Leaders fiddle,markets burn

Events of the past few days, including the Facebook flotation and the continuing wailing Greek tragedy, have illustrated that Western capitalism is losing its way. World leaders are fiddling while the basic structures are in danger of coming crashing down. Offstage, political insiders are warning of another impending 'Lehman's moment', referring to the crash of the New York investment bank that almost caused global financial meltdown only four years ago. Facebook duly got its US$104 billion valuation on Friday in New York, and its 28-year-old founder took his place with the richest people on the planet, worth about US$20 billion. Young hoodie Mark Zuckerberg, who rang the Nasdaq opening bell - appropriately, remotely from his own headquarters in California - now has to demonstrate that he can run a company subject to the pressures of a listed stock. Almost at the same time on the other side of the US, the leaders of the world's biggest economies argued and squabbled and essentially did nothing to sort out the problems that confront the real world of economies, jobs and growth. The problems have grown, so that a Greek exit from the euro (or Grexit) could easily become a very expensive sideshow. The Guardian newspaper put a US$1 trillion price tag on Grexit, taking into account the cascading effects. But Greece and Grexit is only one aspect of a wider problem of heavily indebted Western economies. Spain's banking problems are mounting, illustrated by Moody's downgrading of the country's entire banking system on Thursday. Threats to the European banking system run further and deeper than Spain, and damage in any one country would send out aftershocks that would shake the whole European edifice. This, remember, rests on flimsy, almost half-baked, foundations. There is a pan-European community with a European currency for 17 of its 27 members, but fiscal matters are left to national governments, and banking supervision is left to national central banks. On top of this is the vital issue of austerity versus growth. The revolt against austerity was an important factor in Francois Hollande's defeat of Nicolas Sarkozy in France and has seen governments tottering across Europe as electorates reel against a policy of cuts. At Camp David, President Barack Obama joined other leaders in urging German Chancellor Dr Angela Merkel to relent on her policy of austerity first. After arguments running late into the night, the leaders of the G8 committed themselves to 'take all necessary steps' to strengthen their economies. 'Our imperative is to promote growth and jobs,' it said clearly. The document also noted, 'that the right measures are not the same for each of us', though it was not clear for whose benefit or against whom this was inserted. Not that these communiques are necessarily worth the paper they are written on, By all accounts Merkel stuck to her guns about the need for austerity and fiscal discipline and emphasised that countries could not spend their way out of crisis. Prudent Germany is naturally nervous that it will be called upon to foot the bill for any new profligacy of other countries. What was British Prime Minister David Cameron thinking of? Britain has essentially tried to continue to enjoy its cake having eaten it, by benefitting from the euro common currency area while staying outside and therefore not being subject to its strict disciplines. Cameron and the British eurosceptics are undoubtedly right that there is no European stomach for a fiscal policy dominated by Berlin. Merkel is also answerable to a hard-headed German electorate, and not to an airy-fairy European ideal. It is never a good idea for an outsider to lecture members of a club from which he benefits, however clear his vision is. Yet in several recent speeches Cameron has resorted to haranguing euro members that it is high time they got their act together. If a leader is wise and far-sighted, he or she will try to construct a policy that will bring others together in answering the problems they face. Cameron's attitude has been the opposite. Sadly, so has Merkel's. She has shown a singular lack of imagination and a refusal to think of policies that would bring opportunities out of the crisis. The result is that not only Greece, but potentially the whole euro experiment, is in slow-motion collapse. European Union leaders swore they were only working on Plan A - keeping Greece within the euro - when Plan A is proving untenable. Greeks will never vote for an austerity plan that leaves them more miserable and more heavily indebted than ever. This is not just a Greek tragedy, but is potentially a global one. Yet where was the world's second largest economy at the gathering? Such is the quality of 'world leadership' that Russia has a place at the G8, but not China. As a mark of his own leadership, President redux Vladimir Putin snubbed it by sending his prime minister to the Camp David get-together. As for Facebook, has Zuckerberg performed a great conjuring trick, especially to maintain 51 per cent of the control of the company? Facebook does a poor job in monetising users, getting a mere US$5 against US$30 for Google and US$144 for Netflix. Above all, Facebook has virtually zero penetration in China and little prospect soon of making waves there. But last week Zuckerberg was the darling of the capitalist world, winning laudatory profiles in leading newspapers. Such is the state of Western capitalism. 29th Mark Zuckerberg's ranking on the world's richest people list, with a fortune put at US$19.1 billion after the launch of Facebook's IPO