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Wed Jan 28th, 2015 at 02:02:50 AM EST
Along with Time for the ECB Board to be sacked and Another modest proposal, here's another take on what the European Central Bank is about to do.
In an article on Pieria, Frances Coppola looks at the reasons why the Swiss National Bank abandoned its euro floor, a knock-on effect of the ECB's QE announcement. She goes on to imagine that the SNB's floor was still in place, alongside the euro pegs of a number of other European countries outside the Eurozone. The ECB is about to create more than a trillion euros. What happens?
Lets All Play QE
It would create a flow system. I've talked before about leveraging flow systems in relation to bank lending and financial crises. But this is different. It's a deflationary flow system. This is how it works.
In the centre, the ECB pumps out Euros. Some of those Euros may stay in the Eurozone (we hope), increasing economic activity there. But as the Eurozone already has a trade surplus, so is a capital exporter, most will flow out to the Eurozone's trading partners, putting upwards pressure on their currencies. Those partners that have pegs to the Euro will quickly be forced to respond with monetary easing of their own in order to hold their pegs. So as the ECB pumps out Euros, ERM II central banks (and others) mop them up. The ECB exports deflation to its currency partners: those partners export it back to the Eurozone. The only inflation to be seen anywhere will be in central bank balance sheets. This is what the Swiss, who have one of the very few privately-owned central banks, fear.
Mon Jan 5th, 2015 at 08:42:46 AM EST
Thomas Piketty is in the news for having refused the French decoration of Chevalier de la Légion d'honneur. Or, in other news, for a conversation with Bill Gates.
He's also a columnist at Libération. His latest offering starts by taking a swing at Juncker for his hypocrisy on the Luxleaks scandal, and goes on:
2015 : quels chocs pour faire bouger l'Europe ? - Libération
il est temps de reconnaître que ce sont les institutions européennes elles-mêmes qui sont en cause, et que seule une refondation démocratique de l'Europe permettrait de mener des politiques de progrès social.
it's time to recognize that the European institutions themselves are the problem, and that only a democratic refoundation of Europe would enable policies of social progress.
What gets in the way? Piketty singles out Germany and France.
Fri Oct 31st, 2014 at 09:15:10 AM EST
Anatole Kaletsky blogs on Reuters:
The takeaway from six years of economic troubles? Keynes was right.
Now that the Federal Reserve has brought its program of quantitative easing to a successful conclusion, while the French and German governments have ended their shadow-boxing over European budget "rules," macroeconomic policy all over the world is entering a period of unusual stability and predictability. Rightly or wrongly, the main advanced economies have reached a settled view on their economic policy choices and are very unlikely to change these in the year or two ahead, whether they succeed or fail. It therefore seems appropriate to consider what we can learn from all the policy experiments conducted around the world since the 2008 crisis.
The main lesson is that government decisions on taxes and public spending have turned out to be more important as drivers of economic activity than the monetary experiments with zero interest rates and quantitative easing that have dominated media and market attention. Fiscal decisions on budget deficits, taxes and public spending have mostly been debated as if they were largely political choices, with much less influence than monetary policy on macroeconomic outcomes such as inflation, growth and employment. Yet the reality has turned out to be the opposite.
Read and discuss.
Mon Sep 22nd, 2014 at 10:00:34 AM EST
Robin Fransman has a post on Pieria that neatly sums up a lot of what has been said here over the last few years (and that continues to prove depressingly accurate). Citing approvingly Mario Draghi's recent speech at Jackson Hole for its mention of a lack of an EU budget and of a lender of last resort as problems for the euro, he goes on to what Draghi didn't talk about:
Mr Draghi, is it really that difficult to see?
Using the EIP, the Commission can force countries into austerity when deficits and sovereign debts are too high, but can't force them into stimulus or tax cuts when surpluses are high. It can force countries into wage moderation and real wage declines when Unit Labour Costs rise too rapidly, but is powerless when wages rise too slowly. EIP will kick in when a country has a negative international investment position greater than -35%, but a high positive position goes unnoticed. It kicks in when inflation is too high, it does nothing when inflation is too low. Every indicator in the EIP is biased this way. The only indicator that has some balance is the current account indicator: deficit of more than -4% will sound the alarm bells, as will a surplus greater than +6%. But even this is simply another glaring asymmetry.
