Rodrigo Constantino's Blog, page 403

Voters versus creditors

Buttonwood, The Economist

ANGELA MERKEL, the German chancellor, spoke for many Europeans when she said last year that "We must re-establish the primacy of politics over the markets." The Europeans created the euro to prevent the crises caused by currency speculators, only to find themselves pushed around by bond investors.

Politicians have often cursed the markets. Harold Wilson, a British prime minister, used to fulminate against the "gnomes of Zurich" who speculated against the pound. In the mythology of the British Labour Party, a "bankers' ramp" pushed the party out of office in 1931. James Carville, a political adviser to Bill Clinton, wanted to be reincarnated as the bond market so he could "intimidate everybody".

In theory, there is an easy answer. If you don't want to be bothered about the bond markets, don't borrow from them. The finance ministers of Norway and Saudi Arabia have no cause to worry about their borrowing costs because they are net creditors.

Not all nations can be creditors, of course. But John Maynard Keynes's plans for the post-1945 monetary system were aimed at limiting the imbalances that arose in the interwar system, and have popped up again in the past 20 years. Since this involved restricting the rights of surplus nations, his plans were circumscribed by Washington, a nice irony now that America is a debtor nation.

After the Bretton Woods system collapsed in 1971, trade imbalances ceased to be much of a constraint on the developed world. Financial markets seemed happy to provide the money to allow countries to run deficits on both the fiscal and trade accounts. This may have led to a fatal complacency on the part of governments, which assumed that their credit was limitless. But rather like Northern Rock, the British bank that became too dependent on the wholesale markets for funding and collapsed in 2007, countries such as Greece and Italy have discovered that investors can suddenly withdraw their favours.

Is the latest run the action of speculators, as Silvio Berlusconi mused in his farewell statement? On the contrary, the sell-off is probably down to caution. The Greek debt deal required private-sector investors to take a 50% hit, while official investors would be repaid in full. This made private-sector investors worry about potential losses elsewhere. They have shifted their assets into the perceived safety of Germany and Britain. In addition, it seems that banks are selling off bonds in an attempt to shrink their balance-sheets and meet new rules designed to make them safer.

Countries can escape from the tyranny of the markets by turning to official lenders: other countries, the International Monetary Fund or the European Financial Stability Facility. But such creditors are just as keen on extracting their pound of flesh (in terms of economic reform) as the private sector.

Vague plans for a fiscal union seem to depend on a bargain in which Germany agrees to transfer money to debtor countries but the debtors agree to limits on their ability to run a deficit. This implies that someone in Brussels (or Frankfurt) will have a veto over a debtor country's budget.

In short, having lost their ability to control their monetary policy, voters may have to lose control over their fiscal policies as well. National politics will be reduced to dealing with social issues, such as smoking bans.

Perhaps this is inevitable. Just as voters cannot repeal the laws of gravity, they cannot insist that foreign creditors lend them money. Domestic wealth, alternatively, can be taxed or confiscated, although this is a strategy that is likely to be successful only in the short term or during national emergencies such as the second world war. Capital controls worked under the Bretton Woods system but it is not clear whether they can be enforced in an age where money can be transferred through the click of a mouse.

The prospect of financial ruin was one reason why many people feared the introduction of democracy. "The ignorant majority, when unrestrained by a superior class, always sought to tamper with sound money," said Thomas Hutchinson, a lieutenant governor of Massachusetts in 1753. Alexander Hamilton described the progressive accumulation of debt as "perhaps the natural disease of all governments." Over the centuries, countries have tried various rules—the gold standard, balanced-budget requirements, independent central banks—in an attempt to limit government profligacy. But when those rules fail, the markets assert their own grim discipline.

O sábio profeta

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Q: Thank you very much. Before we sign off, could I just take the opportunity to ask you what you think the prospects are for the attempts in Europe to create a common currency area? Are you optimistic about their success?

A: I think it's a big gamble and I'm not optimistic. Unfortunately, the Common Market does not have the features that are required for a common currency area. A common currency area is a very good thing under some circumstances, but not necessarily under others. The United States is a common currency area. Australia is also a common currency area. The characteristics that make Australia and the United States favourable for a common currency are that the populations all speak the same language or some approximation to it; there's free movement of people from one part of the country to the other part, so there's considerable mobility; and there's a good deal of flexibility in prices and to some extent in wages. Finally, there's a central government which is large relative to the local state governments so that if some special circumstances affect one part of the country adversely, there will be flows of funds from the centre which will tend to offset that.

