Strategies and Cheese

It was a great pleasure to attend and be part of the discussion with H.E. William C. Eacho, III held at Webster University Vienna this evening.

Just over a year ago former U.S. ambasador David Girard-diCarlo gave a similarly eloquent speech, albeit then scripted and prepared for a much bigger audience at the Vienna University of Economics and Business. It’s now quite intriguing for me to compare the opinions and worldviews of the two U.S. diplomats — a republican and a democrat. One was a major contributor to the campaigns of Bush and McCain and the other — one of Obama’s biggest fundraisers.

The overall atmosphere of the two ambassador talks does however mark a stark contrast. I can easily recall the gloomy, pessimistic sentiment of November 2008 — Lehman had just collapsed, AIG was bailed out hastily and GM’s executives were having a hard time convincing the U.S. government to rescue them out as well. Global credit markets had frozen almost altogether and Girard-diCarlo made then the remark that had they not saved AIG, most big European banks would have failed within 12-24 hours. This talk was held immediately after Obama got elected; nonetheless the international image of the U.S. was then still at an all-time bottom low. Although Obama’s motto for change was “yes we can”, at that time as a non-american I was convinced that change was not just optional: “no, you must”.

Fast forward to January 2010, worst case scenarios for severe global unemployment, extreme euro-dollar volatility and a second Great Depression have fortunately turned out wrong. It can be argued as to whether only the coordinated government efforts were to blame for restoring confidence and reopening the credit markets, yet the fact remains that all could have gone much worse. In times like these even the monetarists turn Keynesian. Thus, I can’t help but agree with most of the points that Ambassador Eacho made, this time as an U.S. ambassador with a palpable and visible degree of sincere optimism. Appraising the first year of Obama’s administration, here are some of the points that were made during the discussion, the way I understood them:

– the U.S. brand is back again and U.S. goods and exports in general will regain some of the image loss they had suffered during the last two republican presidential terms. Of course, I expect that to be more tangible in some of the clearly less U.S.-friendly parts of the world.

– the importance of free trade and the reassuring confirmation that if markets are kept open and protectionism is restrained from, the global economy will be along the path of natural recovery in no time.

– fiscal discipline is paramount and the bail outs of AIG, GM, etc. were one time exceptions to prevent bigger failure. A good example was given with the first bail out of Chrysler (in 1980 by U.S. president Jimmy Carter), whereby the company had its management changed (with Lee Iacoca as CEO) and in 3 years every cent was repaid. I understand that although clear GM mismanagement (both poor industrial relations management as well as an obsolete product line) had indeed brought the company down, stepping in by the U.S. government was fully justified and failing to do so would have resulted in enormous welfare payments costs as well as bankruptcy spillovers in related industries.

– the U.S. foreign policy format has changed from one of purely unilateral decisions to a cooperative, partner’s opinion seeking approach. The now changed perceived image of the U.S. in Europe is a clear indication of that. And as the ambassador emphasized, the success of the G20 summit proved to be a turning point in the financial crisis. In addition, a bi-partisan approach to deal with the major issues at hand is about to be undertaken in the U.S. as well (after the recent republican win).

– liberal democracy as the universal principle for worldwide politics — yes, but not at any cost and not without the proper institutions in place first. Simply allowing people to vote then calling that a democracy is a necessary but not a sufficient condition for establishing a modern civilized state. The supremacy of law, protection of property rights and in essence strong government institutions are a basic prerequisite for democracy.

– among all ongoing discussions on the change in the U.S. medical care system, the biggest argument is actually the better cost effectiveness, notwithstanding a system where the government has a bigger involvement. This is actually quite illogical at first, however the data shows that the U.S. medical spending is about 15-16% of GDP, Austria’s on the other hand (which has excellent medical care) is around 10-11% and other highly industrialized European countries are even at 8-9% of GDP for heath care. In addition, better labor mobility and preservation of demographics for certain states, given the presence of universal health care, is an argument that can even get the votes of some republican senators for enacting the universal health care legislation.

It was also great to be able to chat about the imminent regulatory changes in the banking sector and whether or not the U.S. will again resort to historic policies of splitting universal banks in commerical and investment banks (as was done in the 1930s). Ambassador Eacho shared my view that the rating agencies should be reformed and that they have too much power on their hands now. Something that has been left apparently overlooked during the first year of Obama’s administration due to other things being more urgent. I do however agree that Europe has to take its share in such reforms as well; not only in talks with the big three rating agenies, but also more importantly by agreeing on international accounting standards (especially for the banking industry). That way capital ratios, balance sheet data, etc. could be better cross-evaluated and compared between European and U.S. banks.

All in all, it was a great event and I would like to thank Webster University Vienna and H.E. Ambassador Eacho for the opportunity to discuss these issues.