Uncomfortable thoughts and philosophy

It is a good thing I am not a journalist, since I often forget to write down the source of interesting comments I hear on, for instance, television. Come to think of it, this makes me a lousy blogger too. Anyway, recently my beloved Arte had an item on India as an emergent world power and a future engine of global economy.

One of the Indian interviewees, an economics professor if I am not mistaken, anticipated that Western, and notably European, power would decline and that Asia, notably India and China, would then take over control and impose their models on the world.

On Tuesday night, French economist Philippe Dessertine, invited to France 5 current events program C Dans L’Air, was particularly gloomy about the economic forecast, talking about an impending global shit storm. Actually, he simply said une tempête qui s’annonce, but his message was very clear. We are in for a rough ride. If you understand French you can watch part of the program here. Dessertine starts at 17.22.

Back to my Indian professor. Maybe it was my imagination, but this man seemed to take some pleasure in the fact that Asia, among others, is about to turn the tables on Western hegemony. Revenge of the formerly colonized or something like that. Fair enough, I suppose.

Naïve as I may be, I do realize that things are never that easy. But what if he is right? What would that mean for us Europeans/Westerners?

We have grown accustomed to exporting our own grand visions of the world. A few centuries ago it was Christianity and now it is democracy (the US) and human rights (Europe). And when the economic conditions within our own societies became intolerable, we simply exported ourselves to newly discovered places, far away from our own misery. In other words, we and our values spread around the world like an enlightened plague. This blessing in disguise was not always appreciated by the recipients but our own societies fared pretty well as a consequence, some minor glitches (the failing Spanish empire, for instance) notwithstanding.

Now, for my question. What if other civilizations, by the brutal force of economic power and demographics, would start to do the same to us in a not too distant future? How would we cope with that intellectually, morally and economically?

I know this is just a silly mind-game, but it would be interesting to put ourselves in the place of the formerly colonized, if only for a minute, and see if our cherished values can really live up to that kind of a challenge. Besides, I do believe that we will be confronted with these questions, to some degree, sooner or later. Think about the recent Mittal issue in France. If you feel really philosophical you can debate the following question: Are our values merely driven by circumstance? Or, is our “enlightenment” just a luxury product?

Adriatic Surprise

The International Monetary Fund has released a staff analysis of economic competitiveness in the southern Euro area — France, Greece, Italy, Portugal, and Spain.  It’s a fairly technical document – written as a series of papers with a brief overview chapter at the start, which probably means that many of its messages will be missed.  But the bottom line is that all five countries are found to have done badly in most areas of competitiveness, meaning loss of export shares in global markets, lack of specialization in rapidly growing products and markets, and only limited success in services.  

Whether you’re surprised will depend on what you expected going in but for me the main news was the relative success of Greece, which rarely merits a mention as an EU tiger.   Greece seems to have 3 factors in its favour: a trade orientation towards its northern neighbours (who have been growing while still low profile in terms of competitor countries), tourism, and transport — all that Greek-owned shipping has been in heavy use around the world.   The world may be ever more mobile, but history and location still matter.

German (European) education

New Europe-based weblog Escape Indifference has an interesting post on higher education in Germany called Not welcome in Germany. Chris Osman, the author of the weblog, is a student at a German university. In his post he compares German universities with their American counterparts and finds the Unis lacking in both quality and openness. He is really rather nice about it, attributing it all to lower budgets:

German Universities rank pretty low on the world university ranking list. There is a reason for that. One benefit of studying in Germany is that the price of the education is relatively cheap. To be sure I’m paying less than $1,000 a semester, and that is being an international student. However, after diving into the program it becomes apparent that this does have a price. The universities just do not have any money to put toward its institutions and finding good professors. Furthermore students do not have easy access to print services, good literature, or even to the professors themselves.

