Lands of Opportunity: China & the City

Osborne the hero

Readers suggested that the last column’s negativity deserved a positive riposte. Herewith 6 reasons to be cheerful.

China’s Chance China looks set to grow at between 7% to 8% annually, a drop from decades of higher growth stretching into double digits. As the Financial Times pointed out in an editorial a couple of weeks ago (and subsequently ignored in all its doom-laden articles that day), when the world’s second largest economy is projected to grow 7.5% a year this still implies an enormous addition of both capacity and demand.

While China reorients its economy towards consumption and away from investment and exports, increased opportunities arise for foreign firms to sell more goods into an expanding middle class. Gucci and other luxury brands have prospered, even with Chinese consumption growing at a slower pace than output over the last decades, The fact that the emphasis is set to change is an exciting prospect.

It is no coincidence that earlier this week China’s top legislature started studying draft amendments to the country’s 20-year old consumer rights law. The government is aware that providing urban jobs and a measure of rural growth is no longer enough to uphold social peace and with it the continuance of the Communist Party’s power. The Chinese consumer is a new constituency to be kept pacified. Consumer rights protection can now be added to the list of priorities, as was seen in the government-sponsored attack on Apple’s after-sales services a few weeks ago.

City Callings Perhaps it is an exaggeration to call a career in the City of London a calling, a word generally used for those who wish to follow a religious path. However, the City is still a preferred prospect for many despite the fact that around 100,000 jobs are said to have been cut since 2007. Continuing cuts will bring job levels to a 20-year low in 2014, according to the Centre for Economics and Business Research (CEBR).

Yet there is an area of great opportunity: compliance. Some banks have tripled the number of staff involved in that function. Financial firms will pay up to 24% more for the new regulatory bodies that take over from the now defunct Financial Services Authority. The Bank of England’s new Prudential Regulatory Authority (PRA), for instance, said its staff costs will rise 34%.

Meanwhile, the lack of global coordination in bank regulation – we have Volcker in the US, Liikanen in the EU and Vickers in the UK – means that a universal bank active in the UK, EU and US would be subject to all three regimes, notes Simon Hills from the British Bankers’ Association (BBA) in the magazine of the Worshipful Company of International Bankers’s (WCIB)

It is true that this epidemic of regulation is an unproductive use of funds; it is true that it raises the cost of capital; it is true that it does not necessarily make the world a safer place. But look on the bright side, dear reader: the compliance departments of banks and insurers are not likely to suffer from generalised and ongoing job cuts, lawyers and accountants involved in the sector are busy, and the sector is booming.

Cash for Claptrap There is still enough money around to fund a university professor’s study into whether bras are beneficial to women’s breasts. Professor Rouillon of Besançon University spent fifteen years on this topic. His conclusion: “Medically, physiologically, anatomically – breasts gain no benefit from being denied gravity.” The article was published on April 11, not April 1, so one presumes it was not an April Fool’s joke. In academia, as in life, there are always enough funds around to finance rubbish. Daily Telegraph

Dictator Deaths The era of Chavismo in Venezuela is drawing to a close. It matters little whether Henrique Capriles, the head of the Opposition who “lost” the general election by 235,000 votes manages to overturn the rigged result. Infighting within the ruling United Socialist Party of Venezuela will probably see it fragment into factions and no longer hold a monopoly on power.

Meanwhile, the centre-right elite which ruled for decades and never allowed the country’s oil riches to make it beyond the confines of the Caracas Country Club has morphed into an Opposition that looks to have learned enough over the last fourteen years to avoid the same mistakes. (For informed opinion on the Venezuelan Economy, see Veneconomy)

Fidel Castro will, at some point, follow Chavez. He turned Cuba into an island where, irony of ironies, the dollar is king and his much-vaunted educational drive counts for little. The most coveted jobs are those of a doorman at an international hotel in Havana, or a prostitute consorting with tourists. Both have access to dollars. Doctors and erudite officials don’t.

