Category Archives: Economics and demography

Smoke On The East European Horizon?

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“The market is pricing these sovereigns at much wider levels than where their agency ratings would imply,” said Diana Allmendinger, a director at Fitch Solutions.CDS on Italy imply a rating of BBB, five notches below its agency rating of AA-minus. And Spain’s implied rating is BB-plus, nine notches below its agency rating of AA-plus.

With so much emphasis being placed on what has been happening farther to the South, economic realities on Europe’s Eastern periphery have largely been escaping the close scrutiny of media and analyst attention. In the wake of the belated recognition of the region’s vulnerability which followed the bout of acute stress experienced during the post-Lehman crisis, a new consensus has now emerged (for an in-depth study of the Latvian example see this piece) that the IMF-guided programmes put in place at the time have essentially set things, if not entirely straight then at least on the right track. In particular, as a result of the extensive fiscal discipline and willingness to sacrifice shown a much brighter future now awaits these countries well to the sidelines of all those horrible Greek debt concerns. Continue reading →

Can Italy Grow Its Way Out of Debt?

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What follows is simply a follow-up note to my earlier (Elephant in The Euro Room) piece on Italy. The decision by S&P to put Italian sovereign debt on negative outlook, and the subsequent announcement by Moody’s that it was considering a downgrade has been widely commented on by analysts, and it might be interesting to take a look at some of the views that have been advanced on either side of the argument (although for the detailed analysis see me earlier post). But first, a summary of the problem. Continue reading →

Red Lights Flashing For Eurozone Growth

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The June Flash PMI reports, which were out on Thursday, make do not make agreeable reading, in the sense that while the French and German economies both continued to expand during the month, their rate of expansion, and in particular in the leading manufacturing sector, seems to have dropped sharply, and for the second month running. In contrast, the economies on the Eurozone periphery moved closed to outright contraction. All in all the survey results only add to concerns about the global recovery which came into focus after the May PMI results (see my To QE3 or Not to QE3).

Continue reading →

India’s Economy Hits What Has To Be A Very Welcome “Soft Patch”

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“If you look at the world, it would inevitably appear India’s growth is preordained. The world needs working hands. The world needs back offices. India seems to be a natural fit…We are producing a workforce which is not only for India, but a global workforce.”
Sunil Bharti Mittal, founder and chairman of New Delhi-based Bharti Enterprises

As the European Central Bank moves steadily and earnestly forward with its ongoing rate hike cycle – in so doing sending one fragile economy after another along Europe’s periphery drifting off towards recession – there is at least one prominent global central banker who must be feeling vindicated in the policy stance he has taken to try and bring the rampant inflation from which his country has been suffering back under control. Duvvuri Subbarao is Governor of the Reserve Bank of India, and under his stewardship the central bank has been hard at work over the last twelve months trying to credibly fight inflation. So far raised rates have been raised ten times, and the bank has managed to claw the annual rate of wholesale price inflation back from its peak of 10.9% to the current level of 9.06%. Hardly a level to be complacent about, but then Mr Subarrao seems far from complacent. Continue reading →

BELLS in Hell that Don’t Go Ting-a-Ling-a-Ling

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After the BRICS, came the PIGS. Now a new acronym is being born, that of the BELLS. These particular “ding-dongs”, however, are not a set of hollow cast-metal instruments suspended from the vertex and rung by the strokes of a clapper, they are countries, countries which may, like those unfortunate WWI British soldiers whose love of their country and sense of duty lured them into one of the most senseless conflicts of modern European history, be headed towards their own pretty unique form of modern purgatory. Continue reading →

Who’s Next at the IMF?

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Now that Strauss-Kahn has resigned, the IMF needs a new director. Traditionally, the job has gone to a European, but since quota weights were realigned last year, it’s possible that the new boss may come from outside Europe.

I will go ahead and take a flyer no Kemal Dervis, on account of being both European and non-European, and well regarded for his work in Turkey and the international arena. Other ideas?

