World leaders continue to debate capitalism, the eurozone, and Iran at a snowy Davos
• Day two at Davos, as it happened
• Day one at Davos, as it happened
Our economics editor, Larry Elliott, has written his Davos 2012 wrap-up for tomorrow's paper. Here's an exclusive preview. Larry homes in on three key concerns, which dominated the summit:
Three big themes have dominated this year's Davos: Europe, jobs and inequality. While it would be comforting to think that the considerable brain power assembled 5,000ft up in the Alps has come up with solutions to these problems over the past three days, that would be stretching the truth.
Tackling inequality will require more than the motherhood-and-apple pie solutions trotted out by the majority of those attending the World Economic Forum. Sure, education is important and so is training. Technological advance and globalisation mean skills matter more and more. But it is not as though governments have been ignoring these issues over the past decade or more, a period when inequality has increased markedly in many countries. The evidence is that inequality is lowest in countries where there is solid growth, strong collective bargaining and supply-side interventions. The high-tax Scandinavian model, in other words. Few of the heavy-hitters in Davos are signed up for that.
Similarly, there was a failure to acknowledge the real cause of the global unemployment crisis: a lack of effective demand. Growth in the developed west is depressed, partly as a result of the legacy of debt and partly because of self-defeating austerity programmes. The United States, where unemployment is coming down, is the notable exception to this rule, but even in the world's biggest economy the recovery from the slump of 2008-09 has been patchy and slow in historic terms. Sooner or later, policy makers will understand that the real threats are mass unemployment and deflation, not inflation and the size of budget deficits. They are not there yet.
Finally there's Europe, where – ostensibly at least – there does appear to have been some progress this week. Olli Rehn, Europe's economic and monetary affairs commissioner, was upbeat today about the possibility of a debt deal with Greece's private sector creditors within the next couple of days. George Osborne was cautiously optimistic that there would be an agreement to increase the financial firepower of the IMF.
But a sense of realism is required here. As Simon Smith, chief economist at FxPro noted, the phrase 'under-promise but over-deliver' is not one with which European policy makers are familiar. On the contrary, they have tended to talk big and then allow matters to drift in the hope that something will come up ... Avoiding a Greek default will require public sector creditors to accept losses as well. Rehn, Mario Draghi, the president of the ECB, and Angela Merkel are in denial if they think otherwise.
Sovereign debt is a symptom of a deeper problem: the gap in economic performance between the two halves of the euro zone: the rich north and the poor south. Fixing that problem requires more than just austerity, it requires closer political integration and the floating of Europe wide bonds in order to transfer resources from north to south.
Local representatives of the global Occupy movement, Occupy WEF, appear to have secured a meeting with Klaus Schwab, founder of the World Economic Forum, on Saturday. They want him to visit them in one of their igloos. It's an interesting turn of events, and, presumably a fantastic photo opportunity ...
#Occupy is willing to meet Klaus Schwab outside of the fortress #WEF. A chance for him to visit camp igloo #occupy #Davos
— OccupyWef (@Occupy_WEF) January 27, 2012
General #occupy assemblyis right now talking about it. RT @DaRoth: Got an invitation from Klaus Schwab. Should I accept it? #Davos #wef
— OccupyWef (@Occupy_WEF) January 27, 2012
What shall we do? #WEF Klaus Schwab offers to meet with Occupy protesters bit.ly/wzlrMH #Davos #Occupy
— OccupyWef (@Occupy_WEF) January 27, 2012
The Occupy protesters have been engaged in a number of actions in and around Davos, like the one below, over the past two days.
The topic of Stephen Hester's bonus is not going to go away – at least if we journalists have anything to do with it. Jill Treanor has been trying to extract more comment from British politicians at Davos, without much luck:
Tried to ask Gordon Brown if the government was right to blame Labour for Hester's bonus ... He was terribly polite but declined to reply.
