8 ★ FINANCIAL TIMES Wednesday19 February 2020
One does not wear
a Patek Philippe watch
just to tell the time
As a non-tech flavoured individual I
enjoy reading John Thornhill’s
columns, which help keepme
abreast of my times, however strange
they may be. In “Smartwatches call
time on the Swiss industry” (February
- he rightly says that for £5 we can
buy aCasiodigital watch that will tell
the time more reliably than a
mechanicalPatek PhilippeGrand
Complications costing 40,000 times as
much.
He may be right, but one does not
wear Patek Philippe watches just to get
the time, precisely reliable or not. One
wears a Patek Philippe, like my classic
blue one, for its craftsmanship and
beauty.
Serge Desprat
Prague, Czech Republic
Brain drain from eastern
Europe has high price tag
Clotilde Armand, the French-
Romanian MEP, is definitely on to
something (“Eastern Europe gives
more to the west than it gets back”,
February 14). The Germans, French
and others bought up strategic assets
(banks, utilities, mining assets,
forestry) and outsourced lower added
value economic activities to the east
(car manufacturing, chemicals). One
after another they opened their labour
markets when the ageing of their
societies began to be a strain on their
economies.
Freedom of movement is both an
opportunity and a problem. The
outflow of migrants damped the
sustainable development of eastern
Europe and also increased xenophobic
attitudes in western Europe. As a quid
pro quo for the brain drain, eastern
Europe should probably start taxing
western European multinationals
adequately and start reclaiming
strategic assets.
The brain drain has a price tag.
Based on the productivity of each
inhabitant in relation to the size of the
immigrant population, the brain drain
added €170bn of value to the economy
of Germany in 2018 alone. This is the
value created by 4.2m immigrants
from other EU countries in the biggest
EU economy. The UK gained €141bn,
France €54bn, The Netherlands
€24bn, Sweden €15bn and Denmark
€11bn. Those numbers outweigh the
contributions that those countries pay
to the EU budget.
During the financial crisis, German
chancellor Angela Merkel invoked the
mythical “Swabian housewife”, the
tight-fisted south-western German
matriarch of lore, to scold other
countries. Now, this is where the
household metaphor is relevant.
Members of a family help each other.
Families function as a kind of mutual
insurance society that helps each other
in times of need. If you take our people
to improve your demographics, then
maybe eastern Europe deserves
support from cohesion policy.
Piotr Arak
Director,
Polish Economic Institute,
Warsaw, Poland
Carbon taxes need to
be wider and deeper
Julian Allwood (“The only way for
aviation to hit zero emissions is to stop
flying”, February 7) makes many good
points. But mankind will always want
to fly long distances. His proposal to
“tax aircraft fuel at the level of the UK’s
current road fuel tax” would have
positive impacts. Even more so if it did
not apply to emissions-free fuels. There
are developing technologies to produce
emissions-free methanol and jet fuel
that would allow responsible flying. An
emissions-related tax would encourage
their development.
More generally, taxing carbon
emissions has four benefits: it assists
our necessary behaviour change; it
eases the conflict between directors’
fiduciary responsibility to make a
profit and their environmental
responsibility not to pollute; it reduces
the drain on the exchequer from grants
to decarbonising projects; and it
enables the commercial funding of
those projects because the savings
make them profitable.
We need wider and deeper
application of carbon taxes, including
on jet fuel, to help make our fight
against climate change more
commercially attractive.
Brian N C Sweeney
London SE26, UK
Where was that prejudice
when Thiam was hired?
Tidjane Thiam,Credit Suisse’s ousted
chief executive, hints at having faced
prejudice during his tenure (report,
February 14). However, that is hard to
reconcile with his history at the bank.
Where was that prejudice lurking
when he was hired, or during his five-
year run as CEO? At various times
during his term he publicly
acknowledged the free rein he was
allowed to radically change the
direction of Credit Suisse.
