Edward has already pointed to an interesting post by Henry Farrell regarding European politics in the last post, but I think the argument is important enough for a separate pointer and a little more explanation.
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Monthly Archives: May 2005
Looking On The Brighter Side Of Life
Oh come on, it’s Friday afternoon, the sun is probably shining all over continental europe, and you’re all probably off away from your desks for a weekend in the country or on the beach. So why spoil the fun. I’ll save my piece on Portugal till Monday. And meantime, you deserve something better than ‘gloomy Edward’ on such an afternoon, so why not, the opposite view: Stephen – ‘bright sider’ – Roach:
“As a congenital euro-skeptic, I will be the first to admit that it feels rather uncomfortable rising to the defense of Old Europe. But someone has to. The world is down on the Mother Continent as never before. And Europe, itself, is caught up in a bout of self-flagellation that is getting worse by the day. The risk, in my view, is that this is an overdone story of cyclical angst. While the economic outlook for Europe is far from terrific, it?s not nearly as bad as the consensus mindset would lead you to believe……. At the same time, I would concede that the tails of the political verdict could well have major impacts on financial markets. A decisive French rejection of the EU constitution could force markets to raise the probability of an EMU break-up. A ?yes? vote, by contrast, could spark a huge rally in the euro and in most-euro-denominated assets. We?ll know soon enough.”
I think I’ll deal with this, and with Henry’s arguments when the votes are safely in and counted. Have a nice weekend everyone :).
La R?volution continue.
The Guardian Newsblog has a nice summary of the reasons Why the French are saying ‘non’. I’m not sure they will in the end, but in case they do, it will be a political earthquake. To help us understand the near B-plan European future, Janis A. Emmanouilidis and Bettina Thalmaier from the Center for Applied Policy Research and the Bertelsmann Foundation have put together an executive summary of their thoughts on this issue (that is also available in German).
In The Interest of Fairness and Balance
Looking forwards rather than backwards, I can’t help trying to imagine what the world will look like on Monday. (We may all be in for a surprise, but the latest poll seems to put the ‘no’ at 55%, which is quite a large margin of error if it’s wrong, *and* Le Monde today makes the point that as the ‘no’ rises and rises in the polls, the number of undecided voters continues to reduce).
Well, ironically I think one of the consequences will be an attempt to enforce the Stability and Growth Pact. This is why I mention being fair and balanced, since in the past I may have been a little too cynical about this: although not without reason.
I now think The Pact Mark II may have considerably more bite, here’s why:
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Quote of the Day
“Italy will do all it has to in order to respect the Maastricht paramters…….”we’ve never deliberately aimed at exceeding the 3pct ratio. The fact that this may be happening now is merely due to the state of the economy”.
EU Policies minister Giorgio La Malfa
Falling rate of Intelligence?
Conventional marxist theory used to argue that capitalism was doomed to regular and deepening crisis due to the impact of a phenomen known as ‘the falling rate of profit’. Basically the idea runs as follows: since on the marxist view labour is the only source of genuine wealth creation, and capital accumulation means that the proportion of active labour to ‘dead labour’ (capital investment) tends to decline, then the ‘rate of profit’ will diminish accordingly. Now I certainly have no intention of going into all this rigmorole, but I do remember some wit back in the seventies suggesting that if this was the case, then, for example, we could argue that intelligence must be falling, since the quantity of active human brainpower as a proportion of accumulated knowledge (living to dead ‘mental labour’) was constantly diminishing.
Well, low and behold, a paper out this week at the NBER argues just this case.
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The Morning After
Speculation is already rife about what might happen on Monday following Sunday’s vote in France. One small detail that I hadn’t thought about before, Monday is a bank holiday in the UK, so most traders won’t be working, Bloomberg’s Mark Gilbert feels that could even add to euro volatility.
One thing that is clear is that there are a mounting catalogue of issues to fuel ‘negative sentiment’ next week. The latest of these is the reported statement from German CDU EU spokesman – Peter Hintze – that if the French vote no, then the entry of Bulgaria and Rumania should be temporarily suspended.
“Our position is clear: inclusion of Bulgaria and Romania must be put off if the French vote no,” said the party’s parliament spokesman on the EU, Peter Hintze, in a telephone interview today.
So on May 30th we may have an EU where in one of the main countries the electorate have just passed an effective motion of ‘no confidence’ in their government, whilst in another of the ‘key states’ the existing government already has a ‘sell-by’ date. Add to this the uncertainty over deficits and the SGP, the absence of growth, and the growing unease about what exactly is happening at the ECB and, if you ask me, you have all the ingredients of a major currency crisis. Well, next week we’ll know.
Czech Republic Having Second Thoughts
I missed this at the time, but apparently officials responsible for monetary policy in the Czech Republic are begining to have second thoughts about joining the euro.
“Czech central bank policy maker Robert Holman said the government should abandon plans to adopt the euro by 2010 because joining the single currency may stifle growth, the first central banker in the country to call for a delay.
“I would not rush with euro adoption because it represents significant risks for us,” said Holman, 51, who joined the bank’s board on Feb. 13, in a May 18 interview in Prague. “The euro zone economy has been growing very slowly in the past five years, and among other factors, it could have been caused by having the common currency.””
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Angela Merkel The New Mrs Thatcher?
It was inevitable I suppose. Comparisons between Angela Merkel and Margaret Thatcher are starting to roll. Such comparisons seem ludicrous to me, but I’d love to know what our German readers, who are undoubtedly a lot better informed than I am, think of it:
“Think of Angela Merkel as German chancellor and Nicolas Sarkozy as French president, and an intriguing notion arises – could Thatcherism belatedly arrive in Germany and France?
As soon as one imagines it, qualifications flood in. Ms Merkel has some characteristics of the former British prime minister – notably support for more radical economic reforms than previous CDU leaders – but not the same implacable force. She will probably tone down reformist zeal so as not to frighten the voters, and in any case faces internal resistance from conservatives, including the CSU sister party.“
Euro Under Pressure
The euro continues its fall against the dollar today after yet another opinion poll showed French opposition to the European Union constitution continues to strengthen before Sunday’s referendum. Against the dollar, the euro fell to $1.2545 at 8:33 a.m. in London, from $1.2601 late yesterday in New York. The euro wasn’t exactly strengthened by the fact that Sarkozy had to deny a reprot that he had already informed Chirac that the vote was lost.
In itself this decline – in fact the euro has fallen against the dollar by 7.9% so far this year – is relatively benign, and may even be beneficial for hard pressed exporters. Mathew Lynn provides a reasonably summary of the issues here.
The problem is that there are a confluence of problems – the constitution, the absence of growth, elections in Germany, Italy and Portugal and the Stability and Growth pact, and now, divisions and lack of solidity in the ECB. The danger is that uncertainty among politicians following from a ‘no’ hangover, could be just what it takes to turn a benign slide into a run.