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Q&A with Suk Lee and Bob Song, editors of Never Give Up: Jack Ma In His Own Words

Jack Ma is not your average business leader. He started his first Internet company with no knowledge of computer coding. Now, he runs a multi-billion dollar business that in 2014 conducted more online transactions than Amazon and eBay combined. Despite his substantial influence in China, and a net worth estimated to be north of $21 billion, Ma’s remarkable story is generally unknown to the American public.

In Never Give Up: Jack Ma In His Own Words, Suk Lee and Bob Song have collected Ma’s thoughts on business, leadership, innovation, and much more. To celebrate the book’s publication, we are sharing a Q&A with the editors.


What business insight will readers learn from Jack Ma that they won’t hear from any other business leader?

Jack is a successful Chinese entrepreneur and he changed the e-commerce world in China. Before Alibaba, Chinese small- and medium-business owners were limited in their ability to connect and sell to other businesses and consumers. Jack has enabled millions of people worldwide to conduct e-commerce with each other, whether it’s business-to-business or business-to-customer transactions. Also, Chinese culture and values gave Jack Ma a different perspective and insight on business. For example, the following quote tells the readers about Jack’s tai chi philosophy:

“I love tai chi. Tai chi is a philosophy. [It’s] about yin and yang. Tai chi is about how you balance . . . I use tai chi philosophy in business to calm down. There is always a way out and to keep yourself balanced. Competition is fun. Business is not like a battlefield where you die and I win. In business, even if you die, I may not win.”

—interview with Charlie Rose, World Economic Forum, January 23, 2015

We selected many great quotes that readers outside of China may have never heard or read. In fact, the business philosophy of Jack is a great combination of Chinese culture, Japanese theory, and American science. We hope to share with readers the wisdom of the East, which has thousands of years of history. Jack Ma exemplifies this wisdom through his thinking and his quotes.

Did you learn anything surprising about Jack Ma while researching this book?

Bob visited Jack’s personal club, Tai Chi Zen Institute, and met with Jack’s assistant, Mr. James Chen, on the afternoon of September 1, 2015 in Hangzhou. When Bob entered the room he saw thousands of Jack Ma’s Chinese books on the table. Bob found out that 20,000 copies were sold out in only one hour at, which is the biggest B2C e-commerce platform in the world. That’s when Bob realized just how influential Jack Ma was to Chinese citizens.

In researching for this book, Suk saw many videos of interviews with Jack Ma. During one interview, Jack Ma was dressed up as a drag queen, and he performed in front of his employees at one of the big Alibaba anniversaries. The performance showed that Jack Ma can make fun of himself, and she knew right away that he is not your typical CEO.


What can current and future business entrepreneurs learn from Jack Ma?

It is Jack Ma’s integral belief that clients come first, employees second, and shareholders third. In the West, it is usually the other way around. Jack says this belief should become a universal value. The Hong Kong Stock Exchange could not accept this belief. Alibaba decided to pass on the HKSE and instead listed on New York Stock Exchange in 2014. Current and future business entrepreneurs can learn about company priority from Jack Ma: clients first, employees second and shareholders last.


In 2014, Alibaba’s online transactions totaled more than those of Amazon and eBay combined. Why do you think Jack Ma’s story is relatively unknown in the United States?

In the Chinese market, we can find about 600 titles on Jack Ma. In America, we can find about 10 titles on Jack Ma. Our book, Never Give Up, is a comprehensive history of Jack Ma’s quotes from the founding of the company to now. We hope our book will give readers a better understanding of Jack Ma’s philosophy. Jack is helping millions of small-and medium-sized enterprises—including American businesses—develop business with China. In the next 20 years, China will have 300 million to 500 million middle-class citizens, which means Chinese consumers will become more important even outside China since this middle class will generate demand in every area. In the past, Alibaba has not directly impacted the lives of many American citizens. People in the United States may hear business stories about how much revenue Alibaba Group generates or how wealthy Jack Ma is, but because Alibaba is not, for example, competing directly with Amazon, Google, or eBay in the United States, they don’t think about it much. If and when Alibaba’s plans to help more and more American small businesses sell to Chinese customers start to take effect, the United States will start to better understand the power of Alibaba.

What will be readers’ greatest takeaway from Never Give Up?

The title says it all. “Never give up” is one of Jack Ma’s most famous quotes. Throughout his life, he experienced many failures and learned from them. We leave the reader with this quote:


Five years ago, my colleagues and I wanted to create the world’s greatest company. Many thought such talk was mad. But no matter what was said, my dream to create such a company didn’t change.

In the Internet recession of 2001–02 we talked only about ‘surviving.’ Even if all the other Internet companies died, we had to survive. And we did so only by refusing to give up, by believing in our dream. This incessant effort and constant ability to learn from our mistakes led to success. While today is tough, tomorrow can be even tougher. However the day after tomorrow may be beautiful. But too many will give up after tough times on the eve of tomorrow night. Therefore, never give up today!”