If you look at the situation in the Common Market, it has none of those features. You have countries with people all of whom speak different languages. There's very little mobility of people from one part of the Common Market to another. The local governments are very large compared to the central government in Brussels. Prices and wages are subject to all sorts of restrictions and control.

The exchange rates between different currencies provided a mechanism for adjusting to shocks and economic events which affected different countries differently. In establishing the common currency area, the Euro, the separate countries are essentially throwing away this adjustment mechanism. What will substitute for it?

Perhaps they will be lucky. It may be that events, as they turn out in the next 10 or 20 years, will be common to all the countries; there will be no shocks, no economic developments that affect the different parts of the Euro area asymmetrically. In that case, they'll get along fine and perhaps the separate countries will gradually loosen up their arrangements, get rid of some of their restrictions and open up so that they're more adaptable, more flexible.

On the other hand, the more likely possibility is that there will be asymmetric shocks hitting the different countries. That will mean that the only adjustment mechanism they have to meet that with is fiscal and unemployment: pressure on wages, pressure on prices. They have no way out. With a currency board, there is always the ultimate alternative that you can break the currency board. Hong Kong can dismantle its currency board tomorrow if it wants to. It doesn't want to and I don't think it will. But it could. But with the Euro, there is no escape mechanism.

Suppose things go badly and Italy is in trouble, how does Italy get out of the Euro system? It no longer has a lira after whatever it is - 2000 or 2001 - so it's a very big gamble. I wish the Euro area well; it will be in the self-interest of Australia and the United States that the Euro area be successful. But I'm very much concerned that there's a lot of uncertainty in prospect.


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Milton Friedman, em 17/Jul/1998

Resistam, alemães!

Rodrigo Constantino, para o Instituto Liberal

A pressão internacional para que o Banco Central Europeu (BCE) abra suas comportas e imprima desenfreadamente papel-moeda para "salvar" o mundo tem se intensificado sobremaneira com o agravamento da crise. Todos voltam suas esperanças na direção daquele capaz de produzir dinheiro sem custo imediato. Esta sempre foi a saída mais fácil para governantes em tempos de crise. Mas os alemães, que conheceram de perto as agruras da hiperinflação, rejeitam esta "solução" mágica.

O problema é que o BCE não é mais o Bundesbank. Surge automaticamente a pergunta: até quando os alemães vão resistir às pressões do mundo todo? Até agora, o BCE tem adotado medidas heterodoxas, mas com algumas reservas. É verdade que ele aceitou como colaterais para empréstimos muitos ativos podres. Até mariola mordida deve ter em seu balanço! Só que sua resistência a bancar um resgate ilimitado tem colocado o mercado tenso. Isso puxa as taxas de juros dos países mais problemáticos para cima, impondo a necessidade urgente de reformas de austeridade e competitividade.

Em outras palavras, o "jogo duro" do BCE impõe, por meio dos mercados, a obrigação das reformas estruturais que a região tanto precisa. Somente isso fez com que Berlusconi e Papandreou caíssem, e tecnocratas assumissem o governo com a promessa de reformas. O povo vai às ruas reclamar das dolorosas, porém necessárias medidas. As cigarras se acostumaram com a "dolce vita", e apenas a seriedade do BCE pode forçar os ajustes necessários. Mas a tentação pela fuga inflacionária não será fácil de ser evitada.

As autoridades francesas também querem isso, e só os alemães, bravamente, ainda resistem. Angela Merkel e seu ministro das Finanças afirmaram, uma vez mais, que a saída deve ser pela política, não pelo BCE. Em seu primeiro discurso como novo presidente do BCE, Mario Draghi não deu sinais de que vai ceder facilmente. Mas ainda é cedo para dizer. O BCE já fez importantes concessões, jogando fora sua "pureza" ortodoxa. Dar um passo extra pode ser questão de tempo. Algo como uma menina de família que já aceitou até entrar no motel "apenas para conversar", prometendo que não vai até os limites. Está trocando carícias, mas jura que sexo não rola. É possível acreditar?

Para quem defende a ortodoxia dos bancos centrais e as reformas estruturais como única saída de longo prazo, resta torcer que sim. Sabemos que todas as promessas sérias se perdem depois que a conquista é efetivada. Se o BCE "abrir as pernas", acabam-se as reformas de austeridade e a crise posterior será ainda pior. Portanto, só nos resta rezar: resistam, alemães!

