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".

Not Everything It Seems To Be?

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It was the late AJP Taylor who suggested that the efficient (or proximate) cause of the first world war was to be found in the the way the national railway timetables had been drawn up. Without wishing to take issue with Taylor (either for or against), it does occur to me that a certain amount of light may be thrown on the otherwise puzzling decision of Gazprom to throw the tap by taking a quick look through looking the election timetables of all the key players (in both Eastern and Western Europe). I was put in mind of this point by the following opening gambit in what is in fact a very interesting and to the point article in today’s FT:

“Russia’s row with Ukraine has triggered fresh concern over the security of Europe’s energy supplies and some see nuclear power as the biggest beneficiary.”

Nuclear power, hmmmm. I hadn’t thought enough about this point when I knee-jerked my response yesterday.
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Human Victim Of Bird Flu In Turkey?

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Well, as we say in Spain: one hot one and one cold one. Last Friday I posted about how Turkey may well be making progress in modernising its legal system thanks to EU pressure. Today the worry is that the information system in Turkey may well still be extremely deficient. This is highlighted by the death of Muhammet Ali Kocyigit and the fact that three more of his siblings were admitted to hospital with symptoms which sound suspiciously similar to flu.

News.com.au suggests that Muhammet died of flu, but the Turkish Health Ministry is at pains to assert that even if the cause of death is to date unknown, it wasn’t avian flu. Let’s just hope they’re levelling with us!

Running On Half Gas

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The big news today I suppose is that Ukraine has just received a mid-winter present: someone turned off the gas. The issue here seems to be not the what but the how. Ukraine has been receiving gas at incredibly subsidised rates from Russia, and there is no good reason why this should continue indefinitely. But for those of us who are worried that Russia – as a wanabee rogue state – could present possibly the most important future threat to EU stability, the way this has been done is surely far from re-assuring.
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Sparkling Spain

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Spain’s economy is of course booming, (as it has been for the last ten years). The inflation rate is booming too. Some even go so far as to suggest that Spain should now become a member fo the G8. Spanish people are of course buying a lot more houses, indeed more housing units were built in Spain last year than in Germany, France and Italy combined, and since, as Brad Delong pointed out yesterday, as long as interest rates stay low, the housing sector can keep booming, and since in the short term interest rates in Spain will stay low, then the boom looks set to continue. Plenty of reasons then, at least for now, to break open the bubbly.

Which is what, of course, a lot of people having been doing. In Spain by bubbly people normally mean Cava, a Catalan beveridge which is really remarkably similar to French Champagne. This year, however, things may be a little different, at least in some parts of Spain, since in addition to having a smokeless celebration, many will also be having a cava-free one.

So what is this all about? Well funnily enough rather than being about Eve (whether New Year’s or Xmas), this topic is in fact much more about José Luis Rodriguez Zapatero (the Spanish Prime Minister/President).
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Something Seems To Be Working

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According to the Turkish news agency Hürriet Turkish Deputy prime Minister and Foreign Minister Abdullah Gul spoke last night to the NTV news channel regarding:

“the recent wave of legal battles being held against Turkish intellectuals and a senior member of the European Parliament. Gul criticized the actions that were being taken under the controversial article of the country’s new penal code and said, “There seems to be a chain of systematic complaints. There appears to be a mentality deliberately aiming to create chaos.”

The FT quotes Mr Gul as saying:

“There may need to be a new law. As a government we’re watching closely how the existing laws are being implemented.”

The law in question is the one which makes it an offence to insult “Turkishness”. This law has been highlighted recently by the Orhan Pamuk case and now by the strange threat to prosecute Joost Lagendijk, a Dutch member of the European parliament, for suggesting the Turkish army provoked Kurdish rebels in the hope of extending its influence. Interestingly enough Joost Lagendijk supports Turkish membership of the EU. State prosecutors are reportedly studying the complaint against Lagendjik.

Now I have to say that not of this surprises me. Turkey is a society in transition. Fortunately the transition is from a bad equilibrium to a batter one, and we in the EU are doing our bit. I feel that Gul’s statement confounds the fears of the sceptics. In this case EU pressure will be rigourous, and change will be far reaching, but the process will, obviously, have its ups and downs.

So I was really surprised to read in the FT:

“Turkey knows that gaining entry to the EU will become an increasingly arduous task in the coming years, because of widespread antipathy inside the 25-member club towards future enlargement. “

No! Turkey gaining entry to the EU will be an arduous task because it is good for Turkey and good for the EU that it be so. If some people are using their ‘enlargement fatigue’ as an excuse for trying to make things more difficult, then they are the ones who will end up even more fatigued (and frustrated) as time after time Turkey complies with their demands.

This could be another example of shooting-yourself-in the-footism as in complying with the demands Turkey will become an increasingly modern and economically competitive society, which means, of course, that when it does join in 2014 it will, as the largest member state, have even more influence :).

Not So Fast!

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It is surely welcome news to find the German citizenry content with Angela Merkel, and that this new found contentment is feeding into more positive views about immediate economic prospects. But oughtn’t we to remember that there is a thing called the first hundred days, and a phenomenon known as the ‘honeymoon period’.

