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".

Why We Don’t Want To Have The “Instruments of Torture” Used in Spain

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We may not want the instruments of torture, but if the Spanish government doesn’t do something to change course and restore growth to the economy, they will be applied. This post is just to draw the attention of anyone who might be interested to my new blog on the Spanish newspaper Expansión (in Spanish). The latest post is about why it would be better for Spain’s political parties to get together and take the decisions themselves, rather than wait for the European Monetary Fund to wheel out Herr Schäuble’s “Instruments of Torture”.

I also deal with the arguments the Spanish government presents about growth, and foreshadow today’s ruling by the EU Commission that the forecasts for 2011 and 2012 are way too optimistic.

According to the Commission, the Spanish government forecast that it will be able to slash its budget deficit to 3 per cent of GDP in 2013 from 11.4 per cent last year is based on excessively optimistic growth forecasts for growth of 1.8 per cent next year, 2.9 per cent in 2012 and 3.1 per cent in 2013.

The Commission also pointed to the slow pace of public sector bank restructuring in Spain. It said Spain should take action to improve the long-term sustainability of its public finances, notably by means of a pensions system reform (a point I have addressed separately in this post).

The Stability Programme update of Spain reflects that the current crisis is severely affecting its public finances, with an estimated deficit of 11.4% of GDP for 2009 and a rapidly-rising government debt ratio. The Spanish update aims at sizeable continued fiscal consolidation from 2010 on, with a view to gradually reducing the government deficit to 3% of GDP by 2013 in line with the Council recommendation of 2 December 2009. However, the favourable macroeconomic assumptions after 2010 may imply a lower contribution of economic growth to fiscal consolidation than envisaged and the adjustment path after 2010 would still need to be backed up with measures. Public debt, which stood at below 40% of GDP in 2008, is expected to grow to 55% of GDP in 2009 and swell further to 74% of GDP by 2013. Based on this assessment, the invitations to Spain refer to the specification of the budgetary strategy to correct the excessive deficit and reduce debt, improvements to long-term sustainability and the old-age pension scheme, the fiscal framework and the quality of public finances.

¿Pacto Nacional o herramientas de tortura?

Una de las cosas más curiosas que he observado últimamente mirando la televisión, es que mientras ha habido muchos comentarios relacionados a propósito de poner en marcha un Fondo Monetario Europeo, parece que nadie ha sentido la necesidad de explicar cuáles serán los primeros clientes de esta entidad, ni mucho menos se ha atrevido a nombrar el país que tiene muchos números de encabezar la lista de invitados a la fiesta: el Reino de España.

Semejante lapsos ya lo voy a corregir yo, en este espacio. Es evidente que el nombre de Grecia está en la mente de todos, pero el de España no queda demasiado atrás, ni tiene razones de sentir ningún tipo de envidia por el tratamiento especial que Grecia está recibiendo en estos momentos.
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Waiting For Something To Turn Up: Europe’s Looming Pensions-based Sovereign Debt Crisis

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As Irwin Stelzer argued in a recent opinion article in the Wall Street Journal, Spain’s Prime Minister José Luis Rodríguez Zapatero seems to be an admirer of Charles Dickens’s character Mr. Micawber. When asked what he plans to do about Spain’s 11.4% fiscal deficit, first he promises to extend the retirement age, only to later tell us the measure may not be necessary. Then he promises a public-sector wage freeze, only to have his Economy Minister, Elena Salgado, say he really doesn’t mean exactly what he seems to say. And in any event, we shouldn’t worry too much, since given that Spain is a serious country, somehow or other the fiscal deficit will be cut to 3% by 2013, even though most serious analysts consider the economic growth numbers on which the budget plans are based to have their origins more in the dreams of an Alice long lost in Wonderland than in any kind of sobre analysis of real possibilities. “We do have a plan,” deputy prime minister, Maria Teresa Fernandez de la Vega assures us, but to many that plan now seems to be little better than hoping, like the proverbial Mr. Micawber, that “something will turn up.” Continue reading →

Serious Problems Emerge For The F-UK-De Group Of Countries

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Well, I for one can’t help thinking that it’s now well time we all stopped getting carried away with the use of so many acronyms. Not only may one man’s meat easily prove to be another’s poison, it may even be that for some the entire meal will be so distasteful as to prove totally indigestable. And so it is with the latest set of proposals to appear on that diagnostic lab bench which has been hastily erected in the search for that magic “cure all” for the eurozone’s many ills.