PS: A cena da primeira batalha no começo do filme "Gladiador" ilustra bem a expectativa de muitos italianos hoje. Os romanos mandaram seu diplomata avisar que os germânicos deveriam se render, mas estes mandam de volta o diplomata, sem cabeça (Berlusconi degolado?). Um dos generais afirma: "As pessoas deveriam saber quando já foram conquistadas". E depois, em uma batalha épica, os germânicos são massacrados. O que está em jogo hoje, na Europa, é justamente qual modelo vai predominar: o romano ou o germânico. Pelo bem das próximas gerações, espera-se que desta vez os romanos sejam derrotados. Mas é duro contar com isso, ainda mais quando se tem um Papa alemão e um presidente de banco central italiano...

The Culture War Over Europe's Money

The Germans are richer and more stubborn.The French are flashier and faster on their feet.

By WALTER RUSSELL MEAD, WSJ

The European crisis repeats the same pattern endlessly. Bad news sinks markets, ultimately accelerating into a panicky wave of liquidation. European leaders convene, deliberate and emerge with what they say is a "fix." Markets leap in joy, until investors gradually read the small print and discover that the fix is a fudge and the core problems remain. Then the bad news starts up again and the markets sink. Repeat. Endlessly.

That seems to be Europe's core strategy for coping with the greatest challenge since World War II. This week we see the cycle at work again. The latest miracle fix—a handover to technocratic governments in Italy and Greece—is looking shopworn and shoddy already. Meanwhile, there's bad news from Spain and Portugal, where despite the most-solemn promises to undertake the most-sweeping reforms, and the blessings of Brussels, the economies are somehow failing to grow. Add disappointing news on Italian bond yields, and Europe has resumed its grim slide.

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CloseChad Crowe
.The underlying problem remains: Germany and France are locked into their most bitter struggle since the panzers exploded out of the Ardennes Forest in 1940. Money is one big component of the fight. The French bottom line is that Germany must help raise the carcass of the French banking system from the dead. Clueless European regulators (who accomplished the not insignificant feat of making America's dysfunctional regulatory system look Solomonic) pushed many banks to invest in soon-to-be-worthless sovereign debt from soft euro countries like Spain, Italy and Greece. So French banks in particular are loaded to the gunwales with bonds that won't float.

Worse, the French corporate elite decided in its sleek official way that this was the right time to go long on Italy, buying banks, companies, stocks and bonds in the most disastrous French intervention on the peninsula since King Francis I lost the battle of Pavia in 1545.

Obviously, argue the French, Germany must pay for this. With immaculate Gallic logic they can demonstrate that if France is stuck with the costs of its folly, it will lose its AAA credit rating. That in turn will make the European Financial Stability Fund (EFSF) a dead instrument, exposing Europe and Germany to the full unmitigated force of the financial storm.

The French position seems to be to wait patiently for their slow-witted Teutonic neighbors to puzzle their way to an understanding of the clarity of French reason. At that point, the Germans are supposed to capitulate, authorize the European Central Bank (ECB) either directly or indirectly to print masses of money, and the proceeds will go to save the French banking system and national elite—without anything so humiliating as a bailout ever being mentioned.

If that were all, perhaps the matter could be adjusted. But this is about power: It is about who rules Europe, or rather whose rules will rule Europe in the decades ahead.

France is basically a Club Med country with some northern features (historically often found among the Huguenots and Jews, out of which communities many of its most successful business leaders have come). It wants a "political" economic system for Europe, one in which political pressures can ensure the kind of steady devaluation of the euro that Italy, Spain, France, Greece and Portugal used to enjoy with their national currencies in the good old pre-euro days. The only problem with this old system was that it gave too many advantages to the Germans, Dutch and others (in the form of lower interest rates). France wants to stick the Germans with a Latin currency and Latin rules for running it.

Germany, on the other hand, wants the Latin countries to live by northern rules: Keep the currency sound, the budgets balanced and let the chips fall where they may. There is zero, repeat, zero consensus in Germany to go Latin and give the euro into the hands of slick French and Italian politicians. Technocrats bound by rules, the Germans can accept: That is why an Italian technocrat is following a Frenchman at the head of the ECB. But that is also why the Germans are being such sticklers about ECB rules against bailouts and unlimited ECB purchases of sovereign bonds.

