All the things Olli said

It’s probably a good sign for the influence of the European Parliament that remarks made to it by a European Commissioner can cause a row. So it is with Economic and Monetary Affairs Commissioner Olli Rehn who presented a narrative of Italy’s flirtation with bond market shutdown during October and November 2011 that seemed too favourably disposed to the arrival of Mario Monti as the game-changer — in the context of an election featuring the same set of personalities now:

[the inaction on fiscal policy] led to a drying out of lending which suffocated economic growth and led to a political dead-end in Italy and the formation of the new government of Mario Monti, which then later on was able to stabilize the situation,” Rehn told the European Parliament on Tuesday. “This is clearly an example of the confidence effect in play.”

In what amounts to a contrite statement by Brussels standards, Rehn’s spokesman later clarified:

Neither Vice-President Rehn nor the European Commission comment on issues in the context of a national election campaign, in Italy, or any other Member State. Vice-President Rehn is responsible for fiscal and economic surveillance within the European Commission and his recounting in the European Parliament this morning of the events of the autumn of 2011 should be seen in this context.

and then outlines a set of dates which shows that the Commission at the time was reacting both to an enhanced reform proposal of the Berlusconi government plus additional elements added by Monti as its attitude to the country improved over the course of November.

It’s nonetheless tough to erase the impression that the EU establishment was much happier with Monti as PM; he was after all, one of their own. But the Eurogroup statement of 25 November 2011 which was the welcome to the new government warrants a 2nd look:

On his visit to Rome on 25 November, Vice President Rehn welcomed the economic programme of the new Government and its broad based support in the Parliament. He emphasized that “the priorities set by Prime Minister Monti are the right ones and I fully endorse them: step-up fiscal consolidation, adopt bold measures to re-launch growth, and ensure social fairness.” And he added: “Italy needs a comprehensive and wide-ranging package of reforms to kick-start growth again and offer its young people the perspective of more but also better jobs. I underline – and this is particularly relevant in this country – this is not only about fiscal consolidation but also, and I even say first and foremost, about economic reforms that can lift the potential for growth and jobs. The strong mandate for reform and the shared sense of urgency will certainly help in this regard.” 

Given the widespread view that Monti delivered much more on the austerity part of his intent than the growth part, Rehn’s opening standard for the new government nicely makes clear the jobs and growth part was not just something that Monti’s critics grafted on to his assessment later. If Rehn provided a fuller evaluation of Monti’s government to the European Parliament yesterday, using his own standard of 14 months ago, there might not be as much of a row.

Did you hear about the guy who wasn’t an economist? He was right…

Gordon Brown makes one of his rare post-prime ministerial appearances, arguing for globally coordinated economic policy, and especially, more stimulus. Here’s something I hadn’t heard of:

Prior to the G20 in the autumn of 2010, the Korean government, to its great credit, floated a compromise way forward. They proposed that each major economy set limits for its current account surpluses or deficits (China and, for example, Germany a surplus of no more than 4 percent; America a deficit of no more than 4 percent). Privately, China indicated its willingness to engage. U.S. Treasury Secretary Tim Geithner signaled public support for the plan. But after an unfortunate series of misunderstandings the Korean plan was stillborn…

German conservatives may have been thinking they’d passed the worst. After a long, long string of lost elections at the provincial level, they finished the year looking strong in the polls. And then they lost Niedersachsen to an SPD-Green coalition. Although the FDP falls out of government with them, it also got an unexpectedly good result.

Italian economist Luigi Zingales says Italy’s biggest problem is its ruling class. I’ve said as much – southern Europeans don’t actually work fewer hours than Germans, so surely management needs to bear some responsibility for dreadful productivity? I don’t speak Italian but I suspect I may not agree with his solutions.

Housing is the business cycle.

A prominent critic of austerity turns out to be pretending to be an economist. You can tell the real ones because their policy advice just sounds like they’re faking it.

Greece will not be asked for any more cuts for six months.

Central European Links

Here’s a depressing but interesting story. More and more Jews are moving to Vienna, which sounds rather hopeful…except that they’re coming from Hungary, to get away from anti-Semitism and people like piece o’work Zsolt Bayer.

