A Weekly Digest of The World's Financial Press

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Bill Clinton's plans for

American pensions

THE PRESIDENT proposes the feds invest social security surpluses in stocks, pumping in hundreds of billions of dollars in the next 15 years. The Berlin Wall may have fallen, the Soviet Union may have collapsed and China may welcome private foreign money, but the US government now wants to seminationalise American corporations. Not since the Clintons' attempt to take over health care has there been such a Beltway power grab as this. Washington as venture capitalist?

Political pull will count more than shrewd appraisal of prospects. Our economy will become as nimble and innovative as those of Western Europe. Far better to phase in a new system where younger people would own their social security retirement accounts. This kind of people power is infinitely more democratic than Clinton's Soviet-style approach.

The Economist

The restructuring of

the European

car industry

THESE INNOVATIONS will change the nature of the industry. Firms may be able to make production runs of less than 100,000 cars economical, without investing in giant presses at all.

The right way to encourage car makers to embrace such changes is for governments to get out of the way. That means allowing national champions to be taken over and old-fashioned plants to be shut; it also means fostering inward investment and unrestrained competition in retailing. The example to learn from is the steel industry. After years of Brussels-run production quotas, price-fixing and subsidies had done nothing to halt its decline, the entire apparatus of intervention was dismantled in the late Eighties. European steel makers are more competitive today than they have been for three decades. Car makers should follow suit.

Financial Times

Open skies talks between Britain and the

United States

SIGNS THAT the US and the UK are ready to agree an open skies accord are to be welcomed, mainly because this could help open the door to a transatlantic open skies agreement between the US and EU. The first step towards transatlantic open skies should be the lifting of restrictions on foreign ownership, currently more onerous in the US.

Governments will have to acknowledge that good fares and service are more important than the flag on the tail.

Indeed, there is no role for government in the airline industry beyond ensuring safety and competition.

At a time when the motor, oil and pharmaceutical industries are consolidating, it is absurd that governments remain so determined to promote their national champions in the sky.

Business Week

When the idea of currency union for the Americas might work

NOW THAT the euro has had a successful debut, is it time to start thinking about a dollar bloc in the western hemisphere? A few brave policymakers are suggesting that North America Free Trade Agreement members - the US, Mexico and Canada - at least consider the idea.

A North American version of the euro is unlikely, and probably unnecessary. The US economy dwarfs its Nafta neighbours, unlike the European Union which brings together 15 relatively similar, densely populated, industrialised states. And pushing for a new unit to replace the dollar, already a global reserve currency, is apt to be an unwinnable political crusade in the US...

Few in the Americas seem ready for a single currency. But if the euro gives the Europeans a competitive edge, the Nafta dollar may be inevitable.

Wall St Journal

Japan's new get-tough plan to restructure its debt-laden banks

EARLIER THIS month, Japan's vice minister of finance, Eisuke Sakakibara (aka Mr Yen) made the highly publicized remark that Japan's financial crisis would end "in the next week or two". That was yesterday and, despite Mr Sakakibara's optimism, Japan's nearly decade-long financial crisis is far from over.

While the plan developed by the FRA may be a step in the right direction, it does not go nearly far enough to impose market discipline on Japan's bloated banks. Neither does it address the fundamental problem plaguing Japan's financial system: lack of profitability due to immature and inefficient capital markets.

The government needs to "get tough" not only with banks, but also with other distortions in the Japanese economy - many of which the government itself has created.


How gold could

become a valuable


NOW, WE yield to no man in our conviction that gold is a perfect hedge against capital gains.

But wise Marc Faber says that you ought to buy some of the stuff as insurance against a global financial accident.

Marc is eager to confess that he's neither "a gold bug or an expert on the gold market". Nonetheless, he "believes the time has come to gradually shift some financial assets into gold".

We suspect that you could do worse than consider Marc's advice. For it is based largely on the contrast between the extraordinary complacency of investors, on the one hand and, on the other, a world economy increasingly susceptible to some grand, untoward event.

And nothing is more comforting, he notes, than insurance that you end up not using.


Why Brazil is still a worry after the peso devolution

A KEY reason Brazil is saddled with such a huge deficit is that in 1993 the constitution transferred more than a fifth of federal income tax revenue to the states, while leaving responsibility for social programmes like health care, education and sanitation with the federal government. State governors gorged themselves on this bonanza; the worst came to be known as "maharajas"...

Brazil cannot restore its fortunes without ending such nonsense. But Cardoso has trouble mustering simple majorities; constitutional amendments require a two-thirds majority. Cardoso must persuade legislators to put the country's interests before their own - not an easy job even in older democracies. In this sense, Brazil's fate now lies with its political system, which is at least as volatile as its stock market. Get ready for more nasty surprises.