Good Lord!

Good lord, this looks serious:

A dawn bomb attack devastated a major Shi’ite shrine in Iraq on Wednesday, sparking nationwide protests and sectarian reprisals against Sunni mosques despite appeals for calm from government and religious leaders. The attack on the Golden Mosque in Samarra, one of Shi’ite Islam’s holiest sites, provoked more violence than attacks that have killed thousands but the Shi’ite-led government insisted it would not provoke civil war…..

No one was killed in the attack on the mosque in Samarra. However a Sunni cleric was killed, police said, at one of 17 Sunni mosques in Baghdad fired on by militants. One mosque was damaged by fire, though most damage appeared relatively minor.

Prime Minister Ibrahim al-Jaafari, a Shi’ite, declared three days of mourning and called for Muslim unity. He said the interim government had sent officials to Samarra. Residents said police sealed off the mainly Sunni city, 100 km (60 miles) north of Baghdad; police fired over demonstrators’ heads as they chanted religious and anti-American slogans.

Armed Mehdi Army militiamen loyal to radical Shi’ite cleric Moqtada al-Sadr took up positions on streets in Baghdad and Shi’ite cities in the south, clashing in Basra and elsewhere with Sunnis; a Sadr aide said: “If the Iraqi government does not do its job to defend the Iraqi people we are ready to do so.”

Witnesses said rocket-propelled grenades damaged a Sunni mosque in Basra and there were heavy exchanges of fire after Sadr’s Mehdi Army militia attacked an Islamic Party office in the city. Thousands of people marched in Shi’ite towns across the country and through the capital, condemning the Samarra attack.

Spain Is Now Over The Radar

It all started with the Catalan Statute, then there was this piece, then Wolfgang Munchau joined in. Today comes the news that:

The European Union’s top competition regulator will this week issue formal antitrust charges against Telefónica, alleging that the Spanish telecommunications group has abused its dominant position in the fast-growing market for broadband services.

And there is the situation with the takeover bid from the German group Eon for the Spanish utility company Endesa (full copy here):

ImageEon, Germany’s biggest power group, on Tuesday launched a €29bn cash offer for Spain’s Endesa, raising prospects of renewed consolidation in Europe’s energy sector.

If Eon succeeds it would be the word’s largest utility deal, valuing Endesa at €55bn, including debt and minority interests. It would create the world’s biggest utility with 50m customers across 30 countries in Europe and the Americas.

But the move, which trumps a rival bid from Gas Natural, threatened to disrupt Spanish efforts to create a national champion in the power sector and presented a challenge to Brussels just days after it announced an antitrust crackdown in the energy sector.

The curtain is about to be drawn like never before on Spain’s inner ‘boudoir’. Let’s just hope that everything which is to be found there makes for suitable public viewing.

Who Will Be The First To Blink?

Methinks the first serious test of the eurosystem is now looming on the horizon. The title of this post refers to an earlier point made by Nouriel Roubini. The FT this morning is reporting that:

The German cabinet will on Wednesday endorse a 2006 budget that breaks the European Union’s fiscal rules for the fifth year in a row, amid criticism that Angela Merkel’s coalition government is failing to meet its own target to cut spending.

If this is confirmed the EU Commission and the ECB will then have to respond. One of these fine days all hell is going to break loose in the financial markets. Will that be sooner or later? We await developments.

EURES: one million job offers within the EU

The EU launched a new website today, EURES where one million jobs within the EU will be on offer. From the EURES-site:

EURES (EURopean Employment Services) brings together the European Commission and the public employment services of the countries belonging to the European Economic Area and Switzerland. Other regional and national bodies concerned with employment issues are also included, such as trade unions, employers’ organisations, as well as local and regional authorities. (…) EURES is playing an increasing role in identifying the surpluses and deficits of manpower in different sectors, and in overcoming qualification bottlenecks. The network also helps improve employability, particularly that of young people, through the acquisition of professional experience abroad. EURES also contributes to the creation of a common European labour market, as well as, in certain border regions, to the establishment of an integrated regional labour market.

Currently, only 2 percent of 450 million Europeans work legally in another member state. (source: De Telegraaf)

Les Jeux Sont Faits

Yes gentle readers, les jeux sont faits. Italy has entered the election season, and this time the game is for real. The outcome of this election, and the decisions which are subsequently taken will be important not just for Italy, but for the whole EU, and the stakes are not small ones: the whole European process is in play. (This post needs to be read in conjunction with the last one from Alex, and contsitutes the start of our campaign: Italian elections 2006. Incidentally, since none of us are in Italy, and since I for one tend to see everything Italian through a Spanish filter, if there is anyone out there in Italy reading this, and who fancies their hand at some guest blogging during the Italian campaign, then please consider yourself invited to contact us directly to talk about this.)