If there is a way to bridge the gulf between these two positions, nobody so far has found it. Neither side is willing to surrender, and no compromise can be found. This is why European summits end in one disappointing fudge after another. Neither side wants a meltdown, so both work together to produce some facsimile of an agreement that looks plausible but only papers over the irreconcilable differences between them.

Whose Europe will it be? In the past, nations have gone to war over exactly this kind of balance-of-power dispute. This time the issue happens to be currency. The EU is an attempt to develop a post-historical structure that can accommodate these controversies without bloodshed, but the hidden assumption has always been that there are no truly irreconcilable gaps between the interests of France and Germany.

There weren't, until the euro included both countries in a single currency zone that ultimately would have to be run by one set of rules. The question now is whether France will give the laws to Germany, as it did in the Napoleonic period and 1918, or whether Germany will dictate to France as it did in 1870 and 1940. The Germans are richer and more stubborn; the French are flashier and faster on their feet.

We shall see.

Mr. Mead is a professor of foreign affairs and humanities at Bard College and editor-at-large of the American Interest.

Save the date!

República das Bananas

Rodrigo Constantino, O GLOBO

Neste feriado, que celebra mais um aniversário de nossa República, vem ao caso refletirmos sobre os rumos de nosso país. Até que ponto vivemos sob um regime que podemos chamar, efetivamente, de republicano?
Todos dizem defender a "res pública", até mesmo os regimes socialistas totalitários. Mas a essência do modelo republicano está na questão da representatividade. Sem um modelo eficiente de representação política, com claros limites constitucionais ao poder do Estado, não é adequado chamar de República o regime.
Sob esta ótica, o Brasil não está nada bem na foto. Feudalismo, patrimonialismo ou mercantilismo: esses são os termos mais adequados para descrever nosso modelo. Há extrema concentração de poder no governo central, dominado por uma patota que transformou a coisa pública em "cosa nostra". O Estado foi privatizado. A pilhagem é sistemática.
Um "Ogro filantrópico" (Octavio Paz). Um "Dinossauro" (Meira Penna). Estas são as imagens mais fiéis ao Estado brasileiro, uma máquina que distribui privilégios aos "amigos do rei", enquanto espalha os custos, especialmente sobre a classe média, esmagada pelos impostos e sem representação política adequada. Ou o leitor se sente representado em Brasília?
Nossa República nasceu sem participação popular. Entre os principais motivos de descontentamento com a monarquia, estavam os altos índices de analfabetismo e de miséria. Pergunto: como estamos após 122 anos? Malgrado algumas conquistas, parece evidente que o modelo tem fracassado, e muito. Temos elevado índice de analfabetismo funcional, péssima qualidade de ensino público, e muita miséria ainda.
Inúmeros parasitas são sustentados pelas benesses estatais, restando aos hospedeiros uma fatura que já chega a um trilhão de reais! Se as instituições republicanas já eram frágeis, foram enfraquecidas ainda mais durante a gestão petista. O ex-presidente Lula muito contribuiu para esgarçar de vez os valores republicanos, ao escancarar, com escárnio, suas alianças espúrias em nome da "governabilidade".
O "mensalão", com sua completa impunidade até agora, foi a pá de cal nas esperanças daqueles que sonham com um modelo mais justo e ético. Levaremos anos, quiçá décadas, até recuperarmos os estragos causados pelos abusos de poder do lulopetismo. O Estado foi transmutado em um gigantesco instrumento de compra de votos, possível graças ao crescimento chinês, que inundou o Brasil com divisas para a compra de recursos naturais. A expansão de crédito fez o restante.
O governo criou bolsas para diversas classes, desde as esmolas para os mais pobres, até a "Bolsa Empresário" do BNDES. Os sindicatos foram comprados, assim como a UNE, que aderiu a um constrangedor silêncio frente aos infindáveis escândalos de corrupção. As ONGs, agora em evidência, ignoraram a letra N e se tornaram braços governamentais envoltos em esquemas de desvio de recursos públicos. As exceções comprovam a regra.
Alguns podem alegar que a elevada popularidade justifica isso tudo. Os que assim fazem apenas demonstram não compreender o conceito de República. Até Mussolini foi popular na Itália fascista! Como Cícero explica nos diálogos sobre a República Romana, "não creio que corresponda mais o nome de República ao despotismo da multidão". Tirania popular ainda é tirania.
O Brasil não chega a tanto, é verdade. Não estamos no mesmo estágio da Venezuela de Chávez, a despeito do desejo de muitos petistas. Mas ainda vivemos no Antigo Regime, das castas e capitanias hereditárias, tributário do autoritarismo da Era Vargas e do positivismo. Estamos muito distantes da Grande Sociedade Aberta e do império da lei isonômica.
O alerta feito por Ayn Rand mostra a precária situação brasileira: "Quando você perceber que, para produzir, precisa obter a autorização de quem não produz nada; quando comprovar que o dinheiro flui para quem negocia não com bens, mas com favores; quando perceber que muitos ficam ricos pelo suborno e por influência, mais que pelo trabalho, e que as leis não nos protegem deles, mas, pelo contrário, são eles que estão protegidos de você; quando perceber que a corrupção é recompensada, e a honestidade se converte em auto-sacrifício; então poderá afirmar, sem temor de errar, que sua sociedade está condenada".
Vamos deixar isso acontecer passivamente? Republicanos legítimos, uni-vos! Está na hora de romper com os grilhões do patrimonialismo e instaurar uma República de fato em nosso país.

