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Companies, and Consumers, the Critical Question in the Coming Year Is This

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Companies, and Consumers, the Critical Question in the Coming Year Is This __ SPECIAY. EDITION--- -• ISSUES 2011 ESSAYS BY: JACQUES ATTALI • MOHAMED EL-ERIAN• KISHORE MAHBUBANI . STEPHEN ROACH JOSEPH STIGLITZ ::EY HE 1 TO FOR COUNTRIES, COMPANIES, AND CONSUMERS, THE CRITICAL QUESTION IN THE COMING YEAR IS THIS: CAN YOU HANDLE YOUR DEBT? Albania Lek 950 France €6.50 Kuwait 60 1.90 Norway NOr 55.00 S. Africa R 47.95 4 1 Austria €6.50 Germany €6.50 Latvia 56.95 Oman DII 2.40 Spain €6.50 Bahrain 013 2.30 Gibraltar £3.95 Lebanon 118000 Poland (incLtax) P1610.50 Sweden S6r 58.00 Belgium €6.50 Greece €6.90 Lithuania $6.95 Portugal €6.50 Switzerland CHF 18.50 Bulgaria DCL 6.00 Hungary Ft. 1800.00 Luxembourg €6.56 Qatar flIt 24.00 Syria SYP 250.00 Croatia ON 32.08 Iceland NOR 525.00 Malta €6.56 Romania $6.95 Turkey TI 6.50 Cyprus €6.00 Israel NIS 25.00 Mauritius Its 95.06 Russia $6.95 UAE Oh 24.00 Czech Republic £26217.00 Italy €6.96 Montenegro DIN 350 S. Arabia SR 24.00 United Kingdom £3.05 Denmark DOr 45.00 Jordan JO 4.30 Morocco OH 60.06 Serbia DIN 350 Egypt E€ 21.00 Kazakhstan $6.95 Netherlands €6.50 Slovakia €6.50 Finland €6.50 Kenya Shs 450 Nigeria N 450.00 Slovenia €5.00 What THE SWISS Did Right BY STEFAN THEIL The Swiss faced one of the cry from the U.S., where the Federal globe’s worst financial-sector blowups. Reserve is still pumping money into Now they’re setting the gold standard a shaky banking and mortgage sector for how to regulate their banks. that shows few signs of healing. Or During the financial panic of 2008, Germany, another epic victim of the the Swiss had more reason than most global financial crisis, where politi to be frightened. The country’s banks, cians fight phantom speculators and dominated by Credit Suisse and UBS, each month seems to bring fresh news held assets worth an incredible 680 per of previously undisclosed toxic-asset cent of Switzerland’s GDP (compared losses. And unlike many of the coun with U.S. commercial banks’ assets of tries sharing the euro, there was never 70 percent of GDP). No one knew how any worry that Switzerland would not many of the Swiss holdings were toxic. be able to pay back its debts. What everyone knew was that these What did the Swiss do right? For one, banks were far too big for tiny Switzer the country’s regulators and central land to bail out in any full-blown bank were faster and tougher than most. banking crisis. Capital flight would During the lull in the summer before the crush the Swiss franc and the coun collapse of Lehman Brothers in Septem wouldn’t just protect taxpayers from try’s economy right along with it. ber 2008, the Swiss were hard at work future crises and bailouts, but would There were scary parallels to Iceland, on a plan to deal with troubled assets at ultimately be good for the banks’ own another small nation with an independent UBS, the worst of Switzerland’s prob business as well. With trust in the currency and outsize global banks. lem banks—with a balance sheet more global financial system only slowly re After a severe blowout, Iceland is now than four times the size of the entire emerging, the perception that Swiss in a deep recession and on life support Swiss economy. When disaster struck, banks have to adhere to much tougher from the IMF. the central bank swiftly nationalized rules—and are therefore sounder— Yet today, little Switzerland is a part of UBS’s assets and recapitalized helps win the trust of Switzerland’s rock in the global tempest. The franc the rest. That’s unlike authorities else most important customers: the global is one of the world’s strongest reserve where in Europe or Washington, who wealthy who let Swiss bankers manage currencies, and both Credit Suisse waited until the last minute to stitch their fortunes. and UBS are among the globe’s most together messy bailouts that left many In just about every area, the Swiss soundly capitalized big banks. Capi problems to linger. are stricter. New plans pushed for tal is flooding into the country and, Second, the Swiss decided early ward by the Swiss National Bank’s yes, back into Swiss banks. It’s a far on that tighter reins on their banks ambitious 47-year-old chief, Philipp 18 NEWSWEEK SPECIAL ISSUE Hildebrand, will require UBS and proposed new rules that would force against individual countries “over Credit Suisse each to hold 19 percent banks to divide their business among reacting” to the financial crisis. Some of their total assets in capital to cover separate units that could be liquidated countries worry that tough, Swiss- potential