And cannons to the left of me:
German Chancellor Gerhard Schroeder said Monday he would propose strengthening international controls on hedge funds at next month’s Group of Eight summit ? a suggestion that came as his government struggles to fend off challenges from both right and left ahead of national elections.
EU foreign ministers approved a protocol today adapting a customs union with Turkey to the 10 new member states, including Cyprus, in so doing they brought membership negotiations with Ankara one step closer. This ‘haste’ – cdecent or indecent – is not proving popular with everyone. The EU Observer is reporting that enlargement is definitely *off* the agenda for this weeks summit and EU external relations commissioner Benita Ferrero-Waldner has already indictated that in her view there should be a slow-down in enlargement.
This is being interpreted as meaning that Austria may even have reservations about Romania, and Bulgaria:
A senior official from one new member state said there were some signals, particularly from Austria, that it could be difficult to ratify the accession treaties of Romania and Bulgaria, due to join the bloc next in 2007.
Finally this does seem to be evidence of ‘indecent haste’:
Diplomats said EU president Luxembourg was pressing Ankara to sign the accord within the next three weeks, and if possible before Thursday’s EU summit, to cut short any attempt to call the negotiations into question in the light of public concern shown in the French and Dutch referendums.
John Snow is in Europe, globetrotting on the G8 round. He had some advice for us here in Europe: “I think the important thing is that Europe continue to focus on the things that need to be done to encourage domestic growth”.
I’m glad he raised the point, since otherwise it might have escaped us. These comments, and other similar ones, are widely interpreted as recommending that we focus on reform. Well I couldn’t agree more, but sometimes isn’t it better to start putting your advice in practice at home. Looking at the state of global trading imbalances I would say that the US has its own problems, and they seem to need attention. Looking at the trade figures, German and Japanese companies don’t seem to have any special problem of being competitive internationally. I don’t want to seem tendentious, but isn’t it the US manufacturing company which is having difficulty being competitive these days, at least if the ability to sell at competitive prices in international markets is anything to go by.
Of course Europe and Japan are light on internal demand growth, but there is precious little we can do about it since this is largely a product of demographic changes, not structural weakness. This is a part of the ‘new global reality’ and the sooner politicians like John Snow face up to this, the better for all of us.
The euro is now currently (11.38 CET) at $1.2045.
Update: Ah, now I’ve found the reason for todays move:
The euro fell to a nine-month low against the dollar after European Central Bank Chief Economist Otmar Issing spurred speculation the bank may reduce interest rates for the first time since 2003.
Asked in an interview with Germany’s Der Spiegel magazine whether investors’ expectations of a rate cut in coming months are justified, Issing said: “In the past, financial markets almost always anticipated ECB policy decisions correctly.”
“He is preparing investors for a rate cut and the market is responding to that by selling euros and buying dollars,” said Neil Jones, a director of foreign-exchange sales at BNP Paribas SA in London.
I hasten to add that I consider Otmar Issing to be perfectly authorised to steer the euro down in this way. This is a much more considered move than Jean-Claude Junker’s recent outburst. Basically I agree with it, I am just waiting to see whether Greenspan will in fact be able to continue raising US rates. If he does it once, I can’t see him continuing for long.
We had some discussion on this topic back in May. The FT this morning – in addition to reporting a change of tack by Hans Eichel and Wolfgang Clement on wage levels – suggests that the Democratic Left-PDS alliance was making headway:
An early poll for ZDF television showed 18 per cent of people would consider voting for the new leftwing coalition. Mr Lafontaine said he was optimistic the new group could become the third largest party. The conservative opposition currently has an overwhelming lead in opinion polls.
Any observations from Germany on all this?
I’m not very happy with the ‘US Trade Figures‘ post I put up last Friday. I think it’s a glorious mess. The key to the problem is that I tried to deal with two – interrelated but disinct – topics at once: the euro and China trade. So today lets ignore the euro (which has once more resumed the downwards drift, even as I write) and take a bit of a closer look at where we are – in trade terms – with China. (Btw: the planet has finally returned to its orbit, and Brad Setser has an analysis of the US trade data here).
