Tag Archives: Economics and demography

Why France MUST Reform – MUST, I Tell You!

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Since the withdrawal of the CPE and the resulting collateral damage to Dominique de Villepin, not to mention Nicolas Sarkozy’s unexpected appearance as a unity figure at the height of the crisis, it’s rapidly being promulgated as conventional wisdom that France “is ungovernable”/refuses to “reform”/cannot be “reformed”. There is only one problem with this discourse, very popular in anglophone leader columns and the like, which is that it’s nonsense.

It’s quite often been raised here on AFOE that the French economy isn’t actually in trouble. Growth, although not great, is ticking along, inflation is controlled, unemployment is higher than the UK but lower than Italy or Germany, and the demographics (as Edward Hugh will no doubt point out) look a lot better than many other countries. Certainly, there’s more youth unemployment than one might like, but almost all the figures for this are wildly misleading. The percentage rate of unemployment in the 15-24 years age group looks scary high, but is actually a very small percentage of that group–because most of them are in education or vocational training of some form and hence not part of the labour force. Unemployment as a percentage of the age group is rather lower than the national rate and not much different from that elsewhere in Europe. (Le Monde ran a useful little chart of this in a supplement yesterday that doesn’t seem to be on the web.) Much – indeed most – of the difference in employment growth between France and the UK in recent years has been accounted for by the UK government going on a hiring binge.

So why the crisis atmosphere? More, as ever, below the fold..
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Doha Adieu?

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Steve Clemons, who’s quite adept at reading the Washington tea leaves, writes that the Doha round of trade negotiations is effectively over.

Why? For most of the present US administration, Bob Zoellick had been the US Trade Representative. Zoellick was an old hand, wise in the ways of both trade and Washington. But when Condelezza Rice was appointed Secretary of State, Zoellick went over to become her deputy. His successor, Rob Portman, was a Congressman from Ohio who had been involved with the nuts and bolts of trade legislation for many years. He was serious and experienced, with friends on Capitol Hill. Now Portman has resigned as Trade Representative to head the Office of Management and Budget; a bigger responsibility, but not connected to trade.

The upshot is that the USTR position will now be empty for some time, the current president’s authority to negotiate agreements that the Congress cannot amend is expiring soon, and the administration sees little hope of progress in the Doha round before it leaves office. Looks like it could be the end of the line for Doha.

Easter Monday in Berkeley.

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While most of Europe is still busy eating the chocolate eggs we managed to find yesterday, Brad Delong is back in his office, demonstrating on video that it takes a really, really huge mug of coffee to get through the day of a Berkeley research professor. In addition, he also shares some thoughts about his lunch plans and the equity premium puzzle…

Euro in trouble?

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English weblog England Expects has an intriguing post on the vitality of the euro. More precisely, about its lack of vitality:

For the first time, an official French report has criticised the Euro. Indeed, the latest report of the Council for Economic Analysis (CAE) given to the French government on 23 March, “Economic policy and Growth in Europe” and written by Philippe Aghion, Élie Cohen and Jean Pisani-Ferry, draws up for the first time a really tough assessment on the single currency and the actions of the Euro zone.

I have no time to comment, as usual, but the report is definitely worth a read (308 pages). Teaser:

“Economic integration has stagnated and no longer promotes growth. The euro’s creation has not produced the knock-on benefits expected. The increase in trade has been relatively modest and financial and credit markets remain segmented. The single currency even seems to have had a “numbing” effect on the EU members, which no longer need to protect against a foreign-exchange crisis and have become complacent in their efforts to control spending and make structural reforms. Moreover, the euro area’s macroeconomic framework has become obsolete. Furthermore, the Lisbon strategy has become bogged down in procedures and has degenerated into rhetoric. This is because it doesn’t have the means to achieve its objectives, since EU-members remain responsible for supply-side policies and the political economy of reform is still mostly national.”

You can find the report here (pdf).

Senate: 158-156 Prodi

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Corriere della Sera is now reporting that the Italian Senate is breaking 158-156 to the Left, with the lower house going 340-277. The controversial six seats for Italians abroad, introduced by neo-well actually quite-fascist minister (a former member of the Salo Republic’s army) Mirko Tremaglia, seem to have backfired badly on their inventor, with 4 out of 6 going to the Left (German link) and pushing them over the hump.