Obliged to Osborne The more one looks at the finance ministers in a number of European countries, the more grateful one is for UK Chancellor George Osborne. Keeping in mind that his austerity is not as austere as critics would have it, he thankfully has the guts to resist the siren calls of those who advocate spending money that is not there. It will take time for the UK economy to emerge from current circumstances. The short cuts proposed would be counterproductive. In the meantime, Osborne’s critics are growing at a quick pace – unlike the UK economy – with even the IMF joining the chorus.

(IMF Managing Director Christine Lagarde and Chief Economist Olivier Blanchard are now at the forefront of UK economic policy critics. A conspiracy theory has it that it is no coincidence that the two are French. The only way to save France, which is refusing to face up to its need for reform, is by having the German and the Northern European contingents loosen their purse strings. (See Why France will fall next).

Stanislav Petrov, a Russian military officer, saved the world two decades ago. One day in 1983 his computer screen indicated that a single missile had been launched from the US. Four more missile attacks subsequently appeared on his screen. He did not report directly to the USSR High Command that the country was under attack because his insight told him it made no sense. Petrov averted nuclear Armageddon by using his ability to think independently and thus override what to anyone else would have seemed clear evidence. In fact, the “attacks” were a series of computer errors.*

Comparing Osborne to Petrov is excessive. But one should never underestimate the guts it takes to stand up to conventional wisdom.

Reading Riot The last item on my gratefulness list is the existence of sublime reading material. I shall mention three.

The Financial Times continues to be the best source of news and comment in the West. We live in a world where the breadth of available expertise and opinion is mind-boggling – literally – and thus the continued existence of a coalescing centre of excellence on international economics and politics is to be welcomed.

Professor Christopher Coker’s Warrior Geeks is inaptly subtitled How 21st century technology is changing the way we fight and think about war. My former tutor’s book, published this year, encompasses infinitely more than that. Read it and you will be proud to be human. (*The anecdote about Petrov comes from this book).

Sheryl Sandberg’s Lean In is the book of the moment. Unlike others, it will last the course. Her analysis of the internal and external barriers to women advancing in their careers and what needs to be done to overcome these is masterful. The COO of Facebook has written a book that will truly help women, as long as all fathers and brothers and sons read it too.

A Tale of two Balls: UK vs PIMCO

Lessons from WWII as Russia conquers Crimea

Even assuming Ed B. makes it into power, his brother wins hands down. The UK government spends around £720 billion a year and most of it is already earmarked. Chancellors – pace all the kerfuffle around budget announcements – can only affect policy at the margin. Andrew B., on the other hand, is head of European bond markets with the capacity to strike fear in the hearts of Italian treasury ministers, among others.

Markets matter, which is why the ambitious and admirable management overhaul at the Bank of England, announced last week, is sorely lacking on that front. Creating a new Deputy Governor for markets and banking is right in acknowledging the importance of markets, plus it is a coup for the Bank of England to have appointed Nemat Shafik, an effective policy maker and global player, as Deputy Governor for banking. But appointing her Deputy Governor of markets as well is a mistake. What was needed for that part of the role was an investment banker with knowledge of markets and a wide network of acquaintances and colleagues.

Or at least for a former banker to be appointed to the role of Executive Director of Markets, reporting to Shafik. Instead, Chris Salmon, whose whole career has been at the Bank of England, will take over that role.

This column has long banged on about former Governor Mervyn King’s weakness in deifying academic economists and not valuing markets. The bank would have better understood and reacted faster to the seriousness of Lehman Brothers going under – let alone known about its fragility earlier.

Governor Mark Carney, a former Goldman Sachs banker, is fully aware that markets move mountains. But when he leaves the Bank of England at the end of his five year term, he looks to have failed to incorporate that knowledge into the executive.

For an indication of Russian thinking as the Crimean/Ukranian crisis escalates, one could do worse than turn to Max Hasting’s superb volume on WWII, All Hell Let Loose.

Our inbuilt bias assumes our opponents will react in the same way as we in the West do. In other words, hit Vladimir Putin where it hurts – his wallet – as the Russian stock exchange plummets and international sanctions loom. Yet this is Russia.

In 1944 as Stalin’s army crossed the Danube in their Hungarian invasion, indifferently losing soldiers to the enemy, a Hungarian hussar gazed on the corpses on the river bank and said to his officer in shocked wonder, ”Lieutenant, sir, if this is how they treat their own men, what would they do to their enemies?”