UPDATE: Well, heck. He say’s he’s not in the running.

The Great Greek And Spanish GDP Mystery – One Hypothesis

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Many an economic eyebrow must have been raised last Friday when Europe’s first quarter GDP data was released, and people discovered that the Greek economy had suddenly surged forward, rising by 0.8% over the level it had attained in the last three months of 2010 (or at a 3.2% annual rate, or faster than the US). Since almost everyone with knowledge of the situation is forecasting a further contraction in the economy this year, the result may have been thought to be a surprising one. Continue reading →

Is There Really Such A Thing As A Eurozone Credit Cycle?

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America, we know, has a currency union that works, and we know why it works: because it coincides with a nation — a nation with a big central government, a common language and a shared culture. Europe has none of these things, which from the beginning made the prospects of a single currency dubious.
Paul Krugman – Can Europe Be Saved?

All theory depends on assumptions which are not quite true. That is what makes it theory. The art of successful theorizing is to make the inevitable simplifying assumptions in such a way that the final results are not very sensitive.’ A “crucial” assumption is one on which the conclusions do depend sensitively, and it is important that crucial assumptions be reasonably realistic. When the results of a theory seem to flow specifically from a special crucial assumption, then if the assumption is dubious, the results are suspect.
Robert Solow, A Contribution To the Theory of Economic Growth, 1956

One of the key premises underpinning the establishment of the Euro as a common currency to be shared by a number of individual national states rather than one single nation was the central idea that the several economies of the participating countries would eventually converge to one common typology. That is to say, even if the individual nations would not be dissolved into one single superstate, then the idea was that the difficulty this could obviously create would be overcome by the generation of a number of different, but to all-important-economic-effects identical economies, each one a replica (in minature or “a lo grande”) of the other. Absent this, it is hard to see how people could have convinced themselves that having a single currency and a single monetary policy could possibly work in the longer term. Continue reading →

Elsewhere

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* The new president of Kosovo is the youngest, the first woman and the first non-partisan person to hold the post. She will also be the last selected by the present method of parliamentary election. Her election by the parliament breaks a deadlock and averts a potential political crisis. Atifete Jahjaga, who will turn 36 on April 20, is a western-trained policewoman and had been deputy director of the Kosovo police force. According to the deal that brought her to office, future presidents will be elected directly, and the first such election will be held within six months. People who know more about Kosovo than I do are kindly invited to weigh in.

* This long post on Bulgaria’s shrinking population coins the phrase “demographic bailout.” It’s an interesting look at a corner of Europe and a set of problems that tend not to find a wider audience. Population changes and their implications have long been an AFOE theme, ably explicated by Edward. Some of his views on Bulgaria are here, here and here.

* LiveJournal, which is the key platform for Russia’s blogosphere, has been under recurring DDoS attacks in April (LJ responds). It’s not at all clear who is behind the attacks, with accusations and counter-accusations quickly turning into a hall of mirrors. What has become clear is that an important element of Russia’s civic discourse is vulnerable.

* Speaking of Russian discourse, the country’s current chief of the armed forces’ general staff, Nikolai Makarov, spoke at the General Assembly of the Russian Academy of Military Sciences and apparently delivered quite a take-down. As one expert characterized the speech, Makarov said “the various military academies and institutes continued studying the old wars, assuming that in the future, the Russian military would be called upon to fight World War II yet again, and what’s more, do it with World War II era technology and tactics.” (The Academy’s director is a WWII veteran.)
Makarov took the Russian military’s shortcomings in the Russian-Georgian war of 2008 as impetus for significant reform, and has argued that Russia largely slept through the last 20 years of military advances. Furthermore, he foresees an army in which conscripts would make up no more than 15% of the forces. That would be an epochal change in Russian military culture. Interesting developments to follow, even if you aren’t living in a place that felt the sharp end of Russia’s armed forces recently. (h/t LGM)