Some bloggers’ thoughts and impressions concerning the horrible events in Mumbai that have me both horrified and puzzled. From Death Ends Fun:

Everyone around me is talking of the terrorism, but there’s an air of bonhomie about. Plenty of backslapping as friends catch sight of each other, good cheer and chuckling. Are we used to terror now, and is that a good thing or a bad thing?

From India Uncut:

Suddenly, what is familiar seems macabre.

From Known Turf:

This isn’t about the spirit of the people. It isn’t about people feeling secure either. I see all this terror and am just exhausted. I am not feeling spirited, not at all. Yet, the only desire I have right now is to be able to get all dressed up, step out of my house, catch a train, walk into a café, chat with friends, make plans, talk about books, watch a good play. And I will. We all will. Like we did after the last blast, and the blast before that one, and the one before.

If the frequency of the blasts is going up, and if there are annoying security checks even at hotels and cinemas and shopping complexes, well, we’ll go through the checks and go on living. There will be music and travel and art and blasphemy and new religions and old philosophies. There will also be territorial wars and faith-based conflict and bias and sycophancy and illegal immigration.

What kind of brainless twit cannot see that people do not change so easily? That no number of blasts can cure people of the desire for normalcy and fun. For beauty and passion and laughter. For money. And also for justice and truth.

From Random Thoughts of a Demented Mind:

In this light, the taking of American Jewish hostages may be of great importance. It may represent the changing alignment in the Pakistani terror movement as its leadership passes from a more South-Asia-focused leadership to a more Arab-focused one. This could be the unfortunate concomitant of the failed US war in Afghanistan as the old Al-Qaeda leadership, driven away from Afghanistan but made more powerful, has now taken over operations in Pakistan. Hence the attacks of November 26 are extremely similar to attacks on foreigners in Cairo and in Beirut, with the focus being to attack the US and Israel while humiliating India.

So when the Lashkar e Toiba say they are innocent, perhaps they are right. While their old cadre may be involved in the project operationally and the ISI may still be a major mobilizing and training force, the old brain-trusts of the LET are perhaps no longer in control of the Pakistani Jihadi movement. In other words, the actual Jihadis may be South-Asian but the ones pulling the strings thousands of miles away may be Arabs. Which is why they go out of their way to take a Jewish American hostage and that too a Rabbi.

The train and bus bombings were the “old” way of doing things. These endeavors meet their objectives in the following manner: 1) cause panic 2) make the Indian government make heavy-handed arrests 3) portray those arrested as innocents by “friends” in the media and 4) antagonize minorities who are fed the message that they are being targeted. This I expect will continue.

But November 26 has shown that there is a new kind of terrorism which has emerged—-the kind that does not make much attempt to hide its foreign bonafides, which seeks to effect a more direct toll by breaking international confidence in a country’s economic and political institutions, and which has multiple strategic objectives one of which is to promote and provoke sectarian violence.

Twitter feeds can be followed here.

Between Asia and America

James Fallows points out an interesting perspective on Tim Geithner, Obama’s pick to be US Secretary of the Treasury: experience with Asia and at the IMF. Both will be very useful in the current crisis.

When I was with a DC finance firm about a decade ago, my colleagues had fairly regular contacts with him. His reputation back then was every bit as solid as it is today.

Noted with Interest

The US state of New Hampshire now has more female senators than male in the upper house of state government.

After [the November 4] election, thirteen of the twenty-four state Senate seats in New Hampshire are now occupied by women. Peggy Gilmore (District 12), Bette Lasky (District 13) and Amanda Merrill (District 21) beat out their Republican opponents to join the eight Democratic female incumbents (and two Republican women) in the upper chamber.

Any comparable results out there in euro-land?

Are Baltic Devaluations Now In The Works?

Now this is a very interesting question, isn’t it? The only honest answer I can give is that I don’t know, and indeed I haven’t the faintest idea. The government of Latvia (the Baltic state which is currently most rife with “rumours” about imminent devaluations) works in its own wondrous ways, and neither we (nor Latvia’s citizens) have any idea at all how they plan to lift their country out of the deepest depression they have experienced in many a long year.

What I do know is that, economically speaking,the present situation is simply unsustainable, and something is going to have to be done. Indeed the country’s government is in talks with both the IMF and the EU Commission about this very topic as I write. My own opinion is that domestic consumption is now dead (as a growth driver) for as far ahead as the eye can see (and maybe even further), that the country’s citizens now need to start to save rather than borrow more, and that the only way Latvia can turn itself around is by exporting more than it imports. But for a country which ran a 23% current account deficit in 2007 this is going to be very difficult objective to achieve, since after two years of very strong inflation Latvia’s relative prices with the rest of the world are completely uncompetitive.