—receiving Economic Person of the Year in China Award, CCTV-2, December 28, 2004



Q&A with Joan Barnes, author of Play It Forward

Entrepreneur Joan Barnes details her journey of professional success and personal struggle in her memoir, Play it Forward: From Gymboree to the Yoga Mat and Beyond. Barnes is the founder of Gymboree, an innovative, billion-dollar household brand, and her book offers a refreshing perspective on the ongoing national conversation about work-life balance, from a woman who built her business with balance at its heart.

Play It Forward offers wisdom and inspiration, and reminds us that our most difficult stories, when bravely and transparently told, can have a lasting impact on others. To celebrate the book's publication on June 1, we are sharing this Q & A with the author below.

Why did you decide to write Play It Forward? Why now?

After I sold the yoga business and took a pause, many—including publishing people—encouraged me to write my business memoir. While I knew my two entrepreneurial turns became home runs and held valuable lessons, and that the story had some punch, I resisted. Why? Partly due to humility, and to be honest, partly due to wanting to feel passionate about that sort of project, which, I can now vouch, is a significant undertaking! 

I was, however, up for speaking engagements, particularly at women’s entrepreneurial conferences. That seemed like something I could do. As I started speaking publicly and saw the raw, heartfelt, tearful, and enthusiastic reactions of audiences to my unvarnished story, as well as repeated requests for a copy of my “book,” I experienced a shift. As time passed, I knew deep inside that my story held significance and meaning for others, especially women, and that a book could make a genuine contribution to a variety of audiences. When my partner enthusiastically agreed to coauthor, I was all in.


You write frequently about the improvisational character of your leadership at Gymboree. What’s your sense of both the strengths and challenges of that approach?

Ah, yes, improvisation in leadership! In my early entrepreneurial days, the cliché “on-the-job training” had robust application. I had neither business training nor role models to guide or inspire me. When lady luck dropped opportunities at my doorstep, I threw caution to the winds, believing I could make it all happen. Acting with a passion-driven vision thrilled me.

The consistent challenges of having a strong and persistent “can do” perspective are staying faithful to what you believe in and who you are and being careful not to line up to satisfy others’ expectations. Essentially, you are running two businesses: one outside and one inside you. Both need vigilance to maintain integrity and achieve ultimate success.


What do you see as most different for women entrepreneurs today, compared to when you started your company?

Business culture has changed significantly and more favorably for women. When I was building Gymboree, I was a little out of step with the times, as most women, if they worked at all, were limited to a narrow list of traditionally female employment and business opportunities. The climate was tricky for launching women-owned businesses. Now, we are blessed with so many innovative, dynamic, and bright women entrepreneurs putting their mark on any number of industries. While there is much work to do, women are steadily redefining the business world.

A major byproduct of these changes is that women have increased access to capital, as more investors are willing to finance entrepreneurial women and share in the success of their leadership. And, importantly, women have developed a powerful network of mentors, role models, and support systems. It is a great time to be a woman entrepreneur.


What’s your advice for women seeking to become entrepreneurs?

Never, ever, stop believing in yourself. Surround yourself with the best colleagues possible and give them room to create. Identify mentors and role models. Leave pride at the door and seek out people who inspire you. Their advice and support is invaluable. Experienced and successful women are gracious about giving back. After all, that kind of sisterhood is second nature to most women! Dream big, take risks for what you believe in, and doggedly pursue your vision and goals. Treat setbacks (or, if you must, “failures”), as springboards for the next success.


What are some of your personal beliefs about the best way to achieve work-life balance?

The best way to begin is to acknowledge that work-life balance is elusive. As is said in yoga poses, “balance, she comes, she goes.”Accepting that there is no consistent moment-to-moment balance makes things easier.

Personally, I access and assess my personal value system as a yardstick for how to live and make decisions, both in and out of business. Work-life balance, then, is seen in the rear view mirror to get the long view of whether and how I have dedicated myself to the all-important practice of checking in with myself, my inner board room and what is truly important to me. My slippage comes from not catching my shadow where the ever-present danger of prioritizing the expectations of others over mine can hijack me. This kind of unconscious habitual environment can lead to temporary overload, imbalance, and ever-dreaded stress.

I urge working hard to establish and honor boundaries in order to ward off tendencies to feel guilty or too self-involved about making private time for you and your loved ones. As I honor myself, I gain both my own respect and the respect of others. We are all in this together!


What’s next for you?

Other than writing a sequel to Play It Forward with my coauthor, I have no grand plans. It might sound trite, but my focus is on continuing to do whatever keeps me in personal harmony. And yes, I am always on the lookout for creative expressions that grab me!



