Keynesian Sarko

It has come to this. Does anyone remember Nicolas Sarkozy of a year ago? Back then he was being feted by the anglospheric media as a French Thatcher, a neoliberal wind of change shaking a battery of outdated perceptions to its heart and mixing a few other metaphors whilst they were at it. We blogged a certain amount about how vacuous so much of this was; France, after all, did indeed go through a fearfully tough industrial restructuring in the 1980s, apparently entirely unnoticed by the media establishment. Its economic problems simply are not those of Britain in the early 1980s; anyway, a lot of people are now busy amending the level of confidence they have that those solutions were appropriate at all. (This London Review of Books article is required reading.)

Without the original radical-right dream, which had little enough substance to begin with, the Sarko presidency basically returned to its default settings and ran on under automatic control. Now, however, the banking crisis has given him a new dose of authority, much as it has to Gordon Brown; but nobody is talking about making everyone work more hours, or facing down the trade unions, now. Instead, Sarko has found his inner Gaullist; perhaps it was never so far away. Here’s the German newspaper whose website is slightly better organised these days; the factoid is that the prez wants to set up a state investment fund to buy into “strategic” industries, as part of a broader reflation strategy for which he intends to bring forward a lot of capital expenditure projects and cut taxes on business.

(Remember when “les caisses sont vides!” and scares based on funny figures were the order of the day? As Max Sawicky so wisely put it, there are no atheists in foxholes; we are all Keynesians again now.)

There’s more detail in Le Monde; especially, there’s one specific detail we’ll have to come back to. A lot of people have greeted the news of the fund with a certain degree of nonsurprise. Since when hasn’t the French government taken stakes (and influence) in “strategic” industries? The new fund will be managed by the CDC, the state-owned bank which exists to, well, invest in strategic industries. It’s no great surprise that the Germans, and specifically the CDU, are suspicious to critical at what they probably think is an invitation to put their money into the French military-industrial complex.

There is certainly a very traditional look to some of this proposal; the prime minister has ordered all the 93 prefects to hold monthly meetings with banks and enterprises on their turf to ensure the availability of credit, which as well as being suitably Bonapartist also reminds me of the passage in J.K. Galbraith’s The Great Crash about the importance of meetings that are held to do no business. Handelsblatt‘s blog duly hands out the pious opposition; they even descend low enough to say such things should be left to Russia.

But there’s an interesting detail in the Le Monde version which no-one else seems to have picked up; rather than Alstom, Alcatel, Thales, EADS etc, this new fund is meant to buy into small and medium-sized companies, which makes it considerably less of a classic military-industrial stitchup. That, at least, suggests that this project or perhaps this one might not be beyond its scope.

Over and beyond this, Sarkozy has revived the regular French suggestion of an “economic government” for the EU, or the Eurozone. Now, my problem with this has always been that the EU already has an economic government; it’s called the European Commission. However you cut it, it’s a governmental institution, and the great majority of its functions are economic; which goes double, as the economic functions are the ones in which it has exclusive jurisdiction. The usual suspects are delighted by this, and by the fact that there has been a summit meeting of Eurozone members. Oddly, they don’t seem to say much about the fact it was bookended by full European Council meetings, or that the plan it adopted originated in the UK, although much if not all of its content originated with VOXEU academics.

You could often get the impression that if the conversion of Europe into a single state occurred tomorrow, there are quite a lot of important people in France who would welcome it as a chance to call a Eurogroup summit meeting, such is the obsession. And there is no reason why they shouldn’t have it; after all, as the usual suspects point out, all it amounts to is a “point of contact”. However, one thing the crisis has shown up is that there isn’t a sensible economic distinction between the EU and the Eurozone; problems blow up in one and pass straight into the other, as do solutions.

Of course, the real difference between the Commission and an “economic government” is economic; it’s the member states who have serious money available, the Commission’s budget power being further restricted by its mandates under the CAP. And the upshot has been that no-one has really looked to the Commission for anything much in the crisis; it’s been either the ECB, or else the intergovernmental wiring that gets used. If they want to be relevant, now’s the time to put the Commission’s money where its mouth is and back something like the Sarkofund. If you want a soundbite, perhaps it’s time for it to move from funding the transition to membership to funding the transition…to the future! Corny!

Iceland accepts the hairshirt

From the growing list of countries in discussions with the IMF for a crisis loan program, Iceland has made the first concrete move.  As explained in today’s statement from the Fund, there is an agreement between the staff mission and the government on a huge $2.1 billion loan (huge relative to Iceland’s size) in return for what is billed as a macroeconomic confidence-building program, a program which takes as its premise that the liabilities of the banking system will need to be fully recognized as fiscal liabilities.  In particular, other governments that end up refunding deposits of Iceland banks (not least Britain and Germany) will presumably have to get their money from Iceland’s government sometime down the road.   It remains to be seen (a) who else Iceland might have lined up to provide additional support and (b) whether the Fund’s board will balk at the size of the loan to a small and recently wealthy country.

And So It Ends – Hungary’s Government Announces Foreign Currency Loan Wind-up Package

Hungarian Prime Minister Ferenc Gyurcsány announced yesterday (Wednesday) that the government had reached an agreement with commercial banks intended to protect the interests of those who have taken out foreign currency loans.