This is not a system that works towards a benign equilibrium. This is not an Excessive Imbalance Procedure. It's a deflation machine. It works towards an economy with perpetual current account surpluses and suppressed domestic demand, leaving exports as the only possible growth engine, under conditions that put constant upward pressure on the exchange rate of the Euro.
As has been pointed out many times here, all the partners in a single currency can't simultaneously run current account surpluses with each other; and, if Europe's sole vocation is to export, that calls for a big world (or Mars) with a growing appetite for Europe's goods and services. Fransman points out that projecting Eurozone export growth to the rest of the world in line with international trade and economic growth only adds 0.5% to GDP growth. Before one counts the effect of the shortfall in investment due to export gearing via demand depression.
Tue Aug 19th, 2014 at 08:04:19 AM EST
European Commissioner for Employment Laszlo Andor gave an interview to German conservative newspaper Die Welt (behind subs wall, and not much available in Eng-lang media as of posting):
Luxemburger Wort - Brussels pleads with Germany to let wages rise
AFP) Germany must increase workers' salaries to help its neighbours out of the economic slump, the European Union's employment commissioner Laszlo Andor said Saturday.
The Hungarian said Berlin's big foreign trade surplus was hurting its European partners, and urged it to stimulate domestic demand by increasing wages and public expenditure.
"The rise in salaries has fallen behind the rise in productivity in Germany" for more than a decade, Andor told the German conservative daily Die Welt, in an interview due to be published on Sunday.
Brussels was now urging Germany, the EU's economic powerhouse, to relax its iron grip on wages, which he said was "indispensible" for the recovery of the rest of the region.
"It would be better if salaries rise in parallel with productivity," Andor added.
His comments come amid signs of stalling growth in the 18-member eurozone, particularly its largest economies Germany and France, as the bloc struggles to recover from years of financial crisis.
Brussels now appears to be taking a view long championed by France that a rise in German salaries would give the struggling eurozone a much-needed stimulus.
France's President Francois Hollande this month called on Berlin to boost spending as "the best favour Germany could do for France and for Europe" to help growth.
"It's very important that Germany increases public spending, stimulates demand and reduces its excessive trade surplus, which is hurting its European neighbours," Andor said.
Hollande (as reported) made feeble noises in this sense at the beginning of the month. Official communications in France, echoed by the MSM, say that Hollande's policy is to bring together European social democrats to militate for a change of direction on austerity. But Andor is particularly clear... and a Commissioner.
The ball is in Angie's court. Will she smash it? Ignore it? Send back a spin shot? Place your bets.
Mon Jul 21st, 2014 at 02:58:26 AM EST
Over the weekend, two pro-Palestinian demonstrations in France (banned because of previous attacks on synagogues, official reason) began peacefully and ended in violent street fighting.
French president François Hollande alluded to the situation yesterday, when decorating documentalists of WWII deportation and murder of Jews in France Beate and Serge Klarsfeld with the Légion d'Honneur. Here is what he had to say about the current situation in France (emphasis mine):
Hollande refuse tout acte «qui puisse faire ressurgir l'antisémitisme» - Libération
«La République, c'est la capacité de vivre ensemble, de regarder son histoire et en même temps d'être toujours prêts à défendre les valeurs démocratiques, de ne pas se laisser entraîner par des querelles qui sont trop loin d'ici pour être importées, de ne pas se laisser emporter par les déflagrations du monde», a-t-il dit. Il faut, a-t-il ajouté, «faire en sorte que ne soit toléré aucun acte, aucune parole qui puisse faire ressurgir l'antisémitisme et le racisme».
The Republic means being able to live together, to be aware of its history and be always ready at the same time to defend democratic values, not to let ourselves be caught up in quarrels that are too far away from here to be imported, to not get carried away by the explosions of the world ... act so that no deed, no word be tolerated that might bring back antisemitism and racism.
