- Win in Israel Sets Netanyahu on Path to Rebuild and Redefine Government
New York Times MARCH 18, 2015
JERUSALEM — Israelis emboldened Prime Minister Benjamin Netanyahu with a clear mandate in balloting on Tuesday, paving the way for him to lead a right-leaning and religious coalition that could be far easier to control, since his own party holds many more seats now.
But despite the resounding victory after Mr. Netanyahu’s hard-linestatements in the campaign’s final days, the direction he will take in what would be his fourth term is as much a mystery as the man himself. While the new coalition will almost certainly be more purely conservative, it is also more narrowly tailored, potentially freeing its leader of the constraints that often guided his last government.
As he puts together a government in the next few weeks, Mr. Netanyahu may no longer have the center-left factions that he relied on to ease Israel’s relations with the world and that pushed him back into negotiations with the Palestinians in 2013. But he also has gotten rid of extremists in his own party, Likud, and shrunk the Jewish Home party, which he often placated over the last two years by expanding settlements in the occupied West Bank.
Analysts said Mr. Netanyahu would undoubtedly continue his strong opposition to the Iranian nuclear program, but might well limit settlement construction and make other gestures to soothe the Palestinian situation, while also seeking to address calls to lower the cost of living. Crucial players in the coming coalition are a new center-right party and two ultra-Orthodox factions, whose kitchen-table concerns are sure to shift the overall agenda.
Allies, antagonists and average Israelis have long struggled to understand just what Mr. Netanyahu, a deft political strategist, actually believes in, beyond his passionate commitment to Israel’s security and to the Jewish people. After a campaign widely seen as a referendum on his rule, the result may let Netanyahu be Netanyahu, which his former national security adviser, Uzi Arad, said meant more “tough pragmatism” than “stiff defiance.”
- Fed Creeps Closer to Higher Rate That May Not Arrive for Months
New York Times MARCH 18, 2015
Janet L. Yellen, chairwoman of the Federal Reserve, said that while it was unlikely that the Fed would raise a key interest rate at its next meeting in April, there might be increases later.
WASHINGTON — The Federal Reserve on Wednesday moved to the verge of raising interest rates for the first time since the economy fell into recession more than seven years ago, even as officials suggested that the Fed might not pull the trigger until well into the second half of the year.
In a statement released after a two-day meeting of its policy-making committee, the Fed said that it would consider raising its benchmark rate as early as June, and it removed from the statement a promise that it would be “patient.”
Yet the Fed tempered that message on Wednesday, including the release of economic forecasts by its senior officials that showed they now think the unemployment rate can still fall significantly without setting off higher inflation. That conveyed an impression that Fed officials may feel less urgency about raising interest rates so soon.
“Just because we removed the word ‘patient’ from the statement doesn’t mean we’re going to be impatient,” Janet L. Yellen, the Fed’s chairwoman, said at a news conference after the statement’s release. Ms. Yellen said the Fed was not declaring an intention to raise rates in June, “although we can’t rule that out.”
Her remarks suggested that borrowers have a few more months to take advantage of exceptionally low interest rates on mortgages and car loans, while savers face a few more months of exceptionally meager returns on their low-risk investments. And even after the Fed raises its crucial interest rate, borrowing costs may well remain comparatively low well into the future.
Investors celebrated like the recipients of a last-minute reprieve.
The Asian Infrastructure Investment Bank
- The infrastructure gap
Development finance helps China win friends and influence American allies
The Economist Mar 21st 2015 | SINGAPORE
STRATEGIC rivalry between America and China takes many forms. Rarely does a clear winner emerge. An exception, however, is the tussle over China’s efforts to found a new Asian Infrastructure Investment Bank (AIIB). China has won, gaining the support of American allies not just in Asia but in Europe, and leaving America looking churlish and ineffectual.
This month first Britain and then France, Germany and Italy said they hoped to join the bank as founding shareholders. China said other European countries such as Luxembourg and Switzerland are thinking of joining the queue. Yet America has been sceptical about the AIIB. Its officials claim they have not “lobbied against” it, but merely stressed how important it is that it abide by international standards of transparency, creditworthiness, environmental sustainability, and so on.
America’s reservations were certainly taken by officials in the region, however, as admonitions to steer clear of the AIIB. They were enough, at first, to discourage some of its closest Asian allies from joining the initial 21 founding members. Australia, Japan and South Korea all stayed out—though other staunch American friends such as New Zealand, Singapore and Thailand signed up. The joiners argue that China was going to launch the AIIB anyway; better to be on the inside influencing its governance. The Europeans’ accession is likely to encourage changes of heart among the refuseniks. Australia has already indicated it is reconsidering; South Korea seems almost certain to join.
The AIIB is but one of a number of new institutions launched by China, apparently in frustration at the failure of the existing international order to accommodate its astonishing rise. Efforts to reform the International Monetary Fund are stalled in the American Congress. America retains its traditional grip on the management of the World Bank. The Manila-based Asian Development Bank (ADB) is always directed by a Japanese official. Partly for that reason—that the AIIB would amount to a diminution of Japanese influence in favour of China at a time when their relations are fraught—Japan is sniffy about the new bank. Its cabinet secretary, Yoshihide Suga, this week repeated that Japan will “carefully study” the AIIB’s governance standards.
- How Far Will the Euro Fall?
MAR 17, 2015
LONDON – The US dollar is hitting new 12-year highs almost daily, while the euro seems to be plunging inexorably to below dollar parity. Currency movements are often described as the most unpredictable of all financial variables; but recent events in foreign-exchange markets seem, for once, to have a fairly obvious explanation – one that almost all economists and policymakers accept and endorse.
French President François Hollande, for one, has ecstatically welcomed the plunging euro: “It makes things nice and clear: one euro equals a dollar," he told an audience of industrialists. But it is when things seem “nice and clear" that investors should question conventional wisdom. A strong dollar and a weak euro is certainly the most popular bet of 2015. So is there a chance that the exchange-rate trend may already be overshooting?
In one sense, the conventional explanation of the recent euro-dollar movement is surely right. The main driving force clearly has been monetary divergence, with the Federal Reserve tightening policy and the European Central Bank maintaining rock-bottom interest rates and launching quantitative easing. But how much of this divergence is already priced in? The answer depends on how many people either are unaware of the interest-rate spread or do not believe that it will widen very far.
Last year, many investors questioned the ECB's ability to launch a bond-buying program in the face of German opposition, and many others doubted the Fed's willingness to tighten monetary policy, because doing so could choke off the US economic recovery. That is why the euro was still worth almost $1.40 a year ago – and why I and others expected the euro to fall a long way against the dollar.
But the scope for dollar-bullish or euro-bearish surprises is much narrower today. Does anyone still believe that the US economy is on the brink of recession? Or that the Bundesbank has the power to overrule ECB President Mario Draghi's policy decisions?
With so much of the monetary divergence now discounted, perhaps we should focus more attention on the other factors that could influence currency movements in the months ahead.
On the side of a stronger dollar and weaker euro, there seem to be three possibilities. One is that the Fed could raise interest rates substantially faster than expected. Another is that investors and corporate treasurers could become increasingly confident and aggressive in borrowing euros to convert into dollars and take advantage of higher US rates. Finally, Asian and Middle Eastern central banks or sovereign wealth funds could take advantage of the ECB's bond-purchase program to sell increasing proportions of their German, French, or Italian debt and reinvest the proceeds in higher-yielding US Treasury securities.
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