Daniel Gros, in a well meaning, but I feel fatally flawed, move to get us all away from talking about some of the members of our own community as if they were PIGS, has decided to tell us that they are not pigs at all, they are merely GIPSYs. Of course, depending on which way you look at it, such forms of reference could be taken as a compliment (“you sure do eat like a pig”), or not, but stopping to think for a moment about the kind of controversy which has been provoked by the arrival of large numbers of Roma in Italy, perhaps telling the countries which lie on Europe’s periphery that the best way to conceptualise them is as a bunch of “gitanos” is not the best way to get reasoned debate going. Nor is it necessarily the best way to do this to tell the members of core Europe that they as things stand they are essentially F-UK-De. But there it is. That’s just how things are these days. Continue reading →

German Exports and that Looming Double Dip

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I hadn’t seen an advance release of the January German export data, when I wrote the following on Tuesday, honest injun I hadn’t:

Well, this is only a hypothesis. But if the hypothesis has any validity we should be able to make some predictions on the basis of it. I would make two. Firstly, since East Europe’s economies are often dependent for their growth on exports to the West, and in particular to Germany, then we should be able to see some “shadow” of this German process cast out into the East.

In the second place, we should see the process continue to some extent in Q1 2010. That is, based on what we have seen so far, in Q1 imports should rise, as industrial output in the early parts of the supply chain surges, and net trade should as a consequence be less positive than in Q4 2009. On the other hand, all the imported components awaiting processing should make inventories rise. So that’s a prediction. Now we need to wait and see how good it is.

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The German Economy Is Essentially “Intact”

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According to Bundesbank President Axel Weber, Germany’s economic recovery is “essentially intact”, and is now set to benefit from stronger demand in countries outside the euro region.

“I firmly believe that the recovery process that began in summer 2009 is essentially intact, and that it will continue despite the slower growth dynamic in the winter semester. An additional factor in this context is that the German labor market continues to be in extremely robust shape.”

What exactly it means to say that an economy is intact we will explore below, but it is clear that some confirmation for the view that the German economy is benefiting from increased demand originating outside the Eurozone can be found in the latest press release on manufacturing industry turnover from the Federal Statistics Office, where they note that while January’s manufacturing sector turnover surpassed that of January 2009 – by a working day adjusted 2.6% – domestic sales actually fell (by 1.1%), and export turnover rose by 7.3%. Most interestingly, as between destinations, sales to euro area countries only increased by 2.4%, while those to other foreign countries were up 12.0%. This illustrates two points: that the German economy is now more dependent than ever on exports, and that sales to emerging markets are what is really driving export growth at this point. This latter development is hardly surprising given the strong fiscal corrections being applied in many of Germany’s former customer countries. Continue reading →

Hanging In The Balance Over At The ECB

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In the time of my confession, in the hour of my deepest need
When the pool of tears beneath my feet flood every newborn seed
There’s a dyin’ voice within me reaching out somewhere,
………….

It’s not often that I await the ECB after-meeting press conference statements of Jean Claude Trichet with such an intense feeling of anxiety and bated breath. But this time, as the song goes, it will be different. This time there are plenty of reasons to think that, having been the first off the mark in looking for the exit, Europe’s monetary leaders may sound a note of caution at tomorrow’s meeting, and indeed indicate there may well be solid grounds for at least taking a time out, if not engaging in a longer process of pausing for extended thought. My advice: if you don’t actually have any pressing need to hit the eject button, then don’t do it. Continue reading →

The “Three Speed” Global Manufacturing Recovery Continues in February

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Global manufacturing activity continued to expand in February, albeit at a slightly weaker pace than in January. At 55.2, down slightly from 56.1 in January, the JPMorgan Global Manufacturing PMI posted its second highest reading in almost four years. The average reading so far in Q1 2010 (55.7) is above that for Q4 of last year (54.2). The headline Manufacturing PMI has now emained above the no-change mark of 50.0 for eight successive months.

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Just What Is Going On In Sweden?

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According to data released today (Monday) by the Swedish statistical office Sweden unexpectedly fell back into recession in the fourth quarter, adding to the impression there has been a growth dip among Europe’s economies and raising further questions about the durability of the recovery in Europe.

Gross domestic product contracted by a seasonally adjusted 0.6 per cent in the fourth quarter of 2009 (when compared with the previous three months), despite analyst expectations for growth of 0.3 per cent. In addition the third-quarter figure was revised to a 0.1 per cent quarterly decline (down from an original 0.2 per cent gain) which means that Sweden is now back in recession.

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Too Soon To Cry “Victory” On Latvia?

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“Doom-mongers” – the Economist tells us – “are licking their wounds”. And why exactly are they licking their wounds? Well for two years now (apparently) they have been telling us that “the struggle to save the lat’s peg to the euro was bound to end in tears”. As you could imagine right in the very forefront of these so called doom-mongers is to be found yours very truly (and here), and of course Nobel Economist Paul Krugman (and here). Continue reading →