Scandal? What scandal?

This month Daniel Yergin, author of 'The Prize', a best-selling history of the oil industry, publishes, with co-author Joseph Stanislaw 'The Commanding Heights', an analysis of the changing balance of power between governments and markets. On the eve of Tony Blair's visit to Washington Mr Yergin spoke to Peter Koenig about how the Clinton sex scandal is affecting markets, and how New Labour is likely to fare as it seeks an accommodation with market power.

PK: What effect has the Monica Lewinsky scandal had on the financial markets to date?

DY: The scandal has totally gripped Washington. But the financial markets are ignoring it.

PK: Why?

DY: US financial markets are focusing on the good news. Unemployment is down. The US budget deficit is basically zero.

PK: So the scandal is not going to be another Watergate?

DY: Watergate was different. Everyone is scratching his head and asking: "What is this?" Nothing like the Lewinsky thing has been seen in our political process. Also, Watergate unfolded at a time of tremendous economic upheaval. Don't forget the 1973 oil embargo.

PK: What effect will the White House sex scandal have on the management of the Asian financial crisis?

DY: The International Monetary Fund needs more money. The battle in Congress over IMF replenishment will be a litmus test on US attitudes toward Asia. The scandal will make it harder for Clinton, who supports the IMF, to get Congress to agree to increased funding.

PK: Anything else?

DY: [US Treasury Secretary Robert] Rubin becomes more important. He's widely respected. The task of persuading Congress to support the IMF will fall more heavily on him.

PK: And Blair's visit to Washington this week?

DY: Clinton is a New Democrat. Blair is New Labour. Clinton took the line that if you get the government deficit down, the private sector will respond by creating jobs. And it worked. Now, it appears, Blair is taking the same line. The question is whether it will work for you.

PK: Will it?

DY: It could. The challenge is greater for Blair. The realignment of the centre-left in the UK to accommodate market power will be more difficult to achieve than the realignment of the centre-left managed by Clinton.

PK: So what is going to happen?

DY: I don't see a turning away from the centre-left's accommodation with the market. Blair's challenge is a redefinition of what it means to be a centre-left party, so it includes flexibility and risk taking.

PK: Is that what Blair and Clinton will talk about?

DY: That's what they were supposed to talk about. The visit was conceived as a meeting of minds. But now, with everything going on in Washington, it's much trickier for Blair. There's a surreal quality to what's going on. Everyone's still in a daze.

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