Old Money: making economies great again

The markets have largely endorsed US president-elect Donald Trump’s mission to “make America great again”. But previous populist strongmen, in their quests to prove national strength and virility, have done a world of damage to their country’s economic prospects.

  • By Richard Roberts
  • 08 Dec 2016
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Benito Mussolini came to power in 1922 after the fascist party’s “march on Rome” (Il Duce took the train). The following years saw a fall in the lira from 90 to the pound to 150.

Depreciation was the right medicine for Italy’s post-war recovery but Mussolini was dismayed. “I will never inflict on the marvellous people of Italy, who have worked as heroes and have suffered as saints, the moral disgrace and the economic catastrophe of the failure of the lira,” he declared in August 1926. 

His mission was to make the lira great again: “I will defend the lira to the last breath, to the last drop of blood.”

Mussolini’s pledge to do whatever it took, plus central bank intervention, made the lira a one-way bet. By late 1926 it was at 107 to the pound and by spring 1927 back at 90, a 40% appreciation. Italy locked in this level by adopting the gold standard.

Trouble was, the lira forza was hugely overvalued and that clobbered exports and output. Italian unemployment quadrupled from 120,000 to 440,000, the failure rate among small businesses doubled, and workers’ living standards deteriorated. The overvaluation went from bad to worse when sterling and the dollar devalued in the early 1930s. Restoring Italy to the greatness of ancient Rome meant acquiring an empire and in 1936 Mussolini invaded Ethiopia. The demise of the strong lira was collateral damage from the financial strains of that adventure.

Nationalist strongman Juan Peron made a notable contribution to Argentina’s unique development trajectory. In 1900 the abundantly endowed country was the world’s 10th wealthiest; a century later it had fallen way down the prosperity league table.

Colonel Peron, a junior member of a junta that seized power in 1943, became minister of labour. He curried favour with trade union leaders who backed his successful presidential bid in 1946. As a large exporter of primary produce, Argentina had been hit by the 1930s slump in international trade and commodity prices. Peron pursued national self-dependence through industrialisation and import substitution. A strident opponent of the “misery” of international capitalism, he nationalised the British-owned railways and docks. Also the banks — credit and investment became directed by the state to favoured industrial sectors, including military goods.

To cement his political power base among the unions and urban industrial workers, Peron raised real wages by 25% between 1947 and 1952. This was well ahead of productivity, and Argentina’s soaring labour cost undermined its nascent industries.

Despite protectionism and state control of foreign trade, industry faltered and a balance of payments deficit developed, meaning heavy overseas borrowing. Eventually the contradictory and corrosive economic shambles was too much for the generals, who culled the Caudillo in a further coup in 1955.

Nicolae Ceausescu’s big idea to make communist Romania great was to make it Europe’s biggest oil refiner, handling its own output as well as Middle East crude, following the 1973 oil price hike. This was funded by borrowing from Western banks.

But the project went horribly wrong because of rising interest rates, a falling oil price and construction chaos. Debt rescheduling meant humiliating creditor conditions, but the Conducător had a better idea — pay it off. This was pursued from 1982 through a combination of austerity, slashing imports and prioritising exports. 

The austerity drive meant food shortages and power cuts. A government commission reported that Romanians could make do with fewer calories than other Europeans, while light bulbs had to have a low power rating to save energy. Ceausescu achieved his goal: the last of the debt was paid off in 1989 but the process destroyed the regime’s legitimacy, and later that year he was toppled by a popular uprising. Found guilty of genocide and sabotage of the Romanian economy, Ceausescu was shot.

The US constitution features extensive checks and balances, but the country also produced the Smoot-Hawley tariff of 1930 that exacerbated the Great Depression and recent years have seen congressional outbursts about currency manipulation by foreigners. Hopefully making America great again will mean infrastructure investment rather than trade or currency wars.

  • By Richard Roberts
  • 08 Dec 2016

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 417,761.51 1606 9.02%
2 JPMorgan 380,362.89 1737 8.21%
3 Bank of America Merrill Lynch 364,928.71 1322 7.88%
4 Goldman Sachs 269,252.76 932 5.81%
5 Barclays 267,252.43 1082 5.77%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 HSBC 45,449.36 196 6.56%
2 BNP Paribas 38,734.80 217 5.59%
3 Deutsche Bank 37,615.10 139 5.43%
4 JPMorgan 34,724.19 118 5.01%
5 Bank of America Merrill Lynch 33,835.53 112 4.88%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 22,475.46 105 8.65%
2 Morgan Stanley 19,057.00 101 7.34%
3 Citi 17,812.08 111 6.86%
4 UBS 17,693.89 71 6.81%
5 Goldman Sachs 17,333.10 99 6.67%