Monthly Archives: January 2010

Is the Eurozone an optimal language area?

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Some interesting linguistic thoughts from ECB President Jean-Claude Trichet in an interview with Focus —

FOCUS: Has the fact that you have learnt German helped you?

Trichet: It certainly has. At the ECB, we mostly talk in English. But in the corridors you’re just as likely to hear German, French, Italian or Spanish, and many other languages besides. Having some knowledge of the German language has enabled me to better understand the culture of the country. Oversimplifying, I would say that the French and English languages seem to be very much designed to “communicate”. My understanding of the German language is that it is very much designed to “think”, with its verbs at the end of the sentence. I am not surprised that it is such a good language for philosophy.

FOCUS: Are you trying to say that Germans are not as good at small talk?

Trichet: Not at all! I just want to say that the German language itself is particularly well suited to reflection. In speeches, for example, speakers let the audience think along with them. Only at the end of a sentence is the audience able to understand exactly what is actually meant. This is why it is pretty unacceptable for people in the audience to whisper during a speech.

Among other things, it highlights the huge backdoor influence of the Eurozone’s most significant non-member.  Which seems like an advantage for Ireland.

Eurozone Imbalances Weaken Trust in The Euro and Undermine Euro Area Cohesion

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This is the conclusion drawn – rather surprisingly – not by some bank analyst, or by a Credit Ratings Agency, but by the European Commission itself, according to the contents of a report “leaked” to the German magazine Der Spiegel at the end of last week. “(The imbalances) weaken trust in the euro and endanger the cohesion of the monetary union,”. Continue reading →

Slew in the direction of Dalston

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British police forces are making plans to deploy surveillance drones in UK airspace, the Guardian reports. Kent Police is leading the project; four other police forces have signed up. The drones look to be (relatively) cheap and simple machines that are battlespace tested: a manufacturer – BAE Systems – has evaluated its candidate drone (HERTI) in Afghanistan. The Guardian says that only CAA licensing now stands in the way of domestic deployment.

A news piece like this has an aspect of dark comedy. Many people have worried for a while that UK policing has become militarised; here’s a story that’s confirmatory to an absurd degree. What’s next? Precision targetting of Harehills with JDAMs? Don’t be ridiculous …

You’d think there might be some legitimate role for surveillance drones in UK policing. After all, helicopter surveillance and CCTV are both legitimate, and drones constitute the intersection of those methods. Nonetheless, intuition tells you that something is horribly wrong here. But what is it that’s wrong?

The Guardian’s story – and they may be getting over-excited, but I tend to think not – says that Kent Police started out by claiming that the drones were to be used to monitor shipping and illegal immigrants. You might think that at least the shipping part of that would be OK; seas and shipping being what they are. But it turns out that these claims were just spin on the part of Kent Police; they always had a wider role in mind. Documents disclosed to the Guardian under the Freedom of Information Act suggest Kent Police would also like to use drones to monitor “antisocial driving” and “event security”, and also to conduct “covert urban surveillance”. Of course, this last could cover just about anything. And this, I think, points to the problem; it’s a problem of proportionality. Someone, somewhere, has lost touch with the relative seriousness of things. Not only that, they’ve lost touch with what constitutes a safe environment for policing. Is the view from their doorstep just a blur of hurt and evil doing, or what? It doesn’t take much discrimination to be able to tell that “theft from cash machines” won’t justify the same sort of efforts at risk reduction as attempting to interdict bomb plotters in a ‘failed state’. In certain parts of Afghanistan and Pakistan, it’s almost impossible for someone in uniform to move around safely. Britain is not like that at all, and you’re only going to infuriate and alienate British people by seriously suggesting that it is. So what do Kent Police and the other collaborating police forces think they’re doing making plans to hide in a bunker and send out Predators?

Half a League Onward Rode the Six Hundred

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Well you may doubt their wisdom, and you may doubt their rigour, but there’s no doubting their tenacity. This looks like being Marathon all over again.

