Roundtable with Howard Davies

13.30 It’s time to wrap up. Before leaving, Davies tell us he’ll be doing a talk about Britain’s relationship with Europe, called “No sex please, we’re British” at Sciences Po, Paris, on 11th April 2013. Thank you for following and sending in your questions, please keep checking back to the ECON+ website for more.

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13.29: “If I was a Portuguese depositor, I’d start to worry…” says Davies. But he thinks the “bailing-in” of wholesale bondholders and depositors is “not a bad idea”.

13.28 Davies argues the bail-in of insured depositors is “a very dangerous thing to do”. He makes the point that “100,000 euros is different in Cyprus than it is in Luxembourg.” “It’s foolishness to imply there is a level of insured deposits in the Eurozone.”

13.27 Valerie sends in a question over from Germany about the Cyprus “bail-in”, and whether that will become standard practice within the Eurozone.

13.26 For Davies, it is a question about the value of a given education. “Would I spent £9000 a year on an English degree from Keele?” he jokes rhetorically.

13.24 Referring back to our speaker’s comment on investing in education, Ciara asks how European countries can invest in education when they are also practising austerity. “How is the government supposed to do it?”

13.23 Davies takes a poke at French labour policy. “Nobody wants to take on a person in France, because you can never get rid of them.”

13.22 “Infrastructure expenditure is difficult to justify. The rational thing for Spaniards to do, if there was budget freedom, would be further education and training schemes. That would at least put people back in connection with the labour market and enable them to bid for jobs,” says Davies.

13.21 Sven asks what sort of policies might be constructive for European countries to help their stagnant economies. “In France, unemployment is at record levels, there is a risk of losing a generation through skill depreciation,” he says. “What should be done?”

13.20  Davies says he is not sympathetic to targets, other than those for employment and economic growth. Defining a specific number is “tricky”, he says.

13.19 We are discussing how you go about managing an economy in a time of low confidence. Davies says he is sympathetic to this problem, acknowledging the need to stimulate investment to get the economy moving again, but adds that “it is not without hazard”.

13.16 Back to the Eurozone. Davies reiterates “the politics argue for doing whatever it takes to preserve the Eurozone.” His chief concern is over what sort of politics might emerge in countries which leave the monetary union, if they do.

13.14 Ciara now asks about the question of Scottish independence from the rest of the UK, and how he sees that playing out. Davies concedes this is problematic, especially in the run-up to the referendum next year. A UK Treasury paper which came out two weeks ago on the matter “demonstrates the incoherence of what they are arguing for”, he says.

13.13 Davies makes the case for a greater degree of fiscal centralisation in the Eurozone. “I hesitate to say ‘fiscal union’, as it can frighten the horses – or should I say Germans?” Others start laughing in response to this, including the German contingent in the room.

13.12 Ciara poses a question for her ECON+ survey on opinions about the future of the Eurozone. “With an economics hat on, some countries are unsuitable members of the Eurozone,” says Davies. The examples he gives are Greece and Cyprus, pausing to ask “how on earth they got in?!” “With a political hat on, [it] should be preserved if at all possible,” he argues.

13.11 On the subject of greater regulatory harmonisation, Davies says “there is a general move to pull everything together in Basel.” Insurance supervisors have moved there, for example. But not IOSCO (International Organisation of Securities Commissions), which is still in Madrid. Davies thinks this is “crazy”.

13.10 Davies says he is a supporter of the FSB, since he was a member of it for six years, and then a board member. “But the IMF is not a regulator,” he says.

13.08 Kieran asks whether, since central banks are increasingly taking on regulatory jobs, the FSB could also take on responsibility for fiscal and economic policy? Should the IMF even conduct everything from Washington?

13.05 A question on liberalisation versus regulation of finance. “You can’t liberalise global banking without having certain rules,” says Davies. “You need a financial services agreement that sticks, you have to beef up the policing of international financial regulation.” He thinks the solution could be that the Financial Stability Board (FSB) becomes a proper treaty-based organisation, and says that there is already some work going on in that area.

13.02 Brazil’s capital controls were actually quite successful, says Davies. He argues there were grounds for introducing them because when people piled into investment in the BRICS (Brazil, Russia, India, China and South Africa), it was Brazil that suffered.

13.00 Milosz asks about increasing global capital flows and the impact of imposing controls. “It’s no longer sustainable to say capital controls are a bad idea in all experiences, due to volatility in certain areas,” says Davies. “There are good capital inflows, and there are risky capital inflows,” he adds.

12.55 Davies clarifies; he means the globally traded economy, which China is a part of.

12.54 Mimi interjects: this movement is not adding to the formal economy, because the informal economy is also growing in urban areas, she says.

12.53 China is going through an industrial revolution, like Britain’s during the 1780s, via the movement of labour from agricultural into urban areas, says Davies. For him, the problem is that a lot of people in rural regions still rest outside the formal economy.

12.52 A question from Mimi on China’s growth, is the rate witnessed so far sustainable? “Forever, probably not,” he says. “It is a long time… They have always kept a broader range of financial controls than we had. At the moment, the record is good, so I don’t see why not. In my view, the biggest question is political stability.”

12.48 Davies says the volatility in emerging markets, based on their changing growth patterns, means they do not necessarily need lower capital ratios, apart from perhaps China which has had high and sustained growth over several years.

12.46 Markus asks whether high core capital ratios are constraining emerging markets banks in their ability to lend, based on comments made previously by Paul Collier.

12.44 Davies thinks it is the amount of capital banks need to keep, “in a way which both enhances the safety of the banking system but does not constrain their ability to lend”. Risk regulators will engage in “reckless prudence”, he says. The question is, “will they destroy the economic value of the banking system?”

12.43 Victoria poses a general question about financial regulation. What is the biggest challenge today?

12.38 Victoria began by explaining to everybody present what ECON+ is about. Luisa followed by introducing our speaker and outlining his extensive career background (see below). The students are now introducing themselves.

12.34 Hello, we are just gearing up for our second ECON+ roundtable with Howard Davies. Stay on this page for updates once we have introduced everybody.

On Friday 29th March ECON+ will be holding a roundtable discussion with Howard Davies. You can follow our live blog on this page. If you’d like to ask any questions you can fill out this form and we’ll do our best to include external questions.

The career of Sir Howard Davies to date has spanned a variety of disciplines, primarily in regulation, economics, finance, and management.

Some highlights have included his roles as Deputy Governor of the Bank of England,Director of the London School of Economics, Director-General of the CBI, and Chairman of the UK Financial Services Authority.

He has authored several books, including Banking on the Future: The Fall and Rise of Central Banking, which supports a course he teaches at Sciences Po, a technical guide that walks its reader through the complex world of financial regulation, and an account of the 2008-9 financial crisis, specifically “Who is to Blame?” for this phenomenon, both of which are references for another course he teaches at Sciences Po. He formerly edited a compelling insight into the trials of being UK Chancellor of the Exchequer, in which five former occupants of that position explain and justify their decisions.

These days, Davies divides his time between chairmanship of the Phoenix Group of Life Insurance Companies, which he took up in summer last year, and was soon followed by an appointment as chair of the independent UK Airports Commission, while continuing as Professor of Practice at PSIA, Sciences Po.

He is also a frequent contributor to the FT’s A-ListManagement Today, and Project Syndicate.

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