DavosJanuary 24 2012

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CONTENTS

INTRODUCTIONThe time for talk is over: Europe needs to act to solve the fi nancial crisisCOLUMNISTSGillian Tett reports from the US; Martin Wolf on Europe; and Jonathan Ford on the UK COLUMNISTSHenny Sender looks at Asia; Gideon Rachman discusses geopolitics; and Chris Giles on economics COMMENTDavid Miliband, former UK foreign secretary; Klaus Schwab, founder and executive chairman of the World Economic Forum; and Arkady Dvorkovich, aide to the president of the Russian FederationAGENDASeb Morton-Clark speaks to three of the FT’s Davos afi cionados on the issues likely to be raised at the forumOPINIONA selection of business leaders, politicians and NGOs give their take on what to expect at this year’s WEF

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CONTRIBUTORSARKADY DVORKOVICH is an aide to the president of the Russian FederationJONATHAN FORD is the FT’s chief leader writerCHRIS GILES is the FT’s economics editorPATRICK JENKINS is the FT’s banking editorDAVID MILIBAND is a former UK foreign secretary and MP for South ShieldsGIDEON RACHMAN is the FT’s chief foreign affairs commentatorKLAUS SCHWAB is the founder and execu-tive chairman of the World Economic ForumGILLIAN TETT is the FT’s US managing editorHENNY SENDER is the FT’s chief correspondent, international fi nanceMARTIN WOLF is the FT’s chief economics commentator

Special reports editor Michael SkapinkerEditor Hugo Greenhalgh Production editor Jearelle WolhuterArt director Derek Westwood Visual consultant Ed Robinson Global head of strategic sales Jon SladeHead of integrated solutions Patrick Collins Head of campaign delivery Rachel HarrisAdvertising Natalie Rees-Evans

Cover image Ed Robinson/OneRedEye

All editorial content in this report is produced by the FT. Advertisers have no infl uence or prior sight of the articles.

More on FT.comTo watch a video of FT experts discussing the issues on the agenda at this year’s World Economic Forum, go to ft.com/guide-to-davos

GUIDE TO DAVOS | INTRODUCTION GUIDE TO DAVOS | INTRODUCTION

Actions need to speak louder than wordsThe forum should move beyond rhetoric and use its infl uence to broker practical solutions to the world’s economic woes, writes Patrick Jenkins

‘The focus will be on one thing and one thing only: euro, euro, euro’

‘Davos is where fi nanciers interact with public policy people. But this year the policy cupboard is bare’

Guest list: Angela Merkel, the German chancellor, is expected to attend, as is Nicolas Sarkozy, the French president; the eurozone’s problems, as characterised by anti-austerity protests in Greece (below), will be high on the agenda

Après summitDAVOS IS A STUDY IN contradictions. For a few days at the end of January each year, this tiny Swiss ski resort nestled several hours from any large airport plays host to world leaders, top bankers and a posse of stars from the

realms of science and entertainment.In the eyes of critics, this summit is a stuffy

club for the global elite. Yet it concerns itself with some of the main issues affecting the world’s poor – food and water security, as well as youth unemployment.

The Davos World Economic Forum schedules an eclectic array of debates many months ahead of time, on everything from economics and business to fi ne art. Yet it often seems to be up to the minute on issues.

Take last year. Just when you thought the biggest annual collection of important people was going to miss the biggest breaking story at the time – the start of the Arab spring – the new leadership of Tunisia turned up, spreading their message and helping to rally global support for democratic change in the Middle East.

At Davos, most of the really important stuff happens off piste. As impressive as many of the set-piece debates might sound (Tidjane Thiam, chief executive of Prudential, the UK insurer, and Larry Summers, the former US Treasury secre-tary, on “Pain and gain: prosperity with auster-ity”; or “Big banks – cure or curse?” with Gary Cohn, president and chief operating offi cer of Goldman Sachs, the investment bank, alongside famed economist Nouriel Roubini), this forum is as much, or perhaps more, about the privately organised discussions and impromptu one-to-ones.

This makes it impossible to know the direction of debate in 2012. But participants are pretty sure that one topic is bound to dominate.

“The focus will be on one thing and one thing only: euro, euro, euro,” says Davide Taliente, a partner at Oliver Wyman, the consultancy.

Quite how infl uential and decisive the event proves to be will depend on who comes. There was early confi rmation that Angela Merkel, the German chancellor, and Mario Draghi, the president of the European Central Bank, would be there. But there are often surprise last-minute attendees.

Davide Serra, founder of Algebris, the London-based hedge fund, reckons all the central players will turn up and that this is an opportunity to fi nally get to grips with the eurozone crisis and stop the infi ghting. “The key theme has to be: have France, Germany and the ECB agreed to stop this institutional destruction of Europe?” he says.

But after such a long drawn-out process of trying to resolve the crisis, some WEF old hands are sceptical that the forum will deliver a break-through. “Davos is never the place where you expect decisions to be made,” says Peter Sands, chief executive of Standard Chartered, the emerging markets-focused bank.

In fact, says Mr Taliente, there is a danger that Davos, rather than solving anything, actually makes matters worse by spreading bad vibes fast. “If Italy has a failed bond auction during Davos, that will be disastrous,” he says.

Ongoing discussions – and disagreements – about the degree to which private-sector bond-holders should voluntarily agree to a reduction in the value of their Greek sovereign bond invest-ments could sway the mood, too.

For the past few years at Davos, much of the agenda has been dominated by the global fi nancial crisis, in particular how bank regula-tion should be reformed to protect the world from bank collapses. Regulation is still a topic today, particularly in Europe, where in response to banks’ exposure to eurozone government debt,

the European Banking Authority, which over-sees national regulators across the continent, has ordered lenders to boost capital levels by an aggregate ∑115bn by June.

As this is such a key theme, some observers are disappointed that Andrea Enria, the tough-talking chairman of the EBA, has not been invited. For critics of the forum, this is the kind of omission that results from excessively early planning.

“They haven’t invited the most important regulator in the world at the moment,” says an incredulous Mr Serra. “This is the man who is redesigning the fi nancial architecture of Europe.”

THE BROADER ISSUES OF BANK regulation will nonetheless be a big topic of discussion. There are no offi -cially organised debates on the subject this year, but Standard Chartered will

again host a Friday breakfast event on the subject – a highlight of the 2011 forum.

“Financial regulation will continue to be debated,” says Standard Chartered’s Mr Sands, adding that it is bound to be of lesser importance now that the global regulatory bodies, notably the Basel Committee on Banking Supervision, are close to fi nalising rules on capital and liquidity.

It is time for the debate to move on, he adds, and for banks to be seen as part of the solution to the world’s anaemic growth, rather than harking back to the grief they caused in the crisis.