The Italian right was so keen on those seats that Forza Italia appeared on the overseas ballot as “Italians Abroad with Tremaglia”, which sounds to me at least worryingly like a support group for sufferers of some sort of embarrassing disease. Still, all’s well that ends well, which is probably not what the mafia boss of bosses Bernardo Provenzano is saying right now, having been busted after 40 years on the run. Not that I’m saying there was any connection..

It still might not end well, though, as Berlusconi is babbling about a government of technocrats (German), presumably as a way to stay in office and out of jail a while longer. That could happen either on the basis of a grand coalition (which the Communists are pledged to reject) or alternatively, by somehow dodging the election results.

Market Watch: The MIBTEL has given up some of yesterday’s gains, down 0.67% at 1430 local time..

The Market Speaks…and Jörg Packs

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Well, by 1630 CET today, the Milan stock market had made a very clear judgment on the outcome of the Italian elections – the MIBTEL index being up just under 1 per cent intraday, despite a pasting for Berlusconi’s own Mediaset..down 1.98 per cent at €9.68 a share. Berlusconi’s departure seems welcome indeed.

More exit poll results are spilling out all the time, showing the Left with a working majority in both houses. So far, the only weirdness has been the rather idiosyncratic kerfuffle in the town of Amelia (German link), where a protest led to the removal of crosses from all polling stations on the grounds of constitutionally guaranteed secularism, and predictable moaning from the ex/post/neo/whatever-fascists. A small outbreak of laicisme.

Oh yes, and this…sorry, more German linkage. Seems Jörg Haider, fun-lovin’ pseudofascist scandal monkey and governor of the Austrian province of Kärnten, is going to stand for election in 2009…in Italy, as a candidate for a party advocating Venetian independence. Not just Northern independence as per routine Liga Nord stupidity, but independence for the Most Serene Republic herself.

Strange really. I’ve always thought of Haider as a man out of place, a Mediterranean politician stuck on the wrong side of the Alps with the Germans. His demagoguery, rocambolesque coalition whoring and-to be brutally frank-corruption and barely concealed racism would have fitted beautifully into Silvio Berlusconi’s recent campaign, the municipal authorities of Marbella, or perhaps the intrigues of southern French Gaullism. Carinthia produced far more than its fair share of Nazis, as did many similarly debatable provinces on the edges of the German linguistic sphere, and in a sense his pumped-up nationalism fits the pattern.

Until you remember that he’s not actually from there at all (not far from Linz, actually), and in fact is putting on the overcompensated border nationalism to ingratiate himself with the overcompensated border nationalists. Which fits, too.

But it’s going to be fun to watch.

Migration And Reform

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Well today is obviously immigration day, as thousands of Latinos take to the streets in the United States to demand some kind of ‘regularisation’. I have been posting on Demography Matters about the changing pattern of Latino migration in the US, and on the not entirely unrelated topic of whether it is the arrival of the Latinos or the presence of religious belief which is primarily responsible for the fact that US fertility is still hovering round the replacement mark (especially the comments, and here, and here and here).

But this post is not about migration in the United States. Rather it is about migration inside the frontiers of the EU itself. As populations age, and our economies come under increasing strain, some societies will prove more able to reform than others. Now one conjecture I have been making is that in this process some societies will attract population (and get that famous win-win dynamic going) while others will lose even that which they have (sounds a bit like the biblical parable now doesn’t it). Actually economists have terms for all this. You might say that the ones who attract are experiencing an increasing returns process, while those who lose are suffering from negative feedback.

Claus has already touched on how Denmark is suffering from a lack of immigration (and me here), in the sense that more people are now leaving than are arriving, but perhaps more importantly for the future of the entire EU, Germany is very near to becoming a net exporter of people (and here).

Pperhaps a bit more spice was added to this already simmering cooking-pot last week by a sudden, and rather unexpected, bout of finger pointing from Peer Steinbrück, Germany’s finance minister, in the general direction of Vienna. Now according to Steinbrück, Vienna’s recent decision to cut corporate tax rates from 34 per cent to 25 per cent has led to an increasing number of German companies investing across the border in Austria. In other words, not only are people leaving, companies are now also leaving, and to less than anticipated destinations, and of course, on the backs of the companies will go even more people. Are we really so sure that that recently heralded sustainable recovery is as sustainable as some are suggesting? Morgan Stanley’s Eric Chaney understandably still has his doubts.

