Wrong reasons

July 3, 2016

17.4 million people – a little more than a third of the voting-age population – are not bigoted racists who think Nigel Farage and Boris Johnson are gods. This is perhaps the single most important thing to understand about the referendum, because if we fail to understand this salient fact then this country will remain hopelessly divided.

I in no way tried to campaign for one result or the other because for me it was just too difficult to call. There were too many complexities to the debate that I simply could not decide which side to come down on.

What frustrated me about the whole affair, and continues to frustrate me, is this constant barrage of misinformation and a lack of any real debate about the issues that matter. Some people have said that, with such an important issue as EU membership, perhaps it should not have been left up to the people to decide. If I’d have known that the whole campaign was going to be boiled down into such simplistic arguments that started to become meaningless, I would probably have agreed.

There is a very good argument to be made that the whole referendum should be run again, or declared null and void and let our politicians make this decision. After all, we do pay them to take decision on complex matters that we, the humble public, don’t really understand.


But I don’t want to dwell here on democracy or whether the referendum was democratic or not. Countless others are already making that point.

I want to emphasise something much more fundamental. That, whatever happens to our standing with the EU, the result of this referendum must not be ignored.

Okay, two thirds of the voting-age population did not vote to leave the EU. But one third did. And they are important.

I understand that passions are running high, but it is perilous to ignore those in the Leave camp or to simply dismiss them as bigoted racists. This is what the EU’s political establishment has always sought to do and look where it has got them. The EU is lurching – or, rather, hobbling – from crisis to crisis.

That is not an EU I think we should be part of.

Now it is perfectly valid to think that we should remain a member of the EU. There are exceedingly good reasons to remain, and many people can see them much more clearly than the reasons to leave.

But there are also good reasons to leave. And failing to recognise and understand them, and to engage in a sober debate that doesn’t deride either side, is imperative.

But in amongst all the frustration and hot tempers, I am seeing precious little of this. And this is not a good path to go down. Hostility towards the EU will not go away if the referendum is voided. It must be understood for it to be corrected.

And above all, those that voted to leave the EU must have their voice heard – and not simply dismissed as stupid or daft or insane every time they tentatively suggested that leaving the EU might not be a bad idea. Otherwise all anyone will here are the Nigel Farrages and Boris Johnsons of this world, or those that have made anti-European rhetoric their career path.

(As an addendum to this entry, I am in the process of compiling a list of reasons why people might have voted to withdraw from the EU – besides the anti-immigration argument. But this is a hard list to compile, and needs careful thought, so it is not done yet. I am trying very hard not to demonise either side and to move things forward in a spirit of constructive debate. And incidentally, whilst the next couple of years of withdrawal from the EU might be painful, in the long-run things could turn out for the better; but that slightly contentious point doesn’t seem to ever be properly debated.)


Oh hear us

June 23, 2016

There is something rotten in Europe. As Brits go to the polls today, it is worth bearing that in mind.

With Remain having taken the lead (by between 2 and 8 percentage points, depending on which poll you look at), and an estimated 10% still in the undecided camp, it looks exceeding unlikely that Brits are now going to vote to leave the EU. Most of those who have not yet made up their mind will probably be swayed by the status-quo.

It is perhaps not surprising that there is such a vociferously strong anti-EU voice in Europe. We’ve always had this, ever since we signed up to the single market. It’s in our ethnic make-up. Like Belgians have their strikes. Or Germans have their sauerkraut.

But it is so surprising that Leave came so close to pulling us out of the EU with such a lousy campaign. This isn’t a crazy lunatic movement that doesn’t like the black fella, as some in the Remain camp constantly insinuate. This is a disparate movement of people that have some very real grievances with how the EU is run.

I think that few who have written about the EU would think that everything is hunkydory in the glitzy corridors of Brussels bureaucracy. Over the past months, I have spoken to many people with first-hand experience of the Brussels apparatus who think it is an utter shambles.

So which way are they voting?

In, of course – because they just can’t think of a good enough reason for voting the other way. Because one hasn’t been presented to them.

But, faced with such moderate thinking and a rather shambolic campaign, it says a lot that Leave seem to have come so close.

So if, as I strongly suspect, we vote to remain within the EU, some really tough action is required in Brussels to convince the British that what they voted for was the right thing. And we are not talking about another hastily put-together David Cameron whistle-stop tour of the European capitals. We need real change.