The starting point for getting a handle on Italian Elections 2006 is undoubtedly a blog post from the US economist Nouriel Roubini following an amazing outburst at the recent Davos forum by Italian economy minister Guilio Tremont (also see here).

Wolfgang Munchau takes up the issue in an FT article today.

There was a revealing incident at the World Economic Forum in Davos this year. Nouriel Roubini, the New York-based international economist, took part in a panel discussion during which he raised questions about Italy’s future in the eurozone. A fellow panellist was Giulio Tremonti, the Italian finance minister. Professor Roubini wrote in his web log* that his presentation “caused a stir with Minister Tremonti who interrupted me in the middle of my remarks, went into a temper tantrum and shouted: ‘Go back to Turkey!’ I happen to have been born in Istanbul.”

Perhaps one should not conclude too much from this incident, but it does show one thing: European officials are getting nervous about the future of the euro. A few years ago, no one would have raised an eyebrow.

Now Munchau’s focus is Spain, but Spain and Italy here are but two sides of the same coin, the existence of low, and thoroughly inappropriate, interest rates. In the one case it is the private individual who is hopelessly in debt, in the other it is the state. Now as Munchau states:

Italy is often mentioned as the country most likely to leave the euro. I disagree. Leaving the euro would not solve any of Italy’s problems. Since Italy’s debt is mostly euro-denominated, Italy would be facing an Argentinian-style debt crisis.”

This is undoubtedly true. Leaving the euro would clearly leave Italy facing a horrible mess, of gigantic proportions, but it ducks one key question: will Italy be able to stay inside? It may well be that Italy would never ‘choose’ to leave, but can Italy find a sustainable path to maintain its membership? That is the real question, and I, for one, have serious doubts on this, doubts which I have never really tried to hide. In the face of Italy’s inability or unwillingness to correct its course, the issue is, as Roubini himself asked in an earlier post, in the game of chicken which is now being played between the Italian state and the EU institutions who will be the first to blink? Certainly no-one here has a very viable exit strategy to hand. The latest news on the current attempts to reign in the debt is certainly far from reassuring.

So, to start the ball rolling, here are a number of the key issues as I see them:

1/. The existence of a huge and unsustainable public debt, no clear evidence that anything is going to be done about this, and the accompanying serious policy headache both for the EU Commission and the ECB.

2/. The presence of a high level of private saving, coupled with a far from dynamic internal economy.

3/. The fact that Italy has one of the lowest fertility rates in Europe which make the population pyramid unsustainable in the long term together with a lack of the real resources needed to introduce a programme of public policy to address this problem.

4/ The presence of strong xenophobic attitudes among leading members of the Berlusconi government (and here) which makes recourse to serious immigration as a paliative to the demographic problems extraordinarily complicated while at the same time making the conduct of EU foreign policy even more of a headache.

5/ A long and complicated history of corruption at many levels of private (and here) and public life (and here), and a complete lack of infomational transparency in dealings with the EU.

6/. The presence of a heavily ‘familiaristic’ approach to public policy which prevents realism and objective debate in looking for solutions to Italy’s long term structural difficulties.

7/. The existence of a strong sense of denial inside Italy itself about the scale of the problems and a real and present willingness to blame the euro itself for all the problems.

This list of headaches is undoubtedly long enough already, and undoubtedly more topics could quickly be added, they do howvere form a starting point for a full and frank dicussion of the problem. Let the games commence!

Viva Ricardo!

Guy of these pages recently spoke to a “source” who has an interesting counter-take on the Italian economy and the Italian government’s debt problem to that frequently discussed here. Apparently, the feller says, there’s no chance of “an Argentinian-style blowout” because of the low levels of private debt.

The source is essentially arguing that Ricardian equivalence holds for Italy. That is to say, private and public savings ratios match each other-when the government borrows, the private sector saves, and vice versa. Hence the recovery path after a debt crisis would be that firms and households load up on debt to invest and consume, kick starting a Keynesian recovery.

Now, it’s an observable fact that the Italian government is up to its neck in debt and households are hoarding cash, but that doesn’t necessarily mean that Ricardian equivalence holds. Correlation does not imply causation, and Ricardian equivalence itself is anything but uncontroversial. In fact, it’s not so much an economic theory as a point for discussion, despite having been around almost as long as economics itself. There are some cases that support it – Israel in the 1980s being the classic – but a lot that don’t.

Arguments that fit the facts are always preferable to ones that don’t, but yer man is a braver man than me if he is basing his business decisions on this theory. Especially, I’m not at all clear on what the intermediate analysis/microfoundations are meant to be-how do we get from here to there? Presumably the Eurocrisis option would be one – out of the €, deep devaluation, export-led recovery and follow through to the domestic economy. But the pain of such a course would be epic. And it’s still worth pointing out that I still haven’t met a European business person who considers it even within the realm of the non-crazed (perhaps I don’t deal with enough Italians). More seriously, the panic and Weltuntergangsstimmung that would accompany such a course would have dramatically depressing effects on those ol’ animal spirits.