New EUR 5 Year Mandate for Greece

The Hellenic Republic, rated A2/BBB+/BBB+, has mandated Credit Suisse, Deutsche Bank, Eurobank EFG, Goldman Sachs International, Morgan Stanley and National Bank of Greece for its forthcoming Greek Government 5-year Euro benchmark. Due 20 August 2015, the transaction will be launched and priced in the near future subject to market conditions.

And here’s how the ten year bond spread with the comparable German bund performed today.

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Does Anyone Really Know The Size Of The Greek 2009 Deficit?

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While investors are generally aware of the dire state of the western economies’ accounts, quite a few of them are optimistic that these large budget deficits can be closed through a combination of fiscal discipline and expenses reduction. Such optimism, based on other countries’ past experience, is likely to be disappointed for mainly two reasons. Firstly, the closing of the gap relies on consensus growth estimates that appear overly optimistic, leaving room for tax revenues disappointment. Secondly, the budget deficit problem concerns countries accounting for more than 50% of global GDP, meaning that single countries’ past experience does not necessarily provide a reliable guide here.
Andrea Cicione, PNB Paribas

The risks to the EUR from the events in Greece arise from a number of different factors. In summary, however, it boils down to credibility: The credibility of the Greek government in meeting their targets, the credibility of the EU institutions to deal with non-compliant states and the credibility of the EUR itself. In periods of fiscal deterioration, the EUR has typically benefitted from the understanding that all countries would adhere to the conditions of the Growth and Stability Pact (GSP) envisioned by the European Treaty. The GSP requires that they would need to employ deficit reduction programs. The fact that Greece had yet to implement reduction programs, and now evidence that historical financial statistics were not accurate, calls this market assumption into doubt.
Emma Lawson, Morgan Stanley

This is a problem I have touched on before. What exactly is the true size of the Greek 2009 fiscal deficit? Well, according to a report signed by the Greek Finance Minister which has been sent to the EU Commission, and leaked to the Greek finance and business portal Kathimerini (Greek only I’m afraid), it is likely to come in at around 13.7% (and not 14.5%, as I forecast in this post) since the final decision on some hospital expenses which were dancing around in-no-mans land has been to attribute them to the 2008 deficit (and consequently increase the recorded size of that years debt). Continue reading →

Hungary Isn’t Another Greece……..Now Is It?

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I couldn’t help being struck earlier this week by the following statement in an interview the Financial Times had with Hungarian Finance Minister, Peter Oszkó:

“Structural reforms of the pension and social welfare systems, plus a rebalancing of the tax system, should allow the government to report a 3.9 per cent budget deficit in 2009, on a par with the preceding year and in line with IMF requirements”.

“Structural reforms”, I asked myself, “exactly which structural reforms are we talking about here?” Certainly the EU Commission and the OECD have been pounding away at the Hungarian authorities on the pressing need for major changes in the health and pension systems (these areas – and the way they are rising as the population ages – are, after all, the underlying cause of the structural deficit in the Hungarian budget). In fact it seems to me that the FT is merely re-iterating here Peter Oszko’s own claim that the government’s austerity measures are working (and no matter how many times you repeat something, it doesn’t make it true). Continue reading →

The EU Is Reportedly Exploring Making a Loan To Greece

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Pressure on Greek finances continues unabated. According to European Voice this morning the EU Commission and Finance Ministers remain most reluctant to call in the IMF (which I think would be the best solution) but they are themselves actively comtemplating providing some kind of IMF-type “straightjacket loan”. My only big fear here is that they take too long to put the necessary mechanisms in place while the situation in Spain continues to deteriorate, leaving wide open a serious contagion risk.

European Union officials are exploring the possibility of providing a heavily-conditioned loan to Greece instead of seeing it turn to the International Monetary Fund. Officials are worried about the possible impact on banks elsewhere in the eurozone of Greece defaulting on its sovereign debt. But they would prefer to avoid the ignominy of a eurozone country seeking IMF assistance.