And that real change needs to start with a scaling back of Brussels intervention, a better reliance on the free market economy and an acknowledgement that there are certain powers Brussels does not have to sink its claws in for the single market to work.

And perhaps above all the EU needs to start engaging better with its citizens. Not this half-hearted campaign of misinformation and propaganda, but a real engagement to explain exactly what the EU is. Because what has emerged during this campaign – talking to people about it, reading comments on my Facebook feed and Twitter, tuning into the occasional debates – is that people still don’t seem to get the EU.

And for this to take hold, the EU needs to drop its veil of arrogance and deceit. The EU did not end wars in Europe. The EU is not irreplaceable. And the EU is most certainly not infallible.

Of course, I don’t think any of these changes are actually going to take hold – and indeed we may find ourselves in a situation where the political elite want to bind European nations into an even more tightly-knit bloc, so those pesky Brits can’t hold an entire continent to ransom again.

But if the EU don’t listen to what the British are trying to say – and I mean really listen – then this problem is never going to go away.

Why the Leave camp will fail

June 20, 2016

The other week, during my time in London, I had the privilege to listen to MP and shadow foreign secretary Hilary Benn make the case for staying in the EU. Rarely have I heard such a masterful orator and, whilst I might not have agreed with everything he said, it was actually quite thrilling to listen to him make his case. Like hearing a well-read bit of poetry.

By comparison, the Eurosceptics on the panel often sounded shrill and desperate and occasionally a little bit crazy. At one point, one of the panellists – Gerald McGregor, a Chiswick town councillor – brandished a piece of paper in his hand, and suggested that David Cameron’s return from Europe before the referendum was a little like Neville Chamberlain returning from Nazi Germany before World War II broke out. Comparing the European project to Nazism isn’t really what folk want to hear.

And that is why the Leave camp will fail.

Not just because their standard-bearers seem to constantly be making obscure references to fascism or tyranny or to a world that now no longer exists (although that probably doesn’t help). But because arguing about leaving the European Union is a lot harder than arguing about remaining. And the Leave camp just don’t seem to have put in the effort to make this case clearly, passionately and rationally enough.

Of course, this isn’t all their fault. Rational Eurosceptics do have the very real problem of having to make their voices heard above those of charismatic and politically-ambitious spokespeople of the Eurosceptic cause, such as Boris Johnson and Nigel Farage. Both likeable enough fellows, but they have managed to boil the arguments of why we might want to leave the EU into such crass shades of grey that they are easily put down by any Remainer with half a brain.

Maybe that is what people want to hear – the simplistic – because it is just too difficult to understand all the nuances behind what it would mean to leave a community that we have been wedded to for longer than I have been alive.

It is extremely difficult to make a rational argument for why we might want to leave the EU without sounding a little crazy, which is why I never try to enter this mine field. But I have some very good Eurosceptic friends who do make such a case very convincingly. The problem is that such convincing arguments never seem to enter the mainstream.

It is precisely because the Eurosceptic case is so much harder to put than the pro-European one that those in the Leave camp should have worked harder at making it. They should have made an effort to understand and explain the more complex areas of the debate, not simply glassed over this and repeated ad-nauseam the rather right-wing snub to immigrants or the subdued left-wing doff to the NHS.

Like what benefit does leaving the EU actually bring to people living in the UK? As with the Scottish referendum, people will be voting with their wallet in mind.

Like exactly why there is such a democratic deficit in the EU, and whether that really matters? Because many people don’t seem to quite get this.

Like exactly what comes afterwards? Okay, perhaps this is a difficult one to answer, since this is a great unknown, but at least they could have tried. At least they could have given us some plan as to what comes once we have taken this leap in the dark.

None of this to say that we shouldn’t leave the EU; I am still split 50-50 on this. Rather, the point of this blog entry is to reassure those committed Remainers out there that they don’t have anything to fear. The Brexiters had a far harder task of persuading people why they should hand back their membership card. And because their job was so much more daunting they should have tried twice as hard to do so.

At least.

And then, even without Hilary Benn in their arsenal, they might just have succeeded in winning enough of the electorate round to make a difference.

In or out?

May 24, 2016

With less than a month to go, I still haven’t made up my mind. One would think it should be simple. I spent five years working in Brussels, after all, and understand something of how the EU works. But the more I think about it the more I just don’t know. Maybe I should tick both boxes.

