Monday, June 23, 2014

Sunday, June 22, 2014

The A-b-e Of Economics

And the world said "Let Shinzo Abe be", and all was light.

A new craze is sweeping the planet. The image I have in mind isn't exactly that of the community of central bankers all dancing the Harlem Shake in unison, but for all the economic sense it has it might as well be. In fact the craze is called "Abenomics" and it is gathering adepts in financial markets across the globe. A precursor in Japanese history has already been found for the movement, Korekiyo Takahashi, who was the country's finance minister during the key years of the 1930s depression. Even a book has been written to extol his virtues entitled “From Foot Soldier to FinanceMinister: Takahashi Korekiyo, Japan’s Keynes." Unsurprisingly it was an immediate hit with Japanese academics when it came out in 2010.

Read more about my new Japan book......

Saturday, June 21, 2014

The "Hot Labour" Phenomenon

Strong growth. Rising real estate prices. Rapid job creation. Surging immigration. This list sums up the Switzerland of 2014 down to a tee. However, it also sounds like a description of what things were like in Spain in 2007 - shortly before the country's economy fell off a cliff. What follows is a conversation between financial journalist Detlef Gürtler and economist and crisis expert Edward Hugh about possible parallels and differences between the two booms, and the role of a new phenomenon which Hugh describes as "Hot Labour".

Hugh argues that this is a new phenomenon, and on the increase as a result of central bank bubble inducing activity. While immigration is a vital tool aiding economies to manage the population ageing process, it is important that economic activities be balanced. Immigration fueling boom/bust cycles is far from innocuous, and harm a country just as much as a sudden stop in capital flows if the immigration is followed by emigration.   

Read More

Sunday, June 8, 2014

As Good As It Gets In Latvia?

For Maurice Pialat, champion of the marginal centre.
"This raises a final question, which, while not central to the issues of this paper, is nevertheless intriguing: How can a country with a low minimum wage, weak unions, limited unemployment insurance and employment protection, have such a high natural rate [of unemployment]?"

"To summarize, the actual unemployment rate is still probably higher than, but close to the natural rate of unemployment. Latvia may well want to take measures to reduce its natural rate, but the recovery from the slump is largely complete."
Boom, Bust, Recovery Forensics of the Latvia Crisis, Olivier Blanchard, Mark Griffiths and Bertrand Gruss

Read More....

Friday, June 6, 2014

The Czech Economy That Didn't Bounce?

The Czech republic has been making the news recently. On the one hand the country has been on the receiving end of massive, devastating floods, while on the other the country's government was brought to the brink of collapse (and beyond)  by the resignation  of Prime Minister Petr Necas following the arrest of one of his most trusted aides on corruption charges. After the deluge I suppose.

Curiously both these events serve to highlight one important underlying reality - Czech voters are deeply dissatisfied and in a highly skeptical mood, since following seven quarters without growth the country's economy is evidently stuck in the doldrums. The worst part is things look highly unlikely to improve anytime soon.


Thursday, June 5, 2014

The Suitcase Mood

Suitcase mood is a Russian website with travel and tourism content. The term is also a popular expression widely used within Russian culture to describe the state of mind which grips a voyager on the brink of a journey. The mood is often associated with a ritual which involves the departing person sitting, sometimes accompanied by family or friends, in the vicinity (when not actually on top of) the packed suitcase, ostensibly to try to remember if there is anything they have forgotten to take and bid loved ones farewell. Sometimes, however,  the phrase can take on a different, and rather darker, meaning. It can be used to describe someone who is fed up with the status quo, has become footloose and decided they simply want out. "This will never change," might be the thought, "I'm leaving". In my mind's eye I even see the person having the thought seated on their suitcase adopting the posture of Rodin's thinker, turning over and over again whether they are doing the right thing, even while those around them vent their sadness in a bath of tears and alcohol. Or maybe I have just been watching too many Russian movies.

Naturally such a custom does not exist along Europe's Southern fringe, which doesn't mean it couldn't be invented since the young and educated are increasingly leaving much to the chagrin of those they leave behind.

But the "packing up and leaving" variant has now become the predominant one in another country suffering brain flight, one which has does have significant historical associations with traditional Russian culture: Ukraine. The suitcase mood is alive and well among a growing number of young Ukrainians, as journalist Vitaly Haidukevych discovered when he conducted an online survey on the subject via his facebook page,
"The suitcase mood is there. [...] Young, promising people have it. [...] Since they are young, they are leaving not for the sake of immediate earnings [...], but to grow roots for the future. [...] I assume that these people asked themselves whether it was possible to change the state of things in the country – and the answer was ‘no'. [...] Some are leaving for exactly the same reason others are reluctant to join [the anti-regime] protests – they care about themselves, their families and their future. [...] “what are those rapid movements for, you've got kids, think about them” – this is what those who've stayed think. And those who are leaving [...] do not want to wait for the tax authorities to come and take away their last pair of underpants. [...]"

Read more......

Tuesday, June 3, 2014

The Great Portuguese Hollowing Out

With every passing day Portugal has less and less economy left, while fewer and fewer people remain to try to pay down the debt.

