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".

The Morning After

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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

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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?

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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

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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.

If At First You Don’t Succeed…..

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Well people are already busy positioning themselves in the face of what seems like an increasingly possible ‘no’ vote in France on Sunday. Yesterday it was Giscard D’Estaing, today it is the turn of the current EU president Jean-Claude Juncker. His basic point, if French and Dutch voters don’t say ‘yes’ the first time, then don’t give up, try and try and try again.
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Ankara Steps Up To The Plate

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This is a very intelligent move:

Between the rock of the French and Dutch referenda and the hard place of the looming early elections in Germany, Turkey has reiterated its determination to seek full EU membership. Ankara has also named its chief EU negotiator.

Turkey’s 38-year-old chief EU negotiator Ali Babacan is a founding member of the ruling Justice and Development Party (AKP) who believes that there is no slowdown in Ankara’s reforms, notwithstanding that “political reforms, unlike economic reforms, do need some adjustment time to change the mental framework of the people”. In an interview with Reuters a few days prior to his appointment on 24 May, Babacan said that Turkey had no reason to fear from the referendum in France provided that Ankara stayed calm, pursued its own reform agenda and met all EU conditions for opening accession negotiations on 3 October 2005. He has said that he had “no solid reason” to believe that the scheduled 3 October launch of accession talks would be in jeopardy.

Handling matters this way throws all the pressure back on the EU. “We are ready to negotiate, now lets get on with it”.

Car Bomb In Madrid

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“A car bomb exploded in the Spanish capital on Wednesday, injuring three people, 45 minutes after a Basque newspaper received a warning in the name of Basque separatist group ETA, police said.”
Reuters One Hour Ago

Thankfully no-one was killed. On this occassion there seems little doubt who was responsible. This bombing follows recent controversial moves by Spanish president Zapatero to open a peace process. At the time of writing the linked post I was optimistic. Despite what has happened today I remain so. Eta is not to be trusted, and it is important to keep this in mind all the time. My ‘off the top of my head’ analysis: negotiations about the conditions for holding negotiations are in process, both sides are trying to exert pressure, the Spanish government is demanding a permanent truce from Eta, Eta is demanding a concentration of prisoners in the Basque region, and so things continue.

Crisis Looming At The ECB?

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A right royal row is brewing at the ECB. Basically the old guard theorists of the ‘one size fits all’ monetary policy are being challenged by more pragmatic observers of day to day realities. For the moments it is the politicians who are making the running (but there are plenty of competent economists in Germany and Italy who are ready to back them up), and yesterday the OECD joined the fray.
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