Jonathan Freedland, meanwhile, asks his American friends to stop worrying about pogroms in London and to worry more about Hungarian and Polish politicians they find politically congenial.

You’d be surprised how often my fellow British Jews are required to disabuse U.S. friends of such delusions. One leading communal professional recalls a London meeting with an American counterpart, the latter first insisting on a tearful embrace: “You’re going through what my grandmother went through in Russia, with the pogroms,” he sniffed.

Nobody in the UK appears to have noticed that our aerospace/defence national champion is involved in a massive corruption scandal in Austria. A neat use of the radial graph visualisation explains exactly how BAE’s money was distributed around the Austrian political class to help sell Eurofighters.

Remember when the accession states were the happy hunting grounds of the libertarian blogger? Only too well. Slovakia’s prime minister thinks the privatisations were a terrible mistake and the flat tax was a sacred cow that had to die. Further, being a small and highly open economy/a branch of VW-Audi is less fun than it used to be.

And a Bulgarian politician is the target of a fake assassination attempt.

Europe’s capital strike, Central European edition

Even if Monti seems to have succeeded in dragging the spreads closer together, there are plenty of problems around the European economy. Bloomberg reports on central and eastern Europe’s economies in search of a growth model. So far, some of them chose export-led growth and integration into (basically) German automotive supply chains, and others had a credit and property boom.

Well, it’s pretty easy to work out which was the better idea, but the problem is that with demand (especially for cars) across Europe in the toilet, the export plan isn’t looking too great either. Worse, some of the exporters are seeing their exchange rates rising fast. Poland, which is the paradigm case of an EU accession state that specialised in exporting into the German automotive supply chain, saw its currency rise 9.4% in 2012.

Diversifying trading partners away from the euro region should also “help at the margins,” Ulgen [HSBC chief economist for the region] wrote, adding that Poland and the Czech Republic have already managed to increase trade with countries from the former Soviet Union. Polish exports to the Commonwealth of Independent States rose 21 percent in the first nine months of last year and Czech exports increased 42 percent, according to HSBC.

While fiscal stimulus is not an option, there’s also further room for monetary easing in Poland and Hungary, while the Czech Republic, with the policy rate near zero, may need to resort to currency intervention, Ulgen wrote.

The problem here is that the plan is now, apparently, “export to countries that are poorer than we are”. This being Bloomberg we get a ritual reminder that “labor and pension rules” must change. But the Czechs’ GDP per capita at purchasing power parity is 123% of Russia’s.

The Austrian central bank governor, Ewald Nowotny, is apparently a leader in this effort and if anyone ought to be batting for Central Europe it’s the Austrians. However, out of the three banks who have cut their lending in the region the most, two of them are Erste and Raffeisen.

The problem is not trivial. McKinsey estimates that private investment in Europe has fallen by €354bn since 2007, while the corporate sector has about €450bn in cash on its balance sheet. Being who they are, it’s all about “regulatory barriers” and such. But look at this chart.

What on earth are European governments doing contributing to the problem here?

Tories accidentally sell the EU to Britain

So, we’re still waiting for Cameron’s big speech on Europe, which has grown a Twitter hashtag (#TheSpeech) during its repeated postponements. Curiously, if the prime minister had set out to make the case for the European Union, he couldn’t have done better. As the dithering continues, the polls are shifting steadily towards more support for staying in the EU.

This is in the context of a longer-term swing back. In May, YouGov’s polling found that 51% of those polled would vote to leave. By the end of the year, this was down to 46%, and a week ago, 42%, with a matching increase in the vote to stay in. As the chart above shows, the lines have now crossed over. Even before the cross-over, more people thought that things would be worse outside the EU on the economy, on jobs, on their own personal interest, on the UK’s relationship with the US, and on UK foreign policy in general. Go ahead and hop over to here and get more information on legal advice.

Meanwhile, there’s been something of an elite mobilisation, with the newly deployed psuedo-thinktank the Centre for British Influence rounding up 16 Tory MPs to write to the prime minister (I was surprised they found so many) and managing to place a succession of “pro-European thinks Cameron is wrong” headlines in the papers.

