AFOE’s trip on the Orient Express

How did we not blog this earlier? The Orient Express has made its last trip. In fact, this is one of those events that has happened and re-happened; the last train that actually made the trip from Paris to Istanbul/Sirkeci did it in 1977, and most people will now associate the name with the luxury London-Venice cruise train that Sea Containers set up in the 1980s. But the one we’re talking about is the one that actually had the title attached to the path in the railways’ working timetables.

By the finish, it only did Paris-Budapest and then only Paris-Vienna, which is fine but hardly the Orient. (Seat61 informs me that the through Paris-Budapest and Paris-Bucharest cars were dropped in June, 2001.) To do the full route, you had to make a connection in Budapest, which could be harder than you think as that city has almost as many conflicting major railway stations as London. Also, trains from the West frequently arrived at the Southern Station there, just as the late Orient Express used the Westbahnhof in Vienna.

I took the train in 2002, taking advantage of a rare moment of reduced poverty to visit my partner and her dad in Paris; Paul Theroux, who did the full Paris-Istanbul trek in 1974, remarked that it was indeed murder on the Orient Express. I wouldn’t be quite so harsh, although had you asked me on the outward trip I might have been. Showing up in good time at the station, I found the train, a gaggle of Hungarian rolling stock, lurking in a dark corner and immediately went to look for things to eat, drink, and read during the trip – it didn’t look promising. I had a bunk in a couchette; on the way there, I noticed the route card on the end of the carriage read “EN-262: Orient-Express” and cheered up somewhat. (In fact, I’ve still got the route card. The Austrian Federal Railway can sue me.)

Actually, that version of the Orient Express was hitched to the evening Vienna-Salzburg as far as Salzburg, so there was in fact a dining car and it made reasonable speed. The problems began when I tried to sleep; there was actually a cello in the compartment, and Americans kept getting on and off the train at every intermediate stop in Germany. Outside, in the corridor, there was a Balkanish type who wanted me to share his first-class sleeper. It was not a good night; after it was over, somewhere in the Champagne, a long announcement was made in French about all the good things that were available for breakfast from the steward. Then, the voice repeated this message in German. This is the exact text of the translation:

Paris. Ende station.

And good morning to you too. Then, of course, the sinister long mobilisation-grade platforms of the Gare de l’Est, and enough coffee to get alert enough to poodlefake her dad.

On the reverse trip, things were more spartan, there being no food except for sausages from the steward and Austrian lager, so I spent the evening eating käsekrainer for their nutritional value and drinking beer with various people who all turned out to know people I knew at Vienna University and to be interested to find out what had happened with the demo that weekend (a riot, as it happened – it was a good weekend to be out of town). Eventually, the steward opened a empty compartment for the corridor party to move into. I recall someone carrying a copy of a book called Das Schwarzbuch der Menschheit, which struck me as impressively even-handed but rather depressing – hey, even plants have tried to kill the world. Sleeping Car Guy was on the train, but he didn’t recognise me, or perhaps he did and kept his trap shut.

I even got a wink or two of sleep, and we pulled into the Westbahnhof in good time and a small rainstorm. Good times.

The reason why the service is being withdrawn is optimistic; the high-speed trains now go so far and so fast that you can get from London to Vienna in a day by rail (although, rather you than me – it leaves at 0827 and arrives at 2322 with connections in Brussels and Frankfurt, a long day’s train ride by anyone’s standards). And, of course, if they have power sockets, WLAN, and a rail to hang your jacket on, like the business sections on Swiss trains, you’ll be able to conspire just as much if not more.

Thinking about it, the experience wasn’t something that foretold the future, but rather a hangover from the recent past. Sleeping Car Guy, like the huge, filthy Südbahnhof in Vienna with its parallel network of long distance buses into the Balkans, was a leftover of immediate post-Cold War Europe – something of the spirit I tried to convey in this post. Like our Transition and Accession category, though, that’s now done.

Special relationship, indeed

For those of you who find the New Year’s celebrations too noisy and might be looking for an alternative use of your time, there’s lots of, er, fun to be had looking through the data in the latest IMF release of the Coordinated Portfolio Investment Survey (CPIS).  This is a survey that the Fund does to assemble data on cross-border holdings of equity and debt securities.  Unfortunately, some of the really juicy stuff is missing — don’t look here for data on overseas holdings of sovereign wealth funds or China, or assets held as official reserves.  And the new release only covers up to end-2008: financial markets had already fallen a lot, but much of the economic impact of the crisis was still to come.  But for the countries that do provide meaningful data, one learns quite a bit.

