Tuesday, July 24, 2007

Ex-colonial nations don't like it when the tables get turned

Sir John Gieve, the Bank of England's deputy governor, warns about the power of investment funds controlled by state governments. Singapore has such an investment fund, Temasek Holdings, and it is taking a stake in Barclays, a UK-based international bank, along with an entity controlled by the Chinese government.

Angela Merkel, the German chancellor, last week expressed concern at the way foreign state-owned funds were acquiring assets inside the European Union, saying "sovereign funds" were often driven by "political and other motivations". She said she was in favour of the EU adopting US procedures designed to vet possible acquisitions by sovereign funds.

But in what appears to be the start of a UK fightback against efforts to impose protectionist measures, Sir John told a City of London audience the emergence of sovereign wealth funds was just another development in financial markets.

Sir John said: "The switch of reserve-rich countries from lenders to owners of financial or real assets is also likely to lead to political tensions and pressures for protectionism."

On Wednesday Alistair Darling, UK chancellor of the exchequer, is ex­pected to signal that Britain does not want to see controversies over sovereign wealth funds turned into a new excuse for protectionism. The emergence of such funds has raised concerns in European governments about how open their markets should be to state-owned investors, such as China and oil-rich countries, which have accumulated large foreign exchange reserves.

But Italy yesterday spoke out against protectionism. Emma Bonino, minister for inter­national trade, opposed the idea of establishing government-controlled "golden shares" in companies seen as of national or strategic interest. She said they were "unacceptable in principle" and, moreover, impracticable.

Commenting on the failed sale of Alitalia after the government had stipulated its "Italian character" had to be preserved, Ms Bonino said of the airline: "I don't care who buys it. It can be the Chin­ese, or the Eskimos . . . as long as they turn it around."

Merkel's comments are quite rich. Multinational corporations have vast economic power that is often used to the detriment of the nations in the Global South they operate in. Gold mining corporations, coffee growers, every company that knowingly or not contracts with sweatshop labor. Additionally, colonial European governments wielded immense power over the countries they colonized. And the US and European countries are still the greatest greenhouse gas emitters, despite having smaller populations than China and India. Our greenhouse gas emissions may be placing the planet in jeopardy. Of course, China and India will soon be able to say the same thing.

Now that the tables may (or may not) be starting to turn, we can see that some people are starting to realize they don't like it.

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