The Human City rave review in Wall Street Journal

In this past weekend's Wall Street Journal books section, Shlomo Angel reviewed Joel Kotkin's new book, THE HUMAN CITY: Urbanism for the Rest of Us. The headline in the print edition reads, "In Praise of Urban Sprawl: Suburbs provide not only the majority of American residences but also of jobs." For those of you who wish to read it, you can follow the link here

Should you not have a subscription to the Journal, here are a few select excerpts from Angel's piece that describe Mr. Kotkin's views:

Joel Kotkin in ‘The Human City: Urbanism for the Rest of Us,’ presents the most cogent, evidence-based and clear-headed exposition of the pro-suburban argument. In Mr. Kotkin’s view, there is a war against suburbia, an unjust war launched by intellectuals, environmentalists and central-city enthusiasts. In pithy, readable sections, each addressing a single issue, he debunks one attack on the suburbs after another.
[Mr. Kotkin] weaves an impressive array of original observations about cities into his arguments, enriching our understanding of what cities are about and what they can and must become, with sections reflecting on such topics as ‘housing inflation,’ ‘the rise of the home-based economy,’ ‘the organic expansion of cities’ and ‘forces undermining the middle class in global cities.’
[Mr. Kotkin] argues that central-city living is largely unaffordable by the middle class, let alone the poor; that central cities are becoming the abodes of the global rich, encouraging glamorous consumption rather than providing middle-class jobs; and that dense urban living in small, expensive quarters discourages child rearing, a critical concern for policy makers in many industrialized countries today. (There are 80,000 more dogs than children in San Francisco.)
Mr. Kotkin, in his unabashed defense of the essential role that suburbs play in cities the world over, is clearly on the offensive. . . . All the same, and much to my delight, the book does not read as a diatribe or an anti-urban manifesto. Mr. Kotkin comes across as a relaxed, confident and experienced litigator standing in front of a jury of readers and making his case; and ‘The Human City’ does provide a vision for a legitimate and pragmatic urbanism that could and should become mainstream.
Joel Kotkin, author of  The Human City: Urbanism for the Rest of Us

Joel Kotkin, author of The Human City: Urbanism for the Rest of Us




Q&A with Joel Kotkin, author of The Human City

Internationally recognized urbanist and demographer Joel Kotkin challenges conventional urban-planning ideologies in his new book, The Human City: Urbanism for the Rest of Us. Kotkin has been described as "America's uber-geographer" by David Brooks of the New York Times, and in his eighth book he examines the good, the bad, and the ugly of high-density environments and the possible alternatives.

Trends show that modern megacities and "pack-and-stack" living do not consider the needs of the general population. Trends also show that these living methods may be detrimental to future generations. Kotkin calls for dispersed neighborhoods centered on human values, and more diverse options for every stage of life. The Human City reminds us that in order to be sustainable, we must help shape our future and not become the products of demographic and economic forces.

To celebrate the book's publication, we are sharing a Q&A with the author.

This book is somewhat controversial, as it challenges the dominant view held by most city planners and urban developers. Was there a specific moment in your career when you realized that the almost exclusive focus on high-density development might not be the best option for the global population?

Much of this realization came from spending time in places like Mumbai, Mexico City, Hanoi, and other cities in developing countries. I also learned a great deal about the downsides of over-urbanization in East Asia. In East Asia, conditions are better than they are in developing countries, but there are other negative factors, such as low rate of family formation and childbearing. Here in North America and in Europe, high-density urbanism has some of the same effects, but the option of moving to less dense (and usually less expensive) cities and suburbs remains a viable option as people enter their 30s. The key is to give people, and families, choices.

History provides us with some pretty colorful anti-suburban sentiments. You write that the International Congress of Modern Architecture once called the burbs “a kind of scum churning against the walls of the city.” Why is there still so much antipathy for the suburbs when the data suggest more people prefer to live there than in the city core?

This trend is really about the concentration of media in big cities. Media, as well as finance and fashion, are intrinsically urban-oriented. The writers, pundits, and academics who write about cities tend to live in great cities like New York, Boston, Chicago, and London—or wish they did. The suburbanites and residents of small towns are largely outside of the discussion, as if they really didn’t exist except as a bunch of losers.

I also wonder how someone can study cities without looking at the vast majority of people, who now live in suburbs or suburban-like neighborhoods. In my old neighborhood in LA—an older part of the San Fernando Valley—very few neighbors shared the enthusiasm for densification expressed by the media, political leadership, architects, developers, and planners.

Much of the book draws on your deep historical knowledge of cities—from industrial-era London to your grandfather’s Brooklyn to modern-day Singapore. If you could live in any city at any point in history, where and when would it be?

My favorite city to visit was Hong Kong under the British—entrepreneurial and culturally diverse, but under the firm grip of common law. Historically, my favorite place to visit and even live would have been Amsterdam in the 17th century, which had many of the same characteristics as late-20th century Hong Kong. I also was very lucky to have lived in the New York area at the height of its powers in the early 1960s, and to have lived in Los Angeles in the 1980s, when it was a great place with surprising urban pockets and lots of livable neighborhoods.

The economic, environmental, and social consequences of unfettered, exclusively dense development seem dire, to say the least. Is it too late to curb the trend? Is there anything ordinary citizens can do to advocate for more human cities?

The key battlegrounds are cultural and political for people who live in suburbs, as well as those who live in mid-density urban areas (including many parts of San Francisco, Chicago, Los Angeles, London, New York, Tokyo, and Singapore). The book is an attempt to challenge the assumptions of the planning, academic, and urban development establishment. People do not have to fear change per se, but they should have some say in how things change. I know few New Yorkers, outside developers and planners, who would like to see another one or two million people there. This is true in Singapore as well.