“I hope [the debate] can be cast in a framework of the role that fi nancial services companies can play to support growth and job creation in the world,” he says. “How can banks regain trust and become the oxygen for economic growth again? There is no silver bullet for that. It will be a case of action by banks, and action by policy-makers as well.”

If Davos is good for one thing, it is bringing together senior fi gures from both sides of that debate.

IN 2011 – WITH WESTERN BANKS STILL fi rmly in the doghouse – there was a sharp focus on the role that emerging markets and their banks could play in helping to drag the world out of its problems. China sent an

unusually large delegation, for example.This year, participants expect Brazil to make a

big show. But it remains unlikely that Brazilian banks, for example, will offer much of a crutch, having remained determinedly locally focused, with the strongest players only expanding outside their countries into the markets of their Latin American neighbours.

Mr Taliente thinks developed nations should not set their hearts on bail-outs from Asia either. “As far as emerging market participants [at Davos] are concerned, I’m not as optimistic as last year that they can be part of the solution,” he says. China and India both have mounting

domestic problems, in addition to any concerns they might have about the wisdom of coming to Europe’s aid. “There is underlying nervousness, certainly, in China and India. There is growing economic trouble and it won’t be long before that translates through to fi nancial-institu-tion weakness. In China it is real estate; in India it is infrastructure worries.”

Anyone interested in this dynamic is sure to pay close attention to an important debate on Thursday: “Putting China’s trillions to work.”

The eurozone-centred fi nancial crisis – and the role that banks and emerging market entities can play in resolving it – will clearly take centre stage this year. But other topics will be highlighted too. On the economic front, there will be keen interest in views on the strength of the US recovery. And most broadly of all, participants will debate the one thing many nations have in common in these tough times – how the world can fi nd a route back to sustainable growth and job creation, with a particular focus on tackling youth unemployment.

Geopolitically, the Middle East – both through set-piece debates and ad hoc events – will feature prominently.

“The Middle East is clearly unfi nished busi-ness,” says Mr Sands, who takes an interest in

the region, not least because of Standard Chartered’s

extensive interests there. “What should we expect a year or

two from now?”Attention will focus

not only on the prospects for continued democratic

uprisings across the region, notably in Syria, but also on

security issues, with Iran’s nuclear programme likely to be the subject of debate.

As ever, Davos will be one big talking shop. In recent years

it has proved far more than that, with the usual mix of fi nanciers and policymakers fi nding it the perfect forum for addressing the issues central to the fi nancial crisis.

With the eurozone mess the latest incarnation of the crisis, the potential usefulness of Davos remains. But it will not be an easy meeting.

“The underlying tension of Davos is that, essentially, it is a fi nancial shindig,” says Mr Taliente. “It is where fi nanciers interact with public policy people. But this year the policy cupboard is bare.

The atmosphere will be more strained.”

BORED WITH TALK OF FIXING capitalism, developing effective growth models and preparing for a century

dominated by Asian economies?As ever, the World Economic Forum

organisers have slotted an eclectic mix of extracurricular sessions into the manic Davos schedule.

Wags say the softer parts of the agenda have been dreamt up as a way to keep spouses of the famous and high fl ying occupied. Whatever the reason, there is a fi ne display of whacky topics on offer again this year.

Alongside the usual blend of erudite scien-tifi c enquiry (the role of “worms, machines and brains”) and learned artistic endeavour (there are plenty of “art walks” and fi lm screenings), you can learn about everything from how the Olympics should inspire economic regeneration (with Boris Johnson, the mayor of London, and Sebastian Coe, the chairman of the London 2012 organising committee), to an examination of feelings of hope and compassion in the wake of the 2011 tsunami along Japan’s Tohoku coast (hosted by actor Ken Watanabe), via the treasures of deep-sea diving.

So far, so diverting. But a number of the more unusual sessions appear to share a particularly bleak outlook. There is a scientifi c analysis of “Managing chaos”; another entitled “What if all known antibiotics lost their effec-tiveness?”; an artistic exposition, “Waste Land”, examining a Brazilian artist’s “use of garbage to uncover social barriers”; and a psychology session on “Good versus evil”. None of which will do much to lighten the mood of partici-pants laid low by the world’s economic woes.

A lot will hang on the Saturday afternoon debate in the Jakobshorn room: “The art and science of happiness.”

Patrick Jenkins

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GUIDE TO DAVOS GUIDE TO DAVOS

The blame game Confronting follies

A partial or complete break-up of the eurozone may still be unlikely, but it is no longer inconceivable

The benefi t for British leaders is likely to come from meeting people from outside Europe

The US is worried that the rest of the world could damage its fl edgling recovery

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The US fears its fragile economic recovery is under threat, says Gillian Tett

The UK should mend fences with Europe and make new emerging market allies, writes Jonathan Ford

Martin Wolf considers the eurozone’s changing fortunes

High-level concern: President Barack Obama has become directly involved in eurozone problems

Protect and promote

A couple of years ago, US government offi cials often adopted a slightly defensive air when they appeared at Davos. Little wonder: back then, the global fi nancial turmoil appeared to be a “Made in the USA” affair.

For not only did that country’s bloated sub-prime mortgage business lie at the heart of the 2007 fi nancial debacle, but Washington’s clumsy handling of the collapse of Lehman Brothers, the investment bank, a year later sparked the ensuing chaos.

While European institutions were not wholly without fault, it was convenient for European and Asian policymakers to lay the blame on Wall Street and Washington. This led to the Chinese and Russian premiers deciding to give the US – and US-style capitalism – a subtle but public dressing down at last year’s World Economic Forum.

Now, however, times have changed. As the 2012 summit gets underway, the current wave of global fi nancial woes carries a different label. The US is no longer solely to blame, with many citing evident problems now made in Europe, China and elsewhere.

Certainly, the US is not in the clear yet. During the past two years, the government has done a reasonably good job of putting its banking system on a healthier footing, and there have been recent hints that its economy is stabilising, with most economists expecting 2 per cent growth in 2012.

Nevertheless, worries remain, not least about a stagnant housing market and the fact that Congress is unable to make progress in producing a coherent fi scal plan to tackle the debt, which is heading to more than 90 per cent of gross domestic product.

But notwithstanding these self-infl icted wounds, it is no longer the case that the US is threatening to drag the rest of the world into a crisis. Instead, the US is worried that the rest of the world could damage its fl edgling recovery. Thus the issue that the country’s delegation will wish to discuss in Davos is how to quantify and contain these global risks and protect themselves from any future fallout.

Europe is undoubtedly the most immediate preoccupation. The White House has spent a considerable amount of time talking about the eurozone in recent months, with President Barack Obama himself getting directly involved. In narrow trade terms, US exports to Europe represent barely a couple of percentage points of its economy; a year of stagnant growth in the eurozone – or even recession – is therefore unlikely to have too deep an impact on the real US economy.

However, the bigger issue is the interconnections in the banking world.

