July 11, 2014 6:26 pm


Mastery over fast-passing will prove to be the big winner

All the chatter distracts from football’s central element

Germany's Sami Khedira, bottom, scores his side's 5th goal during the World Cup semifinal soccer match between Brazil and Germany at the Mineirao Stadium in Belo Horizonte, Brazil, Tuesday, July 8, 2014. (AP Photo/Felipe Dana, Pool)©AP
Sami Khedira, bottom, scores Germany's 5th goal during the World Cup semifinal against Germany


Every World Cup has a winning team, and a winning style. This time, the winning style is fast-passing football. Germany are the team of the tournament so far. If they beat Argentina in Sunday’s final, then like at the last World Cup and the last two European Championships – the winner will be the best fast-passing team.

This does not mean the dribble is dead. But there are lessons here, particularly for Brazil and England. The Dutchman Johan Cruyff, arguably the father of fast-passing, thinks German passing, running into space and positional play are now superior. Even their keeper passes well, he notes

Cruyff adores Germany’s playmaker Toni Kroos. “The boy does absolutely everything right . . . gives his passes the right speed.”

There are two different kinds of fast-passing teams. Germany, like Chile, are in the spirit of Bayern Munich’s coach Josep Guardiola: hog the ball and attack. The other variety, represented here by Holland, follows Chelsea’s coach José Mourinho: let the opposition have the ball, but then break with fast passing, ideally shooting within three seconds of winning possession.

Passing fast sounds simple but requires deep study. Cruyff can spend hours talking about how to pass. Do not pass sideways (as Brazil’s defenders do), but only forward. Pass a metre in front of a teammate, to force him to run. The moment you pass, run yourself because good passing depends on players moving into space.

Do not pass vertically ahead, as England do – or Brazil did against Chile. That is easy for opponents to read. Instead, pass diagonally and make triangles. Do not hit high, speculative crosses. Rather, pass low into the penalty area as the Germans do. When you lose the ball, all your outfield players must gather in a compact bloc that shuts off space. Argentina do this brilliantly. Indeed, most of football is positioning because the average player has the ball less than a minute per game

A dribbler can complement a passing team, as Lionel Messi does at Barcelona. A dribble is football’s version of nanotechnology: sometimes, beating a defender is the only way to open a yard of space inside a compact defence. The great Brazil of 1970 could dribble and pass: recall Pele’s pass into space for Carlos Alberto’s climactic goal in the final. Today’s best dribblers, Neymar and Messi, have also been their teams’ most creative passers. Messi’s virtues have carried his flawed team to the final.

But dribbling past someone is difficult, and therefore best left to one or two specialists per team. And they can only dribble when they have several teammates behind them, in case they lose the ball.

Still, good dribbling works. What does not work is fielding several players who neither pass nor dribble well, as Brazil and England have done. If you have lots of poor passers, your slow build-up will leave the opposition time to build a compact wall.

Brazil and England need to learn fast passing. Brazil’s 1-7 defeat to Germany was an unrepeatable one-off. However, Brazil have hardly played a good game at a World Cup since 2002. Their problem is structural. They stumbled to this year’s semifinal aided by home advantage. And Latin Americans can learn fast passing. Chile and Colombia prove that. It is not a genetic trait.

Teams that do not understand passing tend to blame defeats on psychological factors. The timeworn English response to elimination is to complain about overpaid players lacking in spirit. But it is doubtful that Colombia, say, were more spirited than England. Rather, the Colombians had worked out a game of fast passing and running into space that let them unleash energy. England were willing, but static.

Analyses of team spirit tend to miss the point. In top-class football, spirit usually follows results rather than causing them. The reason, for instance, Brazil’s players cried a lot during the tournament was that they were playing badly. It is not that their tears caused their bad play, as many Brazilian commentators think. All that chatter was a distraction from football’s central element: the pass.


Copyright The Financial Times Limited 2014.


July 9, 2014 6:57 pm


US banks will pay dearly for their failure to modernise

A country that often leads in consumer technology lags far behind in payments systems

©Ingram Pinn


The other day, a business in New York mailed a dollar cheque to me across the Atlantic. It was a pretty thingmulticoloured, with an anti-fraud foil hologram – and I admired it for a while before putting it into another envelope and posting it back to a friend in New York to walk up the block and deposit. After a round trip of 7,000 miles, it reached my account three weeks late.