The Russians bore the brunt of the fighting against Hitler during the war, with it being fought mainly on Russian soil. Stalin was not bothered by the barbaric behaviour of his soldiers towards German civilians a few years later. As Hastings points out, the Soviets saw no shame, such as burdens Western societies, about the concept of revenge: “The price of having started and lost a war against a tyranny as ruthless as Stalin’s was that vengeance was exacted on terms almost as merciless as those Hitler’s minions had imposed on Europe since 1939.”

President Putin is not Stalin. But a paranoid historical memory lies at the heart of both men. Winston Churchill famously spoke about a “riddle wrapped in a mystery inside an enigma.” It is worth quoting the rest of his speech in 1939, “I cannot forecast to you the action of Russia. It is a riddle wrapped in a mystery inside an enigma; but perhaps there is a key. That key is Russian national interest. It cannot be in accordance with the interest of the safety of Russia that the West* should plant itself upon the shores of the Black Sea, or that it should overrun the Balkan States and subjugate the Slavonic peoples of south eastern Europe, That would be contrary to the historic life-interests of Russia.”

*In the original speech, it was Germany.

Motherhood, apple pie and transparency. All good things? English Poet Philip Larkin didn’t believe the first word qualified, with his most famous line being, “They **** you up, your mum and dad.”

As for apple pie, we are now aware of the rotten repercussions of all the sugar we have been eating.

The debunking of the God of Transparency, however, has yet to happen. This is despite the incalculable harm done to the US and the UK’s intelligence gathering by Edward Snowden. We are less safe than we were prior to his revelations, while the probability of recruiting spies will have plummeted, as they consider the extra danger involved in this ever-more translucent world.

Moreover, consider the harm done to the Bank of England’s market intelligence operation by the release of minutes from a meeting in 2006 where senior foreign exchange dealers from some of the world’s largest banks told a senior member of the central bank of “attempts to move the market.” Paul Fisher, who was head of its foreign exchange division at the time, insisted in Parliament that this was “traders’ whingeing about how difficult their life is.”

Understandably, the focus is now on whether the Bank of England failed to take action on market manipulation within the trillion dollar foreign exchange market, where $5.3 trillion changes hands every day and a number of investigations are taking place.

But the transparency from releasing those minutes comes at a cost. What trader will now raise an issue with the regulator if this can’t be done informally? Which regulator will want to be closely involved in markets, given that it is a career dead end – either you are not well informed on what is going on, or you are and are therefore suspect.

Fisher has lost his seat on the powerful Monetary Policy Committee. Meanwhile Paul Tucker, a former deputy governor who was a strong candidate to succeed Mervyn King, was booted out of the running when information was released showing his closeness to Bob Diamond, the former head of Barclays Capital.

Temperance in the application is the key to transparency. As it is for motherhood. And perhaps apple pie.

Investor opportunities: Spain and China

The 686th Lord Mayor & Women in the City

If I were a man, I would spend my money on women and wine and wandering.

I am, however, most definitely a woman and one who had occasion to feel immensely proud of her sex last Saturday, as fifty City women marched in the Lord Mayor’s annual parade, amid the driving rain and horse poo left by a mounted regiment. (The attached photo has little to do with reality). Perhaps the circumstances were a metaphor for what it takes to succeed in the City as a woman. But that was all forgotten as we waved at the half a million people lining the route and then passed by the Mansion House to salute Fiona Woolf, the second woman in 800 years to be elected Lord Mayor of the City of London.

The historic role for Lord Mayor number 686 involves being the Ambassador for the City (in fact, the whole of the UK’s financial services sector), giving more than 100 speeches and travelling nearly 100 days to promote the City in over 25 countries in the year in office. For the current Lord Mayor, a partner at Cameron McKenna, this may well represent a diminution of her usual travel schedule, given that she is the head of the law firm’s global energy practice and a renowned expert on privatisation and the environment.

Unlike some other women at the top, she is willing to stand tall (literally, at 5 feet and 12 inches) and be counted on to push for more women to join the City and make it to board level. “The City’s diversity and openness is one of the keys to long-term success so it is vital we work hard to move to a new normal by freeing up the talent pipeline. Businesses need to capture the innovation and ideas that difference within the talent pool generate,” she says.