I think the problem is that we – the British people – are being denied a proper debate about the issues that matter. Which makes me a little mad.

We hear from the Nigel Farage camp that these foreign workers are coming and stealing our jobs. Probably want our women, too.

We hear from the Treasury that we’re going to be £4300 worse off – per year – if we were to leave the EU, with apparently not serious rationale for that number. I can invent numbers, too. Squiggledom. It’s twice a googleplex, so it’s pretty darn big.

So: in or out?

Immediately after my five-year stint in Brussels, I had decidedly made up my mind that we ought to leave this ill-fitting marriage. I firmly believed that the EU needed to be dismantled and rebuilt – and the only way to do that was for us to be out. But now I’m seeing so many more nuances.

Frustratingly, this trip to the UK has so far yielded no useful insights. I’m working in our London office at the moment, and one of my colleagues was handing out “Remain” bumper stickers today. When another colleague told him that he would probably vote to leave, the Remain colleague expressed surprised and said that he thought all financial correspondents would want to stay in Europe the EU.

If only it were that easy.

Here, then, are my meandering thoughts – from someone that really has not yet made up his mind.


– We would be able to adopt our own policy towards immigrants, because to be quite frank the EU’s has so far been an utter disaster. This is not to argue for less immigration – as the dreadful right wing press often do – but just the fact that we would be able to control who comes to our countries, and therefore could make sure this is the right kind of migrant. Jobs are not finite – socialist France flirted with that idea, and to an extent still does, and it’s just blatantly wrong. Just ask Adam Smith. Except he’s dead. But those that come to this country should contribute to its well-being. This also goes for the refugees that we take. I firmly believe that we have a moral obligation to accept a certain amount of refugees fleeing from human rights abuses, but that should be on our terms and we should give them jobs as soon as we can.

– Our government should no longer be able to hide behind the ineptitude of the EU. There are actually things that the British government cannot do because the EU doesn’t allow it. This makes it much harder to hold them to account when they step out of line.

– The masterminds behind the EU project are a dishonest bunch. They were given very good advice that launching the euro currency when it was half-baked would result in a “Greece”. It could have been any one of the peripheral countries – that wasn’t known at the time – but they chose to ignore such advice because it fitted their own narrative. If “Greece” happened then that would be a very good reason to move towards more centralised fiscal control. Which may be a noble end in itself, but I’m not sure I want to place my faith in people that have to lie to get where they are going.

– When I was in Brussels, I lost track of the times I heard the European Commission express in all of sincerity that the EU was the reason that European nations weren’t still at war with one another. No! No! And no! The reason for the longest period of piece that we have had for millennia is globalisation, and the EU is a by-product of that globalisation. Not the other way round.


– Strength in numbers. It’s true that we are a small nation – the sun does now set on our noble Empire. So it’s nice to buddy-up to our European partners from time to time.

– We have more representation in Europe than people often realise. Although there is this huge gulf of democratic unaccountability – in the sense that we haven’t actually voted in most of the people that are making decisions for us – we do have a permanent representation to the EU and they are a pretty active bunch.

– Free movement of labour and free movement of trade – these are concepts I hold dear. I am, after all, a migrant worker. I wouldn’t particularly like it if Hong Kong suddenly chose to shut its door on my kind. And I like to think that I am contributing to their society – through tax and being a damn fine pillar of.

– We’ve pissed our European neighbours off a fair bit recently, by being so obstreperous. How about we now start to make amends?

– However you look at things it’s going to be expensive. Contracts will need to be renegotiated or updated, business deals will need to be done on a different footing, some firms may even decide to relocate. If you’re a lawyer, now is probably the time to cash in.

– What is going to happen if we leave? No one really knows. If we stay, there’s almost certainly going to be a relentless march towards greater federalism. And so perhaps that is what everyone needs. Better the devil you know, eh?

But, whatever the outcome of the referendum of June 23, it probably doesn’t matter as much as people think it does. If we stay, we carry on pretty much as before, with maybe a tiny bit more acceleration towards federalism. If we leave, well, it honestly isn’t going to be the end 0f the world that everyone is predicting. Do people honestly think that, after her initial hissy fit, Europe won’t want to engage with us?

Maybe I’ll just tick both boxes and let fate decide.


April 19, 2016

I listened last week to two important people extol the many virtues of Hong Kong, and insist how the future success of this semi-autonomous enclave of China was guaranteed because of the tenacity and entrepreneurship of the people that live here, plus of course the robustness of the legal and financial system.