losses—almost three times in a crisis without sinking the mother style rules will put their own banks at the new global standard of 7 per ship—something that banks like Credit a disadvantage; for some of the weak cent that will be phased in by 2019. Suisse are already beginning to imple est banks in Germany or the United Swiss banks are also required to hold ment. Here, too, Switzerland is far Kingdom, new requirements to raise more cash to prevent bank runs, and ahead of the pack. capital might require yet another infu in 2009 were among the first to fol You’d think Hildebrand would be sion of taxpayer funds. Now that the low new guidelines regulating execu getting more credit for safeguarding crisis is starting to recede into mem tive pay and bonuses—widely seen as Swiss banking’s future. Instead, the ory, the pressure to regulate may an incentive to take excessive risks. Swiss business press has accused him weaken. Yet if the fast return to sta Above all, Hildebrand has sworn that of being internationally isolated. The bility of the country’s banks, econo never again should taxpayers be held Institute of International Finance, an my, and currency is any lesson, the hostage to banks that are “too big to organization that represents the world’s world could do worse than follow fail.” To that effect, regulators have largest banks, has repeatedly warned Switzerland’s lead. NEWSWEEK.COM 19 How to Cure AMERICA’S Ill Economy BY KATIE BAKER How can a country escape from crippling debt? This Nowhere is the question more relevant yet more contested than question—once considered the purview of struggling devel in the U.S. The midterm elections, in which public anger over the oping nations—now weighs heavily on the world’s advanced economy swept Republicans into Congress, have thrown doubt economies as they slowly recover from the global financial cri on whether America’s leaders can come to a consensus on the def sis. Unfortunately, there’s little agreement as to the best way icit and on President Obama’s calls for further stimulus spending. forward: European governments such as Germany and Britain The issue is a critical one for America’s future. To answer it, are pushing government austerity slashing spending and rais NEWSWEEK asked two leading economists to weigh in: Nobel ing taxes despite widespread voter discontent. Japan’s leaders Prize winner Joseph Stiglitz argues that the U.S. needs to spend are waffling between promises to cut budgets and yet more its way to health; Morgan Stanley’s Stephen Roach comes down state spending to try to jump-start growth. Meanwhile, nations on the other side of the coin, advising government to focus on like Greece and Spain are looking to China to buy their govern belt tightening. But regardless of their differences, both writers ment bonds and state assets in the hopes that Asia’s growth urge that America’s debt must shrink, and soon—not only for the engine will prop up their limping economies. country’s sake but also for that ofthe entire global economy. 20 NEWSWEEK SPECIAL ISSUE Special Advertising Feature I TEDA : A Promise Fulfilled In the heart of the planet’s fastest-growing economy is one of the world’s smartest development zones: Tianjin Economic-Technological Development Area. I TEDA In the last two decades, China Another benefit: has built a strong, business- The city ofTianjin, savvy infrastructure that supports with its 25 universities and enhances R&D and manufacturing and over 140 research for a host of leading-edge firms from around institutes, as well as its 10 the world, The question is no longer whetherto million citizens—a labor pool invest in China—it’s where to invest. An innovative that’s as sophisticated and more development enclave in Northern China is making a strong affordable than those of Shanghai, bid for investors’ attention—and winning it. Tianjin Economic- Guangzhou and Beijing.TEDA’s innovative Technological Development Area (TEDA)—set 128 km. southeast University Town draws from Tianjin’s intellectual of Beijing, between Tianjin, China’s sixth largest city, and the Bohai resources, creating an atmosphere where new ideas are nurtured. Gulf—is the nation’s largest economic development zone and In addition, TEDA offers a variety of industrial parks where those its most successful. Not long after TEDA was established in 1984, ideas become reality. What’s more, TEDA is also the site of an China’s long-time leader, Deng Xiaoping, predicted that it would increasing number of major international meetings, such as the have “a promising future.” Today, that promise is being fulfilled. World Economic Forum’s Second Annual Meeting of the New Champions (a.k.a.
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