François Hollande does not know that Palestine is not far away, that what is happening there is in every French living-room. He does not know that Israel's war crimes against the people of Gaza are right there on France's doorstep. He does not know that the country he presides is a Mediterranean country. He is ignorant of the ethnic and cultural origins of a large proportion of unemployed young people in France, of their historical and family links to other Mediterranean countries, of the fact that the rise of anti-Jewish sentiment among them is fuelled, precisely, by Israel's oppression of the Palestinians. He does not know that the death of boys playing on the beach at one end of Mare Nostrum washes up on the beaches of Marseille. He therefore fails to "be aware of (the French Republic's) history", and he wishfully believes that incantatory nonsense will suffice to lay the ghosts of the past while he turns his head away from the monsters of the present. By this appalling little speech he has gained his place among the pusillanimous European leaders who averted their eyes from Nazism until it was too late, and thus played a large part in permitting the genocide that followed - and which was exactly the subjacent theme of the ceremony at which he pronounced these words.
If you hear the echo of Neville Chamberlain on Czechoslovakia:
Neville Chamberlain - Wikiquote
a quarrel in a far away country between people of whom we know nothing
you have finer-tuned hearing than François Hollande, though you win no prizes, it really isn't hard.
Wed Jul 2nd, 2014 at 08:35:05 AM EST
The European Commission is running a consultation on the investment parts of the TTIP.
The relevant document is here.
It looks, as EC consultations go, fairly open. Apart from the overall assessment (C), there are 12 questions. Each can be answered by freely-written text of up to 4,000 characters inc. spaces. Respondents are not obliged to answer all questions.
If we want to do something on this, we have little time, the deadline is 6 July.
Perhaps best to focus on what seem to us to be major questions. At a rough and ready guess, I'd say they'd be:
Question 1: Scope
Question 3: Fair and equitable treatment
Question 4: Expropriation
Question 5: The right to regulate
Question 6: Transparency
DoDo and eurogreen have replied willing on this. Who else can join in, at whatever level? (Expert knowledge appreciated, if only in short, brilliant bursts).
Update [2014-7-7 3:27:52 by afew]: The submitted document (pdf) is available on site files here.
Thu May 29th, 2014 at 02:41:44 AM EST
Ambrose Evans-Pritchard has been consistently right about the euro, and he's right (no pun intended) again here:
Europe's centre crumbles as Socialists immolate themselves on altar of EMU - Telegraph
By a horrible twist of fate, Europe's political Left has become the enforcer of reactionary economic policies. The great socialist parties of the post-war era have been trapped by the corrosive dynamics of monetary union, apologists for mass unemployment and a 1930s deflationary regime that subtly favour the interests of elites.
He goes on to take François Hollande's performance as French President to pieces, and concludes:
Fri May 16th, 2014 at 10:21:14 AM EST
From Jamie Lowry at Pieria:
The record amount being borrowed by investors is a worrying sign for markets
Keen students of behavioural finance may not be too surprised to learn that, over time, margin debt levels have tended to be at their highest just before markets crash while, just before markets take off, investors tend to have net cash in their trading accounts. According to the New York Stock Exchange (NYSE), which publishes monthly data on the subject, net debt currently stands at record levels.
Now, in theory, investors could borrow money from their brokers and just let it sit in cash and the NYSE would still report that as a build-up of margin debt. To take this possibility out of the equation, therefore, a better way of considering the issue is to look at investors' `free credit balance', which - put simply - shows how much money they have borrowed specifically to buy shares.
See the lovely chart below the fold:
Fri Mar 7th, 2014 at 05:44:34 AM EST
On Pieria, Frances Coppola posts a clear and cogent denunciation of the single currency and calls for its immediate demise.
After analysing money supply stats and concluding that the ECB is in no position to do anything useful to stave off the tendency to deflation and long-term depression, she lets rip on the euro.
The ECB is irrelevant and the Euro is a failure
The history of Europe is long and blood-spattered. It is nothing like the United States, which is a young country with a common language, clear boundaries and a single political structure. Yes, the USA fought a civil war to achieve its current degree of political unity, and there are no doubt still stresses and strains. But Europe - if you must regard it as one entity, which is problematic in itself - has fought HUNDREDS of civil wars. We do not have a single language, we still cannot agree where our boundaries should fall and national interests always trump "European" politics. You can't overturn tribal and cultural identities that go back thousands of years at the stroke of a few politicians' pens.