The Lord Mayor speaking next to Prime Minister David Cameron at the Lord Mayor’s Banquet

Our group was as diverse as could be in the Lord Mayor’s Show that Saturday, with women who were born in India, Sri Lanka, Rumania, the US, China and Latin America. No better proof exists of the global nature of the City. As we ate our sodden sandwiches during the lunch break, we inspected some of the 130 vehicles in the parade, including 20 carriages, a tank and 50 horses, while beaming with pride at being involved in a ceremony that dates back to 1215.

Only 6% of managing directors in the City are women, when at university graduate level the division can be almost equal between men and women. Conscious bias has become less of a problem; unconscious bias more of one, which is why the Lord Mayor’s Diversity Advisory Panel, to which I belong, has a 12-month programme (www.fionawoolf.com) to bolster the position of women in the City.

It was not just our faces and languages that evidenced the City’s global medley. So did the handbags we wore as we marched, courtesy of a Chinese retailer. In 1996 entrepreneur Shunyuan Guo bought Powerland an Italian brand, and took it to China. There are now more than 200 stores on the mainland, plus 2 in Hong Kong. The luxury handbags are designed by a former Chief Designer from Gucci. 

Chairman and Ceo Guo listed the shares in Frankfurt a few years ago, raising €95m to finance the continued expansion of the retail network. He is now exploring locations for a shop in London and Paris, albeit he is adamant that “the price and opportunity has to be right.”

Powerland AG may be a good investment. So is Spain. A few weeks ago Bill Gates took a punt by buying a 6% stake in construction company FCC, making him the second largest shareholder. He is not alone in seeing value in Spain and its battered sectors like banking and construction. The IBEX 35 main stock market index is up 25% in the year to date. The country came out of recession officially in the third quarter with a return to growth, albeit a measly 0.1% increase.

On a visit to Madrid last week you could smell the first whiff of optimism. You could also smell the rubbish strewn on the streets due to a rubbish collector strike. Private companies were planning to lay off up to 20% of all sweepers. After 12 days a compromise was agreed whereby there would be no redundancies, but workers agreed to take 6 weeks of unpaid leave every year through 2017.

This is indicative of the drop in internal wages that is making the country competitive again. It has recovered 65% of the competitiveness lost during the credit bubble, while its strength in world class infrastructure and a large and skilled labour force make it the 35th most competitive economy in the world, according to the World Economic Forum. Spain is held back mainly by the bureaucracy and corruption of its unimpressive governing class.

Additionally, the government has been ineffectual, if not inept, in marketing to investors its new fund of funds, FOND-ICO. Launched in March with €1.2bn, the state’s anchor investor will invest in foreign and national private funds over a four year period to help with the non-bank financing of existing and new SMEs.

Ramon Betolaza, a London-based financier who returned to Spain this year, is raising a €500m fund via Black Toro Capital and Trea Capital to leverage FOND-ICO funds and invest in medium sized companies alongside existing management. He notes that although some companies are facing strategic challenges, others are solely suffering from cash flow problems on the back of a country-wide liquidity squeeze.

If FOND-ICO doesn’t tempt you to Spain, gentle reader, then what might do so are revelations this week that sofrito, a special tomato sauce used as a base in Mediterranean cooking, is the secret to longevity and a healthy heart. The women and the wine aren’t bad either. Nor are the boys and the bullfights.

The CEO’s case for rocketing equity markets

Middle East and Korean peace in the offing

A year after writing about the unsustainability of the French economy, I found myself this August once again amidst the glory-on-earth that is inland Provence. The economy is in worse shape, even more of the profit-making elite have left the country and President Francois Hollande is beyond a blancmange.

Demand for places in the South Kensington Lycée is such that a new one is being built near Wembley football stadium. London’s gain is France’s loss.

And yet I join a select group of forecasters who have to date been proved wrong. We continue to hammer away at our theme of the bankruptcy of the French state while enjoying the delights of long lunches with saucissons de sanglier, the local rosé and the dream of owning our own estate. The head and the heart do not always move in sync. Why France will fall next.

