Monday, February 28, 2011

Flight to Safety ... in Europe

With turmoil in the Middle East, capital seeking safety, which normally flows to the US in times of crisis, is going instead to Europe--despite Europe's own debt and banking difficulties. And it's not just the Swiss franc:
While the yen and Swiss franc have been driven higher by haven appeal, the euro and the pound have at the same time been supported by increasing expectations that the European Central Bank and the Bank of England will deliver interest rate rises before the US Federal Reserve.
On the dangers of such shifts in capital flows, see here (based on an IMF report):

(1) Large current-account deficits, by definition, require the economy running them to import a lot of capital from abroad. If, for some reason, the foreign capital stops coming suddenly, “these evidences often lead to large financial disruptions” that can affect many countries. This, they say, argues for “surveillance”–among the IMF’s favorite words–not only on the magnitude of current-account deficits but on a broader set of indicators.


Unknown said...

You must have missed this part: Although not a direct response to Clinton's remarks, Ghoga said: "We are completely against foreign intervention. The rest of Libya will be liberated by the people ... and Gaddafi's security forces will be eliminated by the people of Libya."

In other words, a rebel leader is REJECTING foreign intervention. You can't both agree with that and call for intervention.

MAD said...

I think you posted this comment to the wrong entry, Art.

No I did not miss it. I think you may have missed the distinction I was attempting to draw between assisting, or offering aid, and military intervention.

Clearly, the notion of assistance is different than intervention, and there is a middle ground between the all of intervention, which is invading and essentially taking over a country, and the nothing of watching with studied indifference.

We have to display our commitment to democracy by helping them with food, medicine and arms ONLY to get rid of their dictator. Once done, we have to maintain good relations and stop the assistance. Maintaining good relations is diplomatic and democratic, intervening is neither.