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Hungary’s Economic Correction Still Fails To Convince

“Hungary’s potential economic growth should be 2 percentage points over the corresponding EU figure in order to ensure convergence”.
Prime Minister Gordon Bajnai, speaking in London in October

Two contrasting pieces of news about Hungary’s economic plight have caught my eye over the last week. In the first place, and in an evident sign of the times, retail sales reportedly fell at their fastest annual rate in over ten years in October, whilst secondly, and more surprisingly, I learnt that Hungary’s economic-sentiment index rose to its highest level since October last year, when the gale force wind sent by the fall of Lehman Brothers engulfed the country. How can this be, I thought? These two pieces of information would, at least on the surface, seem to be pretty contractictory, with the former suggesting the deepest recession in living memory is getting even worse, while the latter seems to add backing to government claims that the worst is now behind them. Continue reading

Quantifying Eurozone Imbalances and the Internal Devaluation of Greece and Spain

Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.

Winston Churchill, 1942


  • The extent, so far, of the internal devaluation process depends on the time period used for analysis. Using Q3-2007 as the beginning of the economic crisis suggest that Greece and Spain have not corrected relative to Germany as a benchmark. However, if we look entirely at the world in a post-Lehmann context the picture is different with Greece and Spain having observed excess deflation relative to Germany to the tune of -1.7% and -4.5% respectively for unit labour costs and -5.4% and -1.7% respectively for the PPI.
  • The correction observed in the context of unit labour costs appears technical as German unit labour costs have increased sharply since Q4-2008 due to a large reduction in working hours and an increase in short time work. In comparison, the relative correction in the PPI looks more solid.
  • The internal devaluation has not yet trickled down into the overall price level represented by the CPI. Both using the period Q3-07 to Q3-09 and Q4-08 to Q3-09 as the relevant time horizon reveals that there has been no meaningful internal devaluation in Greece and Spain measured on the CPI.
  • While the analysis presented here may go some way to quantify the intra-Eurozone imbalances and the course of the internal devaluation so far it is impossible to say precisely how far (and for how long) Greece and Spain (and indeed Latvia, Hungary etc) have to go here. More importantly, it is impossible to say exactly which measures that must be taken albeit that they have to be severe in the context of reigning in public spending and, ultimately, the public debt and ongoing deficit. Likewise, it is difficult to quantity just how high unemployment should drift and for how long it should stay there in order to grind down past excess.

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New Years Eve is coming.

Here in Germany, you can only buy fireworks this week — the few days between Christmas and New Years. New Years Eve is the one time it’s socially acceptable to set off fireworks. (Or so I’m told. If Germany advances in the World Cup this summer, I imagine that rule might get bent.)

Is this just Germany, or is it true elsewhere? Also, is there any country in Europe that has completely banned fireworks? That would be understandable — every New Years Eve sees an unhappy harvest of lost fingers and eyes — but also kind of dismal.

And while we’re on the subject: which European country has the loudest New Years? I can’t imagine anyone is louder than Serbia; when we lived in Belgrade, sleep was impossible until long past midnight. The Serbs love their fireworks, and they set them off in the streets with a cheerful disregard for safety or good sense. It’s not an Eastern European thing, though — the Romanians like fireworks too, but they’re a lot more restrained about it.

Also, I’m thinking this is the year I’ll take my little boys (ages 8 and 6) to the store and let them pick out a couple of fireworks, which I will then ignite for them in our back yard just before bed time on the 31st. Too young, or about right? What think you, Europeans?

China’s Looming Demographic Problem Moves Steadily Up Over The Radar

As Israeli blogger “Nobody” points out for us,the Economist has been giving increasing coverage to global demographic issues of late, and this week it is China’s problem that has caught their eye.

As the Economist point out, the impact of so many years of one child per family policy is going to be significant, and while changing it now will be too late to avoid short term damage, in the longer term such a change is essential, if the country ever wants to return to some kind of structural stability.

SINCE the 1970s China’s birth rate has plummeted while the number of elderly people has risen only gradually. As a result its “dependency ratio”—the proportion of dependents to people at work—is low. This has helped to fuel China’s prodigious growth. But this “demographic dividend” will peak in 2010. China’s one-child policy will keep birth rates low, but as life expectancy continues to increase, so will the dependency ratio, reducing the country’s potential for growth. The government could yet salvage the situation by loosening its one-child policy. More children would increase the dependency ratio until they were old enough to join the workforce, but reduce labour shortages in the long term.

Again, no one really knows what the present Chinese TFR actually is. The US census bureau have just revised down their estimate to 1.5 from 1.8, but many internal studies put it at nearer 1.3, which, if accurate, is bound to produce a major structural distortion in the population pyramid. The economic consequences – for the whole planet – are also bound to be significant, as “Nobody” points out:

Meanwhile, given the general propensity of China to rapid economic growth and no less dramatic deceleration of its population growth (the workforce will stop growing pretty soon actually), the next superpower is about to transform itself into a huge vacuum machine sucking off labor surpluses from around the globe. Inside China labor shortages will develop and wages shoot up pushing labor intensive industries out of China and generating demand for these products from outside China. In short, after a decade or something, the global economy, and even more so the economies of the third world, may get a friendly push forward from the world’s next superpower, and a very massive one on that occasion.