One of these people was John Tsang, Hong Kong’s financial secretary. The other was Stuart Gulliver, chief executive officer of HSBC.

They used phases such as “the highly-developed legal system and a heavy concentration of skilled professionals means that Hong Kong will be too far advanced… to be displaced [by China]” (Gulliver) and “Hong Kong’s success is built upon the rule of law [and] the persistence in upholding economic freedom, an extensive business network, sound financial infrastructure, a robust regulatory regime, [and] a well educated and resourceful workforce” (Tsang).

The problem was that such comments – which was what you would expect both of the parties to say – were overshadowed by the most eloquent speaker that went before them: Tsim Tak Luk, chairman of the Project Citizens Foundation, writer and intellectual.

This wasn’t helped by the fact that, to be honest, neither Tsang nor Gulliver proved to be particularly good speakers. Okay, I’ll accept that for Tsang English isn’t his first language. And, with the Sunday Times preparing to publish a story on Sunday about how Gulliver was for the chop in two years time, the HSBC CEO may have had other things on his mind.

But still they could have given a more robust defence against Luk’s invective.

Luk used such confrontational rhetoric as “Hong Kong is a city of broken promises, and the Hong Kong people is a people misruled” and “We have seen instead plenty of examples of mediocre people making dumb decisions for I don’t know whose benefit”.

Not perhaps the best choice of words when you are trying to introduce a member of the government that, in none too subtle a way, you are hell bent on criticising.

Luk pulled no punches when he spoke about Beijing: “Before 1997, the then sovereign, Her Majesty the Queen of England & the United Kingdom, was affectionately referred to as The Proprietress. After 1997, the new sovereign in Beijing is referred to, also affectionately, as The Grandfather. And the difference is this – the Proprietress left you alone to go about your business provided you made money for her, whereas the Grandfather loves to give orders and broaches no arguments.”

Grandfather does not always know best, said Luk, especially not high finance (the thought of making a reference about what happened to markets in China cannot have been far away from his mind).

The fear in Hong Kong is palpable – and Luk’s comments embodied perfectly the sentiments that I am hearing an increasing number of local Hong Kongers express: China needs to move carefully for the future success of Hong Kong to be guaranteed.

This fear didn’t go away as Hong Kong protestors closed their umbrellas at the end of 2014. It is still very much there, and with this being an election year, expect it to resurface in some form or another. Joshua Wong, the poster boy from the 2014 protests, has just launched his own political party.

I tend to see Beijing as largely pragmatic. I think many in the West do. If they’re making money they are happy, and they don’t want to derail Hong Kong’s success just for the sake of doing so.

But there is a danger here that many are increasingly sensing.

Luk concluded: “As we survey the current political landscape in Hong Kong, it is obvious that the politicization, polarization and radicalization of Hong Kong politics – and their relentless escalation – is the number one cause for concern… As Zhang Dejiang, Chairman of NPC said, the intelligent Hong Kong people will be able to find their own solution. If this is true, Hong Kong’s political risk goes down several notches, and our Financial Secretary Mr John Tsang’s bullish scenario may come to pass. But if the reverse is true, and Beijing chooses outright confrontation – the sledgehammer approach – then we are only one riot away from Hong Kong’s own June 4th  moment.”

This last was a reference to the terrible Tiananmen Square massacre of 1989. Which sounds bad to me. To be avoided at all costs.

Beijing has more sense these days.

One hopes.

Defending colonialism

April 7, 2016

Defending colonialism is a difficult thing to do. But no matter where I travel in the world it seems that people want to extol the virtues of the legacy that we – meaning us noble Europeans – left behind.

As a Brit whose forefathers helped conquer much of the world, any defence of what we might have achieved sounds painfully shrill against the historical memories of all that blood that was spilled.

And yet still people – mainly the natives of these countries that we conquered – are prepared to justify what we did in the name of progress.

We gave these uncivilised barbarians human rights, the rule of law, capitalism, electricity. And on the list goes.

Nowhere does the defence of European colonialism seem more obvious than in Hong Kong.

My Cantonese teacher – a flamboyant fellow with a deep dislike of the mainland Chinese – likes to thank and blame the British, in equal measure, for what they have done for the territory.

