Monday, 29 December 2014

Opportunities and risks for 2015

This article was published in The Malta Independent on Sunday - 28 12 2014
My first article in this series appeared nearly 15 years ago, on 23rd January 2000. It is about time that I move off stage and allow space for new blood.So this is where I draw the line in so far as regular contributions go. 
In this my last contribution, I must pay homage to the late George Fenech of Tumas Group who passed away after a short illness on 2nd December. George, my junior by just 22 days, was one of a kind, an entrepreneur who built on what his father had founded, leading the family Group to carry out a complex project like Portomaso which is likely to remain the best ever mixed development built in Malta for quite some time. George will be missed by those who worked with him and those that work for him. So long my friend! I will never forget the 11 years we spent working together between 1986 and 1997.
Looking ahead, I see three challenges, three conceptual clashes that will somehow have to be resolved in the course of 2015. Three clashes which if, with some luck, getproperly resolved could make the world a much more pleasant place.
The first clash is between Pope Francis and the Roman Curia and hard line cardinals who are resisting the change that Pope Francis means to deliver. His Christmas speech to the Roman Curia will in due time be considered in the same way as Martin Luther King's 'I have a dream', Kennedy's 'Ich bin ein Berliner and Steve Jobs' 'follow your dreams. Do not settle'.
In the Apostolic Palace, there was very timid applause and very few smiling faces, but awe and shock there was aplenty.
Last October, in the first session of the Bishops' synod to discuss a softer approach to social family issues like divorce and homosexuality, the Pope met strong resistance from the traditionalists within the Vatican walls. His Christmas speech was a message that he intends to push on with his plans in the second and final session of the Synod in 2015. It was a strong rebuke to the Curia to get off the mountain tops and start living the true spirit of the Gospel down in the valley among the people. 
The Pope listed a catalogue of maladies that afflicts the Vatican. The first was the feeling of being "immortal, immune or indispensable. It derives from a pathology of power, from a complex of the chosen, from a narcissism that views one's own image passionately and not that of God impressed on others especially the weak and the needy".
The Pope dubbed as "existential schizophrenia those who were living double lives in which they abandoned their pastoral duties to focus on bureaucratic tasks and lose touch with reality and concrete people". Then he blasted the malady of "chatter, murmur and gossip by cowards who do not have the courage to speak directly so they speak behind people's back". He accused the defenders of the status quo as suffering from "spiritual Alzheimer's those who lost their memory of meeting the Lord and depend entirely on the present, on their passions, their whims their manias, becoming slaves of idols they built with their own hands".
The gloves are off. If this was a Christmas speech I just look forward to his Good Friday message. Those who truly believe in the message of the Gospel must pray for Pope Francis.
Another clash that will have to be resolved one way or the other in the course of 2015 is the Russia-Ukraine crisis. No sanctions or trade embargoes can move Putin from his rigid position about Russia's right to annexe Crimea and to defend the Russian ethnics in East Ukraine from what he considers as a coup engineered by the West in Kiev. On the contrary, these embargoes have helped enhance Putin's popularity in Russia's border aided by media, mostly controlled by the Kremlin, depicting Putin as the courageous warrior defending Russia from the humiliation that the West wish to inflict by extending NATO to Russia's borders.
However, the sharp drop in the price of energy and the serious devaluation of the Russian currency are much more effective in forcing Putin's hand. In his Christmas State of the Union address, Putin predicted that within two years Russia will overcome these challenges. He failed to explain how and the reality is that Putin's fortunes are in the hands of the markets. If the price of oil and the rouble keep falling, then Putin domestic popularity will come under stress. Having savoured the western way of life and freedom of choice, Russians will find it hard to support anyone who wants to take back the standard of living they got accustomed to. Sooner or later Putin will have to re-assess his ability to survive such stress and seek a face-saving compromise on Crimea and Eastern Ukraine. The West should be ready to give Putin a face saver.
The third clash that will have to be resolved during 2015 is the conceptual difference between core and periphery Europe and how to restore the euro area economy to stability and growth. The core argues that fiscal discipline and consolidation by the periphery countries are pre-conditions for economic growth.  The periphery argues that consolidation and fiscal discipline can only be effectively achieved in the context of economic growth. It is not dissimilar to the chicken and egg 'which-comes-first' dilemma.
Here again the market is working to resolve this problem in an effective and definitive manner. The drop in the value of the euro especially against the US dollar is particularly telling. The Euro is down from USD 1.40 last May to USD 1.21 at present. This is a massive 15 per cent gain in competiveness by European exporters versus their American competitors. Profits of exporting and global European companies will be largely enhanced next year through the foreign exchange effects and increased exports as they convert their competiveness into firm orders. This will provide an automatic context of growth based on export competiveness rather than counter-productive austerity. 
With luck, market-based new energy could be infused into these three long-outstanding issues leading to secular solutions that could make 2015 a memorable year. There are risks however, and these are mainly geo-politic. Islamist State is now a grave risk; it seems to have appeared from nowhere and makes the al-Qaeda terrorist threat look like a picnic in the park. Their professed intentions make Nazi war crimes look humane. Friends and foes must cast their differences aside and fight a common enemy right on our Europe's doorstep.
I thank all readers for following this column for the last 15 years and wish them a very prosperous 2015.

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