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Spain Gets Frobbed-Off By The EU Commission

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FROB, for those of you who are wondering, stands for “Fund for Orderly Bank Restructuring” and is an entitly created by the Spanish government in June last year, in order to facilitate (in particular) the restructuring of Spain’s hard hit Savings Banks (Cajas). There is just one problem: as of the present time – and over seven months later – the FROB still is waiting to receive approval from the European Commission.

“The essence of the FROB in fostering the reorganisation of the sector in an orderly manner and in the most financially efficient way, as well as the key role of the Bank of Spain in most of the phases of the restructuring and integration processes, are positive.” says Carmen Munoz, Senior Director, Fitch’s Financial Institutions group. “Fitch will assess the rating impact, if any, on a case-by-case basis with respect to financial institutions.”

“While the number of financial institutions that could receive support from the plan remains uncertain, Fitch believes that the orderly consolidation process reduces the risk of multi-notch downgrades for financial institutions that act as counterparties in securitizations,” says Rui J. Pereira, Managing Director, Fitch’s Structured Finance group. “At present, FROB will have a neutral affect on outstanding Spanish structured finance ratings and any later developments will be analyzed on a case-by case basis.”

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The Italian Lion Sleeps Tonight, And Yet Awhile……….

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“If we look at public-sector debt and interest payments, Greece isn’t doing particularly worse than Italy,” Peter Westaway,Chief Economist Europe at Nomura International

To everyone’s relief, Italy’s economy returned to growth in the third quarter of 2009, following five consecutive quarters of contraction. But that doesn’t make the future look or feel any more secure than the recent past, and while an immediate return to a sharp recession isn’t likely, it still isn’t clear whether the Q3 performance was repeated over the last three months of last year, or whether output remained more or less flat. This does seem to be a more or less a touch and go call, and while the final result will hardly be a shocker one way or the other, my feeling is that we are looking at growth in the region of -0%. That is to say, slight contraction is marginally more likely than slight expansion. So Italy’s economy is more or less dormant, but it’s debt to GDP ratio is not, and is moving steadily upwards (see the last section of this post), so the lion sleeps tonight, and goes on sleeping, but what will happen tomorrow when she, or rather the financial markets, finally wake up, and discover seems evident, at least to me and Peter Westaway, that in the longer run Italy’s sovereign debt problem is every bit a large as the Greek one, although given that most of the debt is in fact held by Italians, the threat to the good functioning of the eurosystem may well be proportionately less.

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Government by Acronym

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Haiti is a country with at least 9 million people and GDP of $7 billion (pre-quake).  Think about that size of that latter number in relation to the usual magnitudes that we discuss on this blog.  But anyway, given its long-standing economic plight, Haiti also has extensive relations with international financial and development organizations and as part of that relationship, it has a poverty reduction strategy.  In February 2009, the government published a progress report on implementation of that strategy.  Here’s a paragraph on implementation (para. 37) —

Strategic-level entities: the Strategic Orientation Investment Council (COSI), the Donor Advisory Committee (DAC), and the Priority Arbitration Committee (CAP) are not yet officially up and running. At the operational level, the Interministerial Committee for Implementation Coordination and Monitoring (CICSMO) is up and running and is chaired by the Minister of Planning and External Cooperation. The Executive Secretariat of CICSMO, the key entity for the entire implementation mechanism, the Interministerial Subcommittee for Sectoral Coordination and Monitoring (SCTICSMO), and the Departmental Subcommittees for Implementation Coordination and Monitoring in the regions (SCDCSMOs) have been established. SCTICSMO is holding its ninth monthly coordination and monitoring meeting.

Does this sound like the kind of administrative weight that a country like Haiti could handle? And with the government now essentially destroyed by the earthquake, does it sound like the kind of thing they should rush to re-establish?  And yet as the demands come in for a “coordinated” approach to aid delivery, how does one avoid exactly this kind of structure emerging again?  There is going to be a clear tradeoff between getting aid delivered quickly and establishing any meaningful role for the government of Haiti in the crisis mitigation and recovery process.  Can you build a nation without a government?

 

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