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Biodun-Iginla@the Economistcom
Thursday, 22 April 2010
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Business this week | The Economist online
Business this week
Apr 22nd 2010
From The Economist print edition


Wall Street was stunned as civil-fraud charges were brought against Goldman Sachs. The Securities and Exchange Commission alleges that the bank deceived investors in a synthetic collateralised-debt obligation built on mortgage assets, by not disclosing that Paulson, a hedge fund that had some say in choosing which securities went into the product, would profit if the CDO performed poorly. Goldman vigorously denied the allegations. See article

Goldman found comfort in announcing a $3.5 billion quarterly profit. Staff compensation costs rose to $5.5 billion, but as a share of net revenue this fell to 43%, from 50% in the same quarter last year.


Citigroup reported $4.4 billion in net income for the first three months of 2010, its best profit in almost three years (it made a $4.3 billion profit in the second quarter of 2009 only after selling its Smith Barney unit). With net credit losses declining further, the bank declared that it had “turned the corner”, but remained cautious about its outlook. Citi lost some $30 billion during the credit crisis.

Bank of America posted a net profit for the first quarter of $3.2 billion, a drop of 24% compared with a year earlier. And in its first earnings release since James Gorman became chief executive in January, Morgan Stanley’s quarterly net income was $1.8 billion.

Credit Suisse had a good three months, in which it recorded the biggest gain in new assets from wealthy clients for five years, a sharp contrast to the Swiss bank’s bigger rival, UBS, which has been hurt by net outflows of customers’ cash.

The IMF proposed a scheme for co-ordinated global taxes on banks’ balance-sheets and profits to help pay for the cost of bail-outs. A worldwide bank levy is being mooted by the G20. The fund said that taxpayer-funded rescues during bad times, leaving shareholders and employees to gain during good times, “misallocates resources”.

Congressmen investigating the banking crisis heard testimony about the downfall of Lehman Brothers. The SEC was criticised by a court-appointed examiner for its supervision of the bank. Dick Fuld, Lehman’s boss at the time of its bankruptcy (who was also admonished by the examiner), insisted that the SEC and the Federal Reserve “were privy to everything as it was happening”.


General Motors announced it had repaid in full the $8.4 billion in loans it received from the American, Canadian and Ontario governments, five years ahead of schedule. The American government still holds a majority stake in the carmaker, but could start selling the shares later this year.

The Bank of Canada hinted that it might raise interest rates in June, which would make it the first central bank in the G7 to do so. Forecasting that Canada’s economy will grow by 3.7% this year (but by less in 2011 and 2012) the bank thinks it is now “appropriate to begin to lessen the degree of monetary stimulus”.

The yield on ten-year Greek government bonds rose sharply again, to well above 8%, just as negotiators from the European Union and IMF began working on the details of a bail-out for Greece.


 
 

Google provided data for the first time on the number of requests it gets from governments to remove content from its sites. The requests mostly relate to criminal matters, and the figures do not cover filtering or blocking of content. Brazil tops the list, for example, but Google’s Orkut social-networking site is one of the most popular in the country. Google reckons that more transparency on the issue will lead to less censorship.

Arriva, one of Britain’s biggest train and bus operators, agreed to a £1.6 billion ($2.5 billion) takeover from Deutsche Bahn, Germany’s state-owned rail company. More mergers are expected in Europe as transport markets are opened to competition.

EADS, the European aerospace and defence company that owns Airbus, decided to submit a fresh bid to build flying tankers for the American air force. The company’s American partner in the project, Northrop Grumman, pulled out of the process in March claiming the terms favour Boeing. The competition for the $35 billion contract has rumbled on for years, though EADS will raise its profile in America with a new bid.

Work on the next James Bond film, due for release by 2012, was “suspended indefinitely” by the producers because of the uncertainty surrounding the auction of MGM, the studio that owns the Bond franchise. MGM, which has had numerous owners over the years, is grappling with $3.7 billion of debt and its creditors are seeking a buyer. See article


Posted by biginla at 6:42 PM BST
Earthly powers
Topic: the economist, biodun iginla, bb

After the volcano

by Biodun Iginla of the BBC and the Economist

Disasters are about people and planning, not nature’s pomp

Apr 22nd 2010 | From The Economist print edition

IT IS a peculiar, if blessed, sort of natural disaster in which nobody dies. The Icelandic volcano Eyjafjallajokull produced a thrilling show—and may continue to do so—but did most of its damage simply by shutting down air traffic in and out of large parts of Europe for nearly a week. Rather than bereavement, it brought the eeriness, and sometimes the joy, of displacement. Colleagues were absent from their desks, and teachers and pupils from their classrooms; the clear blue skies were bereft of the silver needles that sew the world together. Birdsong made loud the silence of the jets, florists’ vases missed the bright blooms of far-off fields, and far-off farmers missed the cash those blooms would have brought. But, this time, almost all that went missing will be returned.