Historical experience has taught us that it is not an easy thing to tell people “we are going to cut your wages by between 5 and 10% this year, next year, and then possibly the year after”. Apart from the fact that voters don’t like to hear this kind of talk, you can also enter into a deflation dynamic which then comes to be very hard to break out of. Hence, according to conventional economic wisdom, devaluation tends to be the preferred option. And it is my opinion that, despite all the attendant difficulties, devaluation is the best option among the unappetising list of unpleasant options presently available to Latvia (and the other Baltic states, and Bulgaria). Unfortunately, having reached this point there are simply no “pleasant” options available.

The curious thing is that for voicing this opinion I could go to prison in Latvia. Continue reading

Repsol, Lukoil and Sacyr Vallhermosa Also Try Their Hand At Happy Families

“Happy families are all alike; every unhappy family is unhappy in its own way”

Well this is an interesting little fable of modern family life, even if all the families involved may not be ones which many of my readers would normally wish to belong to.

As is now reasonably well know Russian private oil company Lukoil is currently making a bid for the shares in Spanish energy company Repsol which are owned by the deeply indebted Spanish property company Sacyr Vallhermosa.

Shares in what is Spain’s fifth biggest builder, and which currently occupies the somewhat ignominious position of being Spain’s worst-performing stock this year, jumped the most in two years last Thursday (20 November) on reports they were about to sell their 20 percent stake in Repsol YPF to the Russian oil company OAO Lukoil. Sacyr, which said last week it was in talks over the possible sale of the stake, rose as much as 14 percent after EFE newswire identified Lukoil as a possible bidder. Lukoil is also reportedly willing to buy a further 9% of Respol stock owned by Criteria Caixacorp, the investment company established by Catalan savings bank La Caixa.

In fact Sacyr spent 6.5 billion euros building up their the Repsol holding, between October and December 2006, paying an average of 26.71 euros a share for the stake. It is estimated that the proposed sale of the shares may fetch 20 percent to 30 percent more than their current market value of 4.9 billion euros. To give an idea of what this means, we might bear in mind that Repsol shares closed in Madrid on Thursday at 13.61 euros, and rose 2.3% on Friday, while the Spanish newspaper El Economista reported that Lukoil was offering Criteria and the other shareholders 28 euros a share for the combined stake which constitues just under 30 percent of Repsol. An offer at this price would value the combined stake at about 10.2 billion euros, and would mean that Sacyr would walk away covering their initial investment almost completely, which in these hard times must seem almost incredible. I mean, you might like to ask yourself just why it is that Lukoil is able and willing to pay so much. Continue reading

And Now for Two Things, Completely Different

Two productivity-enhancing additions to the internet that at least a couple of our readers may not have noticed in the last 24 hours.

Google is putting the image archive of the American magazine LIFE online. Over the next few months, this will mean access to some 10 million images, the vast majority of them never published. In the meantime, some of the best-known are already online. Add the text “source:life” to any search in Google Images to specify something from the archive. Browse pictures dating back to the 1750s, though searches max out at 200 results right now.

If you still haven’t whiled away the entire day, there’s an official Monty Python channel on YouTube. As if the site itself weren’t bad enough.

IMF to Italy: Carry on Restructuring

The IMF has released yesterday’s concluding statement of its mission to Italy.   It’s mixed reading.  On the one hand, Italy is looking at a full year recession for 2008, let alone 2009 (the latter being the benchmark prediction for most OECD countries).  And long-term problems, such as low employment rates, remain.  However Italy has dodged the most severe aspects of the global financial crisis, partly because it never rode the wave upwards in the first place.  Nonetheless, the Fund wants to be clear that while the G20 summit might have sounded like a call for many countries to engage in fiscal stimulus, Italy shouldn’t think of itself as one of those countries.  It doesn’t have the room and should concentrate instead on getting the budget under control.  Indeed, the Fund’s emphasis on expenditure cuts for Italy makes it sound like the kind of medicine that David Cameron will be prescribing for the UK when the Pre-Budget Report comes out next week — but he is not going to get the gift of an IMF report saying that the UK should join Italy as a country needing to get its fiscal house in order.  Incidentally, the final paragraph of the IMF statement for Italy seems to be an oblique warning to Silvio to avoid any more industrial policy initiatives as part of his “solution” to the crisis.

As The Federal Reserve Readies-Up Quantitative Easing, The Bank of Spain Sees Little Prospect Of Deflation

While we are likely to see a “substantial” drop in euro-region inflation, Bank of Spain forecasts for the 15-nation euro area do not show price drops. That is they “show an enormous moderation in price gains, but they do show price gains,” according to the latest statements by Miquel Angel Fernandez Ordoñez, ECB Council member and Governor of the Bank of Spain. Bank of Spain eurozone forecasts “don’t show deflation” he told reporters in Madrid yesterday (Wednesday).

