China crisis? Looking for black swans in white snow of Davos

A man walks past a display showing symbols for world currencies on the exterior of a bank in Beijing. The rise of debt in China was among the issues raised at the World Economic Forum in the Swiss reosrt of Davos yesterday. (AP)
Updated 23 January 2018
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China crisis? Looking for black swans in white snow of Davos

LONDON: Consumer debt in China, a dirty bomb and an antibiotic-resistant pandemic — all potential candidates for the next “black swan” event.
The annual gathering of global leaders, economists and thinkers in the Swiss alps yesterday looked to predict where the next big global shock would likely emerge.
Speaking at a panel on “The Next Financial Crisis,” Harvard professor Kenneth Rogoff said the Chinese economy was especially vulnerable to shocks caused by a rise in interest rates.
“If interest rates went up, the places that weren’t enjoying as much growth and had a lot of debt — Italy, Japan for example, some emerging markets — they could have a lot of problems. I certainly see China at an earlier stage of this. They didn’t have the financial crisis (in 2008), they did a great job, but they do have a lot of the characteristics of a typical financial crisis building up.”
The sharp rise in household debt in China has been flagged as a potential threat to the global economy, with the IMF recently warning the country’s dependency on credit could be a catalyst for the next financial crisis.
Vice-governor of China’s central bank, Zhu Min, told Reuters on Tuesday that China has little room for raising benchmark interest rates as inflation remains subdued and authorities are trying to reduce the economy’s debt burden.

The world’s second-largest economy expanded 6.9 percent in 2017, accelerating for the first time in seven years due partly to an export-led recovery, defying concerns that intensifying curbs on industry and credit would hurt expansion.
So what should the central bank policy response be if the another financial crisis were to suddenly materialize?

Historically low interest rates worldwide mean there is limited scope for central banks to tackle future financial crises, the session heard.
Still, Professor Rogoff downplayed fears of another big recession, telling the audience that financial crises have a “long afterlife” and that “we’re actually at the tail-end of the last one.”

Speaking on the same panel David M. Rubenstein, co-founder and co-executive chairman at investment firm The Carlyle Group told the audience he was worried about so-called “black swans,” a 9/11 type event that could produce a recession without warning.
He said: “The biggest problem I have is most people think there’s no problem of a recession this year or even next year. Generally when people are very happy and confident, something wrong happens. So I am nervous that the conventional wisdom is that there are no problems.”
Rubenstein also highlighted the high level of US government borrowing as a potential concern for the global economy.

“At some point people will wake up and (see) the US government has 20 trillion dollars of debt,” he said.


Flight rights group takes Ryanair to court over strike compensation

Updated 30 min 30 sec ago
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Flight rights group takes Ryanair to court over strike compensation

  • Ryanair had to cancel around 1 in 6 flights last week due to a walk-out by pilots in five European countries
  • The disruption affected 55,000 travelers

BERLIN: German passenger rights company Flightright is taking Ryanair to court over whether it should pay financial compensation to passengers affected by strikes at Europe’s largest low-cost carrier.
Ryanair had to cancel around 1 in 6 flights on Friday due to a walk-out by pilots in five European countries, disrupting an estimated 55,000 travelers.
The worst affected country was Germany, where 250 flights affected around 42,000 passengers.
EU rules state that passengers can claim monetary compensation of up to €400 for flights within the region for canceled or delayed flights, unless the reason is extraordinary circumstances, such as bad weather.
Strikes have generally fallen under extraordinary circumstances although a ruling by the European Court of Justice in April said that a wildcat strike by staff at German airline TUIfly following a restructuring could not be classed as extraordinary circumstances. Flightright said it believes Ryanair is therefore obliged to pay monetary compensation to customers and so has filed a complaint with a court in Frankfurt in a bid to clarify the rules around strikes.
A spokeswoman for the court said she was aware of the Flightright statement, but that she had not yet seen the complaint.
Ryanair said it fully complies with the European legislation on the matter, known as EU261.
“Under EU261 legislation, no compensation is payable when the union is acting unreasonably and totally beyond the airline’s control. If this was within our control, there would be no cancelations,” a spokesman said.
Passenger rights groups such as Flightright help passengers to claim compensation from airlines under EU261 rules but in exchange for a share of the compensation received.
Many European airlines, including Ryanair, therefore urge passengers to file claims with them directly instead.