One of the less likely of this year's Davos men is Brazilian writer, Paulo Coelho, known for his bestselling novels of a 'spiritual' bent. He spoke last night at an event entitled "The Story of an Author", but he's also been tweeting, in trademark gnomic style:
Nothing wrong with looking like a fool if what you are doing is really wise
— Paulo Coelho (@paulocoelho) January 26, 2012
Keep your sense of humor about your mistakes, but don't repeat them #wef
— Paulo Coelho (@paulocoelho) January 26, 2012
"It's very simple to explain: things are complex" (an economist today) #wef
— Paulo Coelho (@paulocoelho) January 26, 2012
If you understand what is going on, you need a reality check #wef
— Paulo Coelho (@paulocoelho) January 25, 2012
No? Me neither.
Sheryl Sandberg notes the different messages we give to boys as opposed to girls. She asks for a show of hands as to how many women in the audience were called "bossy", saying:
If you're at Davos, you were called bossy. For boys, it's just the natural order of things.
Jane says:
At dinner last night someone who shd know said Sandberg will stand for office and now I can see why. She'd get my vote #davos
— jane martinson (@janemartinson) January 27, 2012
There's been a lot of talk in the Women as the Way Forward session on the practical benefits of boosting the rights and education of women in terms of development. Education, health and productivity all benefit when women's needs are attended to.
Archbishop Tutu says, for example:
Very straightforwardly, the evidence that is if we do not in fact end child marriage, we can kiss goodbye to six of the eight millennium development goals.
Waxing lyrical on 'feminine attributes' he also seemed to say, slightly oddly, that "Hitler happened because his mother didn't dangle him". Jane Martinson heard, or perhaps interpreted, this as "cuddle":
Not sure about blaming Hitlers mum for not cuddling him though. Why is it always the mother's fault?
— jane martinson (@janemartinson) January 27, 2012
The main congress hall is about to host a session on Women as the Way Forward. You'll be able to watch it on the live feed at the bottom of this post.
As I write the feed is displaying a set of empty chairs – perhaps an appropriate metaphor, given how overwhelmingly male-dominated Davos is.
When the participants arrive, they'll be Michelle Bachelet, former president of Chile, Sheryl Sandberg, Facebook's chief operating officer, Archbishop Desmond Tutu, Yingluck Shinawatra, prime minister of Thailand and Tala al-Zain, CEO of the Bahrain Mumtalakat Holding Company.
News reaches us of a Unite protest over pensions outside the Davos rathaus – the town hall.
Peter Waldorff, Gen Sec of PSI and Tim Noonan of ITUC supporting #Unilever demo in #Davos twitpic.com/8carva
— Unite the union (@unitetheunion) January 27, 2012
The union is targeting Unilever as part of an ongoing row over the company's decision to end its final-salary pension scheme.
Jill Treanor in Davos tells us that Bob Diamond, chief executive of Barclays, has been talking about building trust. He didn't want to talk about Hester, but said generally:
'If we don't celebrate and reward for success we won't have an economy.'
'Only 70 billionaires' – yes, this paltry total is all Davos has to offer, according to the Wall Street Journal. The rest, they're just common-or-garden multi-millionaires (there are 2500 people attending the conference in total).
What's really interesting is that India is sending 16 billionaires – "nearly a third of the country's total billionaire population" the WSJ notes. That's only four fewer than the US, which has the largest billionaire headcount. Russia is sending 12.
Jill Treanor reports from a session on Europe's economic outlook, with European central banker Mario Draghi:
The Italian who is now in charge of the European Central Bank has admitted there would be a 'short-term contraction' in some economies because of the austerity measures that are being imposed to reduce the debt burden. He also admitted that the high takeup of the three-year funds that the central bank released to banks – 523 of them bid for the loans – had surprised him.
Amid speculation that the cash released to the banks through what is known as the LTRO (Long Term Refinancing Operation) is merely being deposited back with the central bank, Draghi insisted that this was not the case. 'We know for sure we have avoided a major funding crisis,' said Draghi.
