBb9NuUZ7mP" fr-original-style="" href="https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=CN-IN" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">six times</a> larger than India’s, and the difference between the two countries’ basic infrastructure is glaring. But with Chinese President Xi Jinping moving his country back in a more statist direction, growth has <a data-saferedirecturl="https://www.google.com/url?q=https://www.piie.com/blogs/realtime-economics/china-has-few-options-revive-lagging-economic-growth&source=gmail&ust=1671548582019000&usg=AOvVaw13VBPXCBuO3x-hjwIzh84g" fr-original-style="" href="https://www.piie.com/blogs/realtime-economics/china-has-few-options-revive-lagging-economic-growth" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">slowed</a> substantially.Meanwhile, India’s economy has been <a data-saferedirecturl="https://www.google.com/url?q=https://www.project-syndicate.org/commentary/india-needs-structural-reforms-to-sustain-high-growth-rate-by-barry-eichengreen-and-poonam-gupta-2-2022-08&source=gmail&ust=1671548582019000&usg=AOvVaw3A_kkO9sEJIimFrqQOgdHP" fr-original-style="" href="https://www.project-syndicate.org/commentary/india-needs-structural-reforms-to-sustain-high-growth-rate-by-barry-eichengreen-and-poonam-gupta-2-2022-08" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">outpacing most others</a> this year, and Indian Prime Minister Narendra Modi seems determined to put his country on a path to close the gap with China. This fall, India surpassed the United Kingdom to become the world’s <a data-saferedirecturl="https://www.google.com/url?q=https://www.bloomberg.com/news/articles/2022-09-02/uk-slips-behind-india-to-become-world-s-sixth-biggest-economy&source=gmail&ust=1671548582019000&usg=AOvVaw15CtxcVrCGWwDXPVnWWpHh" fr-original-style="" href="https://www.bloomberg.com/news/articles/2022-09-02/uk-slips-behind-india-to-become-world-s-sixth-biggest-economy" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">fifth-largest economy</a>, and recent estimates suggest that its current policies and growth rates will make it the <a data-saferedirecturl="https://www.google.com/url?q=https://www.cnbc.com/2022/12/01/india-to-leapfrog-to-third-largest-economy-by-2030.html&source=gmail&ust=1671548582019000&usg=AOvVaw2bzQEyb8YZTGCVVGU7tkCc" fr-original-style="" href="https://www.cnbc.com/2022/12/01/india-to-leapfrog-to-third-largest-economy-by-2030.html" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">third-largest national economy</a> in a decade or so. While its projected growth rate for 2023 is below that of 2022 (<a data-saferedirecturl="https://www.google.com/url?q=https://www.thehindu.com/business/Economy/gdp-growth-in-2023-to-slow-to-59-says-goldman-sachs/article66174327.ece%23:~:text%3DIndia's%2520economic%2520growth%2520in%25202023,tightening%2520weighs%2520on%2520domestic%2520demand.&source=gmail&ust=1671548582019000&usg=AOvVaw1-50pimaGGDmhYqIWqoviU" fr-original-style="" href="https://www.thehindu.com/business/Economy/gdp-growth-in-2023-to-slow-to-59-says-goldman-sachs/article66174327.ece#:~:text=India's%20economic%20growth%20in%202023,tightening%20weighs%20on%20domestic%20demand." style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">5.9% compared to 6.9%</a>), a rapid ascent up the global economic ladder remains well within reach.China outpaced India in recent decades because it was much faster and more decisive in opening its economy and tapping into global trade. While China was establishing itself as “<a data-saferedirecturl="https://www.google.com/url?q=https://www.shieldworksmfg.com/2021/12/16/made-in-china-how-chinese-factories-became-the-worlds-factories/&source=gmail&ust=1671548582019000&usg=AOvVaw3quXTARcd4qstZUyEmAiNp" fr-original-style="" href="https://www.shieldworksmfg.com/2021/12/16/made-in-china-how-chinese-factories-became-the-worlds-factories/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">the factory of the world</a>,” India was still harboring suspicions about open trade and allowing protectionist tendencies to hold back rapid reform. Its ability to overcome old habits in the years ahead will likely determine whether it can fulfill its ambition to achieve sustained rapid growth and broad-based prosperity.For now, global conditions remain favorable for India. China’s own success in advancing along the global value chain means that it is no longer the low-cost producer that it once was. And with rising geopolitical tensions and many multinationals rethinking their supply chains, investors’ are increasingly turning their sights to India.Globalization may be changing, but it is hardly in retreat. In fact, global trade is <a data-saferedirecturl="https://www.google.com/url?q=https://unctad.org/news/global-trade-set-hit-record-32-trillion-2022-outlook-increasingly-gloomy-2023&source=gmail&ust=1671548582019000&usg=AOvVaw29MiRsfFYnTXQurZw-UVwX" fr-original-style="" href="https://unctad.org/news/global-trade-set-hit-record-32-trillion-2022-outlook-increasingly-gloomy-2023" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">stronger than ever</a>. What is new is the push to locate value chains in more politically predictable places, so that geopolitical