Author Archives: Edward Hugh

About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

Clueless In and Out of Brussels

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We’re still all waiting really. Waiting to know what the next move really in the saga is going to be (Iceland isn’t in the community yet, if I remember correctly). Staring into the tea-leaves and casting a wary eye over towards Brussels, looking desperately for clues.

What this continuing lack of definition really does is make matters worse., compound the problem. It re-inforces exactly that feeling of being ‘left out of things’ that probably produced the ‘no’ votes in the first place. This isn’t very promising if you were hoping that at least the rejection of the constitution at the ballot box would act as a kind of ‘shock therapy’, now is it?

However, according to the rumours:
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ECB Holds Rates at 2%

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The European Central Bank held its main refinancing rate constant at 2% for the 24th consecutive month this afternoon. No real surprise here. Perhaps the most revealing comment has been: “Whether others like it or not, the ECB isn?t an activist central bank,? a view offered to the Financial Times by one Julian Jessop, economist at Capital Economics.

The FT also points out that: “the 5.5 per cent slide in the euro to $1.226 against the dollar since the ECB?s last meeting may have done some of the Bank?s work for it. The weakening of the euro is stimulative to growth in the same way a rate cut would be, and, if it persists, is likely to be an upward drag on eurozone inflation“.

We will see. The euro has had a much calmer day today, clawing back this morning most of the ground lost in hectic trading last night. It is currently going for around $1.2279 in a fairly volatile afternoon.

The – oh they’ve all gone quiet over there – European Commission seems determined to sit things out till the June Summit, while Barroso appeals for calm:.

“?What I am asking for now is that political leaders, in particular government chiefs, not take individual, or unilateral decisions. I ask political leaders to show responsibility, to show caution”

Jean-Claude – into the valley of death rode the 600 – Juncker, Luxembourg’s prime minister and holder of the rotating EU presidency, continued to insist ratification should go forward as planned. Since Luxembourg is to have the next scheduled referendum, it will be interesting to see whether he in fact leads the troops more than the statutory ‘half a league’.

Europolitix has it that behind the scenes (and this is really the problem about how we do politics in Europe) a revolt is brewing amongst those who would be asked to follow Junker’s noble sacrifice: Poland, Denmark, Ireland, the Czech Republic, and, of course, the UK.

Far Less Migrants Left EU 10 Than Anticipated

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According to the German research institute DIW, the number of migrants from the EU 10 accession countries was far less than many anticipated.

According to the Berlin-based Deutsches Institut for Wirtschaftsforschung (DIW), the number of people who have migrated from the new member states to the older members can be estimated at 150,000. Of them, over 50,000 arrived in the UK.

The DIW figures are lower than other estimates, including that of the UK government, which claims to have received some 130,000 work permit applications over the past 12 months. DIW explains the discrepancy with methodological differences.

In DIW’s opinion, those EU-15 states that have applied stringent immigration policies to prospective workers from the new member states could be missing out on an influx of much-needed qualified professionals.

Latvia Votes Yes

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The Latvian parliament approved the Constitution Treaty earlier this morning, by a huge majority:

“Latvia’s parliament voted overwhelmingly to support the EU constitution on Thursday, a decision lawmakers and analysts said sent a message from the new Europe to the old that the approval process must continue.

After several European leaders urged other member states to press ahead with the endorsement process after convincing rejections in the French and Dutch referendums, Latvia’s 100 member parliament voted 71 for the constitution with 5 votes against and 6 abstaining“.

The next hurdle will be the Luxembourg referendum, on the 10th July. This will take place as scheduled if the EU summit of 15/16 June doesn’t decide to change tack.

Meanwhile French media are announcing that there is a plan B, it’s called Blair. Tony Blair, they are suggesting, will seize the opportunity presented by disarray in the federal Europe camp to push ahead with ‘liberal’ economic reforms, leaving the institutional infrastructure to languish. Possibly the outcome the French fear most. Something like this may in fact be what happens.

Another ‘euro’ sceptic

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Bloomberg’s Mathew Lynn has been pretty consistently skeptical about the workability of the common currency. Personally I find it difficult to disagree with the following:

“The euro, the common currency shared by 12 EU nations, will weaken considerably as Europe enters a long period of political instability. Recriminations from the collapse of the constitution will be played out over months, not days.

And the economics of integration that have dominated Europe for the last 30 years have come to an end. Forget convergence. The big trend in the next few years will be Europe’s economies going their own way, not with each other. In time, even the euro’s survival might be called into question.

“The initial reaction might be relatively muted because the markets had already discounted `no’ votes in both countries,” said Stuart Thomson, a fixed-income strategist at Charles Stanley Sutherlands in Edinburgh. “What it does do is put a stop to any thoughts of fiscal integration, because that was really the next step of the process. Without that, it is difficult to see what is underpinning the euro.””

Twenty Twenty Vision

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The press this morning are busily assimilating the result of yesterday’s Netherlands referendum. The FT reports on a survey by Dutch polling organisation Interview-NSS, which identified up to twenty different issues which influenced the no vote.

Top of the list the list was a fear that the Netherlands would lose influence in a Europe that would favour large countries.
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Another Day On Euro Watch

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I’ll keep tracking the euro again today, and updating as appropriate. I’ve just posted some stuff in the comments section of Afoe:

Looking at the newspapers the euro steadied up overnight, but seems to be on its way down again in Tokyo. As I write it is trading at $1.2194, ten minutes ago it was 1.2186.

Firstly during the night the dollar firmed:

“Against the euro, the dollar fell to $1.2211 at 9:50 a.m. in Tokyo, from $1.2179 late yesterday in New York, according to electronic currency-dealing system EBS. It was also at 108.64 yen, from 108.76. The dollar traded as high as $1.2160 per euro yesterday, the strongest since Sept. 20,”
Bloomberg.

The general consensus seems to be that the euro will rebound, since that is what the technical charts say it will do. Be these are not ‘normal’ trading circumstances and this view may not be appropriate.

Strategists at National Australia Bank hold what seems to me a reasonable perspective:

“Barring news of a sharp slowdown in the US, the euro is set to test 1.2000 and then 1.1760, the NAB strategists said, adding that the market focus is now turning to US non-farm payroll data for May to be released on Friday”.

I think we are in the hands of events, with a definite downside risk on the euro. So lets wait and see how they unfold.

Update 1: 9:30 CET. The euro is now staging a strong rally $1.2260 at the time of writing. Among other factors which may be affecting this is a speech by Dallas Fed President Richard Fisher which suggested the Fed tightening cycle may be nearly over. This is being widely interpreted as Greenspan testing the water. It is also something I have been arguing for the last couple of weeks: Europe’s weakness is now setting limits to monetary policy in the United States.

And It’s Another No

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The first exit polls have just been announced in the Netherlands. The first estimate is 63% No, 37% Yes. (I may have to update this, as I have no numbers on abstention).

Let the debate continue!

Update: The euro just broke under the $1.22 level, it is currently at $1.2179 in US trading. Tomorrow is going to be a long hard day somewhere. (22.14 CET).

He Would Say That Wouldn’t He II

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In some ways I think this story may run and run over the months to come. Bloomberg have an update on their earlier article. According to the latest account:

1/. The German Finance Ministry have declined to comment on the Stern report that discussions took place last week between Finance Minister Hans Eichel, Bundesbank President Axel Weber and various economists on a possible failure of European Monetary Union.
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