The time to invest in equities is now. Ignore the pundits who declare them overpriced. Dismiss the majority view which emphasises these five certainties: anaemic world growth is set to persist for the foreseeable future; China is set to become a superpower; the North-South Korea stand-off is unlikely to change anytime soon; US supremacy is at an end; the Israel-Arab conflict will endure.

Instead, read the fascinatingly contrarian world vision that a well-known, cerebral CEO recently shared with me.

“China will struggle more than many investors expect, particularly in the context of what could be the Asian strategic surprise of the next few years: Japan. Chinese growth well under double digits at 7-8% will not be enough to sustain the socio-political compact which has kept it as a unitary state with a quiescent population. The subversive power of the internet, growing income inequality devoid of the hope that a rising tide will lift all boats, local corruption, Muslim extremism in some provinces and regional separatism, will lead to domestic problems which the Communist Party will not be able to contain. It could lose power while the country messily breaks up into smaller areas of influence, although it is worth keeping in mind that “smaller” in Chinese terms is still large by any other.

The Koreas will unify as the Chinese reconsider the cost of supporting the existing North Korean regime. South Korea will pay for re-unification, just like the West Germans paid for the East. After a decade or two of domestic integration focus, Korea will be born as an even more powerful economic entity, playing a much larger role on the world stage.

The US looks set to continue as a superpower. With the Republican Party in a mess, Hilary Rodham Clinton could be elected on a landslide at the next election, bringing the House along with her. The US will continue its upward trajectory, based on cheap shale gas and its flexible, innovative economy, with no one country able to challenge it.

Peace is due to break out in the Middle East within the next 3-5 years as the Shia axis surely will be broken when Bashar is ousted. He may not be out of power yet, but the prospects of continued Alawite domination of Syria (12% of the population) grow dimmer by the day as Sunni support for the rebels continues to grow. Syria’s fall would effectively defang Hezbollah and creates much improved prospects for peace with Israel. The new military government in Egypt may transition into a civilian government over time, but likely will continue to curtail arms trafficking across their border into Gaza, further weakening Hezbollah. Shia Iran, the main backer of Hezbollah, would end up being further isolated and surrounded by Sunni powers.

The Arab Spring has brought to the surface the main threat to existing regimes in the Arab world: a lack of growth and diversification with its consequent unemployment, especially youth unemployment – under 25’s being the largest (and growing) segment of the population in the Arab world. The monarchies and dictatorships have used the conflict with Israel as an excuse for their lack of progress, but this is no longer enough.

Peace with Israel will allow the focus to shift to growth. Informal approaches to Israel from the Saudis have already been made. For Israel, which does not have the military capacity to fully disable Iran’s nuclear capabilities, a comprehensive peace settlement may have allure. Not least because Arab Israelis are set to be a majority of the population within a decade.

The confluence of these unexpected factors, including the enhanced power of the US and the shock of a Middle East and Korean settlement, means equity markets will take off on the back of the boost to world growth.”

Hopefully, this radical vision will more likely happen than this Column’s dire French predictions.

The Tyranny of Numbers

Criminal bankers, interest rate spikes & mythical holidays

I assume we will be seeing bankers in court, as UK Chancellor George Osborne is set to implement a reform suggested by the Parliamentary Commission on Banking Standards, namely introducing a new criminal offence: “reckless misconduct in the management of a bank”. Pandering to populism, it is aimed at capturing bank CEOs and directors.

But should not our new, state-of-the-art regulatory system be in the dock right now? The prosecuting lawyer would surely argue there was “reckless misconduct in the supervision of a bank” when the Co-operative Group’s bank was rescued last month. After all, there were plenty of warning signs when in 2012 the bank plunged to a £674m loss amidst almost £470m in write-downs due to commercial property loans acquired via a takeover in 2009.

And why restrict the accusation to financial services? I can envisage “reckless misconduct in the management of a nation’s health” which would apply to all junk food company CEOs.

The list of company directors accused of “reckless misconduct” could be as endless as it would be pointless.

Watching Quentin Tarantino’s classic Pulp Fiction the other night underlined how anaesthetised we have become to violence. Released in 1994, it was a byword for violence. Now, in 2013, it appears endearingly quaint when compared to the blood-spattered Call of Duty: Black Ops II and other ghastly video games played by teenagers.