Mine is an unusual casefew people live 3,500 miles away from their nearest bank branch – but it illustrates the antique quality of the US payments system, which is the land that time forgot. A transaction that would have been completed electronically in a minute in the UK and many other countries involved a panoply of delays, unnecessary costs and human intervention.


Admittedly, I need not have posted it back. I could have taken a photo of it instead17 per cent of US cheques are now deposited via an electronic image, rather than the piece of paper itself. If anything, though, that is a further problem for the US economy, for it weakens the incentive for banks to fix their technological plumbing.

Nor are cheques the only historical curiosity. Credit and debit cards embedded with chip and pin authentication are near ubiquitous in Europe and common in Asia, but almost all US cards depend on 40-year-old magnetic stripe technology. Contactless cards this week became the only permitted payment method on London busesno cash allowed – but they remain an avant-garde concept in the US.

Some argue that this does not matter too much, given that the US payments system works securely and Americans are used to it. “I have honestly never heard any consumer express concern,” says Steve Ellis, an executive vice-president of Wells Fargo, which is one of the more technologically advanced of US retail banks, although its name evokes stagecoaches in the 19th century Californian gold rush.

But it is strange that a country that often leads the rest of the world in consumer technology lags behind badly in the basic infrastructure of retail banking. It also provides an opportunity for European banks and start-ups to build a lead in financial innovation. Europe has a superior platform on which many other services can operate.


London is already home to many financial technology start-ups such as TransferWise, a peer-to-peer foreign exchange hub in which Richard Branson, founder of Virgin Group, and Peter Thiel, co-founder of PayPal, have invested. “The most interesting things in technology are happening here,” says Kristo Käärmann, its co-founder.

Europe’s lead reminds me of the period a decade ago when it was ahead of the US in the use of mobile phones, and spawned start-ups such as Skype. Its window of opportunity shut when Apple launched the first iPhone in 2007 and Silicon Valley poured venture capital into mobile software, but the US has a big gap to make up in payments.

The widespread use of cheques is the most blatant inefficiency of the US system, although their use is in decline. American consumers and businesses wrote 18bn cheques in 2012four times as many per head as in the UK. Meanwhile the US has no equivalent of the rapid payment systems in the UK, Canada, Mexico, and Singapore that can make all transfers intraday.

It is especially odd because the fragmentation of US banking has in the past stimulated world-beating innovation. Bank of America offered the first credit card in 1958, later spun off into Visa, partly in order to overcome the difficulty of using out of state cheques. (Bitcoin is a modern effort to provide a faster and cheaper way of moving money.)

The Federal Reserve which has until now confined itself to politely nudging banks on interbank payment issues, is frustrated at the lack of progress, and the fact that banks blocked an initiative two years ago to speed up electronic payments. Some feared losing the revenues from the “wire roomfees they charge to make rapid transfers.

The looming problem is that, instead of a single rapid payments system, US consumers may have to choose among competing private payment networks such as PayPal and Popmoney. The Fed lacks the regulatory powers to impose its own system, and is now trying to cajole the banking industry, along with retailers, into agreement.

In contrast, Europe’s policy makers and regulators forced banks into co-operating to improve the efficiency of payments. The UK’s banks introduced its Faster Payments system in 2008, under regulatory pressure from the UK Office of Fair Trading and the EU payment services directive.

This is reminiscent of the differing approaches in Europe and US to mobile telephony. The EU mandated technologies for phone networks and operating software from the 1980s onward to create competition among operators on a single platform. The US allowed competing standards, now being unified with 4G.

It all worked out in the end for the US and that could happen for payments. More Americans could go abroad and notice what they are missing; banks, card companies and retailers may accept that the gains from investing collectively in better technology outweigh the short-term costs and loss of revenues; the US could move into the lead.


Currently, though, the US lags behind the rest of the world with no obvious way to solve its difficulties. In September, the Fed will present its “road map” for the introduction of a US faster payments system, but banks are under limited pressure to change their ways. For Europe’s sake, long may it continue.


Copyright The Financial Times Limited 2014.


Argentina’s Sovereign Bondage

Anne Krueger

JUL 9, 2014
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Argentina Flag



WASHINGTON, DC Sovereign debt has been back in the news recently, this time because of a United States Supreme Court ruling concerning Argentine debt. As a result of the ruling, a complicated issue is likely to become even more so.

Sovereign debt has been a major feature of the international financial system for centuries. Kings borrowed, often internationally, to finance wars and other expenditures. When they couldn’t pay, as sometimes happened, sovereigns defaulted.