I do not know if this is true for all German universities, but I was struck by another comment he made on the mentality of the German students themselves:

If you have ever attempted to attend a lecture, you are met with many distractions such as people talking, walking in and out constantly, as well as being called a “Streber” if you show any remote interest in a subject. In fact, I can readily compare it to the attitude that is found through American High Schools, which makes the price of the education a probable reason for this.

Funny enough, I noticed the very same thing when I was studying in Belgium. My first year in higher education was eerily similar to my years in a Belgian high school. The front rows of the classes were occupied by students who were considered by the rest to be “Strebers”. In the back rows you found the “tourists”, students who tended to disappear after the first year. Much of this had to do with the fact that higher education in Belgium, as in Germany, is relatively cheap compared to other countries, allowing a great number of students to “travel around” a bit and try out different schools.

Even so, after the “weeding” of the first year, with drop-out rates of sometimes seventy percent or more, those who made it through the selections were in my experience definitely motivated to get a degree. So maybe Chris is just experiencing a bout of first-year tourism. He did not mention what year he is in.

What I found more disturbing was his following comment:

Additionally, German attitudes toward international students is very standoffish and unforgiving. Germany is ranked very low in terms of what they call “Integrationspolitik” and the classroom is a direct representation of that.

followed by some comments from fellow expat-students along the lines of

“If they were in my country, we would show them the excitement of being new and foreign, and would attempt to make them feel at home. I just don’t feel at home here.”

When I was a student foreigners were not a problem at all. But maybe that is because I was at a school for translators and interpreters. On top of that the Erasmus Programme, which brought in most of the foreign students at our school, was still new and exciting. I was an Erasmus student myself and I still have fond memories of my stint at Hull University in England.

So, here is my question to our readers. What is your experience, if you have one, as a foreign student at a European university? Do you find the quality of education, compared to your own country, satisfying? And how do you feel about the integration of foreign students abroad? Secondly, for our German readers or people like Chris who are studying or have studied in Germany, can you corroborate Chris’ experiences? It would be nice to get a bit of a general idea, or at least a debate, about education in Europe.

Tibet, trade and consumer nationalism

On April 24, nine EU commissioners flew into Beijing, where according to Der Spiegel their mission will be to balance Tibet and trade. What this seems to amount to in practice is Peter Mandelson calling on the Chinese government to unequivocally come out against the wave of boycotts promoted by the fenqing and targeted primarily at French hypermarket Chain Carrefour. Some have been pretty spectacular.

France became the particular target for nationalist ire in China after scenes of disabled torchbearer Jin Jing wrestling over the Olympic flame with a pro-Tibetan protestor were heavily covered in the PRC. Another factor may also be in play.

According to China’s new leftist scholar Wang Hui, modern Chinese nationalism is basically a middle class phenomenon – consumer nationalism, he calls it – built around the idea that imports to China are a sign of the country’s increasing wealth and power. It recalls the old idea of barbarian nations bringing tribute to the Middle Kingdom. A Chinese nationalist doesn’t “buy Chinese”. He or she is more likely than others to prefer foreign goods, especially high end goods, as a sign of personal and national prestige. Contra Orwell, it’s the rich, rather than the poor, who are more national in China. It’s a notion confirmed by the anti-Japanese riots a few years back. These were focused on Shanghai, a city whose per capita income is five times the national average. So the country’s prominence in the luxury goods sector makes it especially vulnerable to a consumer boycott by Chinese nationalists.

Rupert Murdoch once described that Dalai Lama as an old political monk shuffling round in Gucci sandals. Given Sarkozy’s rush to mend fences with the Chinese government, the real problem here might be that he doesn’t have a set of Louis Vuitton suitcases to carry them around in.

Against indefinite imprisonment

One of Nicolas Sarkozy’s worse ideas is the retention de securite, a change to the law that would allow for prisoners who complete their sentences to not be released if the government thought they were of “particular dangerousness” – this being an executive decision and hence very likely to be taken for reasons of low politics. There is a campaign about it that’s made a film, part of which is below:

More film is here. And there’s a petition to sign here.

The French Economy – Acting As The Eurozone Buffer?