What China’s demographic deficit has in store for all of us a decade or so from now is actually far from clear, but one thing is certain, it will be a roller coaster ride. Get ready to fasten your seatbelts.


Quite coincidentally, a new blog was born yesterday – the anarchist banker – written by a young Portuguese economist who is a unabashed fan of Fernando Pessoa. His first post reviews a paper – The End of Chimerica – written by Niall Ferguson and Moritz Schularick.

For the better part of the past decade, the world economy has been dominated by a world economic order that combined Chinese export-led development with US overconsumption. The financial crisis of 2007-2009 likely marks the beginning of the end of the Chimerican relationship. In this paper we look at this era as economic historians, trying to set events in a longer-term perspective. In some ways China’s economic model in the decade 1998-2007 was similar to the one adopted by West Germany and Japan after World War II. Trade surpluses with the U.S. played a major role in propelling growth. But there were two key differences. First, the scale of Chinese currency intervention was without precedent, as were the resulting distortions of the world economy. Second, the Chinese have so far resisted the kind of currency appreciation to which West Germany and Japan consented. We conclude that Chimerica cannot persist for much longer in its present form. As in the 1970s, sizeable changes in exchange rates are needed to rebalance the world economy. A continuation of Chimerica at a time of dollar devaluation would give rise to new and dangerous distortions in the global economy.

I would just note in passing that the China-United States nexus was not the only export-lead/excess consumption duet we just left behind, there was the Sweden-Baltics/Ukraine one, the Germany-Southern Europe one, and the Japan-RoW one (rest of the world). As we wave bye-bye to one era, it is just worth noting than we don’t seem to have a very clear idea of what the one which lies ahead may look like.

Anyway, thanks to the anarchist banker blogger for drawing this all to our attention. As the author himself admits, posting may be infrequent (anarchic?), but they should always be worth the read.

Marching Separately But Striking Together Over At the ECB

Well first of all, a very Happy Xmas to any of you foolish enough to be reading tiresome posts like this one on such a special day as this – a tiresome post which simply starts by going into some nitpicking follow-up detail to my earlier post on ECB liquidity and monetary policy separation – That Which The ECB Hath Separated, Let No Man Join Together Again! – but then starts to explore the rather more torrid topic of what exactly Latvia’s Regional development minister Edgars Zalāns might have had in mind when he told the Delfi news portal that the Latvian agreement with the IMF and other lenders could “easily be amended given its shaky legal grounds” (there, that made you hiccup-back-up some of your xmas-pud, now didn’t it?) or what Prime Minister Valdis Dombrovskis might have been getting at when he warned that “We will just go bankrupt if we observe all legal norms.” Continue reading

Latvia Is Back In The News, And Expect More To Come

The Latvian government is getting nervous about the level of lending coming from Swedish banks. According to the Financial Times, “Latvia’s prime minister has warned Swedish banks they risk choking off recovery in the Baltic state’s crisis-hit economy unless they resume lending”. The Latvian authorities are complaining, it seems, that banks such as Swedbank and SEB, which dominate the Latvian market, have reined in credit as they struggle to contain rising bad loans amid the deepest recession in the European Union.

“The . . . abrupt stopping of credit is a very problematic issue,” said Valdis Dombrovskis, the prime minister. “We expect Swedish banks to start [lending] again. “Of course you can say that Latvians were borrowing irresponsibly but to borrow irresponsibly you need someone to lend irresponsibly,” he said. “We had very easy credit in a very overheated economy. Now we have almost no credit in a very deep recession.”

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Why The Ratings Agencies Are Right And George Papaconstantinou Is Wrong

The Greek government is having a hard time of it at the moment. Only today the Finance Ministry issued a statement that it was ready to “intensify its efforts to restore the viability of fiscal and economic trends in Greece” in response to the Moody’s decision to downgrade the country’s credit rating, while just one week ago the Finance Minister was accusing Standard & Poor’s of failing to “assess correctly” new moves by Athens to tackle its swollen budget deficit – echoing a similar response from Spanish Prime Minister José Luis Rodriguez Zapatero. George Papaconstantinou’s critical outburst followed the earlier downgrade decision by the rating agency of the nation’s long-term sovereign debt. Today, the Greek Government got the answer they should have expected, since Moody’s effectively followed the path of the other two main agencies (Fitch already have the Hellenic Republic on BBB+) and downgraded Greece to A2 from A1. The move means Greek debt is one step closer to being cut off from eligibility as ECB collateral, since Moody’s have put the rating on negative outlook, which means they consider a further downgrade more likely than an upgrade over the next twelve to eighteen months, while the ECB are scheduled to revert to the pre-crisis criteria of only accepting Sovereign Bonds which retain at least one A- from one of the main ratings agencies as collateral for lending. Certainly Lucas Papademos, ECB vice president, said last week that the ECB would not change plans to tighten its collateral rules in December 2010 simply to accommodate Greece. Continue reading