It is sad when a storied and talented
manager resorts to innuendo and
dissembling when held accountable for
a tawdry episode. After all, does not
the buck stop with the CEO?
Vijay Dandapani
New York, NY, US
N Ireland has to accept
supreme authority of ECJ
I commend the Financial Times on the
accuracy of the headline “Britain will
never allow oversight of laws, Brexit
chief tells Brussels” (front page, UK
edition, February 18). Had your
headline cited the UK, instead of
Britain, it would have been wrong.
TheNorthern Irish Protocol, entered
into as part of the Withdrawal
Agreement, already grants the
European Court of Justice supreme
authority over the Protocol and the
relationship of Northern Ireland with
the EU. Indeed, the Protocol obliges
Northern Ireland to dynamically align
itself with new EU laws to the extent
that these fall within the scope of the
Protocol.
It would appear that what is
unacceptable for Great Britain is
acceptable for Northern Ireland.
Ben Habib
Chief Executive,
First Property Group,
London SW1, UK
Former MEP for London
Ofac’s case is based on
unfounded allegations
Your story “US cites reports Deripaska
helped Putin launder cash” (February
15), about my ongoing legal action
against the Office of Foreign Assets
Control, leaves a strange and deeply
unpleasant impression. Ofac’s case
against me is based not on material
facts or actual events, but rather on
unfounded allegations and
unsubstantiated years-old media
reports.
Your readers might get a very
different idea. Your headline and story
uncritically rehash the baseless
accusations I am challenging in the
American courts, accusations for which
— as you know full well — not a shred
of evidence has been provided.
It is, for example, unworthy of the
Financial Times to repeat the
demonstrably false speculation
about the purported cancellation of
the initial public offering of Gaz.
Basic fact-checking would have
shown you thatGazheld an IPO
way back in the mid-1990s. The
company became public long before I
decided to invest in the automotive
industry, and several years before
Vladimir Putin was elected president
of Russia.
To me, this bizarre article, which
parrots irresponsible accusations,
seems unprofessional and unethical. It
does nothing other than to create a new
wave of media coverage that Ofac can
now use to further justify its flawed
and disingenuous sanctions policy.
Oleg Deripaska
Moscow, Russia
Last week, France marked a historic
moment: the first time a high-profile
French politician has fallen from
power because of an incident relating
exclusively to his private life and
without any criminal implications.
On Friday, Benjamin Griveaux, one
of President Emmanuel Macron’s
closest allies, who wasrunning for
mayor of Paris, announced he would
beending his candidacyfollowing the
publication of a sex video and some of
his private messages online.
The consensus across French media
was that it would have been difficult
for Mr Griveaux to continue with an
already weak candidacy — he was
trailing in third place, behind the
socialist and rightwing candidates. But
there was also widespread
condemnation of the circumstances
that led to his resignation.
A chorus of criticism, spanning the
ideological spectrum, denounced a
dangerous blurring of the boundary
between private and public life that
the French have always defined, not
just as a point of cultural and national
identity, but as essential to a healthy
democracy. Mr Griveaux’s
withdrawal,said an editorial in Le
Monde, “has shattered the principles
that govern public life”.
The event felt especially counter-
intuitive viewed from London in a
week whenPrime Minister Boris
Johnson, a politician with his own
history of extramarital affairs, was
consolidating power. The UK is not
known for particular tolerance of
infidelity or sexual freedom in its
politicians’ private lives. In France, on
the other hand, there has always been
a tacitomertà. It is only a few years
since the French were treated to
images thatpurported to show
President François Hollandedashing
out of the Elysée Palace on the back of
a scooter to spend the night at a
mysterious apartment. Now, the
debate is about the “Americanisation”
of public life — and the encroachment
of Anglo-Saxon moralising. There is a
hint of French exceptionalism to this.
