Eurocrisis Round Two, Blame the Germans Edition

“What strikes me, also, is the extent of intellectual confusion that remains.” – Paul Krugman, Europanic 2.0

“The problem is that Germany has continued to maintain highly competitive labor costs and run huge surpluses since the bubble burst — and that in a depressed world economy, this makes Germany a significant part of the problem.” – Paul Krugman, German Surpluses: This Time Is Different

According to one fairly widespread (and recently much in vogue) theory about the Euro crisis, Germany bears a large part of the responsibility for the current mess. The view is met with a variety of responses inside the country, ranging from horror to amazement. Naturally, if the argument were simply about the way Angela Merkel has handled the crisis – no Eurobonds, no debt forgiveness, systematic fiscal austerity – then possibly some of it could be understood. But no, things go beyond that, Germany has been too successful, too competitive, and this has presented a big problem for its partners who simply haven’t been able to keep up. Continue reading

Is Japan Back In Recession?

“People should seriously consider that Japan’s economy may have fallen into recession despite the weaker yen and a stock rally from the BOJ’s easing and the flexible fiscal policy by Abe’s administration,” said Maiko Noguchi, senior economist at Daiwa Securities. “Initial expectations that the economy could withstand the negative effects of a sales tax hike through a virtuous circle seem to be collapsing.”

“the risks are rising that the economy will later be determined to be in recession,” said Yuji Shimanaka,  chief economist at Mitsubishi UFJ Morgan Stanley Securities Co.

Worsening Picture

As noted in my post – Does Abenomics Work? -  (published 19 September) the tide of media opinion finally seems to be turning against Shinzo Abe and his economic reform plan for Japan known as “Abenomics”. The degree of skepticism being shown only seems to have grown on the back of a slew of recent data confirming the impression that the recovery of economic activity from the post sales-tax slump isn’t going to be as easy as either the Japanese government or the Bank of Japan initially thought it would be. As the authors of the Bloomberg report from which the above quotes are taken – Oops Japan Did It Again? Sales-Tax Spurs Recession Debate – put it: “Weak industrial production data from Japan today raises concern that the world’s third-largest economy may be back in recession, challenging Prime Minister Shinzo Abe’s growth strategy.” In fact, output which was down 1.5% between July and August (and down 2.9% over August 2013) has fallen in three of the past five months.

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Just Send Me Word by Orlando Figes

From the Preface to Just Send Me Word: A True Story of Love and Survival in the Gulag, by Orlando Figes:

Three old trunks had just been delivered. They were sitting in a doorway, blocking people’s way into the busy room where members of the public and historical researchers were received in the Moscow offices of Memorial. … Noticing my interest in the trunks, they told me they contained the biggest private archive given to Memorial in its twenty years of existence. It belonged to Lev and Svetlana Mishchenko, a couple who had met as students in the 1930s, only to be separated by the war of 1941-5 and Lev’s subsequent imprisonment in the Gulag. …
We opened up the largest of the trunks. I had never seen anything like it: several thousand letters tightly stacked in bundles tied with string and rubber bands, notebooks, diaries, documents and photographs. The most valuable section of the archive was in the third and smallest of the trunks, a brown plywood case with leather trim and three metal locks that clicked open easily. We couldn’t say how many letters it contained – we guessed perhaps 2,000 – only how much the case weighed (37 kilograms). They were all love letters Lev and Svetlana had exchanged while he was a prisoner in Pechora, one of Stalin’s most notorious labour camps in the far north of Russia. The first was by Svetlana in July 1946, the last by Lev in July 1954. They were writing to each other at least twice a week. This was by far the largest cache of Gulag letters ever found. But what made them so remarkable was not just their quantity; it was the fact that nobody had censored them. They were smuggled in and out of the labour camp by voluntary workers and officials who sympathized with Lev. Rumours about the smuggling of letters were part of the Gulag’s rich folklore but nobody had ever imagined an illegal postbag of this size. …
As I leafed through the letters, my excitement grew. Lev’s were rich in details of the labour camp. They were possibly the only major contemporary record of daily life in the Gulag that would ever come to light. Many memoirs of the labour camps by former prisoners had appeared, but nothing to compare with these uncensored letters, composed at the time inside the barbed-wire zone. Written to explain to his sole intended reader what he was going through, Lev’s letters became, over the years, increasingly revealing about conditions in the camp. Svetlana’s letters were meant to support him in the camp, to give him hope, but, as I soon realized, they also told the story of her own struggle to keep her love for him alive.
Perhaps 20 million people, mostly men, endured Stalin’s labour camps. Prisoners, on average, were allowed to write and receive letters once a month, but all their correspondence was censored. It was difficult to maintain an intimate connection when all communication was first read by the police. An eight- or ten-year sentence almost always meant the breakings of relationships: girlfriends, wives or husbands, whole families, were lost by prisoners. Lev and Svetlana were exceptional. Not only did they find a way to write and even meet illegally – an extraordinary breach of Gulag rules that invited severe punishment – but they kept every precious letter (putting them at even greater risk) as a record of their love story.
There turned out to be almost 1,500 letters in that smallest trunk. … These letters are the documentary basis of Just Send Me Word, which also draws from the rich archive in the other trunks, from extensive interviews with Lev and Svetlana, their relatives and their friends, from the writings of other prisoners in Pechora, from visits to the town and interviews with its inhabitants and from the archives of the labour camp itself.