What of a forced Ricardian equivalence, about the only other story I can see that would satisfy our man’s argument? Imagine that the Italian government retires large quantities (perhaps massive quantities in the course of a debt crisis) of bonds from private and institutional investors and refinances them with the banks. Government paper is a reserve asset, and an increase in reserve assets should mean a multiple increase in credit creation to the private sector. One may recall that some monetarist-minded governments have been keen on manipulating the balance between T-bill-like assets held by banks and bonds held by funds and individuals in order to influence the creation of credit, usually in a deflationary direction – so why not in an inflationary direction?

It’s a bit like reversing the economic flux capacitor, and it’s certainly what in computing we would call a horrible, kludgy hack, and the inflationary bit could easily go well out of kilter, and the whole thing would be dependent on a lot of good will from a lot of banks, but it bears a passing resemblance to some proposals of Paul Krugman’s regarding Japan in the late 1990s. Edward Hugh will no doubt call attention to the similarities between the problems.

Does the weirdness of the solutions mark the optimism of the “source’s” argument? Or is it a long shot..but it might just work? A key number will clearly be the percentage of Italian government debt held by banks.

Winners of the 2nd Satin Pajama Awards

Here are the winners of the 2nd Annual European Weblog Awards, also known as the Satin Pajamas:

Most Underappreciated Weblog: Metamorphism by Mig
Best Central European Weblog: All About Latvia by Aleks
Best Expat Weblog: Petite Anglaise by Petite
Best Personal Weblog: Petite Anglaise by Petite
Best French Weblog: Journal d’un avocat by Eolas
Best German Weblog: Atlantic Review by various
Best UK Weblog: A Welsh View by Robert Gale
Best CIS Blog: Neeka’s Backlog by Veronica Khokhlova
Best Southeastern European Blog: Argumente by Dragos Novac
Best Culture Weblog: Amateur d’art by Lunettes Rouges
Best Writing: Bric a blog by the widow Tarquine
Best New Weblog: La Poulette by Poulette
Best Humor Weblog: My Boyfriend Is A Twat by Zoe
Best Non-European Weblog: 3 Quarks Daily by various
Best Expert or Scholar Weblog: Early Modern Notes by Sharon Howard
Best Political Weblog: European Tribune by various
Life Time Achievement Award: Neil Gaiman

and finally (drumroll) …

Best Weblog: Neil Gaiman’s Journal by Neil Gaiman

You can still see all the finalists and their share of votes on the award page. They’re all worth a visit. Last years winners are here.

Congratulations, everyone!

Update (by Tobias) – here’s a little badge for the winning blogs to display their success at the polls. Congrats, you got yourself a Satin Pajama!

Winner 2006 AFOE Satin Pajama

Skinheads Against Royalist Prejudice

The German newspaper whose website could be better organised has this pleasant-enough storyAber wer hätte gedacht, daß der populäre Name „Rising Sun” nicht den Sonnenaufgang meint, auch nicht die „Animals” und ihr besungenes Bordell, sondern Edward III.? Kein Zeichen freilich bietet so viele Varianten wie „Royal Oak”: Meist zeigt es eine Eiche nebst einer Gestalt in der Krone zur Erinnerung an Charles II., der sich, der Überlieferung zufolge, nach der Schlacht von Worcester 1651 vor Cromwells Skinheads in eine Eiche rettete. So bekannt ist die Szene, daß eine Königskrone über dem Laub als Pars pro toto schon genügt. Doch königlich ist auch die Eiche selbst.

Cromwell’s followers in the New Model army were known as Roundheads…skinheads are something entirely different…

Burn your hard drives.

The day is approaching fast (likely the release date of Microsoft’s next version of its Windows operating system, called Windows Vista) on which a so-called trusted platform module on your computer’s motherboard will be able bar you from accessing the data on your computer, or at least bar you from doing with it what you want to do, if what you want to do does not comply with the rules embedded in it.

This is on the one hand a consequence of the entertainment industry’s global strategy to reduce the utility of their products to be able to command higher prices for them, and on the other an attempt to increase the security of data on a computer – in case you would not be able to access your files, it would be rather certain that no one else would be either.

Well, don’t be too sure.
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Satin Pajamas

I’m finally done, about three weeks too late. Go vote.

Btw, we lost the page for last years awards, but you can look at it here.

…The polls will close on Friday.


Update (by Tobias, 23:43 CET) – I’ve seen some nominees use screenshots of our lovely satin pajama wearing teddy bear in order to visually enhance a post about their nomination, but that’s clearly not overly convenient. So I’ve made three banners in different sizes. I hope that one of them fits your needs. You can find the banners below the fold.
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