The real issue is this: as the FT says “Mr Steinbrück has limited room for manoeuvre in the tax field because of Germany’s high budget deficit”. All these issues interlock. So, on a day when Jaques Chirac seems to have taken a step backwards in the French reform process, it might be just worth asking ourselves whether, at the end of the day, there won’t be a price to pay for all this ‘no rush now is there’ style delay.

Wolfgang Munchau is a mensch

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While everyone in France is waiting for tomorrow’s decision (and not “démission” i.e. “resignation”, as Villepin said today in a dreadful slipe of the tongue) of the Constitutional Court on the CPE, I urge everyone to go read Wolfang Munchau’s refreshingly contrarian take on the current crisis.

The column is now safely protected by the FT’s subscriber’s firewall but, thanks to the wonders of globalization, freely available on the website of the Business Standard, an Indian financial newspaper:

At first sight, the travails of Mr de Villepin fit a depressing pattern of Europe’s chronic inability to reform. The prime minister is portrayed in the media as an idealistic political leader who tried to do the right thing, but failed. In the same vein, the young protesters on the streets of Paris look as though they stand in the way of France’s transition to the 21st century.

This narrative is as widespread as it is false. As far as I know there exists no reputable academic foundation for Mr de Villepin’s specific proposal – a work contract that removes employment protection for the young, while leaving it fully in place for the old.

Read the whole thing, as they say. It’s a lot better than the lazy drivel the international press has been offering on the subject of late.
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Es Lebe Das Exportventil!

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Chris “Stumbling and Mumbling” Dillow has a very interesting post on signs of German economic recovery. Interestingly, the bellwether Ifo confidence index has shown a dramatic uptick, reaching its highest level since 1991. Dillow proceeds to examine its correlation with the DAX stock market index.

Now, as Chris points out, DAX-constituents are likely to be the most globalised German businesses. The DAX tracks the Ifo with about a three month lag. This all suggests that a) the most globalised German businesses are feeling chirpy, as you’d expect in an economy struggling to raise domestic demand that trades with several raging boomers, and b) that some things never change.

Back before the Second World War, before the Nazi seizure of power, there was something known as the Exportventil in German. This means something like “export safety valve” in translation. What it meant in practice was that German industrialists believed that exporting was a hedge against the economic and political instability at home, and duly specialised in exporting as much stuff as possible. That is pretty much exactly opposite to what you’d expect – after all, you normally assume that German businesses know more about Germany than Country X and therefore face lower risks at home, not to mention the foreign exchange risk involved.

There were good reasons for this, though – economic conditions inside Germany were dire, the devaluation of the mark was helpful – and alternatively you could price your products in hard currency and thus protect yourself against the hyperinflation. It also helped that you had a stream of foreign-denominated revenue, which meant you could borrow in the US. The downside of the Exportventil, though, was that German businesses were highly operationally geared with respect to world trade, and German banks tended to have long-term German assets and short-term US and sterling liabilities.

The onset of the great depression, of course, slashed demand for German exports – and the beggar-your-neighbour policies drained world trade of liquidity, which hit the Germans twice as hard because of export dependence. So the safety valve turned out to be more of a seacock that let more water into the ship. Germany, however, still seems to love exporting – which perhaps explains the strong “home bias” that Chris claims to have identified.

In a tangential theme regarding historical legacies and the way things don’t change, check out this post at Veronica Khokhlova’s. Seems the Ukrainian electoral map divides along the ancient border of Kievan Rus..

The Czech Car Growth-Engine?

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News today which is of more than passing interest from the Czech Republic. The South Korean industrial group Hyundai has announced that it is going to build its first European car plant at Nosovice. The factory – which is scheduled to cost around one billion euros – should begin production in October 2008 with full capacity of 300,000 vehicles a year being reached in 2009. This new output, when added to added to the 600,000 cars or so produced annually by Volkswagen’s Skoda Auto and the Franco-Japanese joint venture, TPCA, will bring the Czech Republic into the front line – along with Germany, France and Italy – of the European automotive industry.

As elsewhere this will have its good and its bad side.
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