“Time to watch and wait ”,China Daily Asia Weekly, December 2-8, 2011.

Asian investors withdraw from German bunds, fearful that the German government may be loaded with European Central Bank liabilities when the euro falls apart. They are right to do so, but wrong to equate the fate of the European economy with the euro.

Time to watch and wait

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About Jonathan Story, Professor Emeritus, INSEAD

Jonathan Story is Emeritus Professor of International Political Economy at INSEAD. Prior to joining INSEAD in 1974, he worked in Brussels and Washington, where he obtained his PhD from Johns Hopkins School of Advanced International Studies. He has held the Marusi Chair of Global Business at Rensselaer Polytechnic Institute, and is currently Distinguished Visiting Professor at the Graduate Schoold of Business, Fordham University, New York. He is preparing a monograph on China’s impact on the world political economy, and another on a proposal for a contextual approach to business studies. He has a chapter forthcoming on the Euro crisis. His latest book is China UnCovered: What you need to know to do business in China, (FT/ Pearson’s, 2010) (www.chinauncovered.net) His previous books include “China: The Race to Market” (FT/Pearsons, 2003), The Frontiers of Fortune, (Pitman’s, 1999); and The Political Economy of Financial Integration in Europe : The Battle of the Systems,(MIT Press, 1998) on monetary union and financial markets in the EU, and co-authored with Ingo Walter of NYU. His books have been translated into French, Italian, German, Spanish, Chinese, Korean and Arabic. He is also a co-author in the Oxford Handbook on Business and Government(2010), and has contributed numerous chapters in books and articles in professional journals. He is a regular contributor to newspapers, and has been four times winner of the European Case Clearing House “Best Case of the Year” award. His latest cases detail hotel investments in Egypt and Argentina, as well as a women’s garment manufacturer in Sri Lanka and a Chinese auto parts producer. He teaches courses on international business and the global political economy. At the INSEAD campus, in Fontainebleau and Singapore, he has taught European and world politics, markets, and business in the MBA, and PhD programs. He has taught on INSEAD’s flagship Advanced Management Programme for the last three decades, as well as on other Executive Development and Company Specific courses. Jonathan Story works with governments, international organisations and multinational corporations. He is married with four children, and, now, thirteen grandchildren. Besides English, he is fluent in French, German, Spanish, Italian, reads Portuguese and is learning Russian. He has a bass voice, and gives concerts, including Afro-American spirituals, Russian folk, classical opera and oratorio.
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2 Responses to “Time to watch and wait ”,China Daily Asia Weekly, December 2-8, 2011.

  1. Lorenz Kraus says:

    “So Germany is now the champion of a liberal market shakeout in the eurozone. The problem is
    that, unlike in 1998 when Asian countries devalued, and exited from recession by exports, southern Europe is caught in the equivalent of a gold standard.” I didn’t catch that connection to the gold standard. I understand that if they have nothing to export the only place is down.

    I remember you mentioned something similar in relation to Mexico. Isn’t China’s growth based on foreign investment growth model that is attracted to increased friendliness to markets? That’s another option for Southern Europe that never seems to be discussed. Austerity is the only road…to austerity.

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    • Thanks, Lorenz. The connection to the gold standard is that without the tool of devaluation, adjustment in southern Europe has to run through wage compression and fiscal retrenchment. Both Mexico and China have the currency option to devalue. mexico did after the 1994 crash and quickly expanded exports into NAFTA markets. China’s productivity growth rates are in double digits, in part through inward direct investment, and yet the government seeks to manage a slow rise in the yuan, ie it allows it to be undervalued. these options are not open to southern Europe. lets assume they stick in the Euro on Germany’s terms. Growth would return through three channels: 1. Very competitive prices for tourism–a major source of income. 2. A return to competitiveness as wages fall relative to productivity. That should definitely atrtract inward investment. And 3. A switch in budgets from transfers to capital investment, perhaps including in that category everything to do with education. All Club Med countries would also be advised to side with the Commission in the promotion of freedom of labour movement. Germany and France have super rigid labour markets. The next few years are likely to be very tough for people in southern Europe. But the light at the end of this tunnel is that if they carry through this “Thatcherite” policy, it will be France and Germany that will have to do the adjustment.
      There are also many political problems associated with this narrative. The most important in my mind is that it is obvious EU policy is made by France and Germany. That is called the “balance of power”, not integration.

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