He thinks that colonialism was the best thing that could have happened to the country, and helped propel the region forwards from a collection of sleepy fishing hamlets to what you see today. I see skyscrapers and an unhealthy worship of money. But he probably sees more.

But he is also angry with the British – angry for leaving in 1997, and angry for not doing more to keep the territory out of the clutches of Beijing.

“You guys should never have left,” he complained to me over dinner.

Which sparked an intense debate as to the virtues or otherwise of colonialism – with me saying that the so-called “progress” the British heralded in could in no way justify the suppression of the natives (although I am aware that Hong Kong, important mostly as port for trading with China rather than anything grander, had a far less bloody history than other colonial outposts) and him claiming that the rewards future generations would enjoy more than made up for the grim history of colonialism.

But I could not see it like that. For me, colonialism was a self-serving evil that sought only to benefit the colonialists and not the colonised – and we got far more out of it than our colonies ever did.

Our conversation ended as the dessert arrived, with him summising that my views are founded upon some kind of colonial guilt that is forced upon us Europeans from birth. I certainly don’t feel guilty, but he’s probably right in some way: we Europeans do collectively believe that we bear some responsibility for the sorry state that many countries are in, which is why we are so keen to try and put things right (queue a brief discussion about the immigration dilemma Europe). Just as, of course, his background and regional context has shaped his positive view of British presence over here.

It reminded me of a scene out of George Orwell’s Burmese Days.

In this stunningly good book, the main protagonist John Flory, the only member of the colonialist elite that feels in some way embarrassed with what Britain is doing to the country, is forever trying to convince his Indian doctor friend, Veraswami, about the evils of empire. He consistently fails, with Veraswami’s rose-tinted eyes constantly admiring the culture, progress and refinement that Her Majesty’s subjects were bringing the Asian outpost.

I was playing John Florry, my Cantonese teacher the good doctor. Two people from different backgrounds and different cultures whose very different view of the world was coloured by their upbringing.

I am now reading Sapiens by Yuval Noah Harari, which charts the development of humankind through the ages. Whilst Harari certainly is not an apologist for colonialism, there is a very fine subtext running through the chapters where he talks about imperialism: and that is, despite all the horrific bloodshed and evil-doing, the benefits of colonialism to future generations have always been significant.

It happened with the expansion of the Romans. It happened with the expansion of the Arabs. And it happened with the Europeans, too.

Bath tubs, numbers, human rights. These people all left something valuable behind.

But I still feel squeamish when I hear, a mere half a century after our empire unravelled, people speaking favourably about what we did.


March 9, 2016


In some ways, India can be a much crueller society than those of Africa.

On Sunday, I was in Mumbai visiting the Haji Ali Dargah mosque, located on an island just off the coast in the south of the city.

As I walked along the causeway linking the islet to the mainland, I must have passed nearly 50 beggars, many with various deformities and almost all in a desperate state of poverty. There was an even space between each of them, in the same manner that market stalls would be laid out.

Thirty minutes later I walked back along the same causeway and they were all gone.

At the start of my journey back, I saw two policeman – a man and a woman. The woman was looking fierce and determined. The man was kicking newspaper and cardboard, which the beggars had been using as makeshift seats, into the sea; this is what is pictured above.

The beggars had all been successfully removed from their perches, to a place where they wouldn’t offend the sensitivity of any passing tourists.

This must happen on a regular basis.

During my five days in Mumbai, this is the scene that stuck most in my head and deeply saddened me – but it was so upsetting mostly because it was emblematic of India’s wider poverty problem.

It seems that, if you are disabled, deformed or desperately poor, you are all but forgotten by society. The cast system, something about India I’ve never been able to properly appreciate, simply makes things worse: if you are at the bottom of the pecking order, then you simply have to live with that. Everyone has their own place in society. But somehow this just doesn’t seem right.

I love India. But the poverty, desperation and unhappiness is deeply troubling.

Of course, Africa has many of the same problems. But through the poverty and hardship, you’re never really alone in Africa. At least not in the same way.

The dangerous game of regime change

June 29, 2015

There can be little rationale behind the decision not to throw Greece a lifeline other than a clumsy bid for change of government. Tsipras is a difficult man to deal with: let’s try and get someone new. We have been here before.

Remember that irascible Italian clown Silvio Berlusoni, who “acquiesced” to step aside in favour of the dour though competent Mario Monti? He had little choice when borrowing costs shot up to dizzying levels, on the back of ebbing enthusiasm for government bonds. Even the great cavallo couldn’t survive this.

