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".

Housing Review

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My out-of-consensus speculation that the Bank of England’s round of interest rate rises may be pretty much done looks sounder by the day. There may be one more rate increase, but it wouldn’t surprise me at all if they were pretty much over with it, and even if the next move (the end of this year?) wasn’t downwards. The reason? Growing evidence that the UK housing boom is bottoming out, and with this, UK consumption starting to take a hit.

U.K. mortgage lending growth probably slowed in August and consumer confidence may have weakened in September, suggesting economic growth peaked in the second quarter amid rising interest rates, surveys of economists showed……

House prices fell 0.6 percent in August from July, the first drop since August 2002, according to Edinburgh-based HBOS Plc, the U.K.’s largest mortgage lender. It was the biggest decline since December 2000.

Bank of England Governor Mervyn King and his rate-setting committee said they may have underestimated the effect of any decline in home values on consumer spending, according to minutes of the Bank of England’s Sept. 8-9 meeting.

“We’ve just come through a very slow holiday period and there is a general agreement that September is no improvement,” said Richard Hair, president of the National Association of Estate Agents. “We’re getting geared up for what may be a difficult market in the autumn.”
Source: Bloomberg

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‘Volatilty’ is Back

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After a series of posts on the rise of the euro earlier in the year, I’ve been relatively quiet on this front of late. This doesn’t mean that the problem has gone away. The growing feeling that the US economy was taking off certainly eased the pressure, and the euro has hovered around the low 1.20s. Now it seems that with growing awareness that growth may be slowing large scale ‘currency trading’ is coming back on the agenda.

Trading on the world’s foreign exchange markets has leapt to a record $1,900bn a day, driven by renewed interest in currencies as an asset class and the return of hedge funds specialising in currency bets.

Turnover in currency and interest rate derivatives sold by banks also soared to new record levels, according to a three-yearly survey by the Bank for International Settlements……

After slumping amid the introduction of the euro, which eliminated the currencies of some of the world’s biggest economies, trade in foreign exchange bounced back between 2001 and 2004.
Source: Financial Times

There is once more a lot of talk around about the need to float the Chinese renmimbi (which is a move which should come in gradually, but which won’t have sufficient impact to resolve the problem IMHO).

Trying to see into the future is a pretty fruitless endeavour, but we should all be aware that any sustained weakening in the yen and the US dollar would almost kneejerk style bring the issue of a rising euro straight back on the agenda. Definitely one to watch.

Downbeat on Iraq?

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Colin Powell has been making the headlines over the weekend for his seemingly more realistic appraisal of the difficulties facing current US policy in Iraq when compared to the view emmanating from other members of the Bush administration. Again Juan Cole has been offering some informed comment on the topic here.

All of which makes the current consensus view from France and Germany pretty preoccupying in its own way.

“I cannot imagine that there will be any change in our decision not to send troops, whoever becomes president,” Gert Weisskirchen, member of parliament and foreign policy expert for Germany’s ruling Social Democratic Party, said in an interview.

Michel Barnier, the French foreign minister, said last week that France, which has tense relations with interim prime minister Iyad Allawi, had no plans to send troops “either now or later”.
Source: Financial Times

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Turkish Accession Back On The Slow Track?

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Despite the recent revival of optimism about the forthcoming Turkey negotiations following the apparent resolution of the ‘adultery ban’ issue, it is clear to everyone that significant hurdles still remain to be overcome. Among these may now need to be added a referendum on Turkish membership in France.

Turkey will not join the European Union for at least 15 years and could only do so once France had held a referendum on the issue, French Finance Minister Nicolas Sarkozy said on Sunday.

?The membership of Turkey, in the best of cases, will not happen for 15 years,? he told LCI television. ?A decision as important as the membership of Turkey in Europe could only be taken after there had been a referendum in France.?…….

He was sceptical about the idea ?not because it is a Muslim country but because Turkey alone represents the membership of the 10 countries (mainly) from eastern Europe?, he said, referring to the countries that joined the bloc this year.

Sarkozy made his comments after French Prime Minister Jean-Pierre Raffarin voiced misgivings on Thursday about Turkey joining the bloc, asking if Europe really wanted ?the river of Islam to enter the riverbed of secularism?.

Raffarin said Turkey had made progress in adjusting its laws and institutions to EU standards under Prime Minister Tayyip Erdogan, but queried the overwhelmingly Muslim but secular state?s ability to stay the course.
Source: Financial Times

Clearly everyone involved in the debate is aware of the problem of Turkey staying ‘on course’. Clearly also it is difficult for any democrat to object to the principle of ‘citizen consultation’ about important issues, still it is important to note the growing recourse to the referendum as the means of making such consultation (this process will probably reach a climax with next year’s votes on the proposed EU constitution). This would seem to be an additional hurdle for Turkey, given that such a procedure was not followed in the case of the recent round of accession.
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The Mediterranean Diet?

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This should come as a shock, but somehow I am not exactly surprised. Mediterranean cooking evidently isn’t always as benign and healthy as it seems.

Greece was warned on Thursday that it could face legal action for grossly under-reporting its national deficit and debt figures but was told it would not be ejected from the 12-country eurozone.