Does the book live up to the promise of its preface? Yes. Yes, it does.

(Cross-posted to The Frumious Consortium.)

The Japanisation Of Europe

By now it should be clear that the monetary experiment currently being carried out in Japan (known as “Abenomics”) is fundamentally different from the kind of quantitative easing which was implemented  in the United States and the United Kingdom during the global financial crisis. In the US and the UK QE was implemented in order to stabilize the financial system, while in Japan, and now the Euro Area (EA) the objective is to end deflationary pressures and reflate economies which are arguably caught in some form of liquidity trap. Continue reading

Does Abenomics Work? – The Doubts Grow

Is something in the air? Do I detect a change in consensus on the way things are going in Japan? Certainly a slew of articles have been published in the financial press over the last month questioning where the Abenomics experiment is headed for. The general conclusion seems to be that wherever it is it is certainly not the originally designated endpoint. Continue reading

Their Eyes Were Watching Vlad

Occasionally, representatives of Germany’s Left party (Die Linke) will complain about being tagged as the successors to East Germany’s communist party. Well.

As part of the German parliament’s debate about the budget and foreign police, Gregor Gysi, parliamentary leader of Die Linke, spoke out forcefully against further sanctions against Russia. He called them “absolutely counterproductive.” He added that they provoked Russian countermeasures and hurt the economy. Rational policy, in his view, would be to lift the sanctions immediately.

Not to be outdone, Sara Wagenknecht, Gysi’s first deputy, said that economic warfare with Russia was damaging and “playing with fire.” She added that NATO maneuvers and EU sanctions were making the implementation of a ceasefire in Ukraine difficult.

Russia and the Russian government are, of course, utterly blameless in all of these events.

Not coincidentally, the party’s history as recounted on its English-language web site begins in 2007. If I had their background as the unreformed heirs to the Kremlin’s stooges, I’d keep it off the web site, too.

The Catalan Vote: Why It’s Time To Start Getting Worried About Complacency In Madrid

When Barack Obama told a CNBC interviewer last autumn that Wall Street ought to be “genuinely worried about what is going on in Washington” in reference to the US government shutdown he raised more than a few eyebrows. Normally political leaders try to calm and reassure markets, so this attempt to stir them up on the part of the US President was, in its way, something of a first.

Last May the Financial Times issued a similar warning in an editorial with a clear message: right now you should be more worried than you are about what is happening in Madrid. According to the newspaper, “secessionist demands have created a rolling crisis involving Catalonia and the national government in Madrid,” a crisis which it warns could end in a “head on collision” if the issues being raised are not addressed. Continue reading

Secular Stagnation Part III – The Expectations Fairy

“So what’s going on here? Well, it might sound like a hokey religion, but central banking is really a Jedi mind trick. Just saying something can be enough to make it happen. That’s because the power of the printing press gives their words a distinct power. Well, that and the fact that the economy is already one big self-fulfilling prophecy.” – Matt O’brien,  “Abenomics has only worked because foreigners think it willContinue reading

What Is The Risk The Euro Crisis Will Reignite?

The euro zone crisis is not back — at least not yet.

Recent movements in global markets following concerns about Portugal’s Banco Espirito Santo really had as much to do with market nerves after a long spell of repressed volatility as it did with the state of the bank’s balance sheet. Despite the current calm, everyone knows that volatility will return one day, and no one wants to be caught on the back foot when it does arrive. So the initial response is to hit the “sell” button and then ask questions.

Beyond this context, there is a lack of certainty in the market about which way bond yields for the so-called “peripheral” euro zone countries are heading in the near term — and what exactly the risks associated with holding them really are. Riding the yield compression, in the case of the Portuguese 10-year bond from over 7 percent to under 3.5 percent was a one-way-bet no-brainer once the impact of Draghi’s July 2012 speech became crystal clear. Continue reading

The Italian Runaway Train

There has been lot’s of debate in the press and in academic circles over the last week or so about whether Italy’s latest contraction constitutes a triple dip recession or simply a continuation of what’s been going on over many many years. This is an interesting theoretical nicety, but in fact what is happening in Italy at the moment goes a lot further than problems faced by a recession dating committee. The real issue that arises in the context of the Euro Area at the moment is a far more specific one. Will the ECB do QE? And if it does when will it push the button? And what could happen if it doesn’t. Perhaps a case study of the Italian case is worth the effort here. What is likely to happen to Italian debt if there is no ECB intervention soon? Let’s take a look at the dynamics. Continue reading