Whose Economy Has It Worst?

By IAN BREMMER and NOURIEL ROUBINI, WSJ

With Europe, China and the U.S. in crisis, the real question is which of them will stumble first

It's no wonder that global markets are so jittery. The world's three largest economies can't continue along their current paths, and everybody knows it. Investors watch nervously for signs that China is headed toward a hard landing, that America will sink back into recession, and that the euro zone will simply implode.

In all three cases, kicking the can down the road has staved off disaster so far, but the cans are getting bigger and heavier. Which economy will be the first to stumble on its problems?

In Europe, the tough decisions have been put off because the principal players don't agree on how or why the trouble began. Germany and the other better-off countries blame the profligacy of Greece, Portugal and Italy and fear that an early bailout would relieve pressure on them to mend their ways. For their part, the debtor nations believe that the entire euro zone is out of balance and that more prosperous countries like Germany should export less and consume more to set things right.

Other Europeans say that a shared currency cannot survive indefinitely when monetary policy is centrally managed but each government decides how much to tax and spend. Still others warn that access to market capital requires a form of collective insurance, preferably in the form of a euro bond. Not surprisingly, Germany resists this solution because it implies a gradual transfer of wealth from the core economies to the periphery, a "transfer union" from rich to poorer states.

Yet another European view holds that the austerity plans now envisioned by Germany and the European Central Bank are worse than the disease. The Continent needs growth, not just reform and belt-tightening, they argue, and only a surge of stimulus across the entire euro area can achieve it.

The 17 countries and four European institutions now entangled in the euro zone crisis will continue trying to muddle through, but their dawdling can't be sustained. Markets are already losing confidence in piecemeal reform. Doubts about Italy, an economy too big to bail, will only add to the volatility.

Europe will be the first to drop out of the game of kick the can: Expect a disorderly debt default in Greece, more trouble for European banks and a sharp recession across the continent.

In China, the need for economic reform also has become obvious. It has been four years since Premier Wen Jiabao first warned that the country's economic model is "unstable, unbalanced, uncoordinated and ultimately unsustainable" and three years since the financial crisis made clear that China's growth remains dangerously dependent on exports to Europe, America and Japan.

To ensure long-term economic expansion (and political stability), Beijing must figure out a way to encourage Chinese consumers to buy more of the products that local manufacturers make. This will demand a massive transfer of wealth from the state and China's state-owned companies to Chinese households.

But Beijing is moving in the opposite direction. The leadership responded to Western market turmoil not by boosting consumption but by increasing state and private spending on fixed investment, which now accounts for nearly half of China's growth. The result has been an explosion in residential and commercial real estate, more state spending on infrastructure and more cheap loans from state-owned banks to state-owned enterprises.

Indeed, a key obstacle to reform is that China remains so heavily invested in its state-managed model of capitalism. Of the 42 Chinese companies listed in the 2010 edition of the Fortune 500, 39 were state-owned enterprises, and three quarters of China's 100 largest publicly traded companies are government controlled. Party officials with a stake in the success of state-owned enterprises have amassed considerable power within the leadership, and they ferociously resist efforts to transfer away their wealth to private enterprises and ordinary citizens.