In Mr Griveaux’s case, an activist
and performance artist claimed to be
responsible for publishing the videos
and texts as an alleged denunciation
of the “hypocrisy” of politicians who
talk about family values. It is in some
ways a classic case of revenge porn,
which might have supported a
different outcome — one in which Mr
Macron’s candidate might have
resisted capitulation, defended his
right to privacy and denounced the
toxicity of social media.
But Mr Griveaux’s withdrawal from
the race has been informed by
something else. France has lately been
experiencinga cascade of revelations
of sexual harassment, gender
discrimination and sexual abuse. The
torrent started in November when the
actress Adèle Haenelalleged she was
sexually assaultedby director
Christophe Ruggia as an adolescent. In
December, the literary establishment
was the target: allegations against the
writer Gabriel Matzneff emerged. This
monthMr Matzneff was charged with
promoting the sexual abuseof
children in his writing and will stand
trial. In January, it was France’s
athletic elite, when the figure-skating
champion SarahAbitbol accused her
former coach of raping her when she
was 15. Then just last week the entire
board of the César awards, the French
Oscars,resigned in responseto
criticism of its opaque decision-
making and the nomination for a
dozen awards of a film directed by
Roman Polanski, who has denied fresh
allegations of rape.
There are no allegations of
harassment or abuse relating to Mr
Griveaux’s relationship, but the point
is that the climate of tolerance in
France is changing. Throughout public
life there has been a flood of the kinds
of revelations and reckonings that had
before been highly unusual,
prompting the view that #MeToo had
to some extent bypassed France.
The French media are right to
object to the nefarious effects of tech-
enabled exposure that ruthlessly
deprives people of their privacy and
undermines the political process.
But the criticism may also come
from something more cultural than
political, and more visceral. As the
#MeToo movement has spread from
Hollywood to the rest of the world, it
has also become a manifestation of the
kind of digitally driven cultural
globalisation that French culture has
resisted, or wanted to resist. For
better or worse, it seems that French
political life is becoming less French.
Resistance to
Anglo-Saxon
moralising fades
in the MeToo era
France
Notebook
by Renée Kaplan
With the future of the EU at grave
risk because of an insufficient budget,
it is ironic that the “frugal four”
countries, Austria, Denmark, the
Netherlands, and Sweden, are
advocating a 1 per cent limit on EU
revenues (“The ‘frugal four’ advocate a
responsible EU budget”, Sebastian
Kurz, February 17). According to the
IMF, Austria collected 48 per cent of
gross domestic product in government
revenues in 2019, Denmark 52 per
cent, the Netherlands 44 per cent, and
Sweden 49 per cent. Yet these four
governments somehow contend that
the EU can get by on a mere 1 per cent
of GDP at the union level. This is
utterly wrong.
The high revenue-to-GDP collections
in the four countries (and others of the
EU) reflect the vital role of government
in the 21st-century economy. Revenues
are needed for social protection, active
labour market policies in economies
facing deep structural change, just
transitions for environmental
sustainability, quality education and
healthcare, research and development
outlays in an era when innovation is
vital for competitiveness, and security.
The leaders of the frugal four indeed
recognise that the EU faces today’s
challenges on “fostering an innovative
and competitive economy, the fight
against climate change, migration, and
security”. Yet they believe that the
correct ratio of revenues passing
through governments at the national
and local rather than EU-wide level
should be more than 40 to 1!
Most of today’s problems cross
national boundaries, just as migrants,
workers, ecosystems, rivers, energy
resources and innovations transcend
national boundaries. Inequalities
across the EU regions put the union
under great and increasing social and
political stress.
One suspects that the four national
leaders advocate the greater than
40-to-1 ratio only because they are
elected nationally, rather than because
the proper allocation of government
functions are really 40-to-1 greater at
the national versus regional level. In
the US, for example, which is
approximately the same size as the EU
economy, the federal government
outspends the combination of states
and local governments roughly 2 to 1.