What really strikes me about the slowdown we are currently seeing in the eurozone economies is not so much what we are seeing, but how we are seeing (or if you like interpreting) it. The core of the issue is to be found – as is ever the case – in the details. And first and foremost among these details is the way in which inflation is so obviously crimping any attempt on the part of the ECB to use conventional monetary policy (namely lowering interest rates) to help the ailing Spanish (see here) and Italian (see here) economies. As a result the Sabre rattling continues in Frankfurt and the euro continues to move onwards and upwards, touching an all time high of $1.6019 yesterday (for a fuller exploration of some of the issues which arise here, see Claus Vistesen’s recent The ECB – One Play-Book, One Page, One Purpose post).

It also doesn’t seem to me to be without some significance that what sent the euro off upwards again yesterday was a comment from French Central Bank Governor Christian Noyer.

“Our big problem is to ensure that inflation returns below 2 per cent next year,” Christian Noyer told French radio. “If needed, we will move interest rates.”

What Noyer seems to be saying is that the French economy is weathering the storm, not only were exports up in February, but unemployment continues to fall, and industrial output continues to surprise on the upside, while the French services sector remained the one bright spot on an otherwise darkening eurozone horizon, at least according to the March reading of the Royal Bank of Scotland purchasing managers index. So it is the underlying strength of the French economy at the present time which is the real news which lies behind the headlines of the record euro level we saw yesterday. Continue reading

Macedonia: more stupid

I’d like to come up with more thoughtful and respectful titles for these posts. But, well.

Stupid #1: In the wake of the NATO summit, and Greece’s veto of Macedonian membership, there’s now a boycott campaign in Macedonia against Greek goods and Greek-owned businesses. Since Greece is one of Macedonia’s largest investors and trading partners, and since Greek tourism is particularly vital to the economically weak southern part of the country, this is pure stupidity; it will cost Macedonia, one of the poorest countries in Europe, millions of euros while accomplishing exactly nothing but to further damage relations between the two countries.

N.B., this idiocy is an entirely private initiative — Macedonian citizens and NGOs are doing this on their own, without the government’s encouragement. On the other hand, the government isn’t discouraging anyone, either.

About the only good thing to say about this is that it probably won’t last long.

Stupid #2: last week, Greece’s Ministry of Transport prohibited Macedonian Airlines from landing in Greece because… wait for it… its name is “Macedonian Airlines”.

Greece has kept MA out for several years already, but this is the first time they’ve explicitly said it’s because of the name.

I’m pretty sure this is illegal under international aviation agreements, but I welcome comments from those better informed. (Alex?)

On the plus side, Greece’s Foreign Minister has said that Greece could “eventually” abolish visas for Macedonians. So, two steps back, one forward.

Slovakia’s Euro Membership Bid – Update

Maybe to many readers of this blog Slovakia’s application for membership of the eurozone may well not appear to be the political and economic event of the year. That rapid judgement may well turn out to be wrong. What is at issue here is the future course of the collective applications for zone membership of all 9 remaining EU 10 community members (Slovenia is already in), so Slovakia’s application is being widely and actively followed, since while the consequences of a yes decision are unclear for Slovkia, the consequences of a no decision for the other 8 are even harder to foresee.

Only yesterday the IMF published a regional report on Europe’s economies which paid special attention to the complicated position of the Eastern European economies, and which warned quite specifically that Eastern European governments should make special efforts to slow domestic demand and reduce economic imbalances to counter the effect of food costs on inflation. Basically the situation varies from country to country (depending on whether they still have effective autonomous monetary policy or not) but by and large this means running fiscal surpluses.

“The impact of food price increases on headline inflation has been larger in Europe’s emerging economies than in the advanced economies,” the IMF said. “In terms of policy response, containing the second-round effects of the sharp increase in inflation will be essential.”

Essentially this is what the entire Slovak inflation “sustainability” debate is about – avoiding the impact of second round effects (see this very long, and perhaps for many overly detailed, post yesterday).

