Pink picks

Comment, analysis and other offerings from Wednesday’s FT,

Martin Wolf: The eurozone’s next decade will be tough
What would have happened during the financial crisis if the euro had not existed? The short answer, writes Wolf, is that there would have been currency crises among its members. The currencies of Greece, Ireland, Italy, Portugal and Spain would surely have fallen sharply against the old D-Mark. That is the outcome the creators of the eurozone wished to avoid. They have been successful. But, if the exchange rate cannot adjust, something else must instead. That “something else” is the economies of peripheral eurozone member countries. They are locked into competitive disinflation against Germany, the world’s foremost exporter of very high-quality manufactures. I wish them luck.

John Plender: China must promote consumption
With an underdeveloped financial system, writes Plender, Chinese companies depend more on retained profit, or savings, to finance investment, while state owned companies were not until recently required to pay dividends. Since real interest rates in the banking system are negative, companies understandably like to recycle retained profits into new investment, which also enjoys state subsidies. The outcome is that growth is increasingly reliant on companies investing in sub-optimal projects.

John Kay: The cause of our crises has not gone away
I do not know what the epicentre of the next crisis will be, except that it is unlikely to involve structured debt products, writes Kay. I do know that unless human nature changes or there is fundamental change in the structure of the financial services industry – equally improbable – there will be another manifestation once again based on naive extrapolation and collective magical thinking.

Ravi Kanbur and Eswar Prasad: Emerging markets need to target inflation
Many emerging markets have weathered the crisis quite well but their central banks also face pressure to abandon inflation targets, write Kanbur and Prasad, both professors at Cornell. Critics argue that targeting inflation could be damaging in these economies if it means ignoring sharp exchange rate fluctuations and boom-bust cycles in equity and housing markets.

Editorial comment: A sorry statement
When it comes to saying sorry, better late than never is a maxim that does not always apply. The apology this week by Jerry Levin, who sold Time Warner for AOL shares in a disastrous $164bn deal, comes 10 years after the move destroyed billions of dollars of value. Mr Levin himself admitted that perhaps his contrition was “a little late”. Well spotted.

Lex on Kraft’s strategy
When in the process of transforming a company, senior management puts its credibility to the test. As Kraft approaches the endgame in its pursuit of UK confectioner Cadbury, chief executive Irene Rosenfeld may well be losing marks.

Lombard: Cadbury remains the best steward
Paid for with pizza. That could be Cadbury’s epitaph if the UK confectioner succumbs to Kraft’s hostile bid.

Analysis: Cracks in transatlantic derivatives rules
As US lawmakers and European bureaucrats return to work after the holidays, one of their top priorities will be to finalise new rules to deal with the derivatives instruments that proved so destabilising during the financial crisis. Yet seven months after the US kick-started sweeping reforms of the privately negotiated – or over-the-counter – derivatives markets, there are signs that the US and Europe are diverging in their approach.