The stingy budget of 1 per cent of
GDP for the EU would mark an
existential threat to the EU as it
faces a much tougher geopolitical
environment marked by highly erratic
US policies, Russian opportunism and
Chinese technological prowess and
diplomatic reach.
The EU needs to stand on its own
feet geopolitically, socially and
technologically, which is utterly
impossible without an adequate EU-
wide budget.
The world desperately needs a
healthy, prosperous and secure EU.
The EU urgently needs the good sense
to fund itself properly.
Prof Jeffrey D Sachs
Columbia University,
New York, NY, US
The world needs a prosperous and properly funded Europe
Letters
WEDNESDAY19 FEBRUARY 2020
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If you are not satisfied with the FT’s response to your complaint, you can appeal
to the FT Editorial Complaints Commissioner: [email protected]Corrections
cFormer US Treasury secretary Tim
Geithner co-wrote a letter commenting
on proposed changes in the Financial
Stability Oversight Council’s policy, not
Federal Reserve chairman Jay Powell, as
wrongly stated in the Inside Business
column on February 11.
cNancy Pelosi is speaker of the House of
Representatives, not House majority
leader as wrongly stated in an article on
February 17.
OPINION ON FT.COM
David Gardner
Disaffected voters could boycott this week’s
parliamentary elections in Iran
http://www.ft.com/opinionThe economic policy on which Japan’s
prime ministerShinzo Abewas elected
in 2012 was supposed to involve three
arrows: monetary easing, fiscal stimu-
lus and structural reform to boost
growth and escape deflation. If Mr Abe
hadfollowed that prescription — the
fiscal stimulus in particular — he would
notbe threatened by thesecond tech-
nical recessionof his premiership.
New growth figures released on Mon-
day show that output in Japan con-
tracted at an annualised pace of 6.3 per
cent in the final quarter of 2019. Mr
Abe’s government was quick to blame
typhoons and unseasonably mild
weather, but such explanations are
nonsense: the fall in output was large
and uniform across the country. It was
the direct, predictable consequence of
arise in consumption tax from 8 to 10
per cent at the start of October. Mr Abe
did this to himself.
Abenomics made sense because it
addressed the problems that ailed
Japan in the previous decade. Overly
cautious monetary policy, especially
following the financial crisis in 2008,
meant Japan had high real interest
rates and an expensive currency.
Premature attempts to raise taxes or
cut spending choked off recovery,
while Japan’s potential growth weak-
ened as itspopulation aged. The coun-
try settled into an equilibrium with
underemployment, entrenched expec-
tations ofdeflation and high corporate
savings offset by government deficits.
All the elements of Abenomics
needed to work together to push the
economy to a new balance: monetary
stimulus to weaken the yen, fiscal stim-
ulus to jump-start demand and struc-
tural measures such as trade deals to
creategrowth opportunities and incen-
tives for business investment. It was
never going to be easy but this combi-
nation proved its worth.
The year 2013 brought a sharp
weakening of the yen and a burst of
optimism. Throughout Mr Abe’s term,
the Japanese economy has done better
than in the years that preceded it, with
inflation low but positive and unem-
ployment down to a rock-bottom 2.
per cent.
That makes it all the more unfortu-
nate that Mr Abe has repeatedly sur-
rendered to the deficit hawks in his
government. All the positive momen-
tum of Abenomics came to a halt with a
consumption tax rise in 2014, which
triggered a technical recession, and
now the same thing has happened
again.
Japan has plenty of saving; what it
lacks is consumption. If Mr Abe felt he
had to raise taxes it would have made
more sense to target the former, per-
haps by reducing the depreciation
allowances permitted tocompanies
that are making record profits. Squeez-
ing households with consumption tax,
when those households are already
paying more for ageing-related costs
such as care insurance, invariably
hammers the economy.
Many justify the tax rise because of
Japan’s public debt, which stands at
about 240 per cent of output on a gross
basis, but ultra-low rates mean the
interest bill is negligible. Other critics
blame Mr Abe for inadequate struc-
tural reform. His record in this area is
reasonable, however. He has passed
some significant trade deals, though he
has not made any drastic changes to
the labour market.