The reason for this swift and adroit response to the question of the day in Spain was that EU Economy and Finance Commissioner Joaquin Almunia (not exactly your garden-variety world authority on macroeconomic topics) had earier said that the Europe’s economies were “facing the prospect of deflation” amidst the worst financial crisis since the 1930s. In fact Fernandez Ordoñez is right, as is his want – right on a technicality. The Eurozone as a whole is almost certainly not heading straight into deflation (yet), but this begs the question which he could have been answering: what about poor little Spain? Continue reading

Italy’s Unicredit Has Definitely NOT Made Losses On The Russian Interbank Market

Well it must come as something of a relief for any Italian readers we have here at AFOE to learn that UniCredit SpA, Italy’s biggest bank by assets, has definitely NOT incurred losses on the Russian interbank market. Although perhaps I should rephrase that by adding just one extra word: yet. UniCredit has definitely NOT YET incurred (significant) losses on the Russian interbank market. This important piece of information is what we can glean from today’s statement from Unicredit spokesman Marcello Berni to the effect that “We have no losses on the interbank market….The rumors come from a misinterpretation of news that came out today”

The “misinterpretation” – that lead to a 15 cents, or 7.3 percent, drop to 1.85 euros of Unicredit shares in trading today in Milan – was the result of a report from Moscow-based Interfax to the effect that UniCredit was about to sign an agreement with Russia’s central bank to get compensation for losses on interbank operations. The source for the Interfax story was UniCredit Russia Chief Executive Officer Mikhail Alekseyev. But as Marcello Berni points out Alekseyev was referring to possible support the Russian central bank has offered to financial institutions in case of losses on the interbank market, and it should not be read as meaning that such losses had already been incurred, only that Unicredit have hat-tipped the central bank to be readying the money up just in case they do.

The real roots of this problem are to be found in the fact that Unicredit has very substantial exposure to losses in a number of key Central and East European countries, and the Italian government, which already has a debt to GDP ratio of over 100%, is in no position – especially with an economy which looks set to shrink all the way through from here to 2011 – to offer much in the way of cash to support the bank. As I point out in this post, Austria (which is a much smaller country than Italy, but which has similar East European exposure) has already lined up an initial 100 billion euros to support its banks, while the Italian government has remained hesitant to be specific about anything, but seems to be talking about support which only amounts to something like 20 billion euros. So we are left with the rather undignifying spectacle of the leaders of the eurozone’s third largest economy having to rely on Muammar Abu Minyar al-Gaddafi and Vladimir Putin for vital support to keep one of Italy’s leading banks alive.

Unicredit used to also be Italy’s leading bank by market value, but since their stock has now declined by 59 percent in the last six months, and the company’s market value stands at 24.7 billion euros ($31.3 billion), it now lies behind Italian rival Intesa Sanpaolo SpA. I repeat, as far as I can see Unicredit currently constitutes the greatest systemic risk to the eurozone banking system, and people somewhere ought to be thinking very carefully about just what the plan ‘B’ is going to be if all this goes horribly wrong.

Former Belgian PM Guy Verhofstadt on Europe and the financial crisis

Here is some interesting reading and debating material for our readers (hat tip Sargasso). Former Belgian Prime Minister Guy Verhofstadt has published an essay through Bertelsmann entitled The Financial Crisis: Three Ways Out for Europe (pdf). Teaser (emphasis mine):

What counts in this new world order is the multiplicity of empires and civilisations, not the dominance of one. What matters is the political stability and economic growth that they can create at a regional level, not for one or other of them to rule the whole world. In a nutshell, this is not about nostalgia for a return to the European empires of old but rather the birth of new types of political organisations, established by open and free societies, competing with each other at a global level, building bridges rather than walls, but each retaining its regional roots and customs.

The financial crisis is acting as a sort of ‘particle accelerator’, speeding us on our way to a new multipolar society. This is abundantly clear in the economic sphere, but politically and militarily too great powers in the making are beginning to sit up and make their presence felt. Russia and China particularly, but India as well, let no opportunity pass to show the world that they are a force to be reckoned with. The question is, though, whether Europe will be able, or willing, to play a part in this multipolar concert. ‘Able’ it most certainly should be, but ‘willing’ is another matter. Europe continues to suffer from cold feet. (…) Yet the way ahead for Europe is only too clear. If it wishes to play a role in tomorrow’s multipolar world and survive the ‘new age of empires’, its only option is to take a bold and decisive new step in the integration process. Seen in this light, the current financial crisis is not a disaster but rather a golden opportunity for the future. What is needed now is for our political leaders to overcome their cold feet and take the plunge.