The cultural and political deficit is greatest among suburbanites, particularly those further on the periphery, who tend to be occupied with family and work and don’t tend to get engaged in big urban-planning issues. Even suburban business owners and home-builders—particularly in places like California—are too intimidated by the planners and their allies to even make a case for themselves. They have allowed a vacuum to be created where a debate should be taking place.

What are you working on next?

My next big project will be as the co-editor of a new book—Infinite Suburbia—that is being put together by MIT. The book will include over 40 essays from various commentators.

At the same time, I am working on major studies on housing, demographics, and the changing urban form for both Chapman University’s Center for Demographics and Policy, as well as for the Center for Opportunity Urbanism.

Q&A with Tom Salonek, author of The 100

Award-winning tech entrepreneur Tom Salonek shares his secrets to business success in his new book, The 100: Building Blocks for Business Leadership. Salonek offers practical advice based on his experiences as the founder and CEO of Intertech, which Fortune recently named the #7 Best Workplace for Flexibility and the #5 Best Small Workplace in Tech.

For anyone who owns a business, is thinking of starting one, or simply wants to be a more effective leader at work, The 100 will help establish clear visions and compelling values. To celebrate the book's publication earlier this month, we are sharing this Q&A with the author.

Why did you decide to write The 100?

The 100 started as a guide for my employees to share how we do things at Intertech. As I started writing, I realized the concepts applied to many organizations and not just my firm. When I read a book, attend a conference, or read an article, I find myself earmarking the ideas that I want to implement. In The 100, my goal was to give readers something practical and actionable in each of the 100 sections. Hopefully, if the book hits home with reader, their copies will all have 100 earmarks.

What was your own experience starting up Intertech? What lessons did you learn?

In the beginning, it was controlled chaos. I worked insane hours, I took on any project regardless of whether or not it was in my wheelhouse, and I was so focused working “in the business” that I didn’t work “on the business.” I learned a lot of lessons starting the firm.

One of the biggest lessons I learned was that great people make a great organization. When hiring, take time, be stringent, and be consistent. When I was starting out, I was so focused on not missing out on work or opportunities that I was too quick to hire—I’d hire someone over a coffee. Today, we have eight separate steps in our interview process and hire only one out of every 20 applicants. The process is thorough, and the right employees appreciate that we set a high bar. The wrong employees are weeded out or opt out themselves.

I also learned that life is short. For clients and employees, if it’s not a positive relationship, cut bait and move on. When starting out, I would tolerate the employee who was technically gifted but who acted like a prima donna. I would tolerate the client who used berating as a tool to get more “value” out of the work provided by our team. Today, we have a thorough hiring process, but when we make a mistake in a new hire, we’re quick to fire. It’s a similar story for clients. While it doesn’t happen much, if there’s a client who sees us as a “bar of steel” and not a partner—or thinks raising his voice is a motivational tool—we’ll finish up the project professionally and pass on future opportunities.

Tom Salonek, CEO of Intertech

Tom Salonek, CEO of Intertech


What inspired you to write “the shortest book” on this subject?

When I attend a workshop or read a book or periodical, I’m the type of person who’s looking for the answer or core idea. Theory, while good to know, isn’t as useful to my business as practical, actionable, and proven ideas and tools are. My goal was to create a book where there were a lot of implementable ideas to grow and improve a business.

What advice would you give to someone just thinking about starting a business?

There never will be a perfect time to start a business. I started Intertech in a recession. To limit risk, ask yourself if there’s a way to dip your toe in the water without quitting your day job. Also, set it up to succeed or fail quickly. It’s not about money or significant investment. From co-location workspaces to all the resources available through cloudbased services to the sharing economy, there are a lot of ways to start with minimal expense. The amount of resources available for an entrepreneur is staggering. From books to workshops to online resources, the challenge isn’t to find resources—it’s to sift out what is practical and useful. My hope is that The 100 provides a quick read with plenty of actionable ideas for the aspiring entrepreneur.

What’s your advice for entrepreneurs whose businesses are on the decline?

Action cures fear. When you’re actively focused on the solution and working the problem, you feel more empowered. For a business in decline, remember that you’re not the first to experience this problem. Who do you know within or outside your organization that could help generate ideas to turn things around? Start with “green light” brainstorming session around the core problems causing the decline. Ask, “In what ways can we increase sales?” or “In what ways can we reduce expenses to improve profitability?” After all the ideas are on the table, sort from first to worst, and then act.

What are you working on next?

For Intertech, we’re investing in and growing our Internet of Things (IoT) consulting practice. IoT is projected to grow five-fold (from about 5 billion devices currently connected to the Internet to the 25 billion projected to be connected in 2020). The future is a world where everything has a sensor connected to the Internet. IoT consulting is the type of work our consultants love, so that makes it a win all around: our consultants get work that gets them up early and keeps them engaged; our customers get a great solution because engaged folks produce solid work; and our firm wins because happy customers and employees results in great retention and profits.