With the outbreak of coronavirus,
the economic backdrop for Japan has
darkened. The only sensible action Mr
Abe can take in the short-term — other
than reversing the tax rise, which
would be politically impossible— is
more fiscal stimulus. The problem, as it
has been throughout the past seven
years, is not Abenomics. The problem
is not enough of it.
Raising the consumption tax has undermined fiscal stimulus
Japan’s problem is not
enough Abenomics
Every seven years, European govern-
ments and the EU’s Brussels-based
institutions become embroiled inhot-
tempered hagglesabout the bloc’s
budget. These quarrels are out of pro-
portion to the sums of money involved.
The budget represents about 1 per cent
of the EU’s annual economic output.
Disputes about whether to spend more,
less or the same revolve around frac-
tions of a percentage point.
Yet the passions inflamed in these
debates testify to the neuralgic anxiety
of all EU governments to demonstrate
to voters at home that they have scored
a “victory in Brussels”. It will be no dif-
ferent when national leaders gather at
the EU headquarters on Thursday for a
summit devoted to settling differences
over the 2021-2027 budget.
For three reasons, these negotiations
are proving to be particularly fraught.
The exit of the UK, one of the EU’s main
net contributors, has left the remaining
27 member states with the task offill-
ing an annual budget holeof about
€10bn. At the same time, the spread of
militant nationalism and anti-estab-
lishment populism in both western and
eastern Europe has put mainstream,
pro-EU political leaders and parties on
the defensive.
Finally, internal and external chal-
lenges to Europe are intensifying in
areas such as advanced technology,cli-
matechange, energy, defence, security
and migration. Together, these make a
compelling case for refocusing the EU’s
spending priorities in a way that has
not happened for 30 years.
At present, almost three-quarters of
the EU budget is allocated to agricul-
tural subsidies and regional aid pro-
grammes. Much smaller amounts are
spent on business innovation, scientific
research and the EU’s global role. EU
governments, the commission and the
European Parliament are in broad
agreement that the 2021-2027 budget
should focus more on climate change,
economic modernisation and security,
broadly defined. However, the budget’s
emphasis on farm subsidies and
regional aid would not change much
under any proposals so far put forward.
This structural inertia scarcely
shows the EU off in a good light. After
all, it was less than four years ago that
EU leaders rang the alarm bell by
approving a foreign and security policy
strategy which declared: “We live in
times of existential crisis, within and
beyond the European Union.”
As often with the EU, solemn warn-
ings and grandly announced goals tend
to disguise a prosaic reality. Most coun-
tries — whether large or small, whether
net contributors or net beneficiaries —
display little inclination to pool pow-
ers, commit resources and change pri-
orities on a scale that would put the EU
budget on a fundamentally different,
more ambitious basis.
There is a risk that the Brussels sum-
mit will descend into unseemly mid-
night squabbles about who will pay
more, who will get a rebate and who is
laughing all the way to the bank. Com-
promises will be necessary. As a pro-
portion of overall spending, less ought
to go to farmers and landowners. Less
should go to regional subsidies, which
should be attached to respect for the
rule of law, in west and east. More is
needed for research, innovation, cli-
mate change, defence and security.
But the most important point is that,
precisely because the EU budget is rela-
tively small, it is national governments
that must lead a concerted European
effort to set new priorities. This will
require a more imaginative use of
national fiscal policy, bigger defence
and security budgets and fewer conces-
sions to industrial lobbies on climate
change. National governments have
their hands on the EU’s steering wheel.
They need to show the way.
National governments should lead the way in setting new priorities
The compelling case to
refocus EU spending
FEBRUARY 19 2020 Section:Features Time: 18/2/2020-18:52 User:alistair.hayes Page Name:LEADER USA, Part,Page,Edition:USA, 8 , 1