Author: Damian Merciar

Damian Merciar is Managing Director of Merciar Business Consulting, http://www.merciar.com, a niche business economics consultancy founded in 1998. He has over twenty years experience in the areas of commercial Business Strategy. He is experienced in the transition environments of nationalized to private sector state utilities and the senior practice of commercial management, advisorial consultancy, and implementation. He has carried out policy advisory work for government ministries and been an adviser to institutional bodies proposing changes to government. He holds an MSc Economics from the University of Surrey’s leading Economics department and an MBA from the University of Kent. Also attending the leading University in the Middle East, studying International Relations and Language, for which he won a competitive international scholarship, and has a BA (Hons) in Economic History and Political Economy from the University of Portsmouth. He is currently based in London.

Deal for the Eurozone?

As compromises go, this is no better or worse than most others. The Eurozone member States have come to the (temporary) rescue of the beleaguered Greece. Temporary, because even at €1 TN, there are real concerns that the newly leveraged EFSF is not large enough for future crises, in the short to medium term not to mention beyond that.

There are a number of outstanding questions:

  • There effectively become two classes of debt: those provided by official sources such as the ECB, and the private sector bondholders. The 50 % “haircut” is expected to come out of the private bondholders’ debt. How sustainable is this, given the expectation of future default, in the possibility of raising additional credit in the markets?
  • In a decade’s time, Greece’s debt will remain at 120% of GDP. Again – how much of a forward move is this, given it leaves no room for manoeuvre and future shocks the country may face.
  • What is the legal status of the new bonds? Under which law will they be governed? Are there not implications for non-Eurozone EU member states in restraints on the scope of the EU budget, as it rightly affects them?
  • How will the EFSF bond insurance scheme work? Will the EFSF have its own CDS?

Then of course, the insufficiently spelled out: the consequential considerations of fiscal deepening across the EU member states…the very presence of this deal strengthens the hands of those who would will greater integration on the rest of us – despite the fact that the necessity for it in the first place is sufficient evidence to the contrary.

Publicising Death…

We are torn by the recent images of Muammar Gaddafi’s death. Perhaps we might not feel this, were we Libyan, and had first hand experiences of the horrors Gaddafi exercised on his all too suspecting citizenry. Yet…we are not Libyan; thankfully we have no direct knowledge of his megalomania, his methods of torture and international duplicity.

So we default to behaviour that has stood us in good stead for a long time: decorum, decency, privacy and sensitivity. In these times of instant media (which is almost wholly a good development), images can race around the planet in literally seconds – and can be broadcast, taken from an individual’s ownership, on national media only seconds later. This does not make it right.

There is a privacy in the death of another that we would do well to remember, whatever their crime. Are we not haunted enough by the images of Ceauşescu and his wife, seconds after their execution by firing squad? Did no stirrings of humanity reveal themselves in us, as we witnessed Saddam’s medical examination, knowing full well he was heading to a State Trial from which he would not return. Perhaps the latter was justified…The images of the killing of Gaddafi are amongst the most brutal and shocking ever shown on western media. Their publication has not been without controversy: both the BBC and the UK national press have had bulletin boards with hundreds of complaints. There is a widespread feeling of uncertainty: we wanted him removed, we sanctioned our representatives to achieve this end – we didn’t expect to see the result broadcast around the world, of a terrified, ashen old man covered in blood, seconds before his death. In the internet world of instant publicity, let us not abandon our ability to be shocked, even from those who deserve no pity from us.

Decisive time for Blackberry….

Research in Motion (RIM), the Canadian parent company of Blackberry, began it’s quest for first mover advantage in the smartphone business, on the back of healthy revenues from the educational PC market.

We now commence day 4 for generalised service failure, across its network of users. This was all RIM could say yesterday, in response to a now worldwide outage: “BlackBerry subscribers in the Americas may be experiencing intermittent service delays this morning”

In a world where mobile computing is now the standard, users have demanded, and expected, reliability. BB had indeed differentiated itself, on the basis of offering this reliability. One of its key selling points for business, was the fact that it has its own network of servers, and so is less reliant on the technology of the mobile providers whose platforms essentially act as a co-host.