As Portuguese President Aníbal Cavaco Silva once put it, "A country without children is a nation without a future." He was, of course, referring to his country’s ultra-low birth rate, which is just over 1.3 (Tfr) and has been below replacement level (2.1Tfr) since the early 1980s. In 2012 only just over 90,000 children were born in the country, the lowest number in more than a century – you need to go back to the nineteenth century to find numbers like the ones we have been seeing since the crisis really took hold.

But added to this longstanding, yet unaddressed, problem there is now another, just as dangerous, one. High unemployment levels and the lack of job opportunities are leading an ever increasing number of young Portuguese to emigrate. The numbers are large, possibly a million over the last decade, victims of the country’s ridiculously low growth rate – under 1% a year. And the departures are accelerating. Jose Cesario, secretary of state for emigrant communities, estimated recently that up to 240,000 people may have left since the start of 2011.

Read more....

Monday, June 2, 2014

The Shortgage of Bulgarians Inside Bulgaria

According to Angela Merkel, speaking in the German city of Mainz in mid February,  European countries struggling with the fallout of the euro-area debt crisis have much to learn from East Germany’s experience with economic overhaul following the fall of the Berlin Wall. In the main she was speaking about the need for reform, something on which we can all agree. “At the beginning of the 21st century", she said, "Germany was the sick man of Europe and that we are where we are today also has to do with reforms we carried out in the past. That’s why we can say in Europe that change can lead to good.”

But there was one tiny little detail she forgot to mention. During the post unification period East Germany's population went into melt-down mode. New York Times Columnist Nicholas Kulish put it like this:
Unemployment in the former East Germany remains double what it is in the west, and in some regions the number of women between the ages of 20 and 30 has dropped by more than 30 percent. In all, roughly 1.7 million people have left the former East Germany since the fall of the Berlin Wall, around 12 percent of the population, a continuing process even in the few years before the economic crisis began to bite.

And the population decline is about to get much worse, as a result of a demographic time bomb known by the innocuous-sounding name “the kink,” which followed the end of Communism. The birth rate collapsed in the former East Germany in those early, uncertain years so completely that the drop is comparable only to times of war, according to Reiner Klingholz, director of the Berlin Institute for Population and Development. “For a number of years East Germans just stopped having children,” Dr. Klingholz said.

The newspaper Frankfurter Allgemeine Zeitung reported recently that although 14,000 young people would earn their high school diplomas this year in Saxony, only 7,500 would do so next year. Since 1989, about 2,000 schools have closed across the former East Germany because of a scarcity of children.
Now this situation is quite serious, and needs a long term solution, but it is not as serious as what is currently happening to Latvia, or Bulgaria, or a number of the other former communist states. Unless, of course, the lesson Angela would like to draw our attention to is that East Germany managed to salvage something from what would otherwise be population wreckage by sneaking in under the shelter of another state, with a centralized system of support for pensions and health care. Somehow I doubt it, but perhaps this is what we need to think more about. The EU needs a pan European health and pension system, to distribute the burden equitably. This is the conclusion I reached during my last visit to Riga. It isn't just a Euro related issue, it is to do with having a unified labour market, with people able to move to where the jobs exist, and the pay is better. For years people complained about the absence of labour mobility in the EU. Now we have it, the flaw in the institutional infrastructure is obvious.

Read more here.

Sunday, June 1, 2014

Portugal - Please Switch The Lights Off When You Leave!

The recent decision by the Portuguese constitutional court to unwind public sector salary cuts included by the government in its austerity measures has once more given rise to speculation  the country may not meet it's 4.5% deficit target for 2012. The court  - which ruled the non-payment of the two traditional Christmas and Summer salary payments  for the years 2012 through 2014 was unconstitutional -  took the view that since the measure did not also apply to the private sector, it was discriminatory. Whatever view we may take on how the Portuguese Constitution defines "discrimination" the important detail to note is that  the decision will not apply to 2012, and will hence only have the impact of forcing the government to find additional adjustments for 2013 and 2014, or at least a new formulation which allows them to constitutionally cut public sector pay.

Nonetheless, despite the fact it will  not affect this years fiscal effort the coincidence of the timing of the court decision with the appearance of a report from the parliamentary commission responsible for monitoring the execution of this years budget only served to heighten nervousness about the possibility that, with unemployment rising more sharply than anticipated and the economic recession still accelerating, this years deficit numbers may not add up as planned.

The country is facing a deep ongoing recession with a contraction of the order of 3.5% expected  this year, and the outlook for the second half of the year is no shaping up as though it may well be tougher than the first half. In addition, with the European sovereign debt crisis threatening to cast its long shadow right across next year, it looks increasingly unlikely that the country will be able to go back to the bond markets in September 2013 as planned. So September may well be a good month to make some needed revisions to the existing IMF programme.
Read more

Portugal is making progress in reducing its fiscal deficit, even if it may fail to precisely meet this years target. But it is not making sufficient progress in reducing external imbalances, and in achieving international competitiveness. As a result sustainable economic growth and stable job creation still seem some years away. In the meantime young educated Portuguese are increasingly upping and leaving the country in the search for a better life elsewhere. This negative dynamic needs to be broken, and Troika representatives instead of repeating the same old policy errors need to take a fresh look, and with an open mind, at the situation.