One of the most surprising discoveries of this latest go-round of the Tories’ conflicts on Europe is that UKIP has stopped being a party that is primarily about the EU, in the sense that its voters don’t care about it. In general, British electors rank Europe relatively low among their priorities. For normal people, it tends to be a strong opinion but weakly held. Astonishingly, it turns out that UKIP voters are no different – their polling profile is basically identical to that of Tories. You can to get in contact with the best law firm near you.

This is important and interesting. It shows up that both the Tories and UKIP have a problem. The Tories’ problems are as follows – they’re competing for votes on both flanks, to the centre and to the extreme right (the polling is clear that UKIP wins votes from Tories), and they’re forced by their internal politics to spend time and effort making speeches about Europe and the nature of Britishness, which isn’t a productive activity. UKIP’s problem is more subtle; its leaders are fascinated by the EU. It’s why they do it. But their voters aren’t – only 27% of them rate the EU among their top three issues.

Over time, UKIP has evolved in a libertarian direction. Its leadership basically believe two things: we should get out of the EU, in order to be more neoliberal. The problem here is that libertarianism is very much a minority opinion. Most British people don’t want it or anything like it. Polling of UKIP voters shows they are no different. Instead, they seem to be Tories, but more so. They vote UKIP to register protest against the Tory leadership for compromising with the electorate and the Lib Dems.

For their part, the Tory Eurosceptics are trying to compete with UKIP in Euroscepticism and libertarianism. Therefore, the “Fresh Start” group wants David Cameron to demand three policies: an opt-out from the working time directive, and another from financial services policy. This is apparently meant to be popular. The Fresh Starters say some remarkable things – apparently the EU wants to “shut down financial services” – but it seems unlikely that the British people are desperate to avoid regulating the banks, and it is actually the declared policy of the government that the economy should be rebalanced to rely less on the City. (And they want to stop sending the European Parliament to Strasbourg, but then everybody wants that bar the mayor of Strasbourg.)

But this speaks to an important point. It’s meant to be about sovereignty, no less, and this is all they can think of to do with it?

Another interesting point. Is it really better for the public to believe in “Europe” abstractly by large majorities, and to be convinced that it is basically against their interests on concrete questions of fact, or to be suspicious of the windy speeches and wandering parliaments but to think that it’s probably better than the alternatives on real issues?

FOMC Transcripts Or Why It’s Important to Listen to the Staff

From the 2007 US Federal Reserve meeting transcripts, Meeting of the Federal Open Market Committee (FOMC) on September 18, 2007, economist Karen Johnson during a discussion of the Northern Rock debacle —

MS. JOHNSON. But, I have to say—as when President Fisher asked that question about
whether we know what we don’t know, to which, of course, the answer is always “no”—
[laughter] five days ago, I wouldn’t have brought up Northern Rock. So, I can’t promise you
that there aren’t—
MR. FISHER. Previously Newcastle, should have been called Sandcastle. [Laughter]
MS. JOHNSON. The Spanish banks, for example, and the Spanish mortgage market are places, if I were going to dig deeper and look for hidden problems, that are a possibility.

That’s a viewpoint that had trouble gaining traction among senior Spanish officials for another 3 years.


A serious Iraqi newspaper is saying openly that it may be time to give up the Shia-Kurdish alliance that has run Iraq since Saddam, and let the Kurds move on to independence.

Shots fired at an Iraqi army helicopter to keep it from reconnoitoring Kurdish positions, while Jalal Talabani is seriously ill.

Exxon Mobil is giving up on its contracts with Iraq to concentrate on Kurdistan.

Old story, but good: the Turks have a backchannel from their secret service to the Kurds. This caused a major demo round the corner from here today.

The Kurds have, of course, staked out a big chunk of Syria after the government withdrew to fight more worrying rebels. What if this was the year they got what they wanted? I remember blogging years ago that putting a tough and well organised mountain guerrilla army between Turkey and Iraq seemed a fine idea from a Turkish point of view.

Links: Britain and Europe

Back in December, Anne-Marie Slaughter said she thought an EU-USA trade agreement might happen i 2013, and that the Americans saw the US and Europe pivoting together towards Asia. Art Goldhammer makes the good point that British eurosceptics should look out.