In a similar fashion, we in the West have become inured to low interest rates and a negative return on savings. We are assuming a few years of them – witness the market panic when the Federal Reserve suggested mid-June it would soon taper off its stimulus programme of buying government securities.

New UK Governor Mark Carney is expected to give guidance next month to push UK rates lower. Interest rate markets currently estimate the first rate increase for 2015, not late 2016, which was their May forecast.

However, say the US economy accelerates faster than expected and the Fed eases off its quantitative easing in line with new circumstances. Sterling plummets. Might not Carney be forced to raise rates unexpectedly early in order to combat a sterling crisis?

Black Ops II would be nothing compared to the carnage unleashed then.

Leadership is about taking decisions without the evidence to back them up.

At a recent Pi Capital event, Lord John Browne, former Group Chief Executive of oil company BP, voiced concern about the current culture of “evidence-based decisions.” He noted that we live in an age of data overload, which leads to an unhealthy reliance – a decision appears to almost “make itself” based on the facts. Most great leaders have made judgements which appeared irrational at the time, with wartime hero Winston Churchill and steel magnate Andrew Carnegie among classic examples.

German philosopher Friedrich Nietzche was right to warn about the “continual falsification of the world by means of numbers.” His words two centuries ago are even more true today due to what Professor Christopher Coker calls “the unstoppable onwards march of mathematics.” Even when the limitation of numbers is shown up – viz risk systems and the financial crisis – the belief system continues.

Boardrooms are often populated by those who hold unconditional faith in numbers, a delusory substitute for religion, most of which at least admit that God’s plan is a mystery.

Two Prussian military commanders, Carl von Clausewitz and Helmut von Moltke, understood the self-contradictory absurdity of scheduling the movement of divisions and battalions in carefully calibrated master plans. The former admitted that the very nature of interaction is bound to make war unpredictable, while the latter put it in a rather more down to earth way by remarking that “no battle plan survives contact with the enemy”.*

The language of the Boardroom is increasingly financial. Yet the world does not operate according to a mathematical formula. In Non-Executive Searches too much emphasis is placed on all board members having deep financial skills, be this a career in finance or an accounting qualification. This is often at the expense of imaginative, creative thinkers, with careers that probably will not include the initials “CFO”. They are often women. There is no arguing that financial skills are crucial in a number of key roles, such as Chair of the Audit Committee; however a partner in a law firm in charge of Competition and Antitrust, or the head of marketing at a multinational may provide other relevant skills to the team.

Financiers formed the majority of the board of Royal Bank of Scotland in 2008. They were of little use in halting its downfall. Diversity is more than just a politically correct catchphrase.

Conventional wisdom in this country has it that southern Europeans are always on holiday. Discussing the topic recently with various Spanish and Italian compatriots who now live in London, we grasped that this was a myth.

In Spain, holidays consist of a week at Christmas, a week at Easter and a month in August, with a few days off in between for Saint’s days. In London – and even more so in the City – they consist of two weeks at Christmas, half term in February, three weeks at Easter, half term in May, half time over the month of June between all the social events like Glyndebourne, Wimbledon and Henley, a why-don’t- we-deal-with-this-in-September attitude in July followed by the month of August off, and capped by two weeks of half term in October.

Robinson Hambro, as an enterprising Anglo-Spanish boutique, is never on holiday.

*Warrior Geeks by Christopher Coker, a fascinating tour d’horizon on the changing face of war and its philosophical underpinnings.

The Bank of England’s Tucker time

Asian crisis lessons for Spain and Italy

Knees to chest in the womb position, I bounced in the harness attaching me to the two- inch thick, descending cable. Picking up speed, I accelerated to more than 70 kilometres per hour over the Costa Rican valley open before me.

The finish, 750 metres away, was lost amidst faraway trees, as was the tiny body of the fool who had zip lined across before me.