tensions and rogue actors do not unduly affect the free flow of goods and services. India could fit the bill, but first it will need to resolve some outstanding questions.One issue concerns India’s relationship with Europe. A free-trade agreement between the European Union and India used to be high on the agenda for both sides, but it was shelved in the mid-2010s. The EU wanted more than was achievable, India wanted far less, and the talks were going nowhere. But earlier this year, European Commission President <a data-saferedirecturl="https://www.google.com/url?q=https://www.project-syndicate.org/columnist/ursula-von-der-leyen&source=gmail&ust=1671548582019000&usg=AOvVaw2qQQMLR0g-Lyk9pdfHzxEu" fr-original-style="" href="https://www.project-syndicate.org/columnist/ursula-von-der-leyen" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">Ursula von der Leyen</a> and Modi <a data-saferedirecturl="https://www.google.com/url?q=https://www.cnbc.com/2022/07/18/india-and-eu-revive-stalled-fta-talks-as-global-tensions-spark-urgency.html&source=gmail&ust=1671548582019000&usg=AOvVaw0FDgfpYT60SE3mbunvuE4k" fr-original-style="" href="https://www.cnbc.com/2022/07/18/india-and-eu-revive-stalled-fta-talks-as-global-tensions-spark-urgency.html" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">decided</a>, in a mutual leap of faith, to revive efforts to conclude an FTA.Much will now depend on the outcome of these new talks, which follow a seven-year hiatus. The EU will have to recognize that it probably cannot achieve everything that it wants in one go. And India, for its part, will have to jettison a lot of political baggage. If it really wants to capitalize on the global rearrangement of value chains, it must open itself up in ways that it has resisted in the past.Neither the negotiations nor the associated reforms will be easy. Progress ultimately will depend on political leadership in both New Delhi and Brussels. If trade negotiators are going to break new ground, as is necessary in this case, they will need a clear vision and consistent will from their respective capitals.Indian leaders, in particular, should bear in mind what the policies of the past few decades have wrought. Divergent national approaches to the global economy explain why China now represents <a data-saferedirecturl="https://www.google.com/url?q=https://commission.europa.eu/system/files/2019-03/communication-eu-china-a-strategic-outlook.pdf&source=gmail&ust=1671548582019000&usg=AOvVaw0o7T7K0zKcCYCTk1zcTTfJ" fr-original-style="" href="https://commission.europa.eu/system/files/2019-03/communication-eu-china-a-strategic-outlook.pdf" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">16%</a> of the EU’s foreign trade, whereas India represents only <a data-saferedirecturl="https://www.google.com/url?q=https://policy.trade.ec.europa.eu/news/eu-and-india-kick-start-ambitious-trade-agenda-2022-06-17_en%23:~:text%3DThe%2520EU%2520is%2520India's%25203rd%2520largest%2520trading%2520partner%252C%2520accounting%2520for,%25E2%2582%25AC30.4%2520billion%2520in%25202020.&source=gmail&ust=1671548582019000&usg=AOvVaw3bDVeaWhWFVATmRhAiWK8n" fr-original-style="" href="https://policy.trade.ec.europa.eu/news/eu-and-india-kick-start-ambitious-trade-agenda-2022-06-17_en#:~:text=The%20EU%20is%20India's%203rd%20largest%20trading%20partner%2C%20accounting%20for,%E2%82%AC30.4%20billion%20in%202020." style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">2%</a>. The latter figure obviously must rise in the coming decade, but the extent to which it does will depend heavily on the outcome of the new talks.The rest of the world has much to gain from a more prosperous, confident, and powerful India. In addition to being the world’s most populous country soon, India is also its <a data-saferedirecturl="https://www.google.com/url?q=https://www.humanrightsinitiative.org/programs/ai/rti/india/workshops/speaking_notes_mrti_workshops_oct04.pdf&source=gmail&ust=1671548582019000&usg=AOvVaw18LPgRUJ4KYsBr8Of9tw3L" fr-original-style="" href="https://www.humanrightsinitiative.org/programs/ai/rti/india/workshops/speaking_notes_mrti_workshops_oct04.pdf" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">largest democracy</a>, and its voice will only grow in importance as its economy develops. But, ultimately, the soft power that it wields in the future will reflect the trade and economic policy choices it makes today.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Carl Bildt is a former prime minister and foreign minister of Sweden.<hr fr-original-style="" style="height: 0px; overflow: visible; border-bottom: none; clear: both; user-select: none; break-after: page; box-sizing: border-box;">Copyright: Project Syndicate, 2022. <a data-saferedirecturl="https://www.google.com/url?q=http://www.project-syndicate.org&source=gmail&ust=1671548582019000&usg=AOvVaw0nSTDaSKvr7HMg9WnkCDZI" fr-original-style="" href="http://www.project-syndicate.org/" style="color: rgb(9, 9, 9); text-decoration: none; background-color: transparent; outline: none; cursor: pointer; transition: color 0.3s ease 0s; touch-action: manipulation; user-select: auto; box-sizing: border-box;" target="_blank">www.project-syndicate.org</a>