China has the cash and foreign reserves to postpone a crisis. But growth is slowing, financial stresses are rising, and there is good reason to fear that China's days of can-kicking are numbered as well.

Which leaves the U.S. No one can restore confidence in America's long-term fiscal health without a credible plan to cut spending on entitlements and defense while raising revenues, which are now at a 60-year low as a share of GDP. But don't expect any immediate solutions from Washington. The campaign season will only exacerbate petty partisanship and political gridlock, which means that the structural problems of the U.S. economy are likely to persist.

But the longer-term future appears much brighter for the U.S. than for either Europe or China. America is still the leader in the kind of cutting-edge technology that expands a nation's long-term economic potential, from renewable energy and medical devices to nanotechnology and cloud computing. Over time, these advantages will yield more robust economic growth.

The U.S. also has a demographic advantage. In Europe, declining birthrates and rising sentiment against immigration point toward a population that will shrink by as much as 100 million people by 2050. In China, thanks in part to its one-child policy, the working population has already begun to contract. By 2030, nearly 250 million Chinese will have passed the age of 65, and providing them with pensions and health care will be very costly.

Despite debate over illegal immigration, the U.S. population will likely rise from 310 million to about 420 million by midcentury. Between 2000 and 2050, according to Mark Schill of Praxis Strategy Group, the U.S. workforce is expected to grow by 37%. China's will shrink by 10%. Europe's will contract by 21%.

Finally, despite the rising exasperation of the American public, the U.S. is significantly more likely than Europe or China to quit kicking the can down the road. Nothing much will change during the election year, but 2013 offers a chance for real fiscal reform.

Next November, Republicans are likely to win both houses of Congress. If a Republican is elected president, the GOP will face enormous public pressure to deliver on its reform promises. Even if President Obama is re-elected, the outlook for a grand bargain is bright. He would be free of the most immediate demands of electoral politics, and like other second-term presidents, he could begin to consider his legacy.

Make no mistake: The challenges that the U.S. faces are formidable, and persistent political gridlock could delay badly needed fiscal and structural reforms. But everything is relative, and the best can to be kicking down the road just now is undoubtedly the one made in America.

—Mr. Bremmer is the president of Eurasia Group and the author of "The End of the Free Market." Mr. Roubini is the chairman of Roubini Global Economics and a professor at New York University's Stern School of Business.

Why China Is Unhappy

Editorial do WSJ

Rising discontent is challenging Communist Party rule.

If economic growth is supposed to enhance people's welfare and therefore satisfaction, China in 2011 is a conundrum. The economy is on track to grow more than 9%, yet this has been a year of rising discontent.

On the Chinese equivalents of Twitter, criticism of the government is exploding, despite fierce censorship. A recent poll by Tsinghua University and the magazine Xiaokang found that 40% of Chinese are unhappy with their lives, while another survey by the magazine Outlook and Peoples University found 70% of farmers dissatisfied, mainly because of land seizures. Some 60% of the rich are emigrating or considering doing so, according to a survey by the Hurun Report and the Bank of China. Even the People's Daily warned last week that there is a "crisis of confidence" in government.

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The crisis is real, but the Communist Party mouthpiece didn't quite get it right. Chinese lost faith in local-level officials a long time ago, but until recently they continued to believe in their national leaders. They also largely accepted the post-1989 social contract in which the Party provided rising living standards in return for not questioning its monopoly on power.

This is changing as a result of two trends. The first is a growing awareness among the bottom strata of society that it is policy made at higher levels, not merely the incompetence or corruption of local officials, that is responsible for their woes. The second is the interest of the wealthy and the intellectuals in reform after two decades of being bought off by the Communist Party.

The first trend is typified by the willingness of about 100 people across the country to risk their freedom and put themselves forward as independent candidates in elections for local People's Congresses. Some are professionals, but most seem to be ordinary workers. These government bodies have traditionally rubber-stamped Party decisions, but their members theoretically have the power to supervise officials.

Most Chinese won't to be so bold unless they are mobilized from above, which is why new activism among the educated minority is so significant. Beijing intellectuals are making pilgrimages to the remote Shandong town of Linyi where blind legal activist Chen Guangcheng is under house arrest. Since the tax authorities last week presented the dissident artist Ai Weiwei with a $2.4 million bill for fines and back taxes, a movement has sprung up to donate money, both electronically and in paper airplanes delivered to his house, to keep him out of prison. Anger over the government's concealment of air pollution levels, even as the leaders in Beijing install air purifiers to protect their own health, has spawned another ad hoc campaign.

