Monthly Archives: June 2005

Spanish Hotel Prices

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Hotel prices in Spain remained in May at 2004 levels according to a National Statistics Institute (INE) report today. This could be a significant reading if price inflation in fact is disappearing from the sector. As the report notes, most of the recent increase in business has come from Spanish nationals.

Spain is running a large trade deficit. Tourism is one of the key ‘exports’. The combination of a high euro, and continuing domestic inflation has been hitting this badly. The non-increase is obviously a measure of the pain reading. Hotel and tourism prices have been rising at an annual rate of 5% plus since the start of the century.

Myths And Reality

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The FT has a timely piece on the supposed ‘anglo saxon model’. Stereotypes are just that, stereotypes, and more often than not they obscure more than they illuminate:

“Britain’s “Anglo-Saxon model” is believed to have produced filthy hospitals, long queues, a collapsing pension system and draconian welfare-to-work programmes that produce high levels of poverty and inequality.

The truth is more nuanced“.

On The Button

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The Economists ‘Buttonwood” gets right to the point. Talking of the problems of funding acquired pension liabilities, he notes:

“There are a couple of weird circularities here. Most of the burden of filling these gaps will fall on the companies themselves, which will depress their profits. That, in turn, will depress share prices, which will make it harder to achieve adequate investment returns. And if asset managers turn en masse to bonds with long maturities to match their assets and liabilities more precisely, which is necessary especially for older plans, that will raise bond prices, depress bond yields and increase the present value of assets they must hold?again, widening the pensions gap. .”

The solution to this conundrum – both in the public and the private pensions sector – is by no means obvious.

France: INSEE To The Rescue

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Just days after new French finance minister Thierry Breton suggested that French growth would be around 2% for 2005, France’s principal statistical agency, INSEE, point out that this is virtually unachieveable given what we already know about growth this year. 1.5% is the INSEE forecast, and even this figure they say has downside risks.

Meanwhile apparently, down at the commission they have M. Breton in their beady eye.

Let’s Get Down

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The global interest rate cycle seems to be about to peak (of course at the ECB and in Japan it never really got started). The only thing which is surprising about this, is that anyone should be surprised. I am also convinced that Greenspan is nearly done at his end, and pretty much agree with Bill Gross, who “sees the Fed raising the rate on federal funds twice more, stopping at its August meeting at 3.5%”. I think one more quarter point is pretty much guaranteed (too much of a shock to the system if he doesn’t), the second one will be more debateable, just look what happened to the US bond market yesterday.

The Fed is really pretty much at the mercy of the ECB. Evidence for this? Well look at the impact of the Riksbank decision earlier in the week. I think you have to go back quite a distance to find a time when the financial world was waiting with baited breath to hear the latest prouncement from Sweden’s central bank governor. Or again, the entrails scrutiny on the BoE monetary policy committee minutes.

This process should have been fairly predictable, and once the Frankfurt/Washington consensus comes out of denial (that what is happening actually *is* happening) we can get down to the much more interesting little detail about *why* it is happening.

As Gross says “disinflationary forces are winning out”, now why would this be?

Now For Some Real Medicine

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Paul Krugman has on occassion suggested ironically that Bagdad was only for the boys, that the ‘real men’ would go to Teheran. Well here’s another of those ‘real men’ in the economics field: Paul Betts writing in the FT, with one of those delicious ‘wingnut’ arguments:

“A dose of sado-monetary policy from the European Central Bank could force long overdue structural reform in Europe. Rather than follow Sweden’s example by cutting interest rates, the ECB should consider pushing them higher.

Politicians, especially in Berlin and Paris, would hate it. Wolfgang Clement, Germany’s finance minister, applauded the Swedish decision as showing how a central bank could support general economic policy without upsetting its price stability strategy.”

Portugal and the SGP

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With all the fuss about Italy, I’ve obviously been neglecting poor little Portugal, but Joaquim Almunia hasn’t forgotten about them. According to Business Week:

“The European Union’s head office told Portugal on Wednesday to cut its burgeoning budget deficit and public debt, saying the country’s economic slowdown was no excuse for violating euro-zone rules on sound finances.

Portugal follows Italy and Greece in facing a formal complaint from the European Commission for running up government borrowing way above the limit of 3 percent of gross domestic product set for countries using the euro.”

The Head Office eh? I presume they mean the Commission. You can find the relevant document from the Economics and Financial Affairs department here.

Two Views of Europe

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Gerhard Schr?der said yesterday that Europe had to choose between two versions of its future: one as a politically united continent able to hold its own in a globalized economy and the other as an enfeebled trading block.

“The core question is: which Europe do we want? Do we want a united Europe capable of acting, a real political union … or do we want to limit ourselves to being a large free-trade zone?”

Meantime Wolfgang Gerhardt, opposition Free Democratic party’s parliamentary leader and the man widely billed as Germany’s next foreign minister, said:

“he was ?not entirely unhappy about the outcome of this summit?. Had a budget been agreed, ?we could have ended with a money-sharing compromise that would have left 40 per cent of EU expenditures going to agriculture,? he said of last week’s acrimonious, and ultimately fruitless, talks“.

Gerhardt suggested this in an interview with the FT where he indicated that Germany should press France to accept cuts in European Union farm aid to ease a deal on the EU’s “controversial long-term budget”.

Turkey Grows and Grows

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One of the few real IMF success stories, the Turkish economy continues with what Serhan Cevik calls its spectacular normality:

The Turkish economy is now in its fourth year of uninterrupted growth, with an average real GDP growth rate of 7.5% per annum. Indeed, the trend growth rate surged from 3.9% in the 1990s to 5.8% in the post-crisis period and to an impressive 7.8% last year. And we project 7.2% growth for Turkey in 2005 and 6.8% next year, compared with average OECD growth rates of 2.6% and 2.8%, respectively. Obviously, this is an unusual performance for a country that had long failed to keep the economy close to its potential on a sustainable basis. In fact, the growth rate of real per capita GDP decelerated from 2.3% per annum in the 1970s to 1.7% in the 1980s and then to 1.3% in the 1990s leading to the 2001 crisis. However, with prudent fiscal and monetary policies and structural reforms, real per capita income increased by 18.9% on a cumulative basis in the last three years, and should remain on an above-trend growth trajectory in the coming years.

Quinquireme of Nineveh

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Globalisation, of course, isn’t a new phenomenon. Those who have been following my demographic material will not be surprised that the role of migration in human history is a topic which fascinates me. Well, Juan Cole has a very ‘informed’ post today about a piece of genetic research which claims to show that half of the inhabitants of Madagascar come from Borneo, while the other half derive from East Africa.

Those who want to learn more about all this could do worse than try some Cavalli_Sforza. ‘Luigi’ is undoubtedly the ‘grand-father’ of the current attempts to fuse archaelogy, linguistics and genetics. Many of the papers on site at his Stanford based Human Population Genetics Laboratory make very interesting reading.

Full disclosure: reading C-S was one of the things which really started me off thinking about all those ‘demographic issues’.