“I am a widow with an 11-year old child and a thirst for life. WHY AM I DOING THIS?!” I screamed. Perhaps I only imagined the scream as my lips were frozen in petrification. I was powerless to stop the horrific experience. There is no rational reason to be separated from the earth by 200 metres.*

The lookout point from which we started the zip lining faced a colossal volcano. El Arenal is known as Costa Rica’s most active volcano, spewing large amounts of ash, lava and gas. However from 2010 it entered an indeterminate resting phase. An erupting volcano was not the issue. Thus the obvious risk in our zip lining was not the most important one.

Likewise, Spain and Italy are residual risks for the euro. Banks from other countries have had enough time to lower their exposure to the two countries. Wholesale financial markets have been inaccessible to the Mediterranean nations for some time. They are relying on the ECB.

In Spain, a full bail-out is needed, not least to take over from a government whose economic and financial chiefs (Minister Luis de Guindos and Minister Cristobal Montoro) are apparently too intent on throwing poisoned darts at each other to focus on the crisis. Prime Minister Mariano Rajoy cannot bear the humiliation of asking for help. Every day that passes the debt burden on Spaniards becomes heavier. For this he will be judged.

Meanwhile, neighbouring technocratic Prime Minister Mario Monti, who started with a bang, now has his hands tied by a squabbling Italian parliament.

They both need an authority from outside the domestic and European political mess, which can only be the International Monetary Fund.

During the Asian crisis, the IMF stepped in with a heavy tread. With hindsight, it would undoubtedly do some things differently. But all in all, its presence was sufficient to remove the political obstacles to structural reforms while its resources were put to use in Thailand, Indonesia, the Philippines and others.

The complexity of the factors and players involved in the solution to the Asian disaster defies a short column like this one. Still, the need for an authority separate from the crisis-ridden countries is paramount. The European Central Bank is too involved and too political a body: it should play a junior role to that of the IMF, like the central banks in the Asian countries being rescued at the time.

There are those who dismiss Western Europe’s future as that of a Disneyland for tourists from the Bric and other nations in Asia. Beware facile judgments. Many voices were heard being equally contemptuous of Asian nations during their crises. Within only a few years, the Asian tigers rose even stronger.

Only two months ago, the Philippines extended a $1 billion loan to the IMF to help in stabilising the developed world economies.

Transparency has become the sacred cow of our days. Justifiably so. Shining a torch into the hidden recesses of financial institutions has revealed the murkiness of Mexican money laundering, risk exposures being fudged and clients being consistently ripped off.

But there are times when obscurity is necessary, as in the following case. Until the spring of 2012, Paul Tucker, Deputy Governor of the Bank of England, was a strong contender to inherit the governorship from Mervyn King, whose second term finishes in June 2013.

As part of the recent scandal over LIBOR, the ever-more-powerful Treasury select committee called on Paul Tucker to give evidence. They quizzed him over a 2008 email from Bob Diamond, where the (now former) ceo of Barclays alleges that the Deputy Governor told him over the phone that “it did not always need to be the case that we [Barclays] appeared as high as we have recently”.

This was understandably interpreted by Barclays Capital, as an instruction to lower the bank’s Libor submissions.

Now, there is a big difference between the unethical manipulation of the Libor rate for profit – which had been going on for awhile at Barclays and other banks – and the example in question.

The phone call took place a few weeks after the fall of Lehman Brothers, when the world was zip lining with an untested harness. The biggest fear for the central bank and the government was a bank run, which would probably have spread, leading to panic on the streets. There were already rumours about Barclays’s shaky finances in the markets. These could not be allowed to spread to retail depositors. The central bank was simply doing its job in nudging Mr Diamond, via an innuendo-laden sentence, to lower Barclays’s Libor rates so as to shore up its shaken credibility.

There may well be reasons Mr Tucker is not the right person to take over at the Bank of England. But it is incorrect to judge him negatively for doing his job as he did in that now-famous telephone call. Shadows are just as necessary as light in economic management.

A short week in Costa Rica was followed by a leisurely ten days in France. Our summer holidays moved from zip lining, monkey tribe attacks and white water rafting, to Provencal pools surrounded by the smell of lavender. Appearances to the contrary, the risk increased. France is the real risk to the euro, as will be explained in next month’s column.

*For those foolhardy enough to replicate the Costa Rican adventure www.skyadventures.travel.com.*