Higher energy prices are likely to mean rising inflation and slower growth. But at least Doha may be back on track. Plus the misguided populism of EU commissionersby P L / August 27, 2006 / Leave a comment
US interest rates are already 5.25 per cent, euro rates are set to rise again on 3rd August, the next move in British rates looks likely to be up, and as deflation recedes, even Japan has finally raised rates. After years of borrowing cheap to take ever more exotic speculative gambles, investors are rediscovering risk and retrenching. This is not yet a bear market. The Dow, the FTSE and Morgan Stanley’s international stock market index remain up so far this year—just. But markets may tumble once people realise that even in a more flexible and globalised economy, higher energy prices eventually feed through into higher inflation and lower growth. To keep a lid on rising prices, interest rates may have to rise much further than previously expected, pricking bubbly house prices and hurting heavily indebted consumers. Though the prospect of higher inflation and slower growth sounds like a rerun of the 1970s, it is unlikely to be that bad—rather what US economist Nouriel Roubini calls “stagflation lite.”
20:20:20 vision to save Doha
The leaders of the world’s most powerful economies—the US, the EU, Canada, China, India, Brazil and Mexico—have tried to break the deadlock in the Doha round of world trade talks by setting a mid-August deadline for reaching an ambitious and balanced framework agreement. Trade negotiators have been instructed to stop stonewalling and seek compromises instead, while Pascal Lamy, the WTO’s boss, has received a mandate to bang heads together in the marathon negotiating sessions that doubtless lie ahead.
The main bones of contention remain the EU’s high farm tariffs, the US’s hefty agricultural subsidies and the steep industrial import duties of Brazil, India and other developing countries. In June, Lamy floated a 20:20:20 formula for a possible agreement, whereby the US would cap its farm subsidies at $20bn a year, developing countries would limit their industrial goods tariffs to 20 per cent and the EU would accept a proposal by the Group of 20 poor countries to cut its agricultural tariffs by an average of 54 per cent. But now that he has the public backing of all the big players, Lamy should aim higher.
An ambitious deal would not only bring bigger benefits, especially for developing countries; it may also be easier to sell politically. A modest deal would still be tough, since EU and US farmers will fight tooth and nail…