Professional super-Right Tory Peter Oborne catches up, spinning off a statement delivered by the State Department directly. There is no contradiction between the EU and the special relationship.

But there never was. The Americans have repeatedly pressed the UK to engage with the EU. I remember the same story from the Treaty of Nice; all sorts of people promised nightmares, but actual American diplomats and statesmen would repeatedly say that in their view, we ought to be in. Oborne is too partisan to say it, but the 51st state option has never existed. The Americans have never wanted the UK out of the EU. If they did, they’d say it.

It is true that a lot of Tories – Oborne names them – have dreamed that all the problems of leaving the EU would be solved by an appeal to America. The cult of America is part of the Thatcher cult in general. But Thatcher herself was never overawed by the Americans; the 30th anniversary releases on the Falklands War show that she was firm with them to a degree that the French would have considered flinty.

The belief that the Americans really want us out is pathological, relying on any blowhard willing to open the mouth as an alternative to their actual decision makers. The integrated north Atlantic market for bullshit means that internal Tory rows are exported across the sea and reflected back as evidence. As Hopi says, one result is that Thatcher’s Bruges speech would now be considered daringly pro-European.

Finally, Austrian chancellor Werner Faymann:

Mit Merkel habe ich ein gutes persönliches Verhältnis, innerhalb dessen wir inhaltliche Unterschiede haben. Warum ich mir mit David Cameron schwerer tue, vor allem auch im persönlichen Verhältnis und beim Vertrauen, auch wenn die Umgangsformen immer nett sind, liegt darin, weil ich bei ihm das Gefühl habe, dass für ihn besonders gilt, was wir vorher besprochen haben: Er redet im eigenen Land anders als im Europäischen Rat

My translation: “With Merkel, I have a good personal relationship, although we disagree about policy within that relationship. I find David Cameron more difficult, especially in our personal relationship and in terms of confidence [or trust]. Why? Even though his formal manners are always very nice, I have the feeling we discussed earlier but even more than with the others – he doesn’t talk at home like he does in the European Council.”

Some Eurolinks

Christian Gros gets, I think, to the heart of the matter:

The key to ensuring the future of Europe’s social-security systems, and thus its social model, is faster growth. And, again, it is difficult to see how more Europe would improve the situation. The obstacles to growth are well known, and have existed for a long time without being removed. The reason is quite simple: if there were a politically easy way to generate growth, it would have been implemented already

The question isn’t whether more policy areas are moved to the Commission (or in practice the ECB) or not, it’s what the policy is. Foreign Policy argues that Christine Lagarde has changed it:

She directed her chief economist, Olivier Blanchard, to publish new estimates showing that the fiscal multipliers — a measure of the impact of budgetary tightening on economic growth — on which the IMF had based its financial support programs in Greece, Ireland, and Portugal were excessively low. The new estimates put the fiscal multipliers between 0.9 and 1.7 — up from the 0.5 that had been previously assumed. In other words, the damage done by budget tightening was likely to be two to three times as bad as the IMF had previously estimated.

Armed with these estimates, Lagarde has pushed back against the ECB and EC [ed: we think they mean the Commission], arguing that by deepening the recession, excessive budget tightening can be counterproductive in stabilizing a country’s public finances. This has led her to recommend that Ireland, Portugal, and Spain not be subjected to another round of belt tightening if their economies continue to falter. Instead, she has argued that they should delay meeting their final budget deficit targets to allow domestic economic recovery to take hold.

Corporate Europe lives.

European operators have not talked about creating a single network with competition authorities, according to a Reuters, although they have expressed an interest in greater consolidation.

A Financial Times report earlier this week said leading operators had discussed with Joaquin Almunia, the EU’s competition chief, the idea of creating a pan-European infrastructure. The aim would be to offer better integration between Europe’s national telecoms markets.

However the later report, quoting unnamed sources, says the meeting had focused on whether the number of operators in Europe could shrink through mergers and takeovers, a process requiring regulatory scrutiny…

I can’t really comment on this, but I’m suspicious of the blue and yellow jacket round the bad whisky.