What seems to be turning the tide toward political activism is a realization that unless one is a member of the Party elite, upward mobility is limited and hard-won advancement can be taken away without due process. Since universities expanded enrollments in the early 2000s, many families have borrowed heavily to pay tuition for their children. But graduates without political connections have trouble getting on the career ladder, ending up joining the "ant tribe," slang for educated young people living in slums. Meanwhile, the children of elites can street-race their Ferraris without fear of arrest.

Faith in the competence of the central government is also declining because of a lack of accountability. After the July crash of two trains in Wenzhou, the media exposed problems in the trophy high-speed rail program. Yet the Railways Ministry continues to receive massive amounts of new capital to finance rail lines that probably can't recoup the investment. New parents are obsessed with obtaining imported baby formula because they don't trust domestic brands.

State-owned industries increasingly prosper at the expense of private companies and households. In order to tackle high inflation the central bank tightened credit, but state companies continue to get bank loans while entrepreneurs are going bankrupt. Property developers are forced to sell inventory to stay afloat, so the price of real estate, one of the main stores of savings for the rich, is falling nationally, destroying wealth.

That has important knock-on effects. Local governments, which borrowed heavily to build public works and depend on land sales for much of their budgets, now are scrambling to raise tax revenue, which is growing at almost three times the rate of GDP. These taxes further increase discontent, as shown by the riots two weeks ago in the city of Huzhou in Zhejiang province, where capitalists and proletarians went to the barricades arm-in-arm to protest Communist Party exploitation.

So it's hardly surprising that for the first time in years, capital is starting to flow out of China. This reflects the judgment of many Chinese that opportunities to invest are scarce and the economy faces tougher times. Some also worry about political upheaval and so are keeping part of their nest eggs abroad.

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The government response to all this unhappiness has been to increase the resources and power of the domestic security apparatus. This year the budget for security surpassed that of the military for the first time, and disappearances of dissidents have become commonplace. Instead of cowing the population, this is only creating more instances of official abuse that are publicized on the Internet, leading to greater anger and defiance.

Alarm bells should be ringing. The virtuous cycle of social stability and material progress that has persisted for two decades is going into reverse. This need not lead to disaster, as long as the Communist Party recognizes its mistakes and responds to the public desire for the rule of law and curbs on the power of the state. Otherwise there is more unhappiness ahead.

Os vagabundos da USP

Rodrigo Constantino, para o Instituto Liberal

Muito já foi dito sobre os vagabundos da USP. Uma rebelião de mimados, uma juventude fascista, rebeldes sem causa ou oportunistas com uma agenda política. Não tenho muito que acrescentar, mas ainda assim gostaria de deixar registrada a minha opinião sobre o assunto.

O estopim da crise foi a "repressão" policial no campus da faculdade, impedindo o consumo deliberado de maconha. Uma coisa é defender a legalização das drogas, bandeira de muitos liberais, eu incluso (com ressalvas). Outra, bem diferente, é pensar que os alunos têm direito de ignorar a lei e praticar o crime abertamente, em praça pública. Não! A legalização da maconha, se ocorrer, deverá ser pelas vias legais, pelo debate de idéias, e jamais na marra, afrontando-se as leis.

O que aqueles jovens chamam de "opressão" policial é o império das leis, fundamental em qualquer país civilizado. A ausência da PM no campus da USP levou ao aumento da criminalidade, incluindo estupros e até um caso de assassinato. As favelas cariocas, sob o governo de Brizola, transformaram-se em fortalezas do crime justamente porque a polícia foi afastada dos locais. Somente agora estamos recuperando parte do terreno perdido, e a prisão do traficante Nem ontem foi mais um passo importante nesta direção. Para os rebeldes da USP, teria sido um ato de "repressão" policial...

Devemos abandonar os eufemismos. Aqueles jovens não são "meninos rebeldes", mas marginais. Protesto é o nome politicamente correto para baderna, vandalismo e criminalidade no campus. A estes jovens, que talvez não tenham aprendido os limites da autoridade em suas próprias casas, devemos aplicar a lei. E para alunos que entram em "greve", a solução é muito simples: reprovação por falta.

Tudo isso tem cheiro de naftalina. Remete-nos a Maio de 68, quando os "revolucionários" sacudiram o mundo – e muitos carros – sem saber o que exatamente desejavam. Segundo os psicanalistas, um Pai, ou seja, alguma autoridade para lhes nomear o desejo e fornecer um sentido para suas vidas niilistas.