On the writing front, a couple of years ago, I wrote a children’s book. It was mainly a way to teach my then three- and five-year-olds manners. I'm toying around with another book to help with my next parenting challenge.


China and Greece Underpin Belgian Finance Minister’s new book, A Giant Reborn

The ongoing Greece-centered eurocrisis and the spectacular fall of share values on the Chinese stock markets are the two dominating issues in worldwide economic affairs during the summer of 2015. Both developments provide evidence in support of the main thesis of my new book A Giant Reborn: Why the US Will Dominate the 21st Century (Agate Publishing).

If you think we’ve seen major changes in our broader economic environment during the last three decades, prepare yourself for more of it—much more of it. I see signs all around us that the era of what I call “turbochange” is already upon us. Simply put, turbochange is the intense, rapid, large-scale change that will inevitably characterize the 21st century and shake up our society at large. There are three main drivers behind turbochange: knowledge and human capital, entrepreneurial drive, and globalization.

More and more, knowledge and human capital show signs of what economists call “increasing returns to scale,” which means the more you have of these two items, the faster ideas develop. Worldwide, there is an increasing number of people engaged in research. Modern modes of communication allow these thinkers to connect quickly, which increases productivity and invites entrepreneurial drive.

Entrepreneurial drive is necessary to turn knowledge into products and services that add to people’s welfare and wellbeing. Until the fall of the Berlin Wall in 1990, entrepreneurial activity was absent in large parts of the world, especially the Communist-dominated parts. Today, most of the world is engaged in entrepreneurial activities.

The cross-fertilization between fast-growing knowledge and human capital and feverish, worldwide entrepreneurial competition is bolstered by globalization. Most societies will have a hard time dealing with all this turbochange.  The societies that are able to adapt to this change will be in the best position to succeed economically. In this respect, the United States clearly has the upper hand over its main rivals, China and the European Union.

As many others noted already before me, the United States eats, breathes, and loves change. It’s deeply entrenched in the American DNA as a consequence of historical, institutional, and sociological characteristics. Dealing with (turbo)change is often messy, and the consequences are often unpleasant for many citizens, but Americans do not hesitate to look change straight in the eye and go for it.

This attitude contrasts sharply with the way China and Europe deals with change. The spectacular fall in the Chinese stock market is just one more sign of China’s relative inability to deal with change. Over the past several years, Chinese authorities have continuously applied increasing doses of monetary and budgetary stimulus to the economy.

By now, the economy is a huge bubble. The ruling Communist Party in China took the extravagant stimulus road because its leaders are frightened of the perception of substantially slowing economic growth, a prospect that has now become inevitable. The recent devaluation of the Chinese currency is another desperate attempt by the Chinese authorities to stimulate economic growth.

China’s leaders do not want to be confronted with the political and social consequences of slowing growth. This adds to China’s already existing problems with pollution, corruption, and inequality, among others. A worldwide turbochange-environment will deeply impact China’s already substantial internal problems. China lacks the historical, institutional, and sociological setting to deal constructively with turbochange.

Likewise, the member states of the European Union are deeply entrenched in their existing social and economic models. Change has proven to be a thorny issue; turbochange will prove to be worse. The ongoing Greek crisis greatly underpins this argument. The third rescue package for the Greek economy may be the only way out of the deep hole the country is in, but it will be very hard to implement.

The only way to deal conclusively with the Greek drama is to fundamentally strengthen the Eurozone’s institutional framework. One way or another, this means a loss of national sovereignty for the nineteen member states of Europe’s monetary union. This exercise continually proves to be a hard nut to crack, to put things mildly.

Not everything in the US runs perfectly, far from it. Issues such as political gridlock, crumbling infrastructure, overall debt, and inequality cast a long shadow over the country’s future. Nevertheless the proven ability of American society at large to deal positively and constructively with change will strengthen America’s relative position as the era of turbochange comes upon us.


Since October 2014, Johan Van Overtveldt has served as Belgium’s Minister of Finance



Johan Van Overtveldt--The French-German ECB Dispute

Since early November, Johan Van Overtveldt, author of the new book, The End of the Euro, has been blogging here about the eurozone crisis.

The discussions about how to solve the structural problems facing the European monetary union have repeatedly been overshadowed by electoral concerns in the member countries. The biggest upcoming electoral event in Europe is the French presidential election to be held in May. Nicolas Sarkozy is facing an uphill fight against his socialist challenger, François Hollande. Hollande is leading Sarkozy in the polls by a comfortable margin.

Hollande has made the euro the center of his campaign. In particular, he is questioning the role the European Central Bank (ECB) has played in the crisis so far. Hollande wants two things. First, he’s calling for a fundamental change in the status of the ECB. He wants its independence reduced, and he wants more political control over monetary policy. Second, Hollande cannot imagine a structural cure for the problems plaguing the eurozone without the ECB intervening on a much larger scale in the bond markets, and buying up massive amounts of the bonds issued by countries facing financing distress—Italy, Spain, Greece….

