“The EU should create a mechanism to help out countries which found themselves in Greece’s shoes. But one has to believe Greece will solve its problems by itself.” This is the view expressed by Marek Belka Director of the IMF’s European Officein an interview with Reuters last week. Asked whether the IMF would be ready to help bail out Greece, Belka said: “Yes, we are ready. But it depends on whether the EU or Greece will request it.”
In a separate interiew with IMF Survey Magazine (worth reading in its entirety) Belka cites Ireland and Spain as â€œgood examplesâ€ of countries with â€œhomemade imbalancesâ€ based primarily on â€œreal estate and asset price bubblesâ€. As he points out, Ireland and Spain (unlike Greece) entered the financial crisis with â€œrelatively low levels of public debtâ€, something which has enabled them â€œto react to the crisis by using the fiscal space that they had accumulated in good timesâ€. â€œNow of course, both countries have been forced to start fiscal consolidation”. And since, â€œIn a monetary union, depreciating your economy out of the crisis is not an option…countries must rebuild their competitiveness through factory-price adjustment, which often means unfortunately, cutting wages.â€ He thus essentially reiterates the central point that Paul Krugman, I and numerous others have been making about this situation. Continue reading
This not unreasonable question was asked today by Ralph Atkins on the FT’s Money Supply Blog:
The economic news from Spain has turned more worrisome. Eurozone purchasing managersâ€™ indices for manufacturing showed the regionâ€™s recovery humming along nicely (Decemberâ€™s final index reading at 51.6, up from 51.2 in November, was in line with the preliminary estimate released last month).
But Spain is heading in the opposite direction. Activity in its manufacturing sector continued to fall, and the pace of contraction in the fourth quarter was faster than in the third quarter, according to Markit, which produces the survey. Spainâ€™s manufacturers are also reporting far steeper job losses than in other large eurozone economies, according to Chris Williamson, Markitâ€™s chief economist.
Ralph certainly has a point here. Spain’s December PMI results are shocking, it posted 45.2 in December, just below the 45.3 posted in November, indicating a still substantial rate of contraction. Even more to the point this is the third month running where Spain has turned in the worst reading of any of the 26 countries included in JPMorgan’s Global Manufacturing Survey. Continue reading
Global manufacturing industry ended 2009 on what seems to be a fairly positive footing, with the JPMorgan Global Manufacturing PMI posting a comfortable 55.0 in December, up from 53.7 in November, significantly above that critical 50 growth/contraction dividing line. December’s was the highest reading for 44 months, and the headline Global PMI has now remained in expansion territory for each of the past six months. So this is not a fluke, and growth is being sustained, even if it is not evenly distributed, and is far from being that much hoped for “V” recovery. But of course, what happens to all of this as the stimulus is gradually withdrawn?
Only a few short weeks ago the financial and economic world declared itself staggered to learn that the 2009 Greek fiscal deficit was going to come in at 12.7% (mind you, as the conservative Dutch newspaper NRC Handelsblad pointed out, there was plenty of evidence of what was coming available long before for those who really wanted to look into the matter). Well, now get ready to be staggered again, since according to a spate of articles that have started appearing in the Greek press, the number which only so very recently had us all reeling in shock may be on its way up again, if only by “a few tenths of a percentage point”. How many “tenths of a percentage point?” Well at this stage this isn’t exactly clear. On 28 December the web portal Capital.gr reported (in Greek, but try Google translator):
â€œTemporary (cash) data from the flow of government revenues have fallen quite substantially when compared to those of the last quarter of 2008,… not only data for October-November, but the first indications for December show that the delay in the flow of public tax income (mainly) is important. The Treasury has also begun to “mumble” about the possibility that the deficit in 2009 is going “to close a few decimals above the anticipated 12.7 %…”. How many decimals? This is unknown at present, although the General Accounting Office (YPOIK) displayed some optimism that the gap will not exceed 0.1% – 0.2% of GDP (ie the deficit will remain below 13%) even if some do not hesitate to speak of a deficit of over 13% of GDP.â€
I have an interview with Paul Krugman in today’s edition of La Vanguardia (in Spanish). Below I reproduce the English original. As will be evident, there are many topics about which Paul and I are far from being in complete agreement. But on one topic we are in complete harmony: the diffficult situation which now faces Spain, the need for internal devaluation, and the threat which continuing inaction on the part of Spain’s current leaders represents for the future of the entire Eurozone.
Edward Hugh: In your NYT article “How Did Economists Get It All So Wrong”, you state what I imagine for many is the obvious, that few economists saw our current crisis coming. The Spanish economist Luis Garicano even made himself famous for a day because he was asked by the Queen of England the very question I would now like to put to you: could you briefly explain to a Spanish public why you think this was?
Paul Krugman: I think that what happened was a combination of two things. First, the academic side of economics fell too much in love with beautiful mathematical models, which created a bias toward assuming perfect markets. (Perfect markets lead to nice math; imperfect markets are a lot messier). Second, the same forces that lead to financial bubbles â€“ prolonged good news tends to silence the skeptics â€“ also applied to economists. Those who rationalized the way things were going gained credibility until the day things fell apart. Continue reading