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".

A French Referendum?

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More information is now becoming available about the proposed UK referendum on the EU constitution which Nick drew our attention to yesterday.

The FT has an article today which fleshes out some more details, including the fact that an ‘unnamed’ French minister expressed fears that any decision by U.K. Prime Minister Tony Blair to hold a referendum on the European Union constitution may hurt the treaty’s implementation.

“We don’t see any malice in Tony Blair’s decision as he is not an adversary of European construction . . . However, it [Mr Blair’s move] does create difficulties as the treaty needs to be ratified by all members.”

You bet it creates difficulties. Seven other EU members have already indicated they will or could hold referendums on the treaty: the Czech Republic, Denmark, Luxembourg, Ireland, Netherlands, Portugal and Spain. Now it is clear that France will be under pressure to do likewise. It would be a foolish person who tried to make a short-list at this stage of those which were a certain bet to say yes.

Spain’s Withdrawal From Iraq

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This morning is not a happy one for me here in Spain. I had not anticipated that Spain’s new president, Jos? Luis Rodr?guez Zapatero, would take the decision about the troops that he did yesterday, and I regret his having taken it.

In fact I was furious with him, since I feel the approriate place to have announced this decision would have been in the Spanish Parliament last Thursday and Friday – during the debate on his ‘canditature’ – where there would have been the possibility of a full and free debate on the decision itself, its timing, and its implications.

Doing it via a televised ‘address to the nation’ only, I feel, reinforces the drift towards ‘backstaging’ the parliament that was already evident during the Aznar presidency.
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The Distance of Death

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Ageing populations ‘will create crippling debt’: at least this is how one of today’s Financial Times headlines reporting on the latest Standard & Poor’s assesment of OECD sovereign debt dynamics has it.

In fact the article says S&P argue that:

“industrialised countries face crushing debt burdens – greater even than those during the second world war – unless governments make politically painful cuts in social spending in the next few years”

At the same time this weeks Economist has a special supplement on ageing prepared by ‘death of distance’ guru Frances Cairncross which argues that :

a larger generation of old folk than ever before will need support for longer than ever before from a population of working age that is shrinking continuously in absolute size for the first time since the Black Death. And the level of that support is unprecedented.

Seems bleak, doesn’t it? Crippling debt, black death: are things really that bad?
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Nail Biting Time Outside the ECB

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Update: The ECB has now announced that it will leave rates unchanged for another month. This in my view is a mistake, essentially putting off the inevitable for another month – unless, that is, Trichet has info that tomorrow’s US employment numbers will be much better than expected. If not this is only going to lead to more upward pressure on the euro over the month, and a further month’s delay in offering stimulus to an overly lethargic euroland economy. I don’t buy the rapid-recovery-round-the-corner, ever-present-inflation-danger scenario.

While most observers look anxiously over to Frankfurt to see what they will finally decide, it might be worth just noting that Sweden has lowered its interest base rate. The current 2% rate is now the lowest in a century:

The Swedish Central bank cut its key interest rate by 50 basis points to 2 per cent on Thursday, its lowest level for a century, reflecting low inflation and rising unemployment in the Nordic region’s largest economy.

In a statement the central bank said the recent decline in inflation had been “greater than anticipated,” partly due to unexpectedly low import prices but also to a weaker labour market.

I am highlighting this decision lest those of you with wicked minds have come to the conclusion that I only take note of events which confirm my preoccupations about the viability of the euro. Sweden of course voted to stay out of the euro.

In fact as I reported on Bonoboland last month:

Compared with February 2003, all the Member States registered a decrease in their annual inflation rates. The biggest relative falls were in Sweden (3.3% to 0.2%), Finland (2.1% to 0.4%) and Denmark (2.9% to 0.7%)

Two of the three countries with a marked drop in inflation are not in the euro. So clearly having control of your own monetary policy is not the be-all and end-all of the problem. You also have to get the decisions right. Now let’s see if Sweden has been bold enough with today’s move.

The Lighter Side of Siberia

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Andy Young over at Siberian Light has an interesting post about the Khodorkovsky open letter.

I can?t quite decide what to make of his critique of liberalism. It is obviously an attempt to destroy the last vestiges of liberalism in Russia (although, lets face it, that wouldn?t take much at this stage). But is he going to follow this up and throw himself fully behind Putin, and argue that stability is the only way to go? Or is he trying to lay the groundwork so that he can be the undisputed leader of a phoenix-like liberal resurgence in Russia? He does, after all, lay out pretty bluntly that he sees a political future for himself?