'Money leaves the central bank and comes back. The issue is does it really circulate through the economy? Here it is practically impossible to know from the central bank balance sheet. We have found the identity of the banks that borrow is different from the identity of banks that deposit.'
He admitted, though, that the banking system was far from normal. 'We have to see yet one key thing – a reactivation of the interbank market. We have to see that banks trust each other to the point they go back to lending to each other,' said Draghi.
'Big Banks: Cure or Curse?' – that's the title of a TV debate now taking place. The panellists are Luc Frieden, Luxembourg's finance minister, economist Nouriel Roubini, Peter Sands, head of Standard Chartered, Jean-Claude Trichet, former head of the European Central Bank and Adair Turner, head of the UK Financial Services Authority.
Adair Turner's just been talking about the importance of eurobonds and a pretty significant move towards federalisation of the eurozone as remedies to the current crisis.
Here's Roubini, frustrated at the lack of serious restructuring of the banking system in the wake of the crisis:
My view is that in the US, at least, we should go back to Glass–Steagall – separate investment banking from commercial banking ... maybe at the next crisis we're going to talk seriously about making those kind of separations.
Under questioning from the UK media, George Osborne has commented on Stephen Hester's bonus. The chancellor argued that other bankers will probably pick up larger packages.
Speaking at his lunchtime meeting with UK business leaders (see 12.41pm) Osborne said:
I think it is difficult to justify levels of pay in the financial sector compared to other industries.I would bet his bonus will be a lot less than bonuses other people running banks are going to get, and half of what he got last year.
We're not sure that the public anger will be completely dissuaded if it transpires that other bankers have picked up seven-figure bonuses for 2001.
Osborne was also quizzed about Britain's 50p tax on high earners. He told his audience in Davos that "I have always said this is a temporary tax. The long term damage of this tax is potentially quite considerable".
George Osborne went on to outline the conditions under which the UK could increase its contribution to the International Monetary Fund.
They are: a guarantee that there will not be a new funding vehicle especially for the eurozone; "full IMF conditionality"; participation form other G20 counties; and finally a guarantee that any fresh resources would not be a substitute for Europe supporting its own currency.
As Osborne put it:
The world needs to see the colour of their money before contributing any more.
George Osborne is defending his handling of the British economy, at a lunch with UK business leaders.
Larry Elliott is also there, and reports that Osborne said that the argument for deficit reduction has "become stronger not weaker over the past year".
Britain had been on "debt fuelled binge" and now "experiencing the reality of deleveraging", the chancellor said.
Osborne also told the event that the UK government is "unabashedly" pro-enterprise. He cited:
• moves to make it tougher to claim unfair dismissal,
• planning reform, cuts in corporation tax,
• attempts to attract multi-nationals to Britain
• unblocking investment in. Infrastructure projects".
Stephen Hester's bonus is casting a shadow over Davos (well, it is pretty big) today.
The TUC's Brendan Barber is at the WEF, and told Jill Treanor that the decision to hand Stephen Hester shares worth £963,000 was "terrible".
Barber said:
The government mght have been able to subcontract the decision (to UK Financial Investments) but they can't side step the responsibility.
His argument is that while the Royal Bank of Scotland boss shouldn't have accepted the bonus, he shouldn't have been a position to have been handed it – and, indeed, believes the government has "bottled". He reckons that Vince Cable's reforms for executive pay, published on Monday, will not lead a change in top pay.
"The government through their stakes in the banks had the possibility of sending the signal. They've really bottled the decision. It's business are usual," said Barber.
Barber's main worry is the "state of the economy". "I don't see us turning a corner as I can't see the corner," he said.
And Barber's views on Davos this year?
There's a odd atmosphere. A lack of real confidence that the answers have been found.
However, businessman James Caan told ITV's Jess Brammar that he supported the bonus payment, as Hester was one of the few people capable of running RBS.
