Category Archives: Economics and demography

Why Not Unravel The IMF Too While We’re At It?

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If you’re really good at making a pigs ear of things, why not join the EU? Of course, this is not meant as a piece of solid advice, rather it is a cry of frustration at being impotently forced to watch so many things done so badly, each in turn, and one after the other. Southern Europe’s problem is essentially a competitiveness problem, and not a fiscal one, and if many states have been having growing difficulty with their negative fiscal balances, this is a symptom of the problem, and not its cause. Even in the worst of cases – countries like Greece and Portugal – the rising recourse to fiscal outlays has been a response to lack of “healthy” growth, and the root cause of this continuing difficulty in generating real growth has been the underlying lack of competitiveness, and the inability to export your way out of trouble once the burden of debt starts to rise, so simply pruning the fiscal side isn’t going to cure the problem, and by now that simple point should be obvious, I would have thought. Continue reading →

Long before you even got close to those scary ratios

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James Galbraith:

For ordinary people, public budget deficits, despite their bad reputation, are much better than private loans. Deficits put money in private pockets. Private households get more cash. They own that cash free and clear, and they can spend it as they like. If they wish, they can also convert it into interest-earning government bonds or they can repay their debts. This is called an increase in “net financial wealth.” Ordinary people benefit, but there is nothing in it for banks. And this, in the simplest terms, explains the deficit phobia of Wall Street, the corporate media and the right-wing economists. Bankers don’t like budget deficits because they compete with bank loans as a source of growth. … All of this should be painfully obvious, but it is deeply obscure. It is obscure because legions of Wall Streeters–led notably in our time by Peter Peterson and his front man, former comptroller general David Walker, and including the Robert Rubin wing of the Democratic Party and numerous “bipartisan” enterprises like the Concord Coalition and the Committee for a Responsible Federal Budget–have labored mightily to confuse the issues.

Money is not my thing. Is he right?

Waiting For Something To Turn Up: Europe’s Looming Pensions-based Sovereign Debt Crisis

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As Irwin Stelzer argued in a recent opinion article in the Wall Street Journal, Spain’s Prime Minister José Luis Rodríguez Zapatero seems to be an admirer of Charles Dickens’s character Mr. Micawber. When asked what he plans to do about Spain’s 11.4% fiscal deficit, first he promises to extend the retirement age, only to later tell us the measure may not be necessary. Then he promises a public-sector wage freeze, only to have his Economy Minister, Elena Salgado, say he really doesn’t mean exactly what he seems to say. And in any event, we shouldn’t worry too much, since given that Spain is a serious country, somehow or other the fiscal deficit will be cut to 3% by 2013, even though most serious analysts consider the economic growth numbers on which the budget plans are based to have their origins more in the dreams of an Alice long lost in Wonderland than in any kind of sobre analysis of real possibilities. “We do have a plan,” deputy prime minister, Maria Teresa Fernandez de la Vega assures us, but to many that plan now seems to be little better than hoping, like the proverbial Mr. Micawber, that “something will turn up.” Continue reading →

Defying Gravity In Japan

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Popular myth and, allegedly, the laws of aerodynamics have it that the bumblebee should not be able to take flight. Yet still, our good bumblebee refuses to be pulled down by such nit-picking details, and year after year it takes flight as if none of this mattered. This little allegory applies, adding a little imagination, to Japans economy too. Year after year it gives us the impression of simply being able to ramp up domestic debt to cover the evident shortfall in both domestic consumption and  investment demand, since having a savvy export sector, and a strong net foreign asset position, mean that Japan does not have to rely on foreign investors to finance government debt outlays. Add to this a central bank definitively bogged down  in what appears suspiciously like perpetual Quantitative Easing  mode given the persistent deflation from which the country suffers and there we have the core of Japan’s “bumblebee moment”. Continue reading →

Serious Problems Emerge For The F-UK-De Group Of Countries

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Well, I for one can’t help thinking that it’s now well time we all stopped getting carried away with the use of so many acronyms. Not only may one man’s meat easily prove to be another’s poison, it may even be that for some the entire meal will be so distasteful as to prove totally indigestable. And so it is with the latest set of proposals to appear on that diagnostic lab bench which has been hastily erected in the search for that magic “cure all” for the eurozone’s many ills.