There is also – thank you Nietzsche – something called the ‘will to believe’.

I therefore think, along the lines of ‘one swallow doesn’t make a summer’ that it is a bit too early to be saying that the latest bounce in consumer confidence:

“is the latest indication that a broad-based recovery in Europe’s largest economy could finally be around the corner”.

I think we should wait for a broad-based and sustained recovery in confidence first. What we have is another indication that people are feeling rather better, and that is always good news. But lets just see how they feel when the first ‘reform’ package is unveiled, shall we.

The good news, however, was eclipsed by warnings from economists and politicians that Germany’s new government should not let rising opinion polls and improving economic prospects get in the way of much needed labour market and social security reforms.

“There is a lot more to be done,” Horst Köhler, Germany’s president, told the Stern weekly in an interview published on Wednesday. “I remain convinced the republic is facing a formidable task that will require decisive action and an enormous amount of staying power.”

Getting Older, Or Getting Younger?

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Warren Sanderson & Sergei Scherbov had a very interesting article in Nature earlier this year (you can find the full article reproduced here on page 5). The article title really tells the story in itself: average remaining lifetimes can increase as human populations age. Put differently, we may be facing the interesting enigma that the longer we live, the longer we have left to live.

But, riddles aside, what Sanderson and Scherbov actually propose is a new metric: the median age of the population standardized for expected remaining years of life. Now why would that be interesting?
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This Sounds A Bit Pie In The Sky

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I have just read this (don’t miss the photo):

Constitution, enlargement and budget: Austria hopes to revive Europe with these themes and infuse it with “energy and confidence” when it takes over the rotating presidency of the European Union on January 1

Am I reading this aright, he says, scratching the dust from his sleep-ridden eyes. Aren’t the constitution, enlargement and the budget three themes which are absolutely guaranteed not to inspire enthusiasm just at the moment (unfortunately)?

As usual the FT takes me back to the hard world of reality:

Austria intends to make the fight against fraud in value added tax a cornerstone of its European Union presidency, in an effort to end billions of euros of losses in annual revenues at a time of stretched national budgets.

Ah, yes, this sounds much more like it.

When The Curves Invert

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Two bits of news this week appear to be unrelated. The interesting question is whether appearances are once more deceptive.

Firstly the US Treasury note situation:

At 6:23 am ET. the 10-year note yielded 4.393 percent while the two-year note yielded 4.396 percent.

Or as the FT puts it:

Yields on 10-year US Treasuries briefly fell below those on two-year notes on Tuesday for the first time in five years – a rare event that in the past has often heralded a recession.

Now there is – more or less – a consensus of opinion that this is not a harbinger of imminent recession this time round. So what then does it mean? Aha, would that we knew! There has however been another curve inversion was officially announced during the last week. According to this AFP report:

“

Japan’s population fell for the first time in 2005, the government said, calling it a “turning point” that will force the world’s second largest economy to adapt to a rapidly aging society….Deaths are likely to outnumber births by about 10,000 this year, the first decline since 1899 when Japan began compiling the data, health ministry figures showed

.”

The data suggest that Japan’s population may actually have been falling since October 2004.So where might the connection be? Well, back in April the soon-to-be Fed Chairman Ben Bernanke made his now notorious Global Savings Glut speech. In that speech he said the following:

one well-understood source of the saving glut is the strong saving motive of rich countries with aging populations, which must make provision for an impending sharp increase in the number of retirees relative to the number of workers. With slowly growing or declining workforces, as well as high capital-labor ratios, many advanced economies outside the United States also face an apparent dearth of domestic investment opportunities. As a consequence of high desired saving and the low prospective returns to domestic investment, the mature industrial economies as a group seek to run current account surpluses and thus to lend abroad

So he was arguing that ageing populations tend to increase the savings motive and produce an investment dearth. This flow of savings looking for investment tends to nudge down global interest rates. Perhaps the best discussion I have seen anywhere of the inversion phenomenon is this one from the Morgan Stanley GEF team. Clearly this is a complex problem, and they themselves have no consensus, but I did note this point from the Japan-based Robert Feldman:

“

In how many of the eight inversions over the last 40 years were international markets as closely intertwined as they are today? My point is that, as long as Bank of Japan still has huge quantitative easing in place and the yen carry trade is alive and well, part of the yield curve flattening in the US will be due to international factors and doesn’t necessarily signal a recession

.”

Here there are two points, the increasing efficiency and integration of global capital markets, and the special situation in countries like Japan. So to return to where I started, are the two inversions related. My answer would be a qualified yes. There is some relation. The hard part is to determine the nature and extent of the relation.

Nadolig Llawen

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Nadolig Llawen a Blwyddyn Newydd Dda o Barcelona

Which is Welsh (the language of my childhood) for Merry Xmas and a Happy New Year from sunny Barcelona. Well, I just added the sunny part, since the sun is, right now, also rising.

Since I am not religious, and I am not really a dedicated fan of e-commerce, xmas – as I live it – is maybe a time for thinking about roots and origins.

The New Year, however, is a time for looking towards the future. May 2006 be just as interesting as 2005 has been. For all of you. We couldn’t ask for more.

Enjoy yourselves everyone!