A drop in demand in western Europe for exports “is likely to be significant” because “countries in the region are highly open,” with foreign sales accounting for 30 percent to 80 percent of gross domestic product, the IMF said. “The economies’ greater openness to trade and financial flows leaves them vulnerable to spillovers from global developments,” the IMF said. “The heavy dependence on foreign capital leaves the region exposed to an abrupt retrenchment of capital inflows.”

That the pace of all of this is now hotting up was also attested to yesterday by the publication by credit rating agency Standard and Poor’s of the latest version of their sovereign debt liquidity vulnerability index. Unsurprisingly many East European economies now figure amongst those considered to be the most vulnerable.

“Just how vulnerable each individual sovereign could become relates directly to its degree of dependence on foreign capital inflows to finance external imbalances and avert balance-of-payments crises, said the report titled “Why The Global Credit Squeeze Could Hit European Emerging Market Sovereigns Harder Than Others”.

Hotting Up In Bratislava

In the mere 24 hours which have elapsed since I wrote my original post Bloomberg have come up with what effectively amounts to yet another “scoop”, since they have gotten their hands (I wonder how?) on a copy of a research paper prepared by the IMF for the Slovak government. The core of the paper – at least as the issue was presented to Bloomberg – is seen as turning on the rather complex topic of the so called pass-through coefficient (which basically means how much inflation is absorbed – or accelerated – by a rise in – or devaluation of – a country’s exchange rate. According to the report the IMF evaluate the exchange rate pass-through coefficient as lying in the 0.2 to 0.25 range (meaning that a 10% appreciation in the currency reduces inflation by 2 to 2.5 percentage points). Bloomberg interpret this as meaning that the IMF is siding with the Slovak government, but this is far too simplistic a way of looking at things. As I note in my full post, the Slovak government hold the pass-through coefficient to be somewhere in the region of 0.1 (meaning a 10% rise in the currency shaves only 1% off inflation), while the EU Commission and the National Bank of Slovakia hold this coefficient to be nearer to 0.2 (or at least in the 0.1 to 0.2 range). The IMF estimate – which may well be the most accurate one – seems to be even higher, but as such is nearer to the EC and NBS estimate than it is to the Slovak government one.

The point the IMF are probably making – but that the Bloomberg correspondent possibly doesn’t understand, and I myself cannot be sure without seeing the report – is that since the koruna has only risen slightly over the last 12 months (about 2.8%, although it did rise around 10% in the year to March 2007, at which time Slovakia was allowed by the EU to raise the central parity of the koruna by 8.5% from the rate which was first set when Slovakia entered ERM-II in November 2005), then this rise cannot possibly carry the burden of explanation as to the earlier reduction in Slovakia’s annual inflation – and in this sense the IMF seem to be saying that monetary policy and the reduction in the fiscal deficit must offer a much larger part of the explanation.

Slovakia’s inflation rate fell to an all-time low of 1.2 percent in August, according to EU methodology, before global increases in food and energy prices and surging domestic demand pushed it back to 3.6 percent this March, a 15-month high. The drop in inflation in the 12-month period ending in August corresponded to a 12 percent strengthening of the koruna against the euro over the same period.

The IMF did however state that they found no evidence that Slovak inflation had been artificially manipulated by the regulation of utility prices – although I’m not sure that anyone – at this point – has been actively suggesting that it was.

“Regulated prices do not appear to have been artificially suppressed when benchmarked against unregulated prices of similar goods and services, against price levels and developments in the EU, and against underlying price pressures from commodity prices,” the IMF said in the note

In another sign that the tempo is rising and that the final call may be very very close Slovak Prime Minister Robert Fico was out there and fighting yesterday:

Slovakia has met all the euro entry criteria and only a political decision by the European authorities could prevent it from joining the euro zone next year, Prime Minister Robert Fico said on Monday.

