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".

Will They, Won’t They?

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While Latvia is still arguing with the EU Commission over the spelling of eiro (or is it euro), the FT today asks the much more pertinent question: will the other baltic states even be able to join? On the backs of the energy hike Estonia and Lithuania are struggling to comply with the entry conditions, especially those on inflation. Slovenia is, however, expected to join on target on 1 January 2007.

Estonia, Lithuania and Slovenia set themselves the target of being in the first wave of new euro members next January and of complying with most of the rules, including public debt levels, interest rates and budget deficits.

Estonia, however, is struggling to meet the inflation criterion, which is likely to be set at about 3 per cent this year, 1.5 per cent above the average inflation rates of the three countries with the lowest inflation….. Like in other former Soviet-bloc countries, energy has a bigger weighting in Estonia’s consumer price index because the country uses power less efficiently than the EU’s older members.

“We feel that it’s a shame that just when we need to qualify for euro entry, the world oil prices go up,” said Kylike Sillaste, adviser to the prime minister….

Joaquin Almunia, the EU’s monetary affairs commissioner, has said he will apply strictly the entry standards for the candidate countries, although the ultimate decision on enlarging the eurozone lies with member states.

Flu Virus Resistance Grows

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It’s Suday morning, and I don’t normally feel moved to post on a blog, but this news is disconcerting, and seems to merit the effort:

“The US government, for the first time, is urging doctors not to prescribe two antiviral drugs commonly used to fight influenza after discovering that the predominant strain of the virus has built up high levels of resistance to them at alarming speed.”

The drugs which are now virtually worthless are rimantadine and amantadine (with 91% of virus samples now showing resistance). The consequence of this is that stocks of two further drugs will now be used to replace them. And the names of the two new ‘front line’ treatments for routine influenza: Tamiflu and Relenza. Now these two ‘anti-virals’ had been being kept in reserve for use in the case of any H5N1 related outbreak. The consequence of this?

The discovery (of resistance) adds to worries about how to fight bird flu should it start spreading among people. …Now, because of the resistance issue, the newer drugs are being recommended for ordinary flu, increasing the chances that resistance will develop more rapidly to them, too, as they become more commonly used…..

Centers for Disease Control and Prevention director Dr. Julie Gerberding said the agency didn’t know how the resistance occurred, saying it may have been the result of a mutation in the virus or overuse of the drugs abroad, such as in countries that permit the drugs to be purchased without a prescription.

One flu expert, Dr. William Schaffner of Vanderbilt University, said the development was “disconcerting” as flu now has joined the ranks of other diseases, such as tuberculosis and HIV, that recently have acquired the ability to resist front-line medications.

Avian Flu: Do You Want To Know Why……

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Do you want to know why the virus has spread so rapidly in Turkey? Do you want to know why a slow mutation process is occuring? Then look no further:

“The daily Vatan reported that former President Suleyman Demirel, who lives in a townhouse in a busy, central Ankara street, had a dozen chickens he kept in his backyard exterminated as a precautionary measure”.

If the holding of chickens is such an extensive custom in Turkey, then the human/poultry front line is enormous. Perhaps this only serves to highlight the erroneous assumptions the New York Times writer mentioned in this post was working on:

“the Ankara cases have the most alarming implications because….. it is a relatively well-off area, where it is not the norm for humans and animals to live under one roof. ”

Obviously not so, Ms Rosenthal, obviously not so.

Not A Happy Week In Iraq

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This seems to be the big-picture story in Iraq:

Sunni Arab politicians, meanwhile, expressed anger over remarks by Iraq’s most powerful Shiite politician suggesting that the new constitution, approved in October, would not be amended….

A key Sunni demand is weaker federalism and a stronger central government. The constitution now gives most power — including control over oil profits — to provincial governments. The Shiites in the south and the Kurds in the north control nearly all of Iraq’s oil.

To win their support, Sunni Arabs were promised they could propose amendments to the constitution in the first four months of the new parliament.

“We, the Iraqi Accordance Front and other lists will not bow to any kind of blackmail from any party and we will stand shoulder-to-shoulder to defend Iraq,” al-Dulaimi told The Associated Press.

Another prominent Sunni Arab politician, Saleh al-Mutlaq of the National Dialogue Front, agreed.

“If they do not accept key amendments to the country’s new constitution, including the regions issue, then let them work alone and divide the country, as for us we do not accept this,” al-Mutlaq told the AP by phone from Amman, Jordan.

The WHO and Avian Flu

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Well the WHO certainly isn’t thinking of taking half measures. The debate is now surely divided between those who say ‘don’t panic’, and those who want to be able to argue ‘don’t say you weren’t warned’.

The World Health Organisation on Thursday predicted governments would need to quarantine about 120,000 people to contain an initial pandemic flu outbreak of just 19 cases……Not only would such aggressive quarantining raise legal and human rights concerns, he said, but knowledge about how to use antiviral drugs as a preventative measure was limited.

Meantime the virus seems to have undergone a small mutation, while the firus itself seems in danger of becoming endemic in Turkey and spreading.

Benjamin Harvey seems to be blogging the situation from inside Turkey, but I can’t find his blog. Anyone got the link?