My objections to the single currency, therefore, are historical and cultural, rather than economic. I have read Mundell. I understand the benefits of a single currency, where there is economic convergence. I know that the founders of the Euro project expected that the discipline of a single currency would force European countries to implement reforms that would over time create the necessary economic convergence. I know that this is STILL what politicians and Eurocrats are trying to achieve with measures such as the fiscal compact. But call me Cassandra if you like: I do not think any of this will work.
Sun Feb 2nd, 2014 at 09:28:34 AM EST
From Frances Coppola on Pieria:
Laffer and the Yeti
we need a serious discussion about the morality of taxation. While the rich believe they are morally entitled to low tax rates, they will continue to avoid higher rates by taking advantage of the global mobility of capital and the fact that tax arbitrage is a survival strategy for small countries. For higher tax rates to be economically effective, therefore, the moral case for them must be so clearly made that the rich themselves buy into it because they cannot in conscience do otherwise.
Can this be done? How?
Thu Nov 28th, 2013 at 02:42:20 AM EST
In a memo that we saw here, French bank Natixis' chief economist Patrick Artus, a well-known pundit on French media, describes Germany as a misfit in the single currency area, and outlines the macroeconomic case for D-exit.
This is a quick rundown of his points. The memo, in French, pdf, is here.
With the disclaimer that other fields than macroeconomics may be involved, Artus offers the following reasons for Germany to leave the euro:
- asymmetry of cycles between Germany and Rest of Euro Zone (ROEZ)
- weakening economic links between Germany and ROEZ
- structural asymmetries between Germany and ROEZ
- different foreign exchange needs between Germany and ROEZ
- impossibility for ROEZ countries to carry out internal devaluations
Cycles: absence of asymmetrical cycles is a condition for a shared currency. But GDP growth and the unemployment rate show strong asymmetry:
(Real GDP, annual change in %)
The asymmetry stems from structural differences (see further down), and differences in how credit supports demand:
(Credit to households and business, annual change in %)
The result of this asymmetry is that common monetary policy is not adapted to the whole of the Euro area. Between 2002 and 2007, it was too restrictive for Germany, too expansionist for ROEX; since then, it has been the reverse:
(Repo rate and nominal GDP)
Tue Nov 12th, 2013 at 05:06:11 AM EST
The European Green Party is organizing a primary for the two posts of leaders of the cross-Europe campaign for the European Parliament elections next year. (Twitter hashtag #GreenPrimary).
Greens select four candidates to run in primaries ahead of 2014 elections | EurActiv
Four Green MEPs [in fact 3 MEPs and one ex-MEP - note by afew] are entering the race for two top positions in the EU elections campaign ahead of the vote in May 2014.
On Thursday (7 November), the European Green Party (EGP) announced the four contenders who will take part in the primaries: French MEP and syndicalist José Bové; Italian MEP and co-chair of the European Green Party Monica Frassoni; German MEP and co-chair of the political group in the European Parliament Rebecca Harms; and German MEP Ska Keller.
Bové is arguably the most well-known among the contenders, but all contenders have a strong support in their home countries, party sources said. Ska Keller carries the nomination of the Federation of Young European Greens and has a profile that appeals to young participants in the online vote.
The candidates had to seek a nomination from a member organisation of the European Greens, as well as support of at least four member parties, to participate in the upcoming online vote. Frassoni got the support of five member parties, Harms and Keller from seven and José Bové secured the highest support with eight endorsements. [For lists of supporting parties, go here - afew].
The EGP requires the two candidates to come from different national member parties. This rules out having Rebecca Harms and Ska Keller runing as a tandem. Although the Greens traditionally have a man and a woman sharing lead positions, this is not a requirement, and the duo to lead the campaign could very well be two women.
What's this about?
|Harms, Bové, Frassoni, Keller|
The Greens ran the first cross-EU campaign for the EP elections in 2009, and will do so again, with the added attraction of this primary open to all sympathisers. This is also a step towards designating their candidate for Commission President. On this point see:
EUobserver.com / Political Affairs / EU Greens launch US-style primary elections
European parties hope to reverse this trend with trans-national campaigns and lead candidates who run for the top post at the European Commission, a novelty introduced by the Lisbon treaty.
But EU leaders recently poured cold water on hopes that the top candidate of the most popular party will automatically land the commission job.
German Chancellor Angela Merkel said she "sees no automaticity" between the election results and the post.