Losing the perception of this security and stability, could not be more crucial for RIM – not least as it happens at a time when Apple is launching its own iPhone 4S, with a bundled iMessage, a rival to the lauded BBM.

Ian Fogg, a mobile industry analyst at Forrester, said RIM had built its reputation on reliability.

“RIM is in danger of becoming its own worst enemy if it is unable to reliably operate the communication services that have differentiated it,” he said on his blog.

“BBM is the reason many young consumers stay with BlackBerry. If it doesn’t work, they will leave RIM.”

Testing the Euro as a reserve currency…

After such a faltering decade of mixed growth, and different prospects for the members, the Euro is having it first true test as a reserve currency.

After a recent vote the German parliament has passed (by 523 to 85) a vote to bolster the € 440bn eurozone rescue fund, the European financial stability facility (EFSF). As the FT says, the vote

“would strengthen the hand of the government, and revive confidence in Angela Merkel’s ruling centre-right coalition. They said it should alsosend a strong signal to eurozone partners that Germany was “ready to resume its responsibility” in the eurozone crisis….“Within the coalition, it is a very strong and comforting signal,” said a senior adviser. “But we are under no illusions that the next steps are just ahead, and they are going to be every bit as difficult.” “

The EFSF could easily become the most powerful tool available to the EU. It needs ratifying, and all decisions require unanimity. This is both a strength and a weakness: the market needs assurance that any action will be sufficient and responsive. Weeks of political negotiations will not be acceptable, the market will make its own decision.

Greece has to decide if, in addition to it’s fiscal retrenchment, that it wants private creditors to increase the haircut they have presently accepted, by taking a bigger writedown on the value of their bonds.

It is certain that even at € 440bn, the EFSF is not large enough to deal with a new bout of market speculation. By investing the facility with institutional powers, and giving it the power of leverage, this problem could be solved. Even with a small leverage ratio, the EFSF would remain a desirable investment. With the US recently losing it’s triple A status (and the world not ending), even if EFSF didn’t attract a triple A, it would still be cheap at the price to stop a run on Spanish or Italian debt.

Social Media and the London riots…

Over the last 3 days, in August, 2011, British cities have burnt, been plundered, widespread looting and murder itself having taken place.

Social media has been critical in this. Never before have people been able to organise and assemble with such speed and ease. More critically, and interestingly, has been the role of “closed” social networks – the Blackberry Messenger application. These messages are not open to outside inspection, and effectively provide a secure medium of communication between the rioters. Something meant for the privacy and business efficiency of its users (hosting it’s own servers, Blackberry can argue it is less subject to the whims of external comms system failures). Instead it has proved as secure as the Police’s radio network itself.

Meanwhile, the twittersphere, and Facebook are overwhelmed with comment, mostly shocked, from people outraged at the theft of their city. Yet serious discussion is to the fore. Critical sociological justification on the one side – and more ruthless “hang ’em and flog ’em” on the other. We lie somewhere in the middle. Rights are countered – always – with responsibilities. Expectation is tempered by the need for participation. Here is an example of an exchange we saw on Facebook….Good will out.

“Some very interesting comments overnight – Richard, I think most governments around the world would, if cornered, be pretty envious of Singapore’s fiscal position: large tax take and specific, investment focused, spending, with a strong history of government involvement in society…

@friend1 – these kids are British. They may be second generation (typically third), but they have no stake in society, and see little to be invested in. They are wrong, but it is we who put them there – we need to lead on showing them that they have a future, for, better or worse, they represent a part of all our futures.

@friend2, I disagree with your view on Capitalism, but, as you know, I respect it. By destroying small, local businesses, these young people are most seriously damaging their prospects of ever securing the stake that they demand. It is the small business that is the main employer and creator of new jobs – not the large corporation…

‎@friend3, I fear you may be right, but again, there are many women out there who struggle to do right by their children, and for whom their shame at the knowledge of their child’s involvement in this mayhem, is no less keenly felt because they are single parents.