There’s a country in Europe with a large financial sector, big exposure to foreign trade, a floating exchange rate, and politics complicated by 4 communities within its governing structure. But enough about the United Kingdom. The latest statistical release from Eurostat covering GDP up to Q4 2008 is fascinating, not least because they also include the EFTA non-EU members, meaning Iceland, Switzerland, and Norway. A few things stand out.
That’s the apparent scoop in Monday’s Financial Times, reflecting sight of a document that apparently circulated among senior policymakers in the last month as the debate about the appropriate multilateral vehicle for sovereign bailouts intensified. The logic is simple:
Statement from the meeting of EU finance ministers and central bank governors (ECOFIN) in Prague –
The Ministers and Governors singled out the excessive focus on the supervision of individual financial market institutions and the related neglect of systemic risks as shortcomings of the current system.
Does anyone think that individual regulated institutions were suffering from excessive regulatory focus in the last 10 years? If so, which one? RBS, Hypo, Fortis, SocGen? Inquiring minds would like to know.
The response to yesterday’s no-confidence vote in the Czech government, holder of the EU Council Presidency, was a standard “move along folks, nothing to see here”. Normal service would not be interrupted, the remaining 3 months of the Presidency would continue, and the grip-and-grin festival with Barack Obama next week would continue as before.
That was presumably before the lame duck PM Mirek Topolánek’s bizarre speech to the European Parliament today, which is going to go down like a lead balloon in Washington (and probably London too) –
The Wall Street Journal (subs. req’d) says that Romania will announce that it is receiving a $26 billion aid package, with 2/3 of the money coming from the IMF and the rest from European institutions and the World Bank.
It’s nice when one thing in the Financial Times acts as an unplanned yet completely effective rejoinder to another. First, we have Jose Manuel Barroso explaning what a brilliant job he’s doing in getting tax and regulatory havens under control, notwithstanding the absence of any explanation of how exactly they contributed to the crisis –
With the US Federal Reserve’s surprise shift to Quantitative Easing today (surprise in terms of timing), the prospects look even better for anyone brave enough to do massive borrowing in dollars and invest in higher yielding assets elsewhere. For example, the government debt of Europe’s more fragile sovereign borrowers, like Ireland, Greece, and Italy. The Fed’s actions today signal another sustained push down on borrowing costs, and, critically, that there will be dollar depreciation (as already happened today once the significance of the QE announcement became clear). When Irish PM Brian Cowen told Barack Obama “It is my firm conviction that America’s leadership – your leadership – will be at the heart of the global renaissance “, did he have in mind that the US might be the backdoor lender to his fiscally embarrassed administration?
The IMF, 3 days ago, to Switzerland –
Under the current circumstances, direct foreign exchange intervention should be aimed only at countering disruptive short-term pressures on the currency.
This followed an acknowledgment that monetary policy measures were probably headed towards zero interest rate and quantitative easing type measures. So what did the Swiss National Bank do today? The expected monetary policy easing, plus a blatant direct foreign exchange intervention –
Ireland’s PM Brian Cowen today updated the Dail (lower house) on the still deteriorating state of the economy. One thing his remarks unintentionally highlighted is the problems that governments create for themselves when they are sitting on their internal economic projections which they treat as confidential but then still demand that everyone needs to contribute to the “debate” over how to mitigate the crisis. Anyway, the Opposition did coax him into revealing the GDP growth decline forecast for 2009 and he helpfully revealed the rate of downward revision –
It was said at budget time [October] it would be in the region of 2%, it was said in January it would be approximately 4% and the indications are now that it could be 6% or 6.5%.
So the revision is about minus 1 percentage point per month, which is probably on a par with former Baltic Tiger levels. And senior policymakers still hint that the domestic banking system is a very fragile state. So those green shoots of recovery, ends of tunnels or whatever are not being sighted in Ireland yet.
Incidentally, Cowen also recently cited Canada as his preferred model for financial sector regulation. Various things contribute to Canada’s relatively less severe manifestation of the crisis. The IMF helpfully points to one of them –
Complementing monetary policy, the floating exchange rate policy has also served Canada well, serving as a shock absorber. The recent depreciation of the exchange rate, which has occurred in line with the decline in commodities prices, will dampen disinflationary pressures and support activity.
Not an option that Ireland has.
As mystery continues to surround the identity of the person in the charge of the UK economy since 1997, the IMF has come up with a carefully phrased admission that it got the UK and US economies wrong in its assessments over the last few years. What they politely don’t say is that, had they come up with any assessments less positive than they did, the respective Treasuries would have talked them out of it.