Businessman James Caan tells me time to argue over Hester's bonus was when his contract was negotiated and it should be honoured now.
— Jess Brammar (@jessbrammar) January 27, 2012
Will we hear more from Osborne? Not very likely, according to Paul Waugh, editor of PoliticsHome.com:
Looks like George Osborne has pulled out of media interviews in Davos. Shurely not cos of The £1 million Hester Question...?
— Paul Waugh (@paulwaugh) January 27, 2012
So, what's George Osborne been saying to UK business? The chancellor is focusing on reform of financial institutions, via the new Financial Services Bill (full story here):
George Osborne today said the government's shake-up of City regulation would overhaul a failed system and prevent banks from ever again being as exposed to bad loans as they were when the financial crisis broke in 2007.
Speaking in Davos, the chancellor announced the publication of a Financial Services Bill that will put the Bank of England in charge of day-to-day policing of the financial sector.
Osborne said that the chancellor would have the power in an emergency to direct Threadneedle Street to step in to help a troubled bank.
In a speech to UK business leaders, Osborne said: 'I am today publishing the Financial Services Bill that will overhaul the failed system of financial regulation which allowed such dangerous levels of leverage to emerge.
'The failings of that system are now well understood. The tripartite structure (with authority split between the Treasury, Bank and the Financial Services Authority) was incoherent, without clear lines of accountability.
'Everyone was so focused on ticking off a regulatory check-list that nobody felt it was their responsibility to use their judgment.
'The astonishing result was that RBS was allowed to take over ABN Amro when the credit markets had already frozen up.'
Osborne added that under the old system it was unclear who was in charge in a crisis when taxpayers' money was at stake.
'We are putting in place clear lines of accountability, and restoring that crucial element of judgment.'
The Occupy contingent, who've been spending most of their time in igloos 20 minutes walk away from the conference venues, appear to have penetrated summit security:
We made it to the heart of the #WEF! Passed the security at the registration center. Asking for 7 billion badges for the 99% #occupy #davos
— OccupyWef (@Occupy_WEF) January 27, 2012
We'll be keeping an eye on this. Meanwhile, Felix Salmon, writing on the Reuters blog has been musing on why Davos delegates have been doing their best to ignore these intrusions into the otherwise very clubbable atmosphere at Davos:
The Davos crowd is not even close to listening carefully to what Occupy has to say: they're evidence of the problem, but they're not remotely helpful when it comes to solutions.
Here's Jill's take on Geithner:
Tim Geithner, Treasury secretary, who admitted earlier this week that he doesn't expect to serve a second term in the role, reckons the eurozone is 'making some progress' with its economic polices but remains pretty scathing about austerity measures. He reckons that for austerity 'to work there needs to be some support and financing' for the economies. The concern about whether austerity can lead to growth is clearly on everyone's minds and was part of the discussion in the earlier debate about the future of the eurozone where a number of finance ministers made clear growth needed to be on the agenda.
He was also asked about whether the US would put more more into the International Monetary Fund – something that was brought up Olli Rehn earlier as part of efforts to build up the eurozone firewall. His answer, to me at least, sounded similar to those the UK always gives – more money for the IMF but not as a 'substitute' for changes in the eurozone.
In the meantime, here's a dispatch from Jane Martinson, the Guardian's women's editor, who's been listening to world record-breaking sailor Ellen MacArthur, who has plans to reduce the amount of waste from manufactured products:
On Monday the Ellen MacArthur foundation is due to launch a report by McKinsey on the economics of the circular economy or 'designing for disassembly'.
Speaking last night ahead of her pitch MacArthur showed the same drive and determination for her latest idea as she did for sailing. 'I never ever thought I would stop sailing. It had been my dream since the age of four but this is really important.'
She retired from sailing in 2010 after breaking the record for sailing around the world single handed several times.