Today, sovereigns are more often democratically elected governments, but they still borrow. And they still occasionally find themselves in situations in which their debt has become unsustainable and they need outside help to continue to meet their debt-service obligations.

When private firms (or subnational governments) become insolvent, there are normally legal bankruptcy procedures to determine what to do. Without such procedures, a market economy would be unable to function.

In part, this is because creditors would otherwise stop extending credit and demand repayment at the first sign of trouble. This is because the first creditors to be paid would receive the full amount owed to them, leaving less for later creditors – and thus creating an incentive for all creditors to rush for the exits even before debt servicing had become impossible.

Moreover, in many cases, the value of the troubled entity’s assets as a going concern is greater than it would be if the assets were sold separately. In such cases, all creditors would be better off with a debt write-down than with dissolution. Bankruptcy law thus protects creditors from each other by preventing an outcome that would needlessly harm all of them.

In the case of sovereign debt, however, there is no binding international law that permits bankruptcy. Though some routine practices have emerged as international capital markets have grown, they remain ad hoc. Given the uncertainty involved, and that sovereign debtors can repay domestic-currency debt simply by printing money, creditors have typically demanded significantly higher interest rates if bonds are not issued under the law and in the currency of an advanced countryoften the United States or the United Kingdom.

When a sovereign decides that its foreign debt is unsustainable, the government and its creditors have had to negotiate among themselves about what to do. For sovereign bonds held by other sovereigns, the Paris Club of creditor countries has developed procedures for handling the debt. But when private creditors hold sovereign debt, organizing them creates a new challenge with each episode.

When debt is unsustainable, there are several possible negotiating outcomes. Sometimes, debt-service payments are rescheduled and perhaps stretched out over a longer period, thus giving the debtor country time to regain its ability to pay. Sometimes, creditors agree to exchange the old bonds for new ones, which have either a lower face value or lower interest payments. Few governments refuse to pay at all in any form.

Argentina defaulted on its debt in 2001. After several difficult years, the country managed to negotiate an exchange of outstanding bonds for bonds with a considerably lower face valueAbout 93% of creditors accepted the exchange and received new bonds with a face value that was about one-quarter of that of the old bonds. After 2005, Argentina maintained debt service on the new bonds.

But some creditors held out, and sued Argentina in New York (as the bonds were issued under New York law). Argentine bonds (like most others) had a so-called pari passu clause that committed the government to treat all bondholders alike. The holdouts claimed that, if the new bonds were being serviced in full (as they were), equal treatment required that the holdouts should receive the full amount owed to them (including not only interest but also principal).

The US Second Circuit Court of Appeals ruled that Argentina was bound to honor its obligations to the holdout bondholders in the same proportion (namely 100%) as the holders of the exchange bonds. It was that ruling that the Supreme Court recently upheld.

Under the court order, Argentina may not pay the holders of the new bonds unless it also pays the holdouts, and no US financial institution can serve as an intermediary to make payments for Argentina. As a result, Argentina must either pay the holdouts in full or default on the new bonds.

Regardless of how the current impasse is resolved, the ruling raises many questions for issuers and holders of sovereign debt. If creditors now believe that holding out makes it more likely that they will receive full value at a later date, restructuring sovereign debt and restoring a debtor economy’s normal functioning will be more difficult.

Since the Argentine crisis, most new bonds have been issued with collective action clauses (CACs), under which bondholders are obliged to accept restructuring if a specified share (usually around 70%) agree to it. As time passes, there are fewer and fewer outstanding bonds that do not contain CACs. But CACs may not resolve the problem entirely, because a vote would be required for each separate bond issue, and a holdout position could be achieved by buying up the blocking percentage of a small issue.

It is also possible that language will be found in future bond issues that replaces the pari passu clause but provides sufficient assurance to bondholders to let the market function much as it did until the current ruling.

Until the euro crisis, it was generally believed that problems servicing sovereign debt occurred only in emerging markets and the least developed countries. The US Supreme Court’s decision on Argentina adds a new wrinkle, and may well further increase the risk attached to holding sovereign debt – and this to the cost of issuing it.



Anne Krueger, a former World Bank chief economist and former first deputy managing director of the International Monetary Fund, is Professor of International Economics at the School of Advanced International Studies, Johns Hopkins University, and Senior Fellow at the Hoover Institution, Stanford University.