Issue 4 The Political Economy of Financial Markets January 2017 PEFM in Focus Brexit fallout Inside this issue: matter in the scheme of things, Brexit fallout 1 of interest only to those living PEFM’s vision 1 in Britain and/or those whose fortunes depend on London People at PEFM 2 remaining the world’s pre- eminent financial centre. A tale of three Cities: 2 Commemorating Max Others might see this as Watson presaging a more profound tectonic shift in the global Highlights of PEFM’s 3 economic and political order, events in 2015-16 with the possibility of new An interview with Adam 4 alliances and new enmities and Bennett Many things have happened on democratic dilemma for a prolonged period of Europe at the crossroads 6 the financial scene over the parliament which now has little unwelcome uncertainty in the past year, but all these things choice but to implement the meantime. Building on the PEFM events 2015-16 8 have paled into insignificance in people’s verdict. What remains successful two-day conference the wake of the Brexit vote on in question is the nature of the on the Future of Europe at the June 23. The referendum, divorce from Europe, and that end of April, PEFM intends to which Cameron rashly called on depends as much on what take an active part in the the basis of a weak hand but Europe (a many headed hydra) debate on how Britain and the apparently favourable opinion aims to achieve from these world should deal with the polls, revealed the Brexiteers discussions (punishment or Britain’s epochal decision to to be firmly in the majority in cooperation?) as on what leave the EU. the country, if not in Britain wants. Some may Adam Bennett and David Vines parliament. This creates a dismiss this event as a parochial PEFM’s vision The purpose of the Political reviewed under the for sustainable financial flows, not be realistic. Rather, the aim Economy of Financial Markets programme, however, goes in light of ongoing global is to bring together a programme (PEFM) is to help well beyond the design of political and economic community of experts from improve the institutional design regulatory frameworks and of developments. The second is different academic disciplines, of policy frameworks affecting financial supervision. The on the changes in ethical and and from official and private financial markets, toward purview of PEFM is moreover cultural frameworks which market institutions, so that supporting sustainable and evolving, and in light of recent might help the financial system their complementary research crisis-free growth. The events will be paying special resume a constructive role efforts and discussions can help programme is devoted to the attention in the coming year to within the economy in the develop and promulgate new interaction between official the implications of Brexit for wake of the great financial policy insights. Our aim is that, policies and financial market the political economy of crisis of 2008. over time, we can build PEFM behaviour. It explores how financial markets. The goal of PEFM is not to into an internationally incentives affecting the The programme has focussed compile a cookbook of static recognized go-to place in financial sector could be better on two themes. The first is on policy recipes. In a world of Oxford for policy-related work coordinated in the future. The the role of macroeconomic adaptive and interactive on the financial system. scope of the 'official policies' frameworks in setting the stage financial markets, that would People at PEFM In 2016, Charles Enoch and Gordon Menzies joined the PEFM team; Charles as a Visiting Academic, and Gordon as an Associate. Charles Enoch Charles Enoch accrued a total of 26 years of experience in the International Monetary Fund (from up to his retirement in 2016). Following 12 years at the Bank of England, he served first as Alternate Executive Director for the UK, and then joined the IMF staff, concluding his career as Deputy Director of the Western Hemisphere Department. While on the staff, he worked on more than 60 countries, mostly in the Monetary and Capital Markets Department and its antecedents. He co-edited “From Fragmentation to Financial Integration in Europe” in 2013 and “Rapid credit growth in Central and Eastern Europe: Endless Boom or Early Warning?” in 2007. Charles has an M.A. from Cambridge University and a PhD from Princeton. Gordon Menzies Gordon Menzies is Associate Professor with the University of Technology Sydney. After an undergraduate degree in econometrics, he had over a decade experience with the Australian central bank. He was sponsored by the bank to complete a masters at the Australian National University, where he won a prize for the best student. ANU subsequently nominated him for a Commonwealth scholarship to Oxford, where he studied under David Vines and Donald Hay on the Asian Financial Crisis. He holds numerous teaching