The big item in this weekend’s news is, of course, the agreement reached with Beijing on textiles. The EU textile industry will now have three years to adapt, but since textile manufacturers don’t appear to have taken too much advantage of the ten previous years, it is hard to know whether this will serve any useful purpose. Doubly so, since it is not yet clear how the calculations will be made, and I have the distinct impression that much of the recent surge in imports will now, in effect, be consolidated.
Be that as it may, what about the broader issue?
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There is no doubt that the EU Budget debate will warm up considerably this week. Unfortunately, as Le Monde suggests it is a case of “Le budget europ?en entre rabais britannique et subventions agricoles” (The EU budget: between the British rebate and the agricultural subsidies). Now it does occur to me that there is another dimension here:
“Generations of French children have grown up on the “Asterix” comic books and the myth of the leisurely British who were conquered by Rome because among their shortcomings was a horror of working on weekends. Today, instead of poking fun at their island neighbor, some in France are wondering whether they can learn from it.”
Now *a* generation of French children grew up on this because there was a time when it bore some relation to reality: let’s say in the 60’s and 70’s. But things have changed. Today, according to French Socialist politician Henri Emmanuelli:
“You can’t speak about Great Britain without specifying that to earn a living, people there have to have two or three jobs….Even better than that would be slavery with a bowl of rice as recompense. That way there would be no unemployment at all.”
There is just one snag attached to all this fun-poking at the expense of the Brits, and it is called the rebate. If things in the UK are going so badly, then how come they are considered to be so rich they can afford to pay proportionally more? There appears to be an inconsistency here. Isn’t someone about to find themselves hoisted on their own petard?
Interesting to note, following our discussion of the state of play of the Hungarian economy, that Hungary’s finance minister is not a euro pessimist. Janos Veres said in an interview with the Financial Times that he did not foresee a wider crisis for the single currency and that Hungary had ‘no option’ but to continue aiming to join the eurozone in 2010:
“I do not think Hungary has any other playing field,” said Mr Veres. “The Hungarian forint is not the Swiss franc. It cannot be maintained independently for decades.”
But Mr Veres, whose left-liberal government faces elections next spring, rejected calls for deep spending cuts that many economists view as necessary to keep Hungary on track for joining the single currency.
Instead, he outlined a plan for moderate spending cuts and the introduction of a simplified tax system designed to increase revenues next year. “We will not do anything that represents a radical, structural change,” he said.
Obviously the attraction is those nice low interest rates, to help pay for all that extra debt. But seriously, with the economically healthier Czech Republic now questioning whether it will join the euro, isn’t there a danger of the eurozone becoming a club for those structurally incapable of walking alone. “Oh when you walk, through the storm, hold your head up high,……….”
Well, this isn’t the end of Africa’s suffering, but it is a start.
“British Finance Minister Gordon Brown said the deal would provide 100 percent write-offs immediately for 18 countries and that more countries would qualify for relief later.” The debt deal is very good news for people in the 18 countries that will immediately benefit,” Romilly Greenhill of ActionAid said. “But it will do little to immediately help millions in at least 40 other countries that also need 100 percent debt relief.” Among those in line for rapid relief are countries such as Rwanda, Ethiopia, Mauritania and Zambia as well as, beyond Africa, Honduras and Bolivia.”
OK, the thread is open if anyone wants to express an opinion.
“Ufff”, my partner said as she put to rest a bunch of plastic bags she had just managed to drag from the supermarket, “so many things to buy”. I was pealing the spuds at the kitchen sink at the time, preparing the lunch, but I still managed to lean over, give her a kiss, and remind her that not everything can be bought: as the Beatles used to say “money can’t buy you love”. Then I remembered this headline.
Cabins designed in the Netherlands, (made in China no-doubt), sex workers from Eastern Europe (some 40,000 of them apparently), (capital possibly kindly provided by hedge funds), and customers from Western Europe, the US and Japan. Well, comparative advantage triumphs again. I imagine the terms of the Bolkestein directive will not be applied.