These ideas of Hollande’s are anathema to Germany. An independent central bank is an essential part of how the Germans approach finance and economics. Chancellor Angela Merkel and the Bundesbank, Germany’s central bank, have voiced strong opposition to larger bond interventions by the ECB. As documented fully in The End of the Euro, the role of central banks has historically been a constant source of friction between Paris and Berlin. At the moment, it is not clear whether Hollande is advocating these ECB-related ideas as campaign fodder or whether he is genuinely convinced of their merit. If the latter, he’s facing battles with the Germans he’s bound to lose should he defeat Sarkozy in May.


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Johan Van Overtveldt--The Euro-summit Disappointment

Since early November, Johan Van Overtveldt, author of the new book, The End of the Euro, has been blogging here about the eurozone crisis.

The European summit of December 8–9 was widely considered the last chance for the leaders of the eurozone to come up with clear answers to the crisis that has plagued Europe’s monetary union for more than two years now. The results were extremely disappointing.

There’s hardly anybody left who does not recognize that the euro needs a full-blown, truly empowered political union to give the currency the institutional framework that is so urgently needed. Since that kind of political union is absolutely impossible to bring about at this moment in time, the political leaders of the euro countries are trying to agree on lesser solutions, e.g. explicit and binding agreements regarding those policy issues that are crucial to stabilizing the monetary union in the long run.

Three policy issues stand out here: first, the evolution of budget deficits and government debt; second, regulation of the banking sector; and third, supervision of the international competitive position of each of the eurozone members. This last issue is too often overlooked. The loss of international competitiveness drives a country’s current account into the red, and makes that dependent on foreign capital, a situation that has proved to be highly unstable in recent years. Neither banking regulation nor competitiveness was really on the agenda of the summit. Budgetary rules were.

On December 8–9, 26 the EU countries (with the UK breaking ranks, a story of its own) agreed to write into their constitution a requirement for each country to balance its budget. If countries don’t follow the rules and reach budget deficits equal to 3 percent of GDP, automatic sanctions (that is, fines) will be imposed. However, a majority of the EU heads of state can decide to eliminate the sanctions again at a later date. It’s hard to conclude that the new rules are truly binding, and that a real transfer of sovereignty from the national to the European level has been agreed upon. Without such an agreement, the eurozone crisis will only continue, and continue to deepen.

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Johan Van Overtveldt--A Crucial Week

Since early November, Johan Van Overtveldt, author of the new book The End of the Euro, has been blogging here about the eurozone crisis.

This week is of the utmost importance to the euro’s future. European heads of state, led by German chancellor Angela Merkel and, to a lesser extent, French president Nicolas Sarkozy, are searching for a formula to restore confidence in the European monetary union and ensure the euro’s survival. At the upcoming European summit on December 8–9, they need to reach some convincing conclusions in order to prevent financial markets from launching a final assault on the euro.

As things stands now, it’s possible a deal will be hammered out that includes important steps toward forging a fuller political union, with more binding rules regarding fiscal deficits and fines for offenders. This deal should be enough for the European Central Bank (ECB) to step up its bond-market interventions aimed at guaranteeing the needed financing for troubled countries like Italy and Spain (while similar troubles loom for France and Belgium), and also to keep the cost of this financing at moderate levels. While these ECB interventions calm the markets, it is hoped, the politicians can work out their grand bargain on further political integration.

Whether this strategy can succeed depends almost entirely on the specific content and credibility of the deal to be negotiated in the coming days. The European leaders start with a huge handicap: the incompetence and negligence with which they tried to manage the crisis so far means that they will have to overcome a lot of a priori doubt. If the compromise is insufficiently firm on the transfer of powers to the European level, and on the automatic interventions affecting members that break the rules, the euro and the monetary union will soon be back under severe attack.

What is fundamentally at stake here is whether all members of the eurozone are prepared to give up substantial parts of their national sovereignty in economic, financial, and social issues. For several countries, such a decision remains hugely difficult. This is foremost the case in France, where next May will see new presidential elections. President Sarkozy’s major opponent will be the socialist Francois Hollande, who in recent weeks repeatedly claimed that he would not surrender one inch regarding French sovereignty. Opinion polls show this message to be resonating with French voters. That is an enormous problem for the feature of the euro.

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Johan Van Overtveldt--The Eurobond Challenge

Twice weekly through the month of November--though with a short break for the recent Thanksgiving holiday--Johan Van Overtveldt, author of The End of the Euro, will be blogging here about the euro crisis.

The European Commission is proposing to introduce eurobonds to help end the ongoing Eurozone crisis. These eurobonds would be backed by all the member countries of the Eurozone, even if the bonds are issued to cover the deficits of, say, Greece or Italy. Many leading European politicians and economists have already come out in favor of eurobonds. Regardless, they’re a bad idea.

Introducing eurobonds at this point in time would effectively repeat the single biggest mistake made when the monetary union and the euro were launched in their present form back in 1999. A monetary union without a fully empowered political union among its member countries will always be subject to severe strains and frequent periods of instability. Recent history provides us with abundant proof of this. Similar problems would occur if eurobonds were introduced before real political union exists among the Eurozone nations.