awards and the 2009 Arrow Senior Prize for the best economics paper in the Berkeley Electronic Press. He is a visitor to the PEFM group at St Antony’s college and the Oxford Martin School. In Australia he is the deputy director of the Paul Woolley Centre for the Study of Capital Market Dysfunctionality. A tale of three cities: Commemorating Max Watson In October 2015, St Antony’s College paid a tribute to the late Max Watson (PEFM’s founder), with a celebration of his life in a “Tale of Three Cities” at the Nissan Lecture Theatre, an event chaired by David Vines (Acting Director of PEFM), Jonathon Scheele (former EC official), and David Madden (former UK Ambassador to Greece), who orchestrated contributions from the many friends and colleagues who had worked with him in Washington, Brussels and Oxford respectively. Page 2 PEFM in Focus Highlights of PEFM events in 2015-16 The programme on the Political Economy Reconstruction and Development), and of Financial Markets (PEFM) had another also by a joint presentation by Adam busy year during 2015/16, beginning with a Bennett and Robin McConnachie (Oxford tribute to the late Max Watson (PEFM’s Analytica) on the record of IMF program founder), with a celebration of his life in a work and technical assistance in the “Tale of Three Cities” at the Nissan Lecture Balkans. Gazi Erçel (former Governor, Theatre (see previous page). Central Bank of Turkey) reviewed the PEFM’s regular weekly seminars at the history of IMF relations with Turkey European Studies Centre continued to during his tenure as Governor, and Boris focus on financial market reform. Lorenzo Codogno Vujčić (Governor, Croatian National Bank), discussed recent global market trends Treasury) provided a rare insight into the from the perspective of Croatia. Italian elephant in the Eurozone room, while Jeffrey Franks (Director, IMF Office in Europe) gave an IMF perspective. Anatole Kaletsky (Co-Chairman, Gavekal Consultancy) argued (as in his recent book) that the world was evolving a new phase of financial development which he called Malcolm Knight Capitalism 4, which was essentially a less liberal model than the globalized Peter Sanfey and Adam Bennett Malcolm Knight (former General Manager deregulated model (Capitalism 3) that of the BIS) criticized the distinction preceded it. Russell Kincaid (consultant for Issues of Ethics in financial markets were between (supposedly risky) Originate to IMF’s Independent Evaluation Office) gave debated in seminars by David Pitt- Distribute model of banking versus the Watson (London Business School), who (supposedly safe) Originate to Hold model examined the purpose of the financial on the grounds that the latter can still system in society, Robert Mass (Head of result in unsafe balance sheets. Despite Compliance at Goldman Sachs) who is this, the main emphasis of recent developing an ethics code for bankers, regulatory reform has been on the former Nick Morris (Balliol College, Oxford) who model. Both models remain vulnerable to drew lessons from Chinese law, and by excessive leverage, on which better data is David Vines (acting Director of PEFM) needed. Ian Plenderleith (Morgan Stanley) and Nick Morris who discussed the surveyed developments in regulation, and findings of their recent book Capital suggested that the pendulum of regulatory Failure. oversight was swinging back towards a more highly constrained and less Anatole Kaletsky innovative financial system, such as existed before the bonfire of regulations in the an early heads-up of some of the findings 1980s. It was important to get the of the IMF’s external review of its role in regulatory balance right. David Wright the Eurozone crisis. (Secretary General of IOSCO) focussed on Collaborative work with SEESOX was unfinished business in the reform in non- featured in a book launch on Remaking the banking financial market regulation. Balkan Economy, its authors represented by Lorenzo Codogno (Visiting Professor, LSE Adam Bennett (Deputy Director of PEFM) and former Chief Economist of the Italian David Vines (left) with Nick Morris (centre) and and Peter Sanfey (European Bank for Adam Bennett Issue 4 Page 3 An interview with Adam Bennett Adam Bennett is Deputy Director of the Political Economy of Financial Markets (PEFM) program and an Associate of SEESOX at the European Studies Centre. He also lectures (on a part-time external basis) at Cardiff University. Prior to joining St. Antony’s College, Adam worked for the International Monetary Fund (IMF), from which he retired in 2011. He was Senior Advisor (aka Deputy Director of Department) in the IMF’s European Department during 2009-11, and before that Senior Advisor in the Middle East Department, overseeing missions to many countries in the region. During the second half of the 1990s he was chief of the IMF’s Stand-by Operations division, covering all the IMF’s big ticket programs of that era.