A decision by the Frankfurt-based European Central Bank (ECB) not to continue purchasing Italian government debt directly contributed to this sudden hike – and spelled the end of Berlusconi. Which may not, of course, have been a bad thing – depending on your political inclination. Some Italians I know think he did a lousy job for the country.

But allowing a supposedly independent European body to overthrow a leader of a sovereign nation simply because they might not like his economic policy – or for that matter his sexist jokes – is quite clearly undemocratic.

And now we have Greece.

With fairy shoddy conditions attached to the latest bail out aid from the EU – “blackmail”, I think was how Tsipras described it – the Greek leader chose, quite rightly, to take the latest demands from creditors to the people that he serves. After all, it was the Greeks that invented democracy.

But in response did the ECB throw the Greek banks a badly-needed lifeline. Hell no. Instead, the ECB imposed a cap on the amount of money that banks can borrow from the country’s central bank, forcing Tsipras to announce capital controls on the banks from today.

It was a poor decision from Greece’s creditors, and could well push Greece towards – and out of – the exit door.

But to my mind this move is reminiscent of the cat-and-mouse game that the EU has been playing all along. Having to impose capital controls is frustrating and worrying for the Greeks, ominous for the eurozone – and a clear affront to Tsipras’ capability of charting a passage for Greece through this crisis.

Ah! – and therein lies the rub.

Should the majority of Greeks deem Tsipras to be responsible for this mess, they may very well seize the opportunity that he has provided them with and take control for negotiations. They may side with the creditors and agree (albeit reluctantly) to the terms of the bail-out – and then boot Tsipras from office.

That may very well be the thinking behind refusing to extend credit to the banks, at least until the referendum is done away with it.

But it is a dangerous game to be playing.

True, Tsipras has certainly made some mistakes since taking office earlier this year. He was perhaps a little clumsy with his negotiations at the start, and has earned something of a reputation as a double-dealer by telling the EU one thing and then the national parliament another.

But these mistakes pale into insignificance when it comes to the litany of cock-ups that the EU / ECB mafia have made. Things needn’t have got this bad, but they have – and things are pushing perilously close to a Grexit.

Which would be a good thing for Greece. Perhaps less so for the rest of Europe. But we’ll survive.

If I was Greek, I know where I’d put that ‘X’. It might be followed by a ‘V’ sign, too.

Greece Part II

June 25, 2015

Ok, so Greece should leave the euro. My position on that has not changed in the five years. My love of German sausages and my dislike of Angela Merkel also remains the same.

What has changed is that Europe’s leaders now don’t have any time to sort out this impending crisis. Five years ago they did, and could have rationally – as I argued then – allowed Greece to leave the euro-block in an orderly fashion, with the view to bringing it back in at some later date. Like when Greek politicians were mature and honest enough to play the euro game (let us not forget, in case anyone has, that Greece should not have been allowed in in the first place because they deliberately and not very elegantly massaged their figures to comply with the Maastricht criteria – both Athens and Brussels should be slapped on the wrist for that).

The panic-stricken cry to counter this argument has always been one of: “contagion!” If Greece is allowed to leave, then Spain and Portugal would shortly follow, possibly even Italy.

That’s quite possibly the case now. It wasn’t five years ago. Five years ago, European leaders could have chosen to draw up a firm plan that would allow Greece to structure an exit from the euro, get its house in order and – should conditions so permit – return. The banking union that European leaders were so hell-bent on creating could then have been applied to the remaining members of the Eurozone, including Spain and Portugal, and thus prevented contagion spreading. Greece was too far gone.

The case for leaving the euro is clear in its simplisticity: the Greek currency – which will become the drachma – will devalue and competitiveness will return to the country. Because the euro-tragedy isn’t simply one of dodgy Greeks and tax-dodging. That’s only half the story. It is one of a country robbed off its competiveness by being tied to a ludicrous half-baked financial experiment.

People may argue that, should it leave the euro-zone, Greece would become a pariah state, shunned by investors and shut out of the world’s financial markets. But investors have short-term memories and, once Greece’s house was in order, they would return. Probably in droves. The pain would be short-lived.