For those countries with weak to nonexistent reputations in the international financial markets, eurobonds would not only regain them access to those markets, but would also result in substantial interest rate decreases. Both history and political logic indicate that the governments of these countries would almost certainly then ease off on their efforts to bring their budget deficits under control and restructure their economies. Without real political union, the other countries would have no real power to oblige these economically weaker countries to make the hard choices necessary to strengthen their economies. Hence the very outspoken opposition to eurobonds coming from Germany, the Netherlands, and Finland.

In the case of Germany, this opposition to eurobonds is further backed up by a very explicit decision of the German Constitutional Court a few months ago, which stated that eurobonds without the existence of a real European political union would violate Germany’s constitution.

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Johan Van Overtveldt--The Chinese Analysis

Throughout November, Johan Van Overveldt, author of the new The End of the Euro, is blogging here twice weekly about the Eurozone crisis.

Major European banks are still struggling with weak balance sheets. The market is very unlikely to provide the extra capital needed to strengthen these balance sheets, since trust in the European banking system is faltering by the day. It won’t be Europe’s governments providing capital to their banks, either. Most eurozone member countries are struggling with their own mounting debt levels. Hence, some observers began discussing another idea few weeks ago: maybe the Chinese could provide capital both to the bleeding European banking system and Europe’s needy governments, either directly or through a recapitalization of the International Monetary Fund.

The Chinese authorities are sitting on international currency reserves worth more than $4 trillion, mostly in US dollars. Of course, it would be very naïve to think that Chinese capital would start flowing to Europe without strings attached. A recent statement by a top Chinese financial bureaucrat gives a sense of how the Chinese are thinking about such a scenario. Jin Liquin is chairman of China Investment Corporation, China’s top sovereign wealth fund, which supervises $410 billion in assets. Jin declared recently that “if you look at the troubles which have happened in European societies, this is purely because of accumulated troubles of the worn-out welfare state. The labour laws induce sloth and indolence rather than hard work.”

Basically Jin Liquin’s analysis is correct. A major overhaul of Europe’s welfare states and labor markets is necessary in order to reduce government debt and get the eurozone economies growing again. It’s just as essential for the Eurozone countries to agree on a real political union in order to save the euro in its present form. Achieving these two aims would require heroic if not outright impossible performances by Europe’s political leadership. Since Europe is unable to live up to the likely conditions China would impose in order to provide Europe with substantial amounts of capital, it’s very unlikely that Chinese capital will be available European countries and their banks.

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Johan Van Overtveldt--The Problem with Papademos

Throughout November, Johan Van Overtveldt, author of The End of the Euro, is blogging here twice weekly about the Eurozone crisis:

Technocrat and economist Lucas Papademos is Greece’s new prime minister. He will lead the national government until the elections of February 2012. The Papademos government is supposed to push through the tough austerity program imposed as part of the latest European rescue deal for Greece.  Papademos enjoys an impeccable reputation that, upon closer inspection, looks overblown.

Papademos eaned a PhD in economics  from MIT in 1978, joined the Bank of Greece in 1985, and became the bank's governor in 1994. Greece did not belong to the group of countries that first formed the European monetary union in 1999; Papademos was the key figure in Greece’s eventual approval for entry to the Eurozone in 2001. In recent months, Greek and European officials have confirmed that Greece’s admission to the Eurozone was approved on the basis of deliberately falsified data, especially with respect to the magnitude of Greece's budget deficits. In 2002, Papademos left the Bank of Greece and joined the executive committee of the European Central Bank (ECB) as its vice president. He left this position in May of last year.

Given Papademos’s close and daily involvement in Greece’s EMU approval process, one of two things must be true. Either he didn’t know about the forged data--which implies problems with oversight of the entry effort-- or he knew about and still approved the data--which implies problems with his “impeccable” credentials. I believe it unlikely that Papademos did not know about the forged data.

Considering this aspect of Papademos’s career leads one to consider Mario Draghi, the man who recently succeeded Jean-Claude Trichet as president of the ECB. Papademos and Draghi have known each other for a long time--Draghi too earned his PhD in economics at MIT, two years earlier than Papademos. Draghi was also vice chairman and managing director of Goldman Sachs International during the period 2002-2005. Goldman Sachs engineered the highly sophisticated financial strategies that many believe allowed Greece to obscure its falsified data for many years.

Draghi has always claimed that these strategies were set up and executed before his time at Goldman Sachs. I am not sure these claims are convincing. However, even if Draghi’s claim are true, then Goldman Sachs's contribution to the Greek charade dates from before 2002--which means it occurred on Papademos’s watch as governor of the Bank of Greece.



Johan Van Overtveldt--Beyond the Personalities

Throughout November, Johan Van Overtveldt, author of The End of the Euro, is blogging here twice weekly about the Eurozone crisis:

Johan Van Overtveldt

In Greece, the socialist government of George Papandreou is about to be replaced by a  national coalition. The new prime minister will be Lucas Papademos, vice president of the European Central Bank from 2002 to 2010. In Italy, it seems we might at last be seeing the final days of Silvio Berlusconi as prime minister. It would, however, be foolish to think that these leadership changes will make a big difference to the crisis affecting the Eurozone. Both countries will still be facing the same difficulties--huge budget deficits, rising debt levels, close to nonexistent growth prospects, and low international competitiveness. Their new leaders are each facing public opinion increasingly hostile toward the euro.