Andy has also started posting on the Central Asian Blog “The Argus” (he gets around a bit does our Andy) which as he points out has some pretty up to date info on places like Uzbekistan. Andy’s focus is on the impact of ‘external agents’ in Central Asia and the Caucasus: not least amongst these Andy’s very own ‘beloved’ EU:

Chris Patten, the EU’s Commissioner for External Relations (kind of like a foreign minster) visited Central Asia last week. And why? Well one reason, of couse, is that the EU would like a slice of lovely Central Asian oil pie…

Cyprus Referendum: A Win-Win Strategy?

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Kofi Annan has announced that the UN is to proceed with the referendum on April 24 despite an apparent lack of agreement. One week into talks at the Swiss Alpine resort of Buergenstock, Annan has simply put his best face on the result and said that the island’s future is now up to its people.

“The chance is between this settlement or no settlement……This plan is fair and is designed to work.”
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The Stomach For Reform?

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In its assessment of the debacle for Chirac/Raffarin in this weekend’s French regional elections the German newspaper S?ddeutsche Zeitung asked one pretty pertinent question:

“‘are European societies capable of stomaching unpleasant reforms?’ ”

Certainly the evidence would seem to make it a fairly reasonable question to ask. Sunday’s elections have been billed as a victory for the left, but equally we have only recently witnessed Gerhard Schroeder, seemingly unable to inspire sufficient confidence in his proposed welfare cuts, stepping down as chairman of the Social Democratic Party just before suffering a significant defeat in the Hamburg elections.
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Pondicherry Calling

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Pondicherry is in the news. The former French colony, handed over to India in 1954, has just become the lastest cause celebre in ‘the great outsourcing debate’.

Under the evocative title: Once they were French colonies, now they call back NewIndpress has a piece today on this very topic.

Says Joel Ruet, a researcher with the French Cultural Centre in Delhi: ??Companies?both French and Indian?now offer a variety of opportunities to French-speaking Indians in the software sector. Satyam, Wipro and other companies looking for opportunities in French BPOs have now started to have their own in-house French software translation units where Indians from the old colonies are hired,?? he says. This is apart from the French energy companies like TotalFina and EDS that have come to India and hire those proficient in the language.

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Siemens Follow-up

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Just a quick follow up to my recent post on German outsourcing. I fear the issue rather got lost in an interesting, if secondary, topic in the comments section. One reader was, however kind enought to draw this article to my attention.

The German firm Siemens will move most of the 15,000 software programming jobs from its offices in the United States and Western Europe to India, China and Eastern Europe, a company official said Monday.

“Siemens has recognized that a huge amount of software development activity needs to be moved from high-cost countries to low-cost countries,” said Anil R. Laud, managing director of Siemens Information Systems, the group’s information technology subsidiary in India.
Source: SignonSanDiego.Com

Now this dates from mid February so it would appear that there was fire to the smoke, even if it may have expediently been extinguished. I repeat: this reality is inevitably going to arrive on our doorstep and we would do better have some more informed public discussion over some of the implications. In this regard I would again draw attention to one comment of Jean-Claude Trichet in the interview I cited yesterday.

there is the unfortunate phenomenon that public opinion very often discovers the problems at the moment they are tackled, when governments, parliaments and social partners carry out the structural reforms that are urgently needed. This late and brutal discovery could have a negative impact on confidence. Had the public been more aware of the underlying problems, the reforms, when decided upon and implemented, would have increased confidence. That is the reason why we believe that transparency, pedagogy and tireless explanations are an essential part of preparing structural reforms.

We have only recently seen in the Spanish context one way a public which felt it may have been kept systematically misinformed by its government can react. We would do well to learn from this. Globalisation is here, it is more potent than ever, and it won’t simply go away just because we choose to ignore it. I may have cause to disagree with Trichet about precisely which structural reforms I would like to see assertively advanced, but the point he is making is absolutely valid. Be warned.

Economic Consequences of Spain’s 11M

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Italian consumer confidence has remained near a 10-year low in March in the wake of the Madrid terrorist bombings. In fact the bombings may have hurt sentiment in Italy more than the Sept. 11 attacks on the U.S. according to a statement from the government-funded Isae institute. The confidence survey, which was carried out between March 1 and March 12, showed that consumers who had been growing more optimistic about the prospects for lower inflation and improvements in unemployment turned pessimistic in the two days after the bombings. In fact while the 22-year-old Italian consumer confidence index touched its all time record low of 93.7 in April 1993, March was the third month in a row that the index has been below 102, the last time it was that low being in February 1994.
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