Two arguments spout up from this demonstration of earthly power. The first is immediate and practical: was all this chaos man-made—an immense and costly overreaction by regulators to a spectacle that posed only a minor and manageable risk? The second is more philosophical: what does this say about man’s apparent inability to control nature?

To fly or not to fly

The initial position of Europe’s regulators was that the safe level of volcanic ash was, in effect, zero, thus grounding all flights in the broad swathes of sky which computer models said could be tainted. The fact that this regulatory stance changed in the face of an affluent cadre of displaced people, airlines feeling the pinch, a looming threat to some supply chains and (in Britain) an election, makes it all the more suspicious. Areas with low concentrations of dust and ash are now suddenly deemed navigable, and aircraft passing through them will be given thorough post-flight engine inspections (see article).

How exactly the new safety threshold came to be set at 2,000 micrograms of dust or ash per cubic metre is not clear; the figure appears to have come from engine manufacturers, but the evidence on which it is based has not yet been made public. Regulations without a clear and open argument behind them are worrisome. But that doesn’t mean the threshold, equivalent to about 100 times the typical level of dust in the atmosphere at ground level, is necessarily a bad one (test flights found patches of dust of up to 20 times normal levels). And the previous position that there was no safe level clearly lacked any sort of evidence base at all.

Had better policies been in place beforehand, much inconvenience might have been avoided. But it is wrong to dismiss the week’s woes as an over-precautionary fuss over nothing. Northern Europe has many hub airports downwind of one of the most volcanic countries in the world, and the emergence of the global aviation industry just happened to coincide with a period of relative inactivity there. Some of Iceland’s volcanoes can shoot hundreds of times as much gunk into the atmosphere as Eyjafjallajokull has, and over long periods. There are other volcanoes, notably in the American north-west and Japan, capable of disrupting a lot of airspace around big cities. The fact that the long-distance risks posed by volcanoes are not, for the most part, insurable seems to have led to them being less well studied than other kinds of natural disaster. A wake-up call was needed, and it has been sounded. The new regulatory approaches now need to be openly justified, and perhaps taken further.

With great power comes great responsibility

But the week of absences also offers a less obvious lesson. One of the things that went missing in the shadow of that volcanic dust was a sense of human power. And as with the quiet skies, this absence found a welcome in many hearts. The idea that humans, for all their technological might, could be put in their place by this volcano—this obscure, unpronounceable, C-list volcano—was strangely satisfying, even thrilling.

Such pleasure in the face of overpowering nature, as seen from a place of safety, was at the heart of the idea of “the sublime” as expressed by the great conservative Edmund Burke 250 years ago, and its aesthetic and spiritual allure remains strong. The sublime offers solace and inspiration, but it makes a poor guide to policy. For humans are not completely powerless in the face of nature: rather the reverse.

There is no technology to plug volcanoes which pierce the earth’s crust, or to bind the faults which cause earthquakes. There is not yet even a science for predicting when faults and volcanoes will let loose. To that extent, mankind is still vulnerable to the vagaries of the planet. But the story of human development is one of becoming better at coping with them.

Death by disaster is in many ways a symptom of economic underdevelopment: witness the very different consequences of the earthquakes in Haiti and Chile. In general, richer places and richer people are better able to survive and rebound. More interconnections provide more ways to mobilise resources and explore alternatives when things go wrong. If the Eyjafjallajokull plume had been as risky as it first appeared and long-lived to boot, such interconnectedness would undoubtedly have provided ways to keep Europe supplied, though probably at substantial cost and with a fair bit of lasting disruption. The apparently sublime power of the volcano was largely the result of an initially supine reaction.