The agreement, which is expected to be signed early next week, has three key components:

1) At the request of the debtor the banks will allow the duration of the loan to be extended (with fixed monthly instalments) so that the depreciation of the forint “does not place an unbearable burden on the debtors”.

2) FX debtors who deem that exchange rate fluctuations carry excessive risks for them will be allowed to convert their foreign currency-based loan to a forint loan. In this case the banks “will accept this request and make the switch without extra charges”.

3) If a debtor finds him- or herself in a position where he or she cannot pay the monthly instalments, e.g. due to becoming unemployed, the banks will be amenable to transitionally reducing the instalments or even suspending them entirely at the request of the debtor.

I say “agreement” here, but in fact the banks had little alternative, since Gyurcsány made it plain to them that if they did not agree then legislation would be introduced to enforce the government package.

So here, right now, and on 23 October 2008 in Budapest ends, in my opinion, a fashion for taking out non-local currency denominated loans, which lasted the best part of a decade and sewpt across half a continent, and especially in Central and Eastern Europe . Basically government after government in one CEE country after another will now find themselves with little alternative but to follow Hungary’s lead, as the parent banks turn off the tap on the one hand and the citizens themselves grow more and more nervous on the other. Continue reading

Oh My.

As the BBC puts it

The new leader of the party previously headed by Austrian far-right politician Joerg Haider has admitted the two men had a “special relationship”.

Stefan Petzner told Austrian radio that Mr Haider, whom he met five years ago, was “the man of my life”. …

Mr Petzner has described feeling a magnetic attraction to Mr Haider.

“We had a special relationship that went far beyond friendship,” Mr Petzner said in an emotional interview on Austrian national radio.

“Joerg and I were connected by something truly special. He was the man of my life,” he added.

More in German, from the Swiss side of the border.

Petzner is 27 and had been named head of the party and its parliamentary group after the death of Haider, who was 53. After the broadcast, he remains head of the party, but Josef Bucher, 43, now leads the parliamentary faction.

Facility? What facility?

IMF Managing Director Dominique Strauss-Kahn yesterday

The Pakistani authorities have requested discussions with the IMF on an economic program supported by financial assistance from the Fund to meet the balance of payments difficulties the country is experiencing as a result of high food and fuel prices and the global financial crisis … The amount of Fund financing under a Stand-By Arrangement has yet to be determined. Financing could be made within framework of the Fund’s Emergency Financing Mechanism.”

Prime Minister of Pakistan’s economic adviser, today

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Outside looking in

White House announcement today —

Today, the President is inviting the leaders of the Group of 20 countries to a summit in the Washington, D.C. area, on November 15 to discuss financial markets and the global economy. The G-20 finance process, which includes key developed and emerging market countries, was established in 1999, after the last financial crisis with worldwide implications.

… G-20 members are: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States, and the European Union.

This will be a strange event.  

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IMF tries to defuse geopolitical speculation in DSK affair

The Board of the International Monetary Fund has issued a seemingly matter-of-fact statement concerning the status of the Fund’s investigation of its Managing Director Dominique Strauss-Kahn and allegations of abuse of power in a relationship with a subordinate.  The purpose of the statement seems to be to address an inference that might be drawn from media reports that some members of the board were gunning for DSK — in particular the person in overall charge of the probe, Shakour Shalaan, who is Egyptian.  Egypt is on a quiet roll in international policy circles at the moment with its finance minister becoming chairman of the International Monetary and Financial Committee, the first developing country minister to get that job.  But don’t leap to the conclusion that Egypt must have had the trump card to explain this success:

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Despite The “Sudden Stop” Kazakhstan Won’t Be Calling On The IMF For Help

“The Kazakh government is ready to step in,” Kazakhstan’s Prime Minister Karim Masimov said this morning in a telephone interview with Bloomberg “The Kazakh banking system with the support of the government and central bank will fulfill all obligations to international investors…..We have our own specific plan to survive without any external support….I don’t think we need support from the International Monetary Fund or overseas.”

Well that is good news, so at least we know that one of the CIS and CEE economies won’t be looking to the IMF for bail-out support in this crisis which is presently growing by the day. So Kazakstan, that country which is reputedly host to reserves of approximately 95% of the elements in the periodic table, with a population of around 15 million housed on a surface area greater than the whole of Western Europe, is going to be able to look after itself. But hang on a minute, just where is Kazakhstan, and just what have they been getting up to over there, and why the hell should I take Karim Masimov’s word for it, when just about all the other Iceland Look-alike show contestants seem to be saying the same? After all, didn’t those extermely bright and able young people over at RBC Capital Markets in Toronto say in a report only last week that, along with Latvia, the country’s $100 billion oil-led economy is among the most vulnerable to the present global credit crisis and the skid-row economic trajectories that go with it simply because of its excessive reliance on short-term foreign borrowing. And isn’t it the case that the cost of protecting Kazakhstan government debt against default has more than doubled this month – to over 1,000 basis points (or 10%), the level for borrowers that investors term “distressed,” according to CMA Datavision credit-default swap prices. Only Ukraine, which as we know is already seeking IMF support, is classified as being a bigger risk among European emerging-market governments. Surely all those highly dedicated, bright, and extremely able young people who are doing all that trading know what they are about, don’t they? Continue reading