The deflationary settlement of intra-eurozone imbalances has not necessarily developed to Germany’s advantage. German industrial order books shrank by 12.1% for exports to the eurozone, while orders from the home market fell 3% and from the rest of the world by 0.3%. Interestingly, the worst sub-sector was semi-manufactured goods and chemicals, i.e. inputs into industrial supply chains. This, to me, suggests that the crisis is affecting places like northern Italy – not just selling fewer BMWs to the periphery, but also selling fewer fancy chemicals to go into the plant in La Spezia that made the propellers for the Queen Elizabeth class aircraft carriers.
Meanwhile, does it worry anyone else that no media outlet has managed to report Angela Merkel’s actual words leaving the G20? Reuters started it, but didn’t provide an actual quote, and anyway it’s usually good practice to distrust any English-speaking journalist’s German. At the same time, the Guardian‘s live blog gave up and started reporting what people were posting on Twitter. Not just that – I’ve also seen journalists referring to “Berlusconi’s economic stimulus plan”. If only!
It’s been a bizarre week, but if the papers can’t do mindless stenography of the words of the powerful, what are they for?
Central and Eastern European economies aren’t doing well. German IFO business confidence tanks, on expectations of poor export orders. These two facts are related.
It’s been said before that the central core of economics failed to predict the great recession (or damn, can’t we call it a depression already? It’s been four years and it’s depressing enough) and that only a few key groups of people noticed anything unusual. Followers of Hyman Minsky and Charles Kindleberger saw the classic pattern of confidence, mania, panic, and crash unfolding. People who understood the economy as a system of accounts saw a number of huge imbalances in the flow of funds. Marxists considered that the source of the imbalances was the super-exploitation of Chinese workers and the maldistribution of the proceeds of growth in the West.
But I’m not sure if economic geography has been given enough credit. One economic geographer who predicted the crisis is of course Paul Krugman. From a geographical perspective, the CEE economies are part of a huge automotive engineering cluster rather like the US rustbelt or the West Midlands in the UK, reaching over from the Cologne area to Slovakia. (Actually, they always have been since the Industrial Revolution – here’s a beautiful 1938 Tatra and a much less beautiful 1914 Skoda 305mm mortar and caterpillar tractor.) From an industrial economics perspective, they are part of the German motor industry’s global supply chain, whether as upstream suppliers of parts and sub-assemblies or as downstream final assembly contractors. You can argue whether geography or functional specialisation determines this, but that’s not really relevant right now.
To put it another way, they aren’t exporters to “the German locomotive” but rather to the German economy’s customers, at one remove. The determining factor of their order books is how well the final products sell, and in the German economy’s historical default state as an industrial exporter, that depends on somebody somewhere buying more German goods than they sell goods to Germany.
A deflationary adjustment of the eurozone trade balances will be deflationary all the way along the supply chains. This is broadly what I was worrying about in May, 2010. The problem is not quite the same as it was for Keynes in the original Economic Consequences, a book which contains a lot of economic geography – back then, if the Germans were ever going to pay off their debts, Keynes pointed out, the rest of Europe had to let them export enough stuff. Now the boot is on the other foot. If the Greeks are ever going to get out of their debt crisis, the Germans have to let them export enough stuff. And if the Czechs and Hungarians and Baltics are not going to slide back into the mud, the Germans have to import enough stuff from them. Nobody imagines that the Greeks will be importing as many BMWs as they used to, so what can the answer be?
Winning Eurovision 2011. Apparently the AFOE crew was too sober to liveblog the festivities. In any event, one member of the collective has already observed, “That’ll put off any war over Nagorno-Karabakh for at least a year.”
Eurovision previously at the Fistful:
2009 Slightly depressing follow-up relevant to this year’s winners.
2007 Bonus 2007
Thoughts? Or is Eurovision simply beyond thought?
Kevin Drum makes the mistake of reading McArdle and writes “I have to admit that ‘gigantic earthquake in Japan’ was not on my list of possible flash points for the global economy. And in the end, I don’t think it will be.”
It certainly shouldn’t be, if only because Tokyo Earthquake is probably the most widely used wildcard in any sort of future/scenario planning. Sure, it was a low-probability event at any given time, but over longer terms it had a non-trivial likelihood of coming to pass. From financial markets to supply-chain managers, they all should have a file at hand marked Tokyo Earthquake, and the work — for people far away — now involves dealing with how reality diverges from what was planned. Maybe some international actors will be exposed as having neglected to answer this most obvious of what-ifs, but most will have worked through the possibilities.
â€The last wish of the Icelandic economy was to have its ashes scattered over Europeâ€¦â€
Our friends at Foreign Policy (among others) report that the Prime Minister of Norway, stranded in the US by volcanic events in Iceland, is working with his new iPad to make sure things don’t get out of hand back home. No word on what kind of mobile he uses, though maybe he’s saving on roaming charges by using Skype?
Anybody else out there stuck? (Chancellor Merkel, for example, is in Lisbon at least through Saturday. Not sure if that qualifies as stuck.)
Mostly in lieu of a proper review, excerpts from The Discovery of France by Graham Robb, the best non-fiction book I read in 2009. (Tough competition, too: In Europe: Travels Through the Twentieth Century by Geert Mak, Gold and Iron by Fritz Stern and To the Castle and Back by Vaclav Havel were all top notch.)
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 ZalÄns 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 â€œWe will just go bankrupt if we observe all legal norms.â€ Continue reading
An op-ed guest writer for the New York Times opines:
SIXTY-FIVE years ago, in November 1944, the war in Europe was at a stalemate. A resurgent Wehrmacht had halted the Allied armies along Germanyâ€™s borders after its headlong retreat across northern France following D-Day. From Holland to France, the front was static â€” yet thousands of Allied soldiers continued to die in futile battles to reach the Rhine River.
One Allied army, however, was still on the move.
Four years ago, I was boggled to realize that astronomers had been finding planets around other stars at an average rate of one per month since the first exoplanet around a main-sequence star was discovered in 1995.
On Monday, scientists from the European Southern Observatory (ESO) announced that they had found 32 new exoplanets in recent work. Moreover, that brings the total found to roughly 400. Instead of discovering a new planet every month, the average is now much closer to every two weeks.
What is the goal? The astronomers announced their findings at a conference titled, “Towards Other Earths: perspectives and limitations in the [Extremely Large Telescope] era.” The ESO instruments have led to the detection of 24 of the 28 known exoplanets with masses of less than 20 times the earth’s. The technology to spot earth-like planets around other stars is either on the drawing board or under construction. Key puzzles are now in how to characterize atmospheres around exoplanets, and how to deduce other characteristics of earth-like planets that the astronomers expect to find.
And in two weeks, astronomers will likely have found another planet around a different star.