The foundation is encouraging efforts to change the design and manufacture of all products to reduce or eliminate waste. It has already received £6m from four companies including Kingfisher, BT/Cisco, Renault and National Grid but MacArthur wants more. Coming to Davos for the first time has not phased her. 'I'm used to dealing with business. Without them I wouldn't have been able to sail.'
Her work has focused on encouraging teenage students to come up with new design plans as well as talking to businesses about changing their processes. 'This is not recycling. Its about the economy, not the environment.'
She can rattle off the life span of a list of resources. 'We have 118 years of coal left. My grandfather was born 118 years ago and I still remember his tales about pit ponies.'
As well as these private meetings there are lots of scheduled events discussing gender equality today. Delegate in the main hall will discuss 'Women as the way forward' this afternoon before a dinner and reception for women leaders tonight at the top of the cable car. Only the brave are being encouraged to take a toboggan for the way down.
George Osborne will address a lunch organised by the CBI over the next hour or two. Larry Elliott is going along, and we'll hear from him soon afterwards. Expect Osborne to echo much of Cameron's lines on Europe yesterday – but since it's a British audience he's addressing, he'll have some explaining to do about the failure of his government to stimulate growth over the past year.
Here's Geithner on Europe.
I think the debate about austerity and stimulus is mostly divorced from a much more practical reality. The proponents of stimulus probably exaggerate its power and the people who talk about austerity get the big things wrong. It is true however though that for parts of Europe for some time there's going to be no alternative to very substantial adjustment ... for that to work however, they need to be accompanied by reforms that are helpful for growth and competitiveness from time to time.
Europe's making some progress. Over the last two months in particular they're laying the foundations for a more credible Europe.
Time for Tim. Geithner, the US treasury secretary, is in conversation with CNN anchor Fareed Zakaria.
Asked about the sense among business leaders that the recovery would be bouncing along more robustly were it not for the "tsunami of regulation" being imposed by the Obama administration, Geither responds:
I don't think there's much basis for that view, although it is true that we're putting in place very tough reforms in the financial sector ... these are necessary, desirable, very important reforms for the United States ... the reality does not justify that sense ... if you look at the basic health of the American business sector, it's must stronger than many of us would have hoped.
As that eurozone session drew to a close, German Finance Minister Wolfgang Schäuble made a joke about how the EU always works better within the framework of a treaty. Now, who was it who blocked that last one?
Schaeuble on question re. 27 EU members acting as one: 'I'll give you the mobile number of David Cameron' #Davos #WEF
— Markus Karlsson (@markusF24) January 27, 2012
Jill Treanor, at the session on the Future of the Eurozone, reports that Olli Rehn had made an full-throated pitch for the US and the UK to put more money into the International Monetary Fund.
The eurozone finance ministers on the panel also want to put growth on the agenda.
Rehn said that growth was the "key questions for Europe at this juncture" but solving the sovereign debt crisis remains the first priority.
Here are Rehn's key quotes:
This is a crisis of confidence and in order to resolve this crisis of confidence we have to do things like the ECB has been doing.
The ECB actions are important but not enough on their own, we need a new fiscal compact and we are revamping the architecture of Europe. We are soon going to have a European and monetary union part two. In the new structure prevention is the name of the game. We need stronger European firewalls and we are working this out and I expect we can come to a positive solution.
Having called on the EU's "friends" in the US and UK to help (see 9.50am), Rehn added that "We need a focus on growth on employment." Topical, with Spanish unemployment hitting 22.9% today.
Even the grandsons of billionaires can struggle to get a comfy double bed at Davos.
Howard W Buffett (grandson of Warren), is attending his first World Economic Forum along with new wife Lili (those Buffetts know how to show a girl a good time). However, the 28-year-old director of the Howard G Buffett Foundation didn't realise how much demand there would be for hotel rooms, so he and Mrs B are making do with bunk beds.
As he joked to Forbes: "At least we're newlyweds." Quite.