Very few events are able to perturb an increasingly globalised world. The Indian Ocean tsunami of 2004 was a murderous event, but the world pushed on and many areas recovered quickly (see Buttonwood). For a natural disaster to represent a global threat, it has to act on a global scale. An eruption of hot plasma from the sun, called a coronal mass ejection, which could do damage to electricity grids over an entire continent, might fit the bill. The largest volcanoes might cause short-term climate change profound enough to reduce agricultural production precipitously in many places at once. A large asteroid strike would do yet more damage.

These are, though, rare events. Very large coronal mass ejections are thought to happen every 500 years or so (the most recent was in 1859). Volcanoes that change climate enough to affect agriculture round the world are perhaps 100 times rarer than that, and cataclysmic asteroids rarer still. What is more, such asteroids could, in principle, be identified and, with plausible technology, nudged aside. Here Burke’s sublime is turned on its head, and human capability seems to humble nature.

This is worth applying to climate change. Many of Burke’s descendants find it difficult to believe that something as big as the earth’s climate could really be at risk from human activity, and even harder to think you could do something about it. But the risk, if not full certainty about its consequences, is there. Moreover, the idea of a counterbalancing, “geoengineered” cooling to counteract some aspects of climate change is worthy of study and discussion. Large volcanic eruptions spread cooling palls through the stratosphere. Techniques for doing something similar in a less dramatic way are plausible.

When people talk about the charms of powerlessness in the face of nature, part of what they are saying is that they don’t want to be bothered with facing up to what humans can do, and to what they might have at risk. The business of looking after a planet requires being bothered in advance—and not just about little matters like volcanoes.

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Posted by biginla at 5:54 PM BST
Wednesday, 21 April 2010
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April 21st 2010


Synthetic, derivative
Democrats and Republicans in America's Senate are playing chicken over reforming finance
Full article

Decapitation is not yet victory
Killing guerrilla leaders will not, on its own, bring peace
Full article

Asia sunny, Europe cloudy
The IMF becomes more optimistic about the outlook for GDP growth this year and next
Full article

Thirty years on
Zimbabwe's 30th birthday is not much of a celebration
Full article

Back into the clouds
The threat to air travel from Icelandic volcanos is still troubling
Full article

Rug rave
Prices fly for a Persian carpet
Full article

Live online debate: GDP
For decades economists have turned to GDP when they want an estimate of how well off people are. It may capture material wealth, broadly, but is that enough? Vote and express your view.
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Posted by biginla at 6:36 PM BST
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April 21st 2010

 
 

Business.view column: Not up in the air
Risk-management lessons from the volcanic ash cloud
 More »






From the archive: An interview with C.K. Prahalad

The renowned strategy professor has died aged 68. In this interview from 2004 he explains the win-win relationship between business and the poor
 More »

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Special report: Innovation in emerging markets
The emerging world, long a source of cheap labour, now rivals the rich countries for business innovation
 More »

Schumpeter column: An emerging challenge
Antoine van Agtmael thinks that firms in the rich world have not fully digested the rise of the emerging markets
 More »

Book review: Bursting a balloon
David Bolchover's new book says the myth of talent is a smokescreen for corporate plunder
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Posted by biginla at 6:00 PM BST
Tuesday, 20 April 2010
Business-travel news from the Economist--by Biodun Iginla of the BBC and the Economist
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Business-travel news
  Highlights of the past week's postings on our business-travel blog
Tuesday April 20th 2010

 
Trouble from the north
Volcanic ash has paralysed European aviation, creating the worst chaos since the second world war, according to one newspaper. We have reports from correspondents stuck in Berlin and New York, as well as an item considering what ash does to planes and an initial assessment of the mess.

Will the new rule on tarmac delays work?
America's airlines must pay up to $27,500 per passenger if they keep them on the runway for longer than three hours. read more»

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What a carry-on
Two senators take on Spirit Airlines and its new baggage fees. read more»

Will work for food
A Copenhagen hotel entices its guests to exercise, with the lure of free dining. read more»

Air Canada Jazzzzz
One surprised passenger wakes up in the hangar. read more»

And also…
We've written about unexpected improvements in airline performance and how to police a Canadian airport.