“In terms of the numbers Slovakia has met everything it was supposed to meet,” Fico told a news conference. He said debate was still going on about inflation sustainability, but added Slovakia should not be disqualified as inflation is rising in all of Europe. “If somebody is thinking that Slovakia should not have the euro, it would have to be political consideration not an economic one,” Fico also rejected arguments that inflation was kept artificially low by government pressure on energy prices.

Be all this as it may, the “revaluation” and “pass through” issue is – as I have been arguing – only a small part of the problem here, since in some senses this debate is now backward looking and what matters is the sustainability issue. The sustainability of Slovakia’s fiscal deficit position (with ageing population issues looming) and the sustainability of the inflation rate as the labour market tightens and wages march onwards and upwards. I notice that with all the research going backward and forwards virtually no one is commissioning any research to get a NAIRU (non-inflationary natural unemployment rate)type triangulation on any of these economies at this point. The silence on this front is getting to be absolutely deafening. The whole situation would be laughable if it weren’t so sad. I mean we are by and large talking about the wrong issues here (like currency revaluation) while in country after country (Ukraine (here) and Russia too (here) if you want to look) the inflation bonfire burns brighter and brighter on the back of structural problems on the labour supply side, problems which – to boot – have no simply and easy labour market reform “bandaid” fix.

And what will be the final outcome? Well we should get a first clear indication of what people are really thinking when the EU Commission publish their next country forecast on April 27, and on May 7 we should finally know for sure. Meantime, just keep biting your fingernails.

Letting Serbia decide for itself

This analysis from Reuters of the dynamic between the EU and Serbia in the run-up to Serbia’s general election 3 weeks from now points to an extremely ham-handed attempt by some EU countries to influence the outcome, which seems like a strange way to handle an election in any country, let alone one with as fraught a regional situation as Serbia.  The issue is whether the EU should offer a Stabilisation and Association Agreement, but the incumbent PM Vojislav Kostunica has made clear that he wants no part of it and views it as an attempt to get Serbian ink on a document that would implicitly recognise the independence of Kosovo —

Continue reading

Slovakia’s Euro Membership Bid

Slovakia has recently taken some important “baby steps” on its path towards future euro membership. In particular the government in Bratislava has now officially asked the European Central Bank and European Commission to assess whether or not it is now ready to adopt the currency on 1 January 2009.

The response of the European Commission to the application will likely be made known on 7th May (with the European Parliament taking a decision shortly after in the event of a favourable decision).

On the surface it is easy to get the impression that what is now involved is a mere formality, with the ECB and the EU Commission coming under considerable political pressure to say yes after their recent cold-shouldering of Latvia and Lithuania, and given all the economic problems now being encountered in Hungary following the application of the Lisbon agenda inspired “austerity programme” isn’t someone somewhere badly in need of some sort of success story to inspire the others? This indeed is how most analysts and much of the popular economic press are treating the situation – almost as if what we were now looking at was already some sort of “done deal”.

Slovakia has applied to join the eurozone next January, dismissing the concerns of some European central bankers and economists that its economy is not ready for the rigours of membership. If the application at the weekend is successful, Slovakia will become the sixteenth of the European Union’s 27 countries to adopt the euro. It will also be the second former communist country to do so, following Slovenia, which joined last year.
Financial Times

But are we? In recent days doubts have begun to surface. The most recent example perhaps took place last week when Pervenche Beres, chairwoman of the European Parliament’s committee for Economic and Monetary affairs, who was leading a “fact finding” delegation to Bratislava rather noticeably dropped-into her on the record press remarks the emphatic observation that the debate about Slovakia’s euro membership has now moved on from whether or not the country’s economy met the formal euro inflation criteria to the issue of the “sustainability” of Slovakia’s current inflation rate. That is to say the EU institutional structure is likely to look well beyond whether or not Slovakia’s inflation level as registered during the 12 months to April 2008 meets a set of rather formal criteria to the much more thorn-ridden issue of what might subsequently happen to the inflation rate if Slovakia is given the “go ahead” on May 7. Continue reading