For his part, EU council chief Herman Van Rompuy warned against parties raising "false expectations."
Don't forget, the only "automaticity" is that Germany decides.
Should that make you want to go crazy and vote in this primary, the place to go is GreenPrimary. There's a FAQ here. You'll need to give an e-mail address and a mobile phone number, and check a box that says you sympathise with the values of the Greens.
Mon Aug 26th, 2013 at 08:20:56 AM EST
Watching Arte news last night, I was stunned by a German person offering a reading of Goethe's Faust. The reading was that Goethe, before Marx, showed capitalism stuck at a dead end produced by its own contradictions. Mephistopheles came along with a solution, paper money, and of course everything collapsed.
Nothing stunning there, you will say. We have already discussed Goethe's paper-money phobia on ET. But there was more. The person claimed that the "German government and the ECB" were currently practising the Devil's policy by "overheating the banknote printing press". "Creating money without creating value leads to a crash".
The notion that the German government was not sufficiently hawkish on monetary policy and was printing banknotes as if Hell did not exist came to me all the same as a surprise.
But here's why I was really knocked back: the German person was vice-chair of Die Linke and "close friend" of Oskar Lafontaine, Sahra Wagenknecht, a highly intelligent and highly-educated woman. Was she flying a kite to see if Merkel could be tarred with the lax monetary policy brush? It didn't seem like that to me: Wagenknecht appeared enthusiastic about Faust and the lessons we should draw from it, and she also looked appallingly sincere. And that kind of kite would call for Bild support rather than Arte news.
Mon Aug 19th, 2013 at 10:41:22 AM EST
Climate change combined with rapid population increases, economic growth and land subsidence could lead to a more than 9-fold increase in the global risk of floods in large port cities between now and 2050.
Future Flood Losses in Major Coastal Cities, (full paper attached above) published in Nature Climate Change, is part of an ongoing OECD project to explore the policy implications of flood risks due to climate change and economic development. This study builds on past OECD work which ranked global port cities on the basis of current and future exposure, where exposure is the maximum number of people or assets that could be affected by a flood.
The authors estimate present and future flood losses - or the global cost of flooding - in 136 of the world's largest coastal cities, taking into account existing coastal protections. Average global flood losses in 2005, estimated at about US$6 billion per year, could increase to US$52 billion by 2050 with projected socio-economic change alone.
The cities ranked most `at risk' today, as measured by annual average losses due to floods, span developed and developing countries: Guangzhou, Miami, New York, New Orleans, Mumbai, Nagoya, Tampa-St. Petersburg, Boston, Shenzen, Osaka-Kobe, and Vancouver. The countries at greatest risk from coastal city flooding include the United States and China. Due to their high wealth and low protection level, three American cities (Miami, New York City and New Orleans) are responsible for 31% of the losses across the 136 cities. Adding Guangzhou, the four top cities explain 43% of global losses as of 2005.
Total dollar cost is one way to assess risk. Another is to look at annual losses as a percentage of a city's wealth, a proxy for local vulnerability. Using this measure, Guangzhou, China; Guayaquil, Ecuador; Ho Chi Minh City, Viet Nam; Abidjan, Ivory Coast are among the most vulnerable. These cities are shown in map 1 of the paper.
To estimate the impact of future climate change the study assumes that mean sea level, including contributions from melting ice sheets, will rise 0.2-0.4 meters by 2050. In addition, about a quarter of the 136 cities are in deltas and exposed to local subsidence and local sea level change, especially where groundwater extraction accelerates natural processes.
An important finding of this study is that, because flood defences have been designed for past conditions, even a moderate rise in sea level would lead to soaring losses in the absence of adaptation. Inaction is not an option as it could lead to losses in excess of $US 1 trillion. Therefore, coastal cities will have to improve their flood management, including better defences, at a cost estimated around US$50 billion per year for the 136 cities.
Even with better protection, the magnitude of losses will increase, often by more than 50%, when a flood does occur. According to Dr. Stephane Hallegatte, lead author of the study, "There is a limit to what can be achieved with hard protection: populations and assets will remain vulnerable to defence failures or to exceptional events that exceed the protection design". To help cities deal with disasters when they do hit, policy makers should consider early warning systems, evacuation planning, more resilient infrastructure and financial support to rebuild economies.