 

Posted by biginla at 5:30 PM BST
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April 19th 2010


Outlook: cloudy
Why so little is known about the effects of erupting volcanos on air travel
Full article

Eruptions and disruptions
Volcanic ash continues to disrupt European flights
Full article

The week ahead
Britain's party leaders discuss foreign policy in a televised debate
Full article

Upcoming online debate: GDP
GDP growth, adjusted for changes in population and prices, is the most common measure of changes in living standards. But is it a good one? Our debate starts tomorrow. Sign up for debate alerts.
Full article

Posted by biginla at 5:09 PM BST
Wednesday, 14 April 2010
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April 14th 2010


Fault lines
Earthquakes in China's Qinghai province kill hundreds of people
Full article

Nuclear family gathering
Barack Obama brings the world to Washington to try to keep track of loose nuclear material
Full article

Red with bloodshed
The army has further weakened the Thai government by shooting protesters
Full article

Among the president's men
Kyrgyzstan's president-on-the-lam makes an offer to the new power
Full article

Hard to handle
Toyota's latest safety worry heaps more misery on the Japanese car company
Full article

Material world
President Obama leads the effort to secure nuclear materials
Full article

Hong Kong highs
Sotheby's spring sales show that the top of the market is not yet in sight
Full article

Not so thrilled by the hunt
Europe's ban on imported seal fur is under fire
Full article

Live online debate: Germany
The announcement that Greece can expect a bailout if it needs one is a reminder of what is at stake in this debate on Germany. Cast your vote before our debate ends.
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Posted by biginla at 8:10 PM BST
Monday, 12 April 2010
In Memoriam: Lech Kaczynski
Topic: the economist, biodun iginla, bb

Poland's tragedy

by Biodun Iginla, BBC News and the Economist

The death of Poland's president carries a terrible echo of his country's past

Apr 11th 2010 | From The Economist online

HE WAS a figure from another age. Weekend guests at Lech Kaczynski’s presidential retreat on Poland’s Baltic coast often found the conversation turning to the opposition politics of 1970s Gdansk.

That is indeed a fascinating subject, though not necessarily the most burning one for the head of state of eastern Europe’s most important country nearly 40 years later. Mr Kaczynski, who died along with 95 others, including many of Poland’s military and political elite, in a plane crash in Russia on April 10th, epitomised some of the best and the worst features of Polish politics.

He was a man of unquestioned, almost painful, integrity. In 2005 he moved to the presidential palace not from one of the palatial homes favoured by most mainstream Polish politicians, but from the shabby flat in Warsaw in which he and his wife, Maria, had lived for decades. His values, attitudes, habits and behaviour were those of the pre-war Polish middle class: a culture so strong that it survived decapitation and evisceration under Soviet and Nazi occupation, and the regime installed at gunpoint after the war. Obstinate, old-fashioned, provincial, gutsy, rather shy, awkward, suspicious, pernickety and scrupulous, the 60-year-old law professor was utterly uninterested in the tactful doublespeak usually required of politicians in modern Europe.

He was an unabashed and instinctive Atlanticist. When government ministers tried to haggle with America about a planned missile-defence base, he undercut them. Poland would be happy to have the installation on any terms. He took a similar attitude to Lithuania, brushing aside that country’s refusal to allow its ethnic Polish minority to write their names in official documents with letters such as w, Å‚ and Å„ that are not part of the standard Lithuanian alphabet. Other Polish politicians saw Lithuanian foot-dragging on the issue as deceitful and infuriating; for Mr Kaczynski it was merely a pity. His affection for the Baltic states, Ukraine and other ex-captive nations was palpable: had they not suffered, just like Poland? They should stand together.

When Russia invaded Georgia in August 2008, it was Mr Kaczynski who rushed to the rescue, leading a hair-raising trip to Tbilisi with leaders of other sympathetic ex-communist states. He tried to overrule protests by the presidential plane’s pilot, that the trip into a war zone was unsafe. Mr Kaczynski was furious at what he saw as cowardice; the pilot later got a medal for resolutely putting his passengers’ safety ahead of prestige. Mr Kaczynski may have repeated just that error in the minutes before the disastrous attempt to land the presidential plane at a fog-bound airport on April 10th.

That seems by far the most likely explanation for the tragedy. The Polish presidential plane was an ageing Tupolev 154: old, noisy and thirsty, admittedly, but also robust and reliable. It had been recently renovated with modern avionics. Russian air traffic controllers seem blameless too. They insisted that the fog at Smolensk airport was too thick and had repeatedly told the plane to land elsewhere. The pilot refused, making three abortive attempts to land before hitting tree-tops on the fourth try.