Is The ECB Measured-Pace Cycle Over?

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Well, not unexpectedly, the ECB decided to leave its main refinancing rate unchanged at 2.25% yesterday. Rather more surprisingly (for some at least) the German Federal Statistical agency reported that German economic growth ground to a halt at the end of 2005.

According to the Financial Times:

Johann Hahlen, president of the federal statistics office, said that growth last year had been based largely on exports, with domestic demand remaining weak. “Broad and self-supporting growth is still not being observed”.

Again according to the FT, Herr Hahlen’s comments “surprised economists, who had expected growth to continue and have become increasingly upbeat about the outlook in 2006”. I’m surpised the FT can be so blazé in saying ‘economists’: they certainly didn’t surprise me. I think it was reasonably clear that this was coming. If I am surprised by anything it is that it has come so quickly.

So where do we go from here? Well Jean-Claude Trichet, the ECB president, has been trotting out the party line to the effect “we have to be vigilant as regards inflation”, but with inflation now falling back (in December the harmonised rate slipped back a fraction to 2.2% from the 2.3% in the year to November) and with virtually no ‘second round oil rise’ effects in evidence this argument is going to sound increasingly hollow. Couple this with the ongoing ‘low- growth’ environment in the Eurozone (we’re still awaiting the sort of news from Italy which will again I imagine surprise ‘economists’) and you can see that there will be few reasons to justify any serious interest rate rises. At the limit we may just see one more quarter point rise squeezed-in before year’s end. Aside from that the ECB tightening cycle is, as I suggest, just about done.

Since it has recently become fashionableto try to predict the future, below the fold are my 2006 forecasts.
Continue reading →

Picking Cherries or Dead As A Duck?

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There are opinions to suit all taste this week. According to EurActiv:

EU leaders have almost all declined a proposal by French President Jacques Chirac to save the EU Constitution by splitting it up into single chapters and integrating those into the existing EU framework.

The EU observer puts it more bluntly – The Hague says constitution is ‘dead’:

The Dutch foreign minister Bernard Bot has said the EU constitution is “dead” for the Netherlands, rejecting EU leaders’ recent pleas for a resuscitation of the charter.

So it seems, at the end of the day, there will be no low-lying fruit, like cherries, just there for the pickin. Time to start building some ladders I think.

The Moldova Issue Rumbles On

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Little known Moldova has been in the news at Afoe recently (here, and here), and today the story continues:

Russia’s use of energy as a political tool was in the spotlight again on Wednesday as the European Union expressed concern about Moscow’s dispute with Moldova over gas prices…….On Wednesday the European Commission urged Russia and Moldova to return totalks over their gas price dispute.

“Like in the case of Ukraine and Russia, we very strongly encourage the sides to sit down again at the table to continue discussions and to reach an agreement,” said Commission official Hilde Hardeman.

Her remarks followed concerns this week from the Austrian presidency of the EU over the continuing interruption in supplies to Moldova, which has left it dependent on gas imports from neighbouring Ukraine. The EU stepped up its involvement in Moscow’s former domain last year when it signed a deal to help oversee a border between Ukraine and Moldova’s break- away region of Transdnestria…

The continuing interruption in supplies to Moldova is likely to add to concern in Brussels and EU member states over Europe’s growing dependence on Russian energy supplies.

The gas issue is far from over, it looks like all roads lead to the March summit, and it also seems that EU political debate is about to get a good shot of political realism:

Energy commissioner Andris Piebalgs said energy supply has begun to play a key role in EU foreign policy in the past nine months, responding to criticisms of inaction from Polish MEP Bronislaw Geremek on Wednesday (11 January).

“Now, in exeternal relations, energy has moved up the agenda”, he said. “We clearly understand that energy is a priority, it’s always been a priority, but now it’s never missing off the agenda.”

Latin America’s First Woman President

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A continent renowned for its supposed machismo seems about to get its first female president, Michelle Bachelet. This in itself is interesting, but equally interesting is the divide that can be seen across the continent between a more or less pragmatic group of politicians – Bachelet herself, Kirchner in Argentina, Lula in Brazil, or, to take a name not widely mentioned, Medellin’s new mayor Sergio Fajardo Valderrama, and the more “mediatic” group – Hugo Chavez, Evo Morales and Commandante Marcos.

“Although originally from the hard-leftwing of Chile’s Socialist party, Ms Bachelet is expected to pursue broadly the same mixed economy policies as President Ricardo Lagos. She would inherit sound public finances and an economy that grew by more than 6 per cent last year. Mr Piñera is also an economic moderate, unlikely to change significantly the direction of Latin America’s most successful economy.”

Of course, my explanation for this very striking differential can be found here.

Guilty Or Not-Guilty?

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There is an interesting debate going on at present about whether or not the ‘rigours of the Stability and Growth Pact’ should apply to the UK which is, let it be remembered, (a) not member of the eurozone and (b) hardly a laggard in implementing the core of the Lisbon Agenda. New Economist is pretty blunt – Brown to EC – Sod Off – but in so doing is only following in the already well-trodden footsteps of the venerable Gordon Brown himself. Any of our readers feel in the mood to take offence?