The report also notes that large increases in port city flood risk may occur in locations that are not vulnerable today, catching citizens and governments off-guard. The five cities with the largest estimated increase in flood risk in 2050 are Alexandria, Egypt; Barranquilla, Colombia; Naples, Italy; Sapporo, Japan; and Santo Domingo, Dominican Republic. Map 2 shows the 20 cities where flood risks will increase most by 2050.
You can dl the paper here (pdf).
Mon Aug 12th, 2013 at 11:12:27 AM EST
I wander'd lonely as a cloud, That floats on high o'er vales and hills, When all at once I saw a crowd, A host...
Well, just one. With an ant.
bumped to keep alive
Wed Jul 31st, 2013 at 09:25:39 AM EST
It was surely only a matter of time, in the wider context of reducing workers' rights bit by bit:
BBC News - Fees for employment tribunals begin
People bringing employment tribunals [claims] must now pay a fee for the first time since they were created in the 1960s.
Under the new UK rules, they will have to pay £160 or £250 to lodge a claim, with a further charge of either £230 or £950 if the case goes ahead.
The higher charges will cover cases like unfair dismissal, the lower ones issues such as unpaid invoices.
Tue Jul 9th, 2013 at 05:43:07 AM EST
From this diary and poll came the choice, (however attractive the other options), of Paris for a meet-up in October, over the weekend 11-12-13.
This should give time for people to book cheaper travel arrangements, and also to look for accommodation.
The apartment we rented last year (WoB, HoB, Helen and I) was a good deal in terms of price, comfort, and conviviality. But, like travel, this calls for early booking, and booking can be complicated.
I suggest we make a start on that by listing candidates for this type of accommodation.
Provisional apartment-sharing list:
Thu Jun 20th, 2013 at 11:26:38 AM EST
There's quite a buzz around the state of Chinese banking at the moment. This is from Ambrose Evans-Pritchard:
FITCH: China's Credit Bubble Is A Record - Business Insider
China's shadow banking system is out of control and under mounting stress as borrowers struggle to roll over short-term debts, Fitch Ratings has warned.
The agency said the scale of credit was so extreme that the country would find it very hard to grow its way out of the excesses as in past episodes, implying tougher times ahead.
"The credit-driven growth model is clearly falling apart. This could feed into a massive over-capacity problem, and potentially into a Japanese-style deflation," said Charlene Chu, the agency's senior director in Beijing.
"There is no transparency in the shadow banking system, and systemic risk is rising. We have no idea who the borrowers are, who the lenders are, and what the quality of assets is, and this undermines signaling," she told The Daily Telegraph.
Fri May 3rd, 2013 at 05:48:37 AM EST
In a special issue (offline) of Alternatives Economiques, Christian Chavagneux argues that too great a size of the financial sector slows economic growth, and cites evidence from recent BIS and IMF working papers in support.
Though the development of financing circuits is indispensable to the functioning and growth of economies, the recurrent tendancy towards bubbles of credit and asset prices (stocks, real estate...) shows that beyond a certain threshold, finance has a very negative impact on the dynamics of activity.
An excessive financial sector reduces the rate of productivity increase, according to BIS working paper Reassessing the Impact of Finance on Growth (Cechetti and Kharroubi, pdf), which shows that a level of credit to the private sector at 75-100% of GDP (or greater) causes drag on average GDP-per-worker growth. To take into account differences between economies (developed, high-finance economies grow more slowly than less developed ones for a variety of reasons), the authors present this scatter plot based on deviation from the country mean (data from 1980-2009):
A falling-off in credit to the private sector/GDP (predictably, if one considers pro-finance common wisdom) correlates to a slowing of GDP-per-worker gains, but so does an increase. The effect, according to Cechetti and Kharroubi, is even more marked when only bank credit to the private sector is considered.
An IMF working paper, Too Much Finance? (Arcand, Berkes, Panizza) reaches similar conclusions: starting from 80-100% private-sector credit/GDP and beyond, economic growth is negatively impacted.
Chavagneux explains the negative impact by the mechanics of bubbles, see below the fold.
by marco - Mar 26
by DoDo - Mar 19
by DoDo - Mar 7
by DoDo - Mar 12
by DoDo - Mar 14