Revised figures revealed Greece broke the single currency’s 3 per cent of GDP deficit ceiling every year in the 2000-3 period.

The European Union will launch an inquiry to check the veracity of the figures it provided before 2000, the year Greece qualified to join the single currency.

The scale of the inaccuracies has sent shockwaves across the single currency area, which relies on member states to provide sound economic data.

…………Eurostat, the EU’s statistical arm, could start legal proceedings against Athens for breaching accounting rules.

Greece, however, is unlikely to be ejected from the eurozone, even though there are now doubts about whether it complied with the membership rules before 2000.

The new data revised the Greek 2000 deficit to 4.1 per cent from a prior estimate of 2 per cent.

The 2001 and 2002 deficits now stand at 3.7 per cent compared with 1.4 per cent previously. The 2003 deficit, which had already been revised up in May to 3.2 per cent from 1.7 per cent, is now shown to be even higher – at 4.6 per cent of GDP.

Cost-overruns on the building of venues and transport systems for last month’s Athens Olympics games, estimated at more than ?2.5bn ($3bn, ?1.7bn), contributed to a projected deficit of 5.3 per cent of GDP this year.
Source: Financial Times

It is also worth bearing in mind that the accumulated Greek deficit currently is one of the highest in the EU and stands at around 100% of GDP. The interesting question now is what happens next.

German Wages War Hots Up

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While Volkswagen’s long cold summer trundles on relentlessly there is more news on the wage reduction/increasing hours front.

Following the decision by workers at Siemens and DaimlerChrysler to work longer hours announced earlier in the summer, Volkswagen itself and construction company Bilfinger are looking for similar deals. (The Economist this week has a profile of VW’s head of personnel Peter Hartz – he who gave his name to the Hartz IV law – and a summary of the background to all this).

The numbers of workers likely to be affected are now no longer small: any VW deal would involve 100,000 workers, and the Bilfinger negotiations are said to be liable to affect up to 800,000 construction workers (similar moves are also in evidence elsewhere in Europe, the case of Alitalia pilots being only the most recent).

My take on all this is that while I feel there is an inevitability about it – many EU labour markets clearly need a shake-up – I do not share the rather ‘rosy’ picture most analysts are painting of the likely short and mid term consequences. These deals are clearly deflationary in the classic sense. They will affect consumption in the short, and possibly not so short – term. So when you add the wage reduction effect to the spending reductions implied by the need to reduce government deficits, and the likely 2005 slowdown in global growth which can affect exports, it becomes hard to see where exactly growth in an economy like Germany’s will come from.

Something is Something

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The Turkish Justice and Development party (AKP) seems to be backing down on the criminalisation of adultery agenda. This is a welcome development and, for once, an example of where targeted EU pressure may be effective. It also seems to be the case that external pressure is working in tandem with internal processes for once:

Civil rights groups demonstrated outside parliament as the debate got under way, complaining that other clauses in the penal code discriminated against women or intruded into people?s personal lives…………..Political analysts said the adultery measure may have been forced on him (Erdogan) by arch-conservatives in the AKP and in a small Islamic party that is influential with Muslim opinion but is not represented in parliament. They said it was too early to say what the consequences of the climbdown might be, although it was unlikely to end the debate about whether such legislation was necessary. AKP officials did not return calls seeking comment.

The decision to drop the measure was greeted with relief by Turkish and European officials. ?This proposal was a momentary lapse of reason, which we hope has now passed,? said a Turkish official.

Clearly there is much more to do, but this is a start. As I say: something is something.

Oh What A Tangled Web!

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Whilst noting that the EU Commission is trying to gently nudge Turkey on the criminalisation of adultery issue – European Commission spokesman Jean-Christophe Filori told a Brussels news conference that the proposed law “could trigger confusion and damage the perception in the European Union of Turkey’s reform efforts” – this post is not an attempt to re-open the useful and interesting exchange of views that took place around a previous post.

What I would like to do today is focus on another dimension of the same problem – the Turkish state’s relations with its own Kurdish minority – and how this relationship could become increasingly complicated depending on how the internal stability of Iraq evolves.
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09/11 Three Years On

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Homilies are not my strong point, so I will be brief.

Today is the third anniversary of a sequence of events which changed the course of contemporary world history, and lead to the loss of several thousand vibrant and innocent lives: we will remember them.

Those who died amidst the gnarled and twisted wreckage which remained following the devastation also left behind families, loved ones and friends whose lives have been equally gnarled and torn: we will remember them.

And as we look at the continuing destruction and horror which follows in the wake – whether this be in Madrid, Beslan or Jakarta: we will remember them.

“Age shall not weary them, nor the years condemn.
At the going down of the sun and in the morning
We will remember them.”
Laurence Binyon

It’s Deficit Time Again

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There’s a fair amount of talk again this week about the various government deficits and what to do with them. Earlier in the week the FT had a piece about the current state of play with the US deficit whilst the Economist is busy musing one more time over the ongoing saga of the EU growth and stability pact.

These two situations appear, on the surface, to be somewhat similar, but in reality it may be more interesting to consider how they differ.
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