O editorial do Globo foi no ponto: "A impressão que se tem é de que continua no ar – com 50 anos de atraso – um clima 'anos 60' em que era bonita a 'revolta pela revolta'". Hoje, felizmente, à exceção de alguns colunistas jurássicos, a maioria acordou para o ridículo desses "protestos". Aos jovens "rebeldes", imbuídos do espírito "revolucionário", fica o conselho rodrigueano: cresçam!

Europe's Entitlement Reckoning

Editorial do WSJ

From Greece to Italy to France, the welfare state is in crisis.

In the European economic crisis, all roads lead through Rome. The markets have raised the price of financing Italy's mammoth debt to new highs, and on Tuesday Silvio Berlusconi became the second euro-zone prime minister, after Greece's George Papandreou, to resign this week. His departure may keep the world's eighth largest economy solvent for the time being, but it hardly addresses the root of the problem.

In Italy, as in Greece, Spain and Portugal and eventually France, the welfare-entitlement state has hit a wall. Successive governments on the Continent, right and left, have financed generous entitlements with high taxes and towering piles of debt. Their economies have failed to grow fast enough to keep up, and last year the money started to run out. The reckoning has arrived.

If the first step in curing an addiction is to acknowledge it, there is little sign of that in Europe. The solutions on offer are to spend still more money, to have the Germans bail out everybody else, or to ditch the euro so bankrupt countries can again devalue their own currencies. France's latest debt solution includes raising corporate, capitals gains and sales taxes.

Yet Europe's problem isn't the euro. If it were, Hungary, Iceland and Latvia—none of which use the euro—would have been spared their painful days of reckoning. The same applies for Britain. Europe is in a debt spiral brought about by spendthrift, overweening and inefficient governments.

This is a crisis of the welfare state, and Italy is a model basket case. Mario Monti, who is tipped to lead a new government of technocrats, once described the Italian economy as a case of "self-inflicted strangulation." Government debt is 120% of GDP, making Italy the world's third largest borrower after the U.S. and Japan. Its economy last grew at more than 2% a year in 2000.

An aging and shrinking population is a symptom, but not a leading cause, of the eurosclerosis. A fifth of Italy's 60 million people are 65 or older and make increasingly expensive claims on state-paid pensions and other benefits. In fast-growing Turkey, only 6.3% fit that demographic. Italian women have on average 1.2 children, putting the country's birth rate at 207th out of 221 countries.

But the bulk of the responsibility lies with politicians. Mr. Berlusconi, Italy's richest man, promised a shake up each time he ran for office (in 1994, 1996, 2001, 2006 and 2008). He was the longest serving premier in post-war Italy, from 2001 to 2006, controlled parliament and could have pushed through reforms. He didn't. Promises to lower taxes and hack away at regulations and protections for Italy's powerful guilds—from taxi drivers to pharmacists to journalists—were broken.

"It is not difficult to rule Italy," Benito Mussolini once said, "it is useless." The so-called concertazione, or concert, of Italian coalition politics that brings together numerous parties in the Parliament makes for unstable and indecisive governments. So does the fear prominent in many European countries that any serious reform will provoke street protests. An unhappy byproduct of a welfare state is that it creates powerful interests that will fight to the last to preserve their free lunch, no matter the cost to the country.

But now hard choices can no longer be postponed. And the solution to Europe's debt crisis must begin with reforming, if not dismantling, the welfare state. Europe rose from the economic grave in the 1960s, it rode the Reagan-Thatcher reform wave to more modest growth in the 1980s-'90s, and it can grow again. A decade ago, Germany was called the "sick man of Europe," bedeviled by Italian-like economic problems. But a center-left coalition, supported by trade unions and German society, overhauled labor and welfare codes and set the stage for the current (if still modest) export-led revival in Germany.

The road from Rome may now lead to Paris, Madrid and other debt-ridden European countries. But this is no cause for U.S. chortling, because that same road also leads to Sacramento, Albany and Washington. America's federal debt was 35.7% of GDP in 2007, but it was 61.3% last year and is rising on an Italian trajectory. The lesson of Italy, and most of the rest of Europe, is never to become a high-tax, slow-growth entitlement state, because the inevitable reckoning is nasty, brutish and not short.