US offi cials fear that if the eurozone were to tip into crisis, or a full-scale break-up, this could hurt US asset managers and banks. These institutions are collectively estimated to have

extended around $500bn of credit protection to companies and state entities in the peripheral eurozone, according to the Bank of International

Settlements. But while anxiety is high, there

is also a sense of impotence. In the past year, Timothy Geithner, the US Treasury secretary, has implored his

eurozone counterparts to stave off a crisis, arguing that it is better to act sooner, not later, in terms

of injecting public funds into the banking sector.

However, Mr Geithner’s lectures have had limited impact, partly because there is lingering resentment in the eurozone about the events of 2008.

Moves to stabilise the Middle East remain problematic, with some US offi cials keen to use international forums to increase pressure on Iran.

Concerns remain high that the Middle East will produce new, destabilising surprises in 2012.

The great irony of this year’s Davos, in other words, is that while the US has moved into a phase where it seems to have become inwardly focused (due to its upcoming presidential election), it is now

deeply uneasy about the outside world. That could make for some

frustrating conversations. Davosians, you have been warned.

There was a time, not long ago, when British ministers con-verged on Davos armed with a specifi c agenda to present to those global political and business leaders assembled at the World Economic Forum.

Gordon Brown, the former prime minister, liked to use the Alpine gathering to promote the Labour government’s thinking on issues of global governance, espousing, variously, such worthy causes as the reform of the World Bank and the case for African debt relief. Mr Brown was famously at home in the rarifi ed Davos atmosphere, relishing the sort of theoretical discussions about global fi nancial architecture and trade policy at which the WEF excels.

The coalition has adopted an altogether more low-key approach than the previous government. While the UK still sends a heavyweight political

delegation – both David Cameron, the prime min-ister, and the chancellor of the exchequer, George Osborne, will be attending – they are unlikely to be pushing particular pet policies or projects.

According to the offi cial agenda, this year’s conference is supposed to mull how policymak-ers and businessmen should respond to the shift in economic power that is taking place both from west to east and from north to south. In the restaurants and hotels of Davos, however, the biggest issue is likely to be the same as it was last year: the future of the European Union.

For Mr Cameron, Davos represents an opportu-nity to present himself as a positive and engaged fi gure on the European stage. Following Britain’s decision, just before Christmas, to stand aside from a European treaty designed to pave the way for a rescue of the eurozone, the prime minister has been portrayed as isolated and friendless on the continent.

The Swiss resort is an ideal place for him to counter that impression. After all, many of Europe’s most important political leaders – from Angela Merkel, the German chancellor, to France’s president, Nicolas Sarkozy – will be there.

At the root of Mr Cameron’s differences with other EU leaders lies his concern about the need to protect Britain’s fi nancial industry. While seeking to mend fences, he will not be lowering his defences. At previous meetings of the WEF, Mr Sarkozy has pleaded the case for a fi nancial transactions tax to curb speculation and make the fi nancial system safer. With this measure again high on the EU’s agenda, he is likely once more to stress the importance he attaches to the issue.

Mr Cameron will want to push back, and rally support for the alternative, more cautious approach. This does not completely rule out such a tax, but insists that it should only be imple-mented on a global basis.

Given the importance of fi nancial services to Britain, the prime minister will want to make this point fi rmly, but without damaging the already delicate relations between Britain and France. Although the EU is likely to be the focus of the summit, a lot of the benefi t for British leaders is likely to come from meeting people from outside Europe.

Under the coalition, it is a goal of UK foreign policy to forge closer relationships with non-Euro-pean emerging markets, such as Turkey, South Africa, India and Brazil. Stagnation in the Euro-pean economies that are Britain’s closest trading partners has rendered this task more urgent.

Trade is one of the coalition’s signature issues. Mr Cameron will also be keen to blow the trumpet for further liberalisation, urging both the comple-tion of the Doha trade round and the further opening up of the European single market to Britain’s important service industries.

One of the bigger challenges for the UK at a time of austerity at home is to project a confi dent image before the rest of the world. There is a risk that with so many downbeat messages being delivered nationally about the broken state of the nation’s fi nances and the need for cheese-paring, other countries will come to share the govern-ment’s domestic analysis and see the UK as an enfeebled and less relevant player.

Ministers will want to counter this impression by portraying Britain as a country that has taken hard decisions but is poised for recovery. As a former public relations executive, Mr Cameron knows how to put a positive spin on things and display a sunny demeanour to the outside world. One can expect his optimistic side to be to the fore.

What do eurozone leaders want most at the meeting of the World Economic Forum? To cease being viewed as the source of global economic threats and

return to being a source of economic solutions. It is far more fun – let alone more dignifi ed – to lecture others on their faults than to be lectured on one’s own. It is even more humiliating when those lectures are thoroughly deserved.

Unfortunately for the eurozone, there is no chance that its policymakers will escape blame in Davos. They will argue that they are on the way to a resolution. Alas, the more percipient of them, as well as their peers from around the world, know they are not. Their visit to the Swiss moun-tains will be a discomforting experience.

The eurozone is almost universally regarded as the source of the pre-eminent threat of an economic meltdown. The risk is that both banks and sovereigns could default, probably trig-gering – or triggered by – a partial or complete break-up of the eurozone. Such a wreck may still be regarded as unlikely, but it is no longer inconceivable.

Even a modest likelihood of such an extreme event creates more uncer-tainty than inves-tors, still scarred by the fi nancial crisis of 2008, are prepared to bear. The result is a fl ight to safety. This is seen in the very low yields on the safest assets – such as the bonds of the US, German and even, amazingly, UK governments. It is also seen in the role of the Euro-pean Central Bank as an intermediary in both cross-border and interbank lending.

As Nicolas Doisy, senior economist at Cheuvreux, the French broker, remarks, “the only real guarantee of success is the price of failure”. Yet history is replete with examples of failure. The rush into the eurozone is one of them. Its creators went to sea in a sieve: an agreement to create a single currency that lacked the means for fi nancing internal imbalances, coping with fi nancial shocks or securing needed adjustments in competitiveness. They relied, instead, on the adjustment mechanisms of the 19th-century gold standard, but without 19th-century econo-mies or the possibility of “going off gold” in extreme conditions.

The assumption was that this sieve could – and would – be turned into a seaworthy ship, in

the middle of a storm. This has, unsurprisingly, turned out to be hard to do.

The eurozone was cursed by its early good luck. During the optimistic period prior to the crisis, interest-rate spreads disappeared and capital fl owed readily into countries such as Greece, Ireland, Portugal and Spain. Similarly, it was easy for a country such as Italy to refi nance its debt mountain on attractive terms.

These heady days allowed the emergence – or preservation – of unsustainable positions: property bubbles, irresponsible lending and huge external imbalances. The mantra was even that the balance of payments did not matter in a currency union. This was wrong. The only difference was that the currency union ruled out straightforward currency crises. Debt crises were likely, instead.

When private fl ows stopped in 2008, a wave of interconnected private and sovereign debt problems broke upon the frail vessel. A series of desperate measures by the ECB, acting as lender of last resort to battered banking systems, mem-ber governments and the International Monetary Fund, kept the ship afl oat. But it has not yet come safely to port. Worse, there has been much disagreement even over the course: important governments have changed their minds, for example, on the role of “private sector involve-ment” or, more bluntly, of default.

The crisis has, in consequence, spread across the banking system and the

weaker sovereigns. The yields on long-term Italian govern-

ment debt, even under the new technocratic govern-

ment, remain at the unsustainable level of 7 per cent.

The response of Germany, the most creditworthy and most power-ful member, has been to demand ever greater fi scal stringency. In current economic conditions, that has

deepened reces-sions without much

improving fi scal out-comes. Meanwhile, the

ECB is prepared to fi nance banks freely, but remains

determined not to fi nance gov-ernments, at least directly. In 2012,

to make things yet more stressful, a eurozone-wide recession is forecast. The eurozone must urgently reach a workable agreement on what needs to be done now and how to reform for the longer term. It is not there yet.

The proposed new treaty, with its overwhelm-ing focus on fi scal discipline, may be a step towards such an outcome. But it is certainly not itself such an outcome. That is partly due to current account imbalances and fi nancial excesses, for which both creditors and debtors were responsible, and that were more important than fi scal irresponsibility in causing the crisis. It is also because fi scal discipline, even allied with temporary fi nancing, will not produce the needed adjustment in competitiveness and return to growth that is needed.

Davos is at least a suitable place to confront the possibility of a European disaster. It is where Thomas Mann, the German writer, set The Magic Mountain, one of the classics of 20th-century European literature. The theme of this work was the follies that led to the fi rst world war. In Davos, policymakers should contemplate past follies – and reach agreement on the imperative of avoiding further examples.

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GUIDE TO DAVOS GUIDE TO DAVOS

The east also rises Pride before a fall

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Asian economies are doing well, but power has not quite shifted from the west, says Henny Sender Chris Giles warns against the dangers of complacency

Voice of the people: delegates will be worried about the e� ect of upheaval in the Middle East

The economics of politics

Large emerging economies will be strutting on to platforms to tell the world how well they have fared

Look east: Asian economies are doing well, partly by embracing regionalism

Last year, the World Economic Forum played out against the backdrop of a geopolitical hurricane. Delegates wandered around the conference hall, gazing at television screens that were transmitting live pictures from Tahrir Square in Cairo. At

moments like these, the “global elite” that gathers in Davos is no more in command of events than the average person watching at home.

A year after the Egyptian revolution, the future of the Middle East will be among the big-gest issues under discussion at Davos. Delegates will be puzzling over the election results from Egypt – and will want to know whether the rise of political Islam will increase international ten-sions. The danger that the insurrection in Syria

could lead to a civil war, and then to a broader regional confl ict, will also be on people’s minds.

The most immediate crisis in the region, how-ever, concerns the Iranian nuclear programme. At a time when the world economy is very fragile, the businessmen and bankers assembled here will be nervous about the prospect of armed confl ict with Iran, followed by an oil price shock.

Political instability in Russia, another huge energy producer, will also be a hot topic. The demonstrations against the alleged rigging of parliamentary elections in December have raised obvious questions about the sustainability of the country’s “managed democracy”. Delegates will want to know if there is now a threat to Vladimir Putin’s plans to return to the Kremlin, after presi-dential elections in March.

Russia is not the only country going through a transition in leadership this year. The US is due to hold presidential elections, and China’s top leadership is also set to be reorganised.

Since Davos is essentially a summit of the world’s political and business leaders, there will be enormous attention paid to the implications of this global political reshuffl e. Delegates will want to get a sense of how the internal politics of

There is never any doubt in which direction countries are heading at the World Economic Forum. Davos is all about swagger. Leaders of countries or companies doing well have that in abundance, while those under pressure are sometimes caught

scuttling through the congress centre’s corridors to avoid the glare of the public arenas.

In 2012, the large emerging countries and regions – China, Brazil, India, Russia and sub-Saharan Africa – will be strutting on to platforms to tell the world how well their economies have fared even as everyone has been preoccupied by the woes of the eurozone.

They have quite a story to tell. Between 2007 and 2012, even though their economies could not escape the fallout of the great recession, emerging economies have rebounded quickly, and con-signed early 2009 to a painful, but distant memory.

China’s economy is now almost 60 per cent larger than it was in 2007; India has seen its economy expand by nearly 50 per cent; and even some of the poorest develop-ing economies have achieved 30 per cent growth. Latin America and eastern Europe, both in the back yard of particular trouble spots, have experienced good growth of 20 per cent and more than 10 per cent, respectively, over the whole period.

In contrast, advanced economies have barely expanded, with output only 3 per cent higher than fi ve years earlier.

With such rapid expansion of emerging mar-kets, the world economy – far from experiencing a period of weakness – has grown by almost 16 per cent over the fi ve years, at an average annual rate of 3 per cent. That is the same average rate of growth as in the 1980s and 1990s, even if it was a little slower than the pre-crisis years of the past decade. Last year was also strong, and the Inter-national Monetary Fund expects global growth to be only a little shy of 4 per cent this year.

Given these surprising facts, the story of the world economy on the eve of the latest WEF is therefore one of differentiation. The emerging and developing worlds are in the fast lane enjoying growth rates of around 6 per cent; the US, Canada and Australia are in the middle lane, expanding at approximately 2 per cent; and most of western

Europe is in the slow lane, with growth rates of less than 1 per cent.

There are obvious exceptions to these rules – Germany and Sweden, in 2011, where growth rates have exceeded 3 per cent, for example – but the three-speed global economy, as predicted in Davos 2011, has come to pass. At least in terms of global economic predictions, last year’s WEF was a triumph in its accurate reading of the trends in the world economy.

But if 2011 bucked the usual trend of poor forecasts, emerging economies should beware of another feature of the WEF – pride comes before a fall. Much of the focus at the event will inevitably settle on Europe and the eurozone’s latest troubles, and the far better performance of poorer countries.

But those seeking to demonstrate how well their regions, companies or economies are per-forming in 2012 would do well to cast their minds back to previous Davos gatherings, where many instances of hubris soon turned to nemesis.

Think, for example, about the complacency of bankers in 2007, the extraordinary confi dence

of the US delegations in the 1990s before the dotcom crash and European

leaders’ blind faith last year that expressions of political

will would be enough to shore up the euro. There

are many perils ready to trip up advanced and emerging economies alike in 2012.

Will the US be able to sustain its recent economic momentum in an election year that is bound to create huge economic uncertainty, given

the distance on eco-nomic policy between

the two main parties? Is the emerging

world’s economic boom running into trouble,

weighed down by overinvest-ment, falling returns and the

potential for a sudden drop in asset prices? Will oil and commodity prices

remain at punishing levels, or rise along with tensions in the Middle East, squeezing the incomes of emerging and advanced economies alike?

Will the new Chinese government and the winners of the US election be able to fi nd greater common cause in the long struggle to defuse the time-bomb that is global trade imbalances? What can replace the failed Doha trade talks?

Overshadowing all of these, however, is the question of whether the eurozone might implode, delivering a shock to the world economy as bad as – or worse than– that of the Lehman bank-ruptcy in 2008.

These questions will not be answered at the World Economic Forum. But the intimacy of the Davos meeting, alongside the remark-able guest list, make it an excellent location for understanding the stance of the big players and diagnosing the issues that need to be addressed in 2012. High in the mountains of Switzerland, the forum has a fi xed position in the diary, enabling the year’s economic debates to start in an informal setting with plenty of opportunities for private meetings.

By the end of the week, those who arrived with swagger will not have changed outwardly. If they have been listening as much as they will have been pontifi cating, they might learn enough to raise their chances of still being in a position to come again in 2013.

Changes in leadership and regimes will be watched closely, writes Gideon Rachman

Is 2012 Asia’s year? Many would argue its relative economic success could offer lessons for the rest of the world, particularly in the face of what has been widely perceived as western fi nancial mismanagement and incompetence. In 2007, the housing crisis in the US provided the spark for the global

economic meltdown, and now there are fears that Europe’s tinder is looking particularly dry. Asia, in contrast, offers relative economic stability – and opportunities for growth.

One primary lesson for underperforming western nations is in how Asia has embraced regionalisation even as it increasingly believes itself to be the victim of globalisation.

“Asian regional co-operation has a lot of oppor-tunities to grow and expand,” said Li Wei, presi-dent of the research arm of China’s State Council at a recent forum in Hong Kong. “[That way we] are also better protected from a fi nancial crisis.”

Since the crisis of 1997-98, Asia has moved rapidly into a recovery, with the foreign reserves of many countries across region increasing to impressively healthy levels.

When Fitch Ratings upgraded Indonesia to investment-grade status in December last year, it marked a turning point in the region’s continuing recovery – and its relationship with the west.

With all 10 major countries in the region now rated at this level, their improving fundamentals are in marked contrast to the deteriorating picture in countries such as Italy or Greece.

However, the notion of decoupling – an Asia independent of economic movements in the west – has yet to become a reality. Asia’s welfare continues to depend on exports to the developed

markets of Europe and the US, as well as to each other. When developed markets falter, Asian markets plummet.

“We are being punished for the sins of others,” says Gerard Lee, chief executive of Singapore-based Lion Global Investors. “We fall more.”

Dissatisfaction has grown as the relation-ship between the west and Asia has come under greater scrutiny, and intensifi ed with the intro-duction of quantitative easing in the US. Bader al-Saad, head of the Kuwait Investment Authority, and Gao Xiqing, president of China Investment Corporation, have both repeatedly spoken out about what they see as the irresponsible behaviour of monetary offi cials and politicians.

In a speech last year in New York, the widely respected Mr al-Saad went one step further, stating he no longer considers Treasury securities the only truly risk-free security. In addition, Mr Gao had earlier said that if he had one message for the US Federal Reserve, it would be that when it prints money, it must realise there are consequences for the whole world.

Might that discontent change the pattern of capital fl ows? One senior offi cial at an investment arm of the Singapore government says that, over time, Asia should stop giving its savings to western banks and governments.

“It would be better for Asia to intermediate its own savings,” he says. “It would make Asia more resilient.” These comments are not isolated. Fear of a credit crunch, as European banks pull out of south-east Asia in particular, has intensifi ed such talk. Asia also blames the west – and increasing globalisation – for the ills that come with develop-ment, particularly rising income inequality.

Yet despite the region’s return to relative health, there are still geopolitical factors that could undermine its much-vaunted economic and political independence. China, for example, has become increasingly assertive in disputes with its neighbours, pushing many countries to look once more to the US to guarantee regional security.

It would seem the Asian century has yet to arrive.

big powers such as the US and China will affect global political and economic co-operation.

Mitt Romney, the leading contender for the Republican nomination in the US, has talked aggressively of designating China as a currency manipulator, which could be the prelude to imposing tariffs on Chinese goods. Davos man (it is still overwhelmingly male) will want to get a sense of whether this is election posturing, or whether there is a genuine chance of a sharp deterioration in relations between the world’s largest and second-largest economies.

The Chinese side of the equation will also matter a great deal. At previous World Economic Forums, key leaders from China, such as Wen Jiabao, the current premier, have gone down very well with the business-minded delegates, by strongly endorsing the central mantras of globali-sation. Davos delegates will want reassurance that the new Chinese leadership will stick to this line.

However, the biggest issue remains the fi nancial crisis in Europe. A sovereign default, a banking crisis or a disorderly break-up of the euro could generate economic and political conse-quences that will make this year’s elections look like mere sideshows.

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GUIDE TO DAVOS | COMMENT GUIDE TO DAVOS | COMMENT

Northern exposure Strategic balance

A big lesson of the recent past is that no one can escape economic interdependence

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The role emerging economies play in the global economy is set to increase, writes Arkady Dvorkovich

Outdated approaches are not suited to a fast-paced world, says Klaus Schwab

Shifting power demands leadership, says David Miliband

Bullish bear: Russia is committed to help

ensure the success of the single currency

The way forward: Klaus Schwab believes youth leaders need a voice at Davos

The new model leaders

This year’s meeting will be dominated by questions of governanceP

redicting the economy tends to be for the foolhardy. If the mood at Davos last year was comparatively bullish, with 2-3 per cent growth forecast for the eurozone and the US economy, the past 12 months have shown a more bearish face.

Fortunately, we do not need a crystal ball to know the main challenge that confronts us. First and foremost, western governments must fi nd ways to deleverage their debt-ridden economies, without triggering a major recession. Meanwhile, the Brics (Brazil, Russia, India and China) and other emerging economies must maintain their strong growth rates, offsetting more sluggish growth in Europe and the US.

This cannot happen, of course, if we fail to tackle the most immediate debt problems in the eurozone. However, the notion of the impending demise of the single currency, which has spooked international markets, remains utterly fanciful. Too much rides on its survival, both fi nancially and politically.

For Russia, the euro is a pre-eminent concern. Europe is our biggest trading partner, accounting for more than half of our foreign trade turnover and more than 75 per cent of foreign direct invest-ment, while around 40 per cent of Russia’s currency reserves are held in the euro. Russia has made it clear that, on the condition that the EU draws up a credible plan, it could contribute $10bn or more in loans through the International Monetary Fund. We stand by that commitment and hope that others will do the same.

While I am confi dent that Europe will agree on the fi nancial tools to bring its debt crisis under control, the wider challenge is how to ensure the world economy enters a path of continued growth and prosperity for all.

Research shows that the Brics represent 18 per cent of global gross domestic product and

have accounted for 30 per cent of global economic growth since 2001. Last year, China exceeded Japan in terms of GDP and Brazil overtook the UK to become the world’s sixth-biggest economy, while Russia and India are expected to climb the ranks. Meanwhile, European economies are predicted to either contract or experience negligible growth, and the forecast for the US is not much more encouraging.

That means the importance of the Brics and the world’s emerging economies is only set to increase. They will need to perform the role of chief engine for global growth. I am certain that the potential exists. But I am equally certain it can only be realised if these economies remain fully focused on stepping up the right policies of domestic modernisation. For the Brics, too, the current economic environment comes with greater responsibility.

That can imply a multitude of different things for different economies. One lesson of recent years is that there is no one-size-fi ts-all solution, even if many of the individual success stories still provide useful lessons for today. What it means for Russia is clear: intensifying the fi ght against corruption; optimising the state’s presence in the economy through continuing privatisation and decen-tralisation; and diversifying our economy while increasing the effi ciency of the energy and natural resources sector. It also means better legal protec-tion of property and businesses and making the investment climate increasingly comfortable. Such policies, while far from easy, will continue to be the order of the day throughout the election period in Russia and beyond, in order to implement the modernisation that the country is striving for.

Equally important is securing an open climate for international trade. Another big lesson of the recent past is that no one can escape economic interdependence. I can conceive of no scenario for expanding our national economies – emerging, Brics or developed – that involves a retrenching

on trade. When Russia joined the World Trade Organisation in December, and our custom union with Kazakhstan and Belarus became a reality, it heralded freer trade and investment for us and our international partners, providing a timely boost. Maintaining growth-enhancing liberalisa-tion of trade and investment at the very top of the world agenda is fundamental.

Finally, the way the global fi nancial system is governed must be made more democratic and representative. With greater responsibility comes greater infl uence, and vice versa. The G20 has played a key role in organising a clear response to the 2008 fi nancial crisis, but its effectiveness could be greatly enhanced. Similarly, multilateral conventions and international organisations need to be brought up to date to better refl ect economic reality. The International Monetary Fund needs restructuring to ensure that it is more represen-tative and effi cient. Meanwhile, the greater use of currencies such as the rouble, yuan and real would lend more adaptability to the global cur-rency system.

While predicting the economic future may be best left to readers of tea leaves and palms, there is no magic in recognising that the old way of doing things no longer suffi ces. We cannot go back to how it was before the fi nancial crisis. Refusing to recognise that will only harm the prospects of the world economy.

The author is aide to Dmitry Medvedev, the president of the Russian Federation

As leaders gather for the World Economic Forum, the global outlook is pulsing to a sluggish and sombre beat. The world remains in crisis-management mode as the complexity of the challenges it faces remains overwhelm-

ing. Leaders are under increasing pressure not only to address domestic issues, but also to extin-guish global fi res that have raged since engulfi ng the world in deep crisis three years ago.

We are living in the most interdependent and fast-paced era in history. Across the world, decision makers are struggling to take action on critical economic, political and societal issues.

On a global level, and particularly within Europe, continued signs of systemic and structural disintegration are prevalent. The international architecture – born from the ashes of the second world war – is defunct, as specifi c national interests increasingly trump common regional and global ones.

The forum’s 2012 report on global risks high-lights the diffi culty of decoupling one risk from another. In today’s interconnected world, economic and social crises swiftly exacerbate the effects of one another and require that our

leaders confront short-term and long-term risks simultaneously.

The hallmark of Davos is precisely that it pro-vides a meeting place where leaders, experts and stakeholders from around the world can develop integrated approaches to address the complex issues we face collectively. This means not only thinking longer term, but also across generations.

In looking at the main developments of the past year, we recognise that the involvement of the younger generation is essential. More than 50 per cent of the global population is under the age of 27. Ultimately, it is their future that will be affected by the decisions made today, and this year youth leaders will be integrated into all aspects of the programme.

Even if many of the discussions in Davos focus on the economic and fi nancial crises, we should not forget that we are living in the middle of a great transformation that will give rise to new models for decision making. This transformation is being fuelled not only by globalisation, but also by increasingly sophisticated technology and greatly changing societal norms of behaviour. As such, the theme of this year’s meeting is “The great transformation: shaping new models”.

Events of the past three years – during which we have experienced an unravelling of outdated

systems – leave no doubt that we desperately need new models. The forum gives leaders the opportunity to get together and explore these new approaches to growth and unemployment, leadership and sustainability, and social and technological progress – it is this entrepreneurial collaboration in the global public interest that embodies the true spirit of Davos.

Ultimately, we will only be successful in shaping our destiny if we share – at least on a basic level – the same values that underpin our decision-making processes. Morality and eth-ics, and therefore good governance, are not just peripheral parts of the programme, they must form the common bonds uniting a community that has become truly global. The greater the complexity of the system in which we live, the greater the risk of systemic breakdown – and 2012 will put this to the test.

However, at the same time, the opportunities for collaboration are greater than ever before. Together, if we can demonstrate the foresight and spirit of solidarity needed to strengthen our resilience to risk, the forum can serve as an engine of change for the global good.

Klaus Schwab is the founder and executive chairman of the World Economic Forum

In the year since the last meeting in Davos, a civilian surge has rocked the Middle East in the name of democracy, human rights and personal dignity. It is a striking paradox, therefore, to hear such a chorus of concern about decisive leadership from within the democratic world.

Europe has provided the paradigm case. The longer the euro crisis has dragged on, the more expensive and dangerous it has become. But the dysfunctions of democracy are the political story in the US, Japan and India, as well as Europe.

Some of the reasons have been well docu-mented: the hyper-connected nature of the modern world; the clash between national politics and international problems, and between short-term electoral timetables and longer-term policy cycles; the disorientation that comes from seismic shifts in economic power; the growing resource crunch; and the demands of 24/7 news media.

The past decade has seen the rise of an asymmetric world in which a non-state organisa-tion such as al-Qaeda can convulse the world’s superpower; one in which leaderless protesters can oust their national leader; and where one of the smallest countries in the Middle East, Qatar, can become a key player by virtue of its soft power. It is a world in which China and India will have huge economies, but low per capita incomes.

These are the two faces of globalisation. The dynamism of democratisation on the one hand, and the instability that arises from the collapse of historic authority structures on the other. This year’s Davos will be dominated by questions of governance – the balance of power, the future of the US superpower and the fate of the European experiment in shared sovereignty.

But in order to address the challenges of our time, we need to consider three main issues.

First, the power of the people. Every govern-ment in the world today is in a coalition with its people – the bar for the legitimate exercise of power has been raised.

Almost every problem requires strategic leadership from government, innovation from the private sector and the mobilisation of citizens. Every policy solution needs to be one that has emotional and rational resonance with the people it seeks to help.

The people will not remain leaderless for long, and if political and business leaders do not pro-vide that leadership, they will be cast aside.

Second, the power of cities. In The Great Reset, economist Richard Florida reports that 40 urban mega-regions around the world account for 60 per cent of the world’s gross domestic product and 85 per cent of technological inno-vation. Yet they account for only 18 per cent of the world’s housing (a proxy for population).

These metropolises are international players in their own right. They are laboratories of progress, risk-takers with global signifi cance, because they are the places that bring people, money and ideas together.

Third, the power of countries that are regional or sub-regional locomo-tives of social and economic progress – and pivots for political advances.

Turkey clearly aspires to play this role in the Middle East. The sub-regions of the African con-tinent depend on leadership from South Africa, Kenya and Nigeria.

These countries combine hard and soft power. They are plugged into the networks that matter, they generate ideas that can make a difference, and they are independent of the superpowers, existing or emerging, while maintaining good connections to them.

In his book, The Growth Map, Jim O’Neill lists the new 11 economies that will follow the four Brics he identifi ed 10 years ago. These are countries such as Bangladesh, South Korea and the Philippines that have the potential to be the fastest-growing countries, at scale, in the next decade.

This asymmetric world should suit a country such as Britain. We will never again have a globally signifi cant population size or claim a global empire, but, through institutions such as the BBC, we generate ideas – and have the power to engage others with them.

Last year, David Cameron, the prime minister, spoke about “optimism” and “confi -

dence” at Davos. Yet the economic recovery in Britain has nose-

dived and we have withdrawn to the sidelines of Europe. I hope that in the year when the world will be watching Britain during the Olympic and Paralympic Games, there is space to sort rhetoric from reality. That is one asymmetry the world can do without.

David Miliband was the UK foreign secretary from 2007-10

and is the Labour member of parliament for

South Shields

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GUIDE TO DAVOS | STUDIO DISCUSSION TRANSCRIPT GUIDE TO DAVOS | STUDIO DISCUSSION TRANSCRIPT

Hot topics in a cold climate

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Our panel discusses the economic and political issues likely to feature at the World Economic Forum

Speaker key SM-C: Seb Morton-Clark FT moderator(far left)

PJ: Patrick Jenkins (middle left)

CG: Chris Giles(middle right)

GR: Gideon Rachman(far right)

José Sergio Gabrielli de Azevedo Chief executive, Petrobras

Richard Fenning Chief executive, Control Risks

Jim Turley Global chief executive and chairman, Ernst & Young

The World Economic Forum is a unique opportunity for important global leaders to share information aiming to identify di� erent views on the issues that a� ect the world. For us in the oil industry, it is even more important, since we can

put subjects on the agenda that matter to the sector, such as sustainability, supply-chain security and market issues.

The key drivers of the global unrest that defi ned 2011 will remain at large in 2012. Discussions at Davos, therefore, should focus on how best to manage the challenges of rising inequality, continued weak economic performance

and perceived lack of government accountability. Political, security, operational and reputational risks

will be increasingly signifi cant to organisations. They should make the management of these risks a critical part of their corporate strategy for the year.

What I’d like to see from those attending Davos is a commitment to do all they can to encourage real and sustainable global economic growth and to resist a damaging retreat into protectionism.

The focus of the World Economic Forum in Davos this year is undoubtedly going to be all about

“cracking the code for growth and job creation”. This is priority number one

for business, government and civil society. The insights gained and

relationships established here help guide our thinking as we continue to invest in markets around the world.

Muhtar KentChief executive and chairman, The Coca-Cola Company

‘If you had to take one issue, the one that everyone wants sorted is the eurozone’

SMC: An unresolved debt crisis in the eurozone, spluttering revolution in the Middle East, signs of a possible recovery in the US economy – there’s certainly no lack of burning topics for the icy slopes at this year’s meeting of the World Economic Forum in Davos.

The FT will be there, bringing you the latest contemplations and considerations from the world’s political and business elite. But before we go, I’m joined here in our London studio by three experienced Davos attendees, to give us a run-through of what they think is going to shape the debate in the Swiss mountains.

They are Patrick Jenkins, banking editor, Chris Giles, economics editor and Gideon Rachman, chief foreign affairs commentator. Thank you, gentlemen, for joining me today.

Patrick, I’m going to start with you. Banking obviously was a big topic of discussion at last year’s Davos. Are you expecting something similar this year? Are the bankers going to be in the limelight again?

PJ: They are. There are going to be a lot of them there again. Interestingly, we’re not going to get some of the new generation of bankers. We’ve had a handing over of the batons at many banks, particularly in Europe and, interestingly, quite a few of those new chief executives say, “This is a forum for the old guys, not for us; we’ve got stuff to fi x in our banks back home.” So they’re not going, but that said we’re still getting a lot of big names there. And I think for them, the overriding agenda is going to be the regulatory picture, [as things are] still uncertain in terms of the Basel III agenda. There are still things to debate there – it will be a big topic.

SMC: How much of a consideration will capital requirements be for the banks?

PJ: In terms of capital requirements, particularly in relation to the European requirements, by this June the banks are going to have to hit the new 9 per cent capital ratio, and I think that’s going to dominate many people’s thinking. The other sub-ject that is going to dominate the conversation at Davos is the continuing crisis centred on Europe in particular, and I think the bankers are going to be put under a lot of pressure. There will be a huge amount of pressure put on the politicians present to try and fi x things.

SMC: So is it all about the eurozone, Chris?

CG: It is, pretty much. If you had to take one issue for the World Economic Forum, the one that everyone wants sorted is the eurozone, because if that blows – and it could – then that can bring down the banks and derail European geopolitics. Discussions around the eurozone will be central to the debate at Davos, as there is normally a very large contingent of European leaders present.

In fact, this is just a continuation, just another summit in the endless, almost fortnightly, summits we have been having for the past six months. I don’t expect any resolution at Davos, but there should be quite a lot of news. When Angela Merkel [the German chancellor] and Nicolas Sarkozy [the French president] came last year, they said, “Absolutely, we will save the euro.” The political will is there, [but then they] proceeded through the year to show that it wasn’t entirely there.

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GUIDE TO DAVOS | STUDIO DISCUSSION TRANSCRIPT GUIDE TO DAVOS | STUDIO DISCUSSION TRANSCRIPT

Antônio PatriotaForeign minister, Brazil

Jean-Philippe Courtois President, Microsoft International

Sir Martin Sorrell Chief executive, WPP

In many markets across the world, the engine for growth and job creation will be smaller, entrepreneurial companies fuelled and accelerated by the positive impact of new technology. Cloud computing, for example, is enabling start-ups and small businesses to be more agile, innovative and competitive.