Mr Kaczynski’s single greatest political mistake was in failing to see that modern Germany, led by Angela Merkel, was a potentially powerful friend for Poland, rather than an adversary that harboured sinister revanchist tendencies. Along with his brother, Jaroslaw, who leads the main opposition Law and Justice party, Mr Kaczynski became a laughing stock in Germany for his dogged hostility and on occasion outright rudeness towards the federal republic. His distrust of Poland’s western neighbour was matched by a visceral hostility towards the Soviet Union and its defenders. To Mr KaczyÅ„ski, his brother, and many of their supporters, Russia was still a menace, run by the former KGB and with a shameful disregard for the atrocious crimes committed in the past. The complexities of modern Russia were often brushed aside.

His robust attitude to Poland’s enemies, past and present, pleased his supporters. But it was compounded by a pronounced tendency to make gaffes, and a staff who frequently seemed overwhelmed by the demands of even daily protocol, let alone strategic thinking. That invited criticism, and sometimes caustic caricature.

After Law and Justice lost power in 2007, a new government, in the hands of his arch-rival Donald Tusk, was pursuing an ambitiously emollient foreign policy. Where Mr Kaczynski stoked rows and fumed about historic wrongs, Mr Tusk, and his high-profile foreign minister, Radek Sikorski, smoothed them over. Poland defused tension with Germany, revived the Visegrad grouping of central European ex-communist states and managed a remarkable breakthrough with Russia.

This centred on the Katyn massacre, of 22,000 Polish officers in the spring of 1940. It was more than the illegal execution of prisoners-of-war. It was the decapitation of the country’s pre-war elite. The officers, including many reservists, were the lawyers, doctors, teachers and intellectuals who would have posed the most profound challenge to the cynical division of Poland under the Hitler-Stalin pact of 1939. They included, incidentally, the chief rabbi of the Polish army, Baruch Steinberg.

The crime of their murder was compounded by a grotesque Soviet lie: that the murders were the work of the Nazis, not the NKVD. It was only in 1990 under Mikhail Gorbachev that the Soviet Union finally admitted what Poles and their friends had maintained all along. Boris Yeltsin visited the Katyn monument in Warsaw, as Russian president, and said as he laid flowers “forgive us, if you can”.

But that was a high-water mark. Under Russia's president, Vladimir Putin, the clock started running backwards. In September 2007, a Russian government newspaper, Rossiskaya Gazeta, published a commentary casting doubt on the idea that Katyn was a Soviet massacre. Sued by relatives of the Katyn victims in the European Court of Human Rights, the Russian government argued that blame for the massacre was unclear. The judicial rehabilitation of the victims has been blocked; the archives are still sealed.

It was therefore a huge breakthrough that, after painstaking and intricate diplomacy, the Polish government was able to bring Mr Putin to KatyÅ„ for a joint commemoration ceremony on April 7th. That was preceded by an unprecedented showing on Russian television of a magnificent and harrowing film about KatyÅ„ by Andrzej Wajda, Poland’s greatest film-maker. The film was repeated, on a more widely watched channel, on the evening of April 11th.

At the joint ceremony, Mr Putin categorically acknowledged that the massacre was a crime of the Stalin regime—although he also brought up the deaths of captured Soviet officers in Polish prisoner-of-war camps 20 years earlier, apparently as a balancing item in the ledger of historical guilt. Many Poles felt that the Russian side had not gone nearly far enough.

It was that feeling which brought Mr Kacznyski, along with almost the entire foreign-policy leadership of his party, the commanders of the army, navy, air force and special forces, senior intelligence veterans and top historians, to board the plane that crashed on April 10th. They were paying their own private visit unencumbered by—in their eyes—the phoney reconciliation and dubious politicking of the event earlier in the week. The Russian authorities’ exemplary behaviour since the crash and visible displays of public grief by Mr Putin and others may have assuaged some of those feelings.

Poland is convulsed by the tragedy. Not since the height of Stalinist repressions have so many of the country’s best and brightest perished. Some find the conspiracy theories irresistible. Was not General Wladyslaw Sikorski murdered in 1943 for embarrassing the Soviet Union about Katyn? Now the same fate has befallen another brave Polish president. The sinister symmetry of that theory is misleading, though. Despite extensive investigation, nobody has found a credible sign of foul play in the death of General Sikorski. And it seems overwhelmingly likely that the latest plane crash is a tragic blunder-cum-accident.