Davos is now considering "The Future of the Eurozone" (well, I guess it would be risky to delay this session until next year)
Olli Rehn, the EU's top economic official, is telling the audience that world leaders must give more resources to the International Monetary Fund:
We need support from our British and American friends. We need to increase the resources of the IMF.
Nouriel Roubini, the economist who predicted the financial crisis, has been discussing the impact that social media could have on the economic world.
Dr Roubini reckoned that Twitter, and its equivalents, play a key role addressing inequality and economic unfairness.
Bill Gross, founder of Technology Incubator Idealab, tweeted some of Roubini's best lines:
"There are 300m people on China equivalent of Twitter complaining about inequality & corruption. This will make a difference." Roubini #WEF
— Bill Gross (@Bill_Gross) January 27, 2012
"We need to be more inclusive. This means giving voices to the young, to women, to the poor. Social media will help this." N.Roubini #WEF
— Bill Gross (@Bill_Gross) January 27, 2012
Serious words from Ehud Barak, Israel's deputy PM and defence minister, on the issue of Iran's nuclear ambitions (our economics editor Larry Elliott reports)
Barak was appearing on the panel for the "What if Iran develops a nuclear weapon" session. He said the very idea was deeply worrying:
You can't conceive of a stable world order when Iran has nuclear weapons.
Iran is prepared to defy and deceive the whole world to turn themselves into a nuclear power ... This will be the end of any conceivable anti-proliferation programme. Major powers in the region will feel compelled to turn nuclear.
Barak says would have been impoosible to topple Saddam Hussein or Gaddafi had Iraq and Libya had nuclear weapons. At this stage, he said it is "time for much tougher diplomacy and sanctions".
Twitter has taken off at Davos this year. At least, that's the assessment of KPMG, whose analysts have crunched the numbers and found that:
• On day one, 459 delegates generated 4,436 tweets with 8,021 replies and 18,718 retweets. The top trending topics were 'Angela Merkel', 'Europe' and 'People' relating to #Davos.
• On day two, 440 delegates generated 3,312 tweets with 4,816 replies and 14, 302 retweets. The top trending topics were 'David Cameron', 'Africa' and 'Social'.
You can watch a live feed from Davos in this window.
At present, it is streaming a feed from a session on "The Future of Tunisia", following the Arab Spring uprising.
In Davos, my colleague Jill Treanor is picking up a feeling of a "bigger than ever disconnect" between the business world (particularly banks) and politicians in the UK and Europe.
Jill says:
Some business people feel as if they are being punished by their governments but at the same time being required to drive economic growth because their governments are embarking on such austere budget measures.
Yet, as (another) debate about capitalism starts – entitled 2012, the year capitalism needs to be reinvented - Salil Shetty, head of Amnesty International, sees it the opposite way. He asks a panel - on which Angel Gurria, secretary general of the OECD, is the star turn – if there is a feeling that banks have "got away with it" and that politicans and banks are "in bed" with each other.
Gurria talks about "unchecked greed" but reckons capitalism doesn't need a complete rewrite. "I don't think we've got to reinvent it. We've just got to have new policies".
On the intervention of Howard W Buffett, grandson of the lengendary investor, he added" "We need to do it stronger, cleaner and get away of the uglier aspects. We need to make it fairer."
Anders Borg, the highly regarded Swedish finance minister, reckons:
We need to reinvent the way companies are functioning, Companies have responsibility to their employees, to society, We can't have a situation where they are only focusing on bonuses.
Bonuses are hogging the headlines again, of course, after Stephen Hester of RBS was handed one worth almost £1m last night.
Good morning. It's the third day of the World Economic Forum in Davos, and the action keeps coming. Today we'll be hearing from US treasury secretary Tim Geithner, OECD secretary general José Angel Gurría, Nouriel 'Dr Doom' Roubini …
… and of particular interest to UK readers, George Osborne and Ed Miliband.
Interesting topics up for debate include The Future of the Eurozone, and What if Iran Develops a Nuclear Weapon.
Big questions – let's see if the Davos crowd have the answers …