There is of course a precedent for this. Argentina defaulted on its debt in 2001 and was forced to abandon its peg with the dollar (the separate 2014 default of Argentinian debt is quite different and doesn’t have a place in this blog entry). True, the short-term pain was acute: businesses went bankrupt and there was widespread capital flight. But quite soon competitiveness returned and the country actually started to do rather well, growing at enviable levels (an average of 9% a year between 2003 and 2008).

Of course, I don’t think Greece will leave the Eurozone. It’s going to be touch and go, but eventually Angela Merkel and her counterpart Alexis Tsipras will trump their respective finance ministers, who have been spitting venom at one another. What did IMF boss Christine Lagarde say a few days ago – the talks needed “the adults in the room”?

From a very early age, one starts to understand that the adults don’t always know best.

India – right to be cautious

February 18, 2015

DSCN5118Narendra Modi came to power on a business-friendly ticket, determined to market India to the rest of the world as the Asian country to do business in. Well, he needed to do something after his predecessor, Manmohan Singh, instigated a number of perplexing moves that seemed to thwart foreign business interests in the country – the retrospective Vodafone tax is perhaps the best known example.

And it seems to be working – with the bulls singing India’s praises, and foreign investment in the country definitely on the up.


But Modi’s government has a tricky balancing act to follow.

The country badly needs foreign cash to flow in – “this is an investment-starved country”, Ananth Narayan, head of financial markets at Standard Chartered, told me, citing a 2012 government report that said infrastructure alone needed an extra 1 trillion USD by 2017.

But, on the other hand, too much cash could upset the rupee’s exchange rate, which for the time-being is faring pretty well in what are pretty turbulent FX markets. When former US Fed chairman Ben Bernanke hinted at a possible end to quantitative easing, Indian currency markets went haywire, forcing the then-Indian government to slam on the brakes to foreign investment. Modi’s government certainly don’t want a repeat of this.


Which is why the regulators are trying to make it easier for foreigners to invest in the country – but only up to a point.

To a large extent, the country’s central bank, the RBI, has reversed some of the curbs on foreign exchange derivatives that were imposed under the previous regime. FX derivatives are necessary for companies on the Indian market that have both rupee and foreign – usually US dollar – exposure, as many foreign entrants do.

Many players currently hedge their currency exposure in the offshore market and, despite the easing of restrictions by the RBI, may continue to do so, simply because the cost of onshore hedging is prohibitively high.

The RBI is visibly frustrated by the lack of foreign participation in the onshore FX derivatives market, and has been forced to admit that, despite its best efforts, market participants are still hedging their exposure via Singapore, London or New York. This isn’t good for developing the market and bringing costs down; but then the RBI is being cautious about the incentives it could give. It could for example, reduce the risk weight for foreigners using derivatives to (safely) hedge their currency exposure. But it doesn’t look as though it is about to do this.

The next big change is likely to be allowing foreigners to use commodity derivatives, which is imporant for import/export companies who want to limit the fluctuation of the price of the commodity that they are trading in. But it is determined that this will only be a tool of risk mitigation – the possibility to speculate will most definitely be out. Some might welcome such caution, though detractors say that this will also limit participation and thus the development of an efficient market (making it, of course, more expensive).

But Modi and his henchmen are doing the right thing.

Macro stability – which the RBI is sworn to uphold – is crucial to the success of India as an investment destination. and allowing foreigners to meddle too much in Indian affairs will not achieve this.

A recent report from Standard & Poor’s, a rating agency, says: “The stable outlook for the next 24 months reflects our view that the new government has both the willingness and capacity to implement reforms necessary to restore some of India’s lost growth potential, consolidate its fiscal accounts and permit the Reserve Bank of India to carry out effective monetary policy.”

But it cautions: “We may lower the rating if the government’s structural reform agenda stalls such that economic growth does not accelerate, or fiscal and debt ratios fail to improve.”

A lower rating from the world’s leading rating agencies could see capital suddenly take flight, particular as many institutional investors (e.g., pension funds) are not allowed to invest in sub-investment grade debt.

“Given the backdrop of what has been happening in global markets over the last few years – specifically the run on the currency we saw in 2013, with the movement in the rupee from 60 to 68 – some regulatory caution is warranted, particularly as the macro situation is improving right now,” Tushar Mahajan, head of derivatives at Nomura India, told me. “But what is the right amount of caution? It is tough to say where you draw the line.”

The right amount of caution is probably where we are now.

I wrote a feature piece for Asia Risk on this last month – but you can only access it if you have a subscription.

You can see me briefly talk about the piece here: