Author Archives: Edward Hugh

About Edward Hugh

Edward 'the bonobo' is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

Negotiations For Turkey’s Entry About To Begin?

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Not if people like single market commissioner Frits Bolkestein gets his way they aren’t. According to the FT the European Commission is expected to say on October 6 that Turkey has reformed enough for membership negotiations to begin. If this happens EU leaders will then decide in December whether to endorse those conclusions and when to start the talks with Ankara. Mr Bolkestein seems to have problems with this:

A senior European commissioner has warned against the “Islamisation” of Europe, casting doubt on Turkey’s drive to join the European Union at a crucial time for its campaign for membership.

Frits Bolkestein, the outgoing single market commissioner, made the comments as his colleague G?nter Verheugen, the enlargement commissioner, visited Turkey ahead of a key Commission report next month on the country’s preparations for joining the EU.

In his comments, circulated by the Commission yesterday, Mr Bolkestein said Europe would be “Islamised” because of demographic and migration changes. He added that if this occured, “the liberation of Vienna [from the Turks] in 1683 would have been in vain”.
Source: Financial Times

Mr Bolkestein’s problem would therefore not appear to be connected with the legitimate question as to whether Turkey is, or is not, complying with EU criteria on human rights, treatment of minorities etc, but with something which sounds remarkably like an objection in principle. In this sense it is noteworthy as it is clearly a somewhat crude expression of a much broader popular sentiment which Europe’s responsible political leaders need to do much more to combat. My interpretation of the above statement is not altered by the clarification from a spokesperson that the commissioner does “not oppose the accession of Turkey to the EU”, which I take to be spin in the face of what must otherwise be considered in Commission terms a diplomatic gaffe, since if he is not opposed to membership then what the hell is he talking about?

And, oh yes, don’t miss the point about demographic trends. I hazard to suggest that this is going to be the topic of the decade, both economically and politically.

Skype, or Simply Hype?

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Well, no, it looks as if it’s for real, and for once it’s European. But whatever it is, or isn’t, Skype (the most popular of the Voice Over Internet – VOIP – applications) is certainly getting a lot of press coverage at the moment. James Fallows of the NYT has been kind enough to test it out for everyone:

While running, Skype sits in a little window, like an instant-messenger program, and lets you talk with other users in two ways. If the other person has Skype installed, you can talk as long as you want, free, and with sound quality that is startlingly better than that of a normal phone connection…..

You can also reach people who don’t use Skype, through a new service called SkypeOut. This allows you to dial nearly any cellular or land-line telephone number in any country and talk. Though it isn’t free, it’s cheap. Skype’s prices are in euros – its founders are Scandinavian, the main programmers are Estonian and its headquarters are in Luxembourg – and they average two or three cents a minute, at any time of day.

Meanwhile back in London Ofcom (the UK telecom industry regulator) have decided to establish the prefix “056″, which will allow phone users to switch from the existing 11-digit telephone numbers to a new Internet broadband 11-digit phone number. Stephen Carter, Ofcom’s chief executive is quoted by Reuters as saying that “”Broadband voice services are a new and emerging market. Our first task as regulator is to keep out of the way.” Good for him.

Of course in one sense Skype is the ultimate in social software, facilitating the development of a young interconnected broadband elite. Simple economics should indicate that as the marginal cost of communication drops rapidly towards zero the quantity should increase. Indeed could we be witnessing the simultaneous rise of two phenomena: densely clustered local networks supported via mobile phones, and more sparsely clustered, but economically highly interesting, global nets facilitated through a platform of broadband connectivity?

So with references to Google and E-Bay abounding the only remaining question seems to be whether Skype will become the latest in the line of new economy, increasing returns, monopolies. Their website claim that they have already provided over 21 million downloads suggests they may be. Will you be the next?

Peek Data

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It’s sometimes interesting to give some thought to the things we believe, and don’t believe, about people. For some George W Bush is one of the most ruthless US Presidents we have seen in years, for others he is apparently the perfect gentleman, playing exactly by the rule book:

Financial markets may be all ears on Thursday night for hints about August job growth from President Bush, but they will be listening in vain since he plans to purposely avoid an early peek……………

“While the president typically sees the jobs data the evening prior to its release, he will not receive the jobs numbers tonight, nor will any of the people who are working closely on his speech,” said White House spokeswoman Claire Buchan.

Instead, Bush will wait with everyone else until Friday to see the hotly anticipated news.

The US Labor Department sends the data, due out at 8:30 a.m. today (Washington time), to the president’s economic advisers the night before. Normally there is not much importance attached to this, but this time clearly there might have been. I didn’t see the speech, but from the reports I’ve read, there was no special mention of the jobs state of play. Also, interestingly, there seems to have been no special reaction in the financial markets to this absence: they clearly see George as a gentleman. Whatever the numbers finally are (and we will still have to wait till later today to actually see them) I’m sure everyone will read the sub-text the way they want to, although clearly glowing numbers (which I personally am not anticipating) would give the most knee-jerk Bush critics a rather harder time.

Why Worry About Japan?

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Well I can think of several reasons, and none of them particularly related to the lamentable lack of security at nuclear power stations that was recently revealed there.

One good reason to worry might be the use and abuse of economic statistics that goes on in the Japanese context. I don’t know whether it is the fact that the Japanese economy is a topic which the majority of English language readers know so little about that means that normal caution is thrown to the winds, or whether Japanese obscurantism with the numbers themselves is the real culprit.

A classic case in point came in the middle of this week with my beloved FT declaring in a headline “Japan?s trade surplus widens as exports rise”, whilst Bloomberg reports exactly the same story in the following terms:“Japanese Exports Fell For A second Month in July”. Now which was it?
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UK Housing Market Cools

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Just going back briefly to my Anyone Feel Like Hiking post – where I was speculating that the UK housing bubble might already have been effectively ‘burst’ by earlier interest rate rises which had still to work their way through the system – figures published yesterday by the British Bankers’ Association seem to suggest that the UK housing market is slowing down. In fact the number of mortgages approved last month fell by an impressive 20 per cent compared with the same period last year.

Despite news in today that UK GDP growth accelerated to an annual rate of 3.7% in the second quarter, there are other signs that the UK economy may well have been slowing since June, among them this low consumer confidence reading.

According to Bloomberg most of the economists they survey are apparently still forecasting a continuing series of rate rises. I am not so sure, and neither is BoE Chief Economist Charles Bean:

“It was clear that 3.5 per cent was clearly quite low and we are now back in the sort of territory that you might think of as a more normal level,” Mr Bean said in an interview with the Irish News yesterday. “It (the natural rate) might be a bit higher than we are. It will be a case of seeing what comes out of the data as they come in.”

I think Mr Bean’s reticence (mind the pun!) and pragmatism is worthy of note. No one really knows what will be the impact of the housing slowdown, and it would be better to keep your options open downwards as well as upwards while you wait and see how the situation evolves. But lets stick my neck out a little: it wouldn’t surprise me if we see no more rate rises this year, and possibly even a first reduction in rates as we get into the later months. My feeling has been all along that Mervyn King’s strategy in stealthily raising the rates in the first place was in order to be in a position to drop them again rapidly should conditions demand this.

Keying-in

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Maybe it’s simply because I’ve been reading a book about complexity theory over the weekend, or maybe it’s because I just have a weird way of looking at things, but following the recent turn of events in Iraq (and especially of course Najaf), I can’t help noticing how something which in the grand scheme of things is apparently so small and relatively insignificant can be having such a huge global impact.

Indeed at one point it did really seem to be the case that the whole future of the world economy might have turned on the posession of a set of keys (obviously the Clavis Universalis, or could it be that all the delay is due to someone having a spare-set cut on the quiet: meantime the price of Brent crude spikes up and down).
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German Society And Its Discontents

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Lot’s of bits and pieces of news in from Germany today. Volkswagen one more time threaten to get tough with the unions, the Federal Statistics Office confirm yet another time that it is exports which are driving the German economy, whilst domestic demand actually fell (0.1%) during the second quarter. Meantime a 668-page report from the same statistical office reaches the rather unsurprising conclusion that: “Germany’s three-year stagnation has left economic and psychological scars among its citizens”.
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Turkish Bath Anyone?

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The bath in question here is not of the kind brought to mind by a recent popular film with a similar title, but rather a deeper, broader (more historical?) one, the kind of bath which might even have appealed to good old Hegel himself: when learning to swim what you need is not a manual on swimming but a swimming pool. Or put another way, you can’t get into the water without getting wet.

And this is exactly what I seem to have done with my recent post on Turkey’s ‘economic miracle’, got myself extraordinarily ‘wet’. (Warning, this is a long post. It probably won’t make too much sense to you in any event, but it will make even less if you don’t read the original one :) ).
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Turkey’s ‘Economic Miracle’

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Leaving aside political considerations (I would certainly fast-track Turkey’s EU accession process for many, many reasons), the economic attraction of Turkey as an EU member state is rapidly making itself felt. Just look at these numbers from Morgan Stanley’s Cerhan Sevic:

According to our estimates, Turkey?s overall productivity growth accelerated from an average of 2.1% a year in the 1990s (or an average of 3% in the 1960-2000 period) to an average of 8.8% in the last three years. The trend growth rate also increased from 2.3% in the 1990s (and 3.1% in the 1960-2000 period) to 5.8% in the post-crisis era. The productivity acceleration is even more pronounced in the business sector. The rate of non-farm labour productivity growth rose to an average of 9.5% per annum in the last three years, from 2.2% in the 1990s and 2.4% in the 1980-2000 period. The underlying trend growth rate improved from 2.4% in the 1990s to 6.3% in the last three years and 7.4% this year. Moreover, according to the State Institute of Statistics? estimates, the average annualised rate of increase in real output per person in the manufacturing sector during the 2001-2004 period has been 10.2%, compared with 3.8% in the 1990s. In other words, output per worker in the manufacturing sector has increased by a cumulative rate of 30.4%, as the trend growth rate jumped to 7.5% in the last three years.

Now with everything appearing to be so wonderfully lacklustre all over the eurozone, you might have thought an economy with an underlying trend growth rate of 6.3% and rising would be worth taking very seriously indeed.

The other interesting point would be to ask why it is that Turkey is apparently so succesful, even in comparison to the other new EU accession states (and without all the aid). I would suspect that demography has something to do with it, but then I imagine most of you could already have guessed I was going to say that :) .

European Inflation: A Non-Issue?

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Inflation in the 12 countries of the zone euro slowed for the second consecutive month in July as weak consumer demand seems to have deterred companies from passing on higher energy costs.

Details released today from the EU’s Eurostat show that consumer prices fell 0.2 percent in July, cutting the annual inflation rate for the zone to 2.3 percent from 2.4 percent in June. So for the moment, no inflation scare.

The curious number from my point of view is the stubbornly ‘high’ German rate of inflation, currently around 2%. I would have expected, given everything, inflation to be below 1% by now. Instead it’s Finland who mark the bottom: 0.2%.

The big question, of course, is which way do the numbers move now. This depends on whether the current ‘soft patch’ is simply a blip, or whether, as some are suggesting, the European recovery may have already been and gone.