ALEX BRUMMER: IMF’s priority should be cutting dollar down to size 

Kwasi Kwarteng’s retreat over the cut in the top income tax rate turned the tide in the financial markets.

Traders, strategists and even the IMF had seized the cut as a symbol of fiscal ineptitude.

And without a doubt, telling the Office for Budget Responsibility to raise it was bad judgment.

Nevertheless, the idea must be disputed that Britain has somehow become more riotous than its G7 compatriots.

No other G7 government chose to raise taxes in the face of the energy price crisis, except the UK. The biggest changes, the reversal of the national insurance contributions and the increase in corporate tax, have therefore just restored the status quo ante.

Joe Biden has raised a number of taxes, but those are more than offset by his spending splurges. In any case, wealthy Americans are taxed much less than their British counterparts. This is why British executives, such as Reckitt Benckiser boss Laxman Narasimhan, chose to flee to the US.

The reality is that the war in Ukraine caused a global price shock, and the Federal Reserve led the way in raising interest rates.

The rush on the dollar left other G7 economies stranded as the dollar rose. Japan saw the yen plunge to its 35-year low and is actively talking about intervention to restore order.

Over the past week, many references have been made to the Barber boom of the early 1970s, but “Competition and Credit Control” was a monetary, not a fiscal, expansion.

Moreover, the UK’s exit from the ERM in 1992 is portrayed as a disaster, but it also sowed the seeds for inflation targeting in Britain and a glorious period of growth.

Next week’s priority at the IMF-G7 annual meeting should be to persuade U.S. officials to show the foresight of former U.S. Treasury Secretary James Baker and seek a path, as in the Plaza in 1985, to what fund managers describe Amundi as ‘reverse currency war’. That means the almighty dollar has to be cut to size.

Swiss cheese

There is little confidence around Credit Suisse.

The last thing the global economy needs right now is an implosion at a major world bank. Memories of Lehman Brothers are still fresh, even if the collapse of the Vienna-based Creditanstalt in 1931 is little more than a footnote to the Great Depression.

Regulators and executives can’t ignore a nearly 60 percent drop in Credit Suisse’s share price this year. Short sellers often make the right decisions, as witnessed in the UK during the financial crisis when the fall in share prices predicted the fate of the likes of HBOS, Bradford & Bingley and Royal Bank of Scotland.

The credit risk of the Swiss bank is alarmingly high. Some analysts argue that this is not so exceptional. Companies like General Motors are more at risk as measured by credit default swaps.

Banks are not like car companies. It is the invisible flow of commercial deposits that seals the fate of banks. There is a flight to safety in the financial markets.

Credit Suisse’s ability to be sucked into scandals, including the fall of hedge fund Archegos, Greensill, Mozambican tuna bonds and money laundering in Bulgaria, has left its good reputation full of holes.

Faced with the market challenges, CEO Ulrich Koerner has sought to calm the markets, emphasizing the bank’s strong liquidity and capital.

All it did was increase nervousness about the prospects, but he probably had no other options.

Despite the work that has been done to end ‘too big to fail’, it is unthinkable that Credit Suisse will fall. Emergency financing from the Swiss National Bank or a merger with UBS are possible outcomes.

After all, the reputation of the leprechauns of Zurich is at stake.

three problem

Vodafone’s bid to buy Three from Hutchison was one of the worst secrets in town. It would create a market-leading mobile company with some 27 million customers, with the aim of investing heavily in 5G. Such a deal, which would divest Vodafone UK into a separate entity, will largely depend on the competition authorities.

Until recently, squeezing four – Vodafone, BT’s EE, Virgin’s O2 and Three – into three mobile phone operators was seen as a no-go area.

It would almost certainly bolster Vodafone’s pricing power. That makes for difficult decisions for Ofcom and the Competition and Markets Authority.