Randomly Noted

Enjoy this guest blog from colleague Mike Reid, deputy managing editor of the Dow Jones News Service:

Here’s some fresh evidence from Europe and the U.K. that governments, when confronted with a significant structural problem in their economy, will simply kick the can down the road. The Conservative Party in the U.K. is talking of disbanding the FSA, the financial industry’s super-regulator; in Europe, Germany is talking about a bailout for Greece. Worse, at least with the Greek situation, the markets actually applauded this short-termism.

This isn’t just about moral hazard, it’s about policies which weaken a trading bloc. Allowing Greece off the hook from its needed fiscal austerity discourages others – Portugal, Spain etc – from taking politically unpalatable decisions to get their economies in order. Allowing your fiscal discipline to be dictated by the weakest links won’t create a stronger trading bloc and currency. Forcing citizens of more productive E.U. countries to subsidize the laggards isn’t smart economics.

In the U.K., the Tories want to give more of the FSA’s power to the Bank of England (probably further politicizing an already put-upon central bank) – and a new consumer agency (which sounds vaguely populist). The FSA’s rationale was to better regulate risk than the nine self-regulating bodies previously overseeing the City. Britain’s pension mis-selling scandal partly prompted its creation though the poor grasp of risk revealed by excessive lending practices of recent years showed its limitations. Still, the FSA alone wasn’t to blame for the U.K.’s problems. Redistributing regulatory powers to new agencies solves nothing…it just moves the problem to another entity some time in the future. Again, it’s short-termist and negligent.

Economic data may have lost the power to shock, but the pace of contraction of the Spanish economy is still remarkable. With euro-area interest rates kept relatively high by the ECB and with no power to devalue its currency, Spain saw industrial production fall by a quarter in March, an accelerated rate of decline from the 22% drop in February. But as Spain’s slump deepens, other economic figures released today in Europe were more positive.  A closely-watched survey of purchasing managers suggested that the services sector in the euro-zone continued to contract in April, but has started to recover from the depths of recession earlier  this year. And sterling rose Wednesday as a UK services sector survey sent a similar message – things are still bad, but we may be past the low point.