Moreover, the structural deficiencies afflicting the European monetary union (EMU) will remain exactly the same, the two worst of which are the lack of a true political union and insufficiently flexible labor markets. Beyond these challenges, at least three of the decisions made at the October 26 euro-summit further handicap the EMU:

  • the decision to impose a 50 percent haircut on private bond holders of Greek debt, while public bond holders do not have to bear such a haircut. This unequal treatment will not stimulate private bondholders to keep their European bonds.
  • the European stabilization fund (EFSF) will guarantee 20 percent of future bond issues of troubled countries, including Spain and Italy. This action not only creates a dual bond market, but also lacks credibility; defaults never occur for percentages like 20 percent, but rather for 50 percent or more.
  • European authorities are trying to avoid defining the Greek default as a “credit event” since this would trigger payouts on the credit default swaps (CDS) underwritten in large part by European banks whose balance sheets are already in shambles. Investors will rightly conclude that even a CDS-insurance on a European bond will not protect them from default. This makes European bonds even less appealing.    





Johan Van Overtveldt--The Greek Footnote

For the next month, Johan Van Overtveldt, author of the new Agate B2 title The End of the Euro: The Uneasy Future of the European Union, will be blogging here twice weekly about the ongoing travails of the European monetary union as it deals with the Greek debt crisis and the wider unease affecting many European economies.

On Friday, November 4, Greek prime minister George Papandreou survived a vote of confidence in the Greek parliament with the thinnest of margins. It remains uncertain what might happen next in Greece: a reshuffle within the present Socialist government of socialists; a grand national coalition; or even new elections. Whatever the political outcome, the Greek economy remains in shambles. The country requires strict austerity, which it will only be able to survive economically and socially if external demand can partially fill the gap. It remains inevitable that Greece will have to exit from the Eurozone to create devaluation-driven economic growth.

Johan Van Overtveldt

Although Greece occupies a central place in all present discussions regarding the Eurozone, the problems originating in this small nation are not much more than a footnote to the real story of the crisis. Greece is one of the smallest economies of the Eurozone. Two other small economies, Portugal and Ireland, are also in very deep trouble, Portugal in particular. After these small countries, much bigger ones--like Spain and Italy—are also in significant trouble. At present, the Eurozone crisis involves hundreds of billions euros. When the big countries start failing, it will involve thousands of billions of euros.

The fact is that the European Monetary Union does not function well because of basic flaws in its construction. Two of these stand out: the lack of true political union, and insufficiently flexible and mobile labor markets. Even if you get the Greek problem out of the way—and the Portuguese, Irish, Spanish, and Italian problems--these two basic flaws preventing a durable, efficient monetary union will remain. And the European political leadership has demonstrated convincingly over the past two years that it is unable or unwilling to repair these flaws.



Johan Van Overtveldt on the Euro crisis

For the next month, Johan Van Overtveldt, author of the new Agate B2 title The End of the Euro: The Uneasy Future of the European Union, will be blogging here twice weekly about the ongoing travails of the European monetary union as it deals with the Greek debt crisis and the wider unease affecting many European economies. Today's first post deals with the Greek prime minister's proposal for a national referendum on the Eurozone's proposed bailout terms for Greece.

 The Greek prime minister George Papandreou has proposed a referendum on the bailout package negotiated for his country during the Eurozone leaders’ summit on October 26 and 27. The agreed-upon bailout consists of two basic elements: First, private bondholders will have to accept a 50 percent haircut on their holdings of Greek bonds. Second, in return for more cash from the Eurozone’s stability fund (EFSF) and from the IMF, the Greek government must go further down the austerity road with new taxes and expenditure cuts.

The other European leaders showed great surprise at Papandreou’s referendum proposal. Well, they shouldn’t; Greece is simply desperate. As I argue in The End of the Euro, Greece finds itself in a totally hopeless situation. The latest data show Greece’s economy contracting at 8 percent on annual basis, unemployment rising above 20 percent, and a budget situation that’s out of control. The Greek budget deficit is estimated to be something like 10 percent of GDP; government debt stands at 160 percent of GDP and is rising rapidly. The desperate measures necessary to cut the Greek deficit will just worsen Greece’s depression in the short and medium term.

No country has ever escaped from a situation like the one facing Greece without a massive devaluation of its currency. This devaluation is necessary to restore the international competitiveness of the Greek corporate sector. Per definition, a Greek devaluation can only happen if Greece leaves the Eurozone and reintroduces a new drachma. George Papandreou is asking his people for a mandate to do just that. Can the European monetary union survive a Greek exit? Unlikely.

Johan Van Overtveldt is also the author of Bernanke's Test (Agate B2, 2009), and The Chicago School (Agate B2, 2007). He is the editor of the Belgian newsmagazines Trends and Knack.