My focus at Davos will be to illustrate to both government and industry leaders how technology investment can help realise economic dividends.

Barbara Stocking Chief executive, Oxfam

Hans-Paul Bürkner President and chief executive, The Boston Consulting Group

Helena Morrissey Chief executive, Newton Investment Management, part of BNY Mellon Asset Management

How can we lift the 1bn people out of poverty who already live without enough to eat each day, and stay within the ecological envelope of the planet?

To realise this ambition, those gathered in Davos must make the right

choices – both fair and sustainable – now. Finding a path back to economic growth will be on delegates’ minds, but I’ll be asking how we can achieve this within the earth’s boundaries and ensure a minimum living standard for all.

Today’s managers face a once-in-a-generation test of leadership. Never before have corporate leaders faced such a convergence of transformative events: a rising middle class and fast-globalising competitors in emerging markets, as

well as innovative business models arising from new technologies. I hope that, at Davos, they decide not to hunker down, but to take some bold bets. To stand still and await the passing of the economic storm is to risk leading your company into terminal decline.

It’s encouraging that the World Economic Forum is attempting to tackle issues that together add up to a transformational agenda. The most important specifi c issue where new ideas are needed concerns youth

unemployment in some of the most beleaguered European countries. The risk of a “lost generation” is real, and this in turn carries economic, political and, most importantly, human danger, which I don’t feel has really been focused on su� ciently to date.

The single biggest issues are the western European economic situation and its implications for the US. Although the US is showing some mild signs of recovery, there is a concern about what happens in 2013 after the election. If President Obama is re-elected, and the Republicans control the House and the Senate, how will the administration resolve the defi cit issues? [Alongside,] there is the problem of stagnation in the west, particularly western Europe, and high levels of unemployment. The big long-term issue is how we create jobs and growth.

The FT at DavosDebating the issues: a looming crisis in Iran and a number of elections around the world in 2012 are likely to be on the agenda

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‘It would be good if Tim Geithner could be there, and reassure everyone that the US will be fi ne’

The Financial Times will provide daily in-depth print and online coverage of this year’s meeting of the World Economic Forum.

www.ft.com/davosThe FT website will feature videos and specialist blogs from the forum. Bloggers will include:

Gillian TettFT US managing editorChris GilesFT economics editorGideon RachmanFT chief foreign affairs commentatorPatrick JenkinsFT banking editorMartin WolfFT chief economics commentatorJohn GapperFT US columnist

Visit www.ft.com/davos for an updated list of external bloggers.

FT participation at the meeting

January 25The global fi nancial contextModerator: Gillian Tett, FT US managing editor

Historic complexity: how did we get here?Moderator: Gideon Rachman, the FT’s chief foreign affairs commentator

The future of economicsModerator: Martin Wolf, the FT’s chief economics commentator

January 26Rebuilding EuropeModerator: Lionel Barber, FT editor

An insight, an idea with Kishore MahbubaniGideon Rachman, the FT’s chief foreign affairs commentator, in conversation with Kishore Mahbubani, dean, Lee Kuan Yew School of Public Policy, Singapore

January 28Pundits, professors and their predictionsPanellist: Gideon Rachman, the FT’s chief foreign affairs commentator

Global economic outlook 2012Chairman: Martin Wolf, the FT’s chief economics commentator

It will be very interesting to see exactly what the tone is this year.

SMC: Gideon, is it going to be all about European woes? Let’s not forget, this has been the year of the Arab spring, of course.

GR: Absolutely. There will be a lot of eurozone woes, but let’s not forget that this is, after all, the World Economic Forum, and there are not just Europeans present. There are always big delega-tions from India, China, the United States and so on; and they’ll have their own concerns. Politics and geopolitics also play a big part.

At the World Economic Forum last year, the Arab spring was playing in the background, and it was a good reminder that despite this being the global elite, they were as blindsided by it as the rest of us. People didn’t really see it coming, and now, a year later, people will be assessing what that means.

There will also be quite a lot of concern about a looming crisis with Iran, the suggestion of an oil embargo and whether the Iranians will react aggressively to it, and how that might escalate.

There will also be a level of concern about a whole raft of elections across the world in the next 12 months, from Russia to France to the US.

SMC: Of course, as we are in an election year, does that mean we’re not going to have much of a US contingent? Are the Americans going to have their minds on other things?

GR: There actually hasn’t been that much of an offi cial US contingent for some years now, really, since the Obama administration came in. In the fi rst few months [in power], they were preoccupied with bail-outs and the aftermath of the [collapse of investment bank] Lehman Brothers.

Their top economic people, such as Tim Geithner [the US Treasury secretary], do show up, but the foreign policy people, not so much. That’s partly because they’re busy, but also partly due to “atmospherics”. Obama after all is going to campaign as the champion of the little guy, of the 99 per cent against the 1 per cent, and Davos is very much an event at which the 1 per cent gather. I don’t think he necessarily wants to have his top people on the ski slopes with them.

SMC: Currently all eyes are on the US economy. Chris, there seem to be glimmers of hope, but are they sustainable? Is it going to offer any optimism to the conference?

CG: We should look a little further than the eurozone, because the world economy in the last few years has actually done rather well; it’s not just the US where we are seeing some green shoots of growth. The fourth quarter of last year was very strong, particularly for the emerging markets, which have been doing very well, and

who will be at Davos, being confi dent again. China and India will be saying, “Well, the euro-zone might be in trouble, but our economies are still growing rapidly.”

For the US, it would be good if Tim Geithner could be there, and reassure everyone that the US will be fi ne whatever happens in Europe, but he’s got a bit more sense than that. His message throughout the whole of last year was that the world economy depends on Europe sorting out its mess, and I’m sure he’ll be there beating that drum again.

SMC: And despite possible green shoots of recov-ery in certain parts of the world, we’re still facing problems in the banking sector. Patrick, are there any surprises left that could tip the whole thing on its head?

PJ: Absolutely. The other perspective that the banks will have on this, and their investors, is from the bondholder side, sharing in the woes of troubled sovereign states, such as Greece. The so-called private sector involvement there is going to be a huge topic, with questions raised about how that plays out, and what confi dence bondholders can have in sovereign debt in the future.

See the full video at ft.com/guide-to-davos

This year, we meet in Davos to engage with other decision makers in informal and certainly insightful discussions at a time when global governance structures are being redefi ned and the world economy is at a crossroads.

Rio+20, the UN conference on sustainable development that Brazil will host in June, is poised to attract major interest across the World Economic Forum, as it may provide answers to a number of questions on the future of the world economy.

16 FINANCIAL TIMES TUESDAY JANUARY 24 2012