For Poland’s friends and neighbours, condolences are mixed with questions about the country’s future. Mr Kaczynski was already facing an all but insuperable challenge from Mr Tusk’s Civic Platform party in the presidential elections in October. They will be held much sooner now. Bronislaw Komorowski, now acting president by virtue of his position as speaker of the lower house of parliament, the Sejm, is also the Civic Platform candidate. Law and Justice will struggle to find a candidate to beat him. Mr Tusk’s efforts to consolidate the centre-right of the Polish political spectrum are starting to look unstoppable.

A victory for Mr Komorowski would also make foreign policy run more smoothly. The Polish constitution is unclear about where the real responsibility for foreign policy lies. Who should attend EU summit meetings was a particular bone of contention between the presidency and the government. Mr Tusk’s aim is to have a German-style ceremonial presidency, with much reduced powers of veto. He seems likely to get it.

Yet the socially conservative, prickly, ethics-conscious and patriotic constituency that voted for Mr Kaczynski will not go away. And neither will the political ideas and values for which Law and Justice stands. Poland’s liberal-minded urban elite, exemplified by Civic Platform, have many qualities. They are able, cosmopolitan and flexible. But the lingering suspicion remains that the country’s old communist elite and their children have morphed into a new nomenklatura. Poles call this idea the “UkÅ‚ad”, an all but untranslatable word meaning something like “deal” or “arrangement”. The price of the communist regime’s surrender in 1989 was that members of the elite were able to turn their power into wealth, using their connections, slush funds and privileges to gain a head start in the country’s shift to capitalism.

Mr Kaczynski found that idea revolting, and wanted a fresh start: a “Fourth Republic”, in his words. During the ill-starred Law and Justice-led government of 2005 to 2007, the atmosphere was more Robespierre than Benjamin Franklin. Prosecutors conducted trial by press conference, denouncing victims on live television on what often seemed the flimsiest and most political of grounds.

An obsessive focus on the military intelligence service (known by its Polish acronym of WSI) also consumed huge amounts of time and energy. Undoubtedly the organisation needed reform. It had survived largely untouched since the collapse of communism. Its links with business and public life were alarming. But the cure proposed by Law and Justice seemed even worse than the disease. A close ally of the Kaczynskis, Antoni Macierewicz, was put in charge of a new military counter-intelligence service, as a political appointee. His investigations into past wrong-doings produced little of substance. But many feared that under his control, the new service would be used to spy on the Kaczynskis’ political opponents.

With Civic Platform in charge again, aggressive policies towards the well-connected old guard are off the agenda. People like Jan Kulczyk are finding life easier. A billionaire tycoon whose business career started in West Berlin in the early 1980s—an unimaginable privilege in communist Poland for those without the tightest connections to the old regime—he epitomises to the Kaczynski camp everything that is wrong with their country. While they were in power, he moved to London. Now he is a frequent visitor to Poland.

Poland’s economic success under the Tusk government has blunted the edge of public resentment over corruption and unfairness. Unlike any other country in Europe, Poland boasted economic growth last year, of 1.7%. Its banking system is stable; the public finances sound. Road-building—once a signal failure of public administration—has suddenly accelerated thanks to Mr Tusk’s ability to push local politicians into speedy agreement.

The new go-ahead Poland is looking forward to some time in the spotlight. It will host the European football championships in 2012, jointly with Ukraine. In 2011, less glamorously but probably more importantly, it will hold the rotating six-month presidency of the EU, preceded by Hungary. As the ex-communist country with the strongest economy, most solid government and most constructive diplomacy, it has gone a long way to dispel the old stereotypes of backwardness and chaos. This month’s accident is appalling. But it does not derail Poland’s path to success, out of the ruins of the pre-war republic, from the devastation of war and communist rule, and from the grim consequences of this week’s crash.

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by Biodun Iginla, BBC News and the Economist

April 12th 2010


The skies brighten over Greece
The EU-led aid package is huge—but more will be needed
Full article

In Memoriam: Lech Kaczynski
The death of Poland's president carries a terrible echo of his country's past
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