Daniel Gros, in a well meaning, but I feel fatally flawed, move to get us all away from talking about some of the members of our own community as if they were PIGS, has decided to tell us that they are not pigs at all, they are merely GIPSYs. Of course, depending on which way you look at it, such forms of reference could be taken as a compliment (“you sure do eat like a pig”), or not, but stopping to think for a moment about the kind of controversy which has been provoked by the arrival of large numbers of Roma in Italy, perhaps telling the countries which lie on Europe’s periphery that the best way to conceptualise them is as a bunch of “gitanos” is not the best way to get reasoned debate going. Nor is it necessarily the best way to do this to tell the members of core Europe that they as things stand they are essentially F-UK-De. But there it is. That’s just how things are these days. Continue reading →

German Exports and that Looming Double Dip

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I hadn’t seen an advance release of the January German export data, when I wrote the following on Tuesday, honest injun I hadn’t:

Well, this is only a hypothesis. But if the hypothesis has any validity we should be able to make some predictions on the basis of it. I would make two. Firstly, since East Europe’s economies are often dependent for their growth on exports to the West, and in particular to Germany, then we should be able to see some “shadow” of this German process cast out into the East.

In the second place, we should see the process continue to some extent in Q1 2010. That is, based on what we have seen so far, in Q1 imports should rise, as industrial output in the early parts of the supply chain surges, and net trade should as a consequence be less positive than in Q4 2009. On the other hand, all the imported components awaiting processing should make inventories rise. So that’s a prediction. Now we need to wait and see how good it is.

Continue reading →

The German Economy Is Essentially “Intact”

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According to Bundesbank President Axel Weber, Germany’s economic recovery is “essentially intact”, and is now set to benefit from stronger demand in countries outside the euro region.

“I firmly believe that the recovery process that began in summer 2009 is essentially intact, and that it will continue despite the slower growth dynamic in the winter semester. An additional factor in this context is that the German labor market continues to be in extremely robust shape.”

What exactly it means to say that an economy is intact we will explore below, but it is clear that some confirmation for the view that the German economy is benefiting from increased demand originating outside the Eurozone can be found in the latest press release on manufacturing industry turnover from the Federal Statistics Office, where they note that while January’s manufacturing sector turnover surpassed that of January 2009 – by a working day adjusted 2.6% – domestic sales actually fell (by 1.1%), and export turnover rose by 7.3%. Most interestingly, as between destinations, sales to euro area countries only increased by 2.4%, while those to other foreign countries were up 12.0%. This illustrates two points: that the German economy is now more dependent than ever on exports, and that sales to emerging markets are what is really driving export growth at this point. This latter development is hardly surprising given the strong fiscal corrections being applied in many of Germany’s former customer countries. Continue reading →

Russia on the rebound

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Two interesting facts:

1) After sharply negative growth last year, Russia’s growth is predicted to exceed 6% this year. Okay, that’s just clawing back what they lost. But it’s still better than almost anywhere else in Eastern Europe.

2) For the first time in many, many years Russia’s population grew slightly: by a little over 20,000 people in 2009.

This growth is a combination of a slight downturn in the death rate, a noticeable uptick in the birth rate, and a sharp rise in immigration — it hit a ten year high, with about 240,000 people moving into Russia.

So: short-term blip, or sustainable? Continue reading →

Hanging In The Balance Over At The ECB

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In the time of my confession, in the hour of my deepest need
When the pool of tears beneath my feet flood every newborn seed
There’s a dyin’ voice within me reaching out somewhere,
………….

It’s not often that I await the ECB after-meeting press conference statements of Jean Claude Trichet with such an intense feeling of anxiety and bated breath. But this time, as the song goes, it will be different. This time there are plenty of reasons to think that, having been the first off the mark in looking for the exit, Europe’s monetary leaders may sound a note of caution at tomorrow’s meeting, and indeed indicate there may well be solid grounds for at least taking a time out, if not engaging in a longer process of pausing for extended thought. My advice: if you don’t actually have any pressing need to hit the eject button, then don’t do it. Continue reading →