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".

Children Of The World Unite!

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Or should that be children of the world connect (to each other) using your new – Nicholas Negroponte facilitated – 125 dollar laptop. This initiative to bring cheap and abundant computing and connectivity to the world’s children seems absolutely terrific. Obviously, and at one foul swoop, the global playing field is going to become a lot flatter. If all this works, and gains enough traction to become unstoppable even in those countries who will surely resist, then the biggest digital divide of the future will surely be an age-related one.

The laptop can be powered either with an AC adapter or via a wind-up crank, which is stored in the housing of the laptop where the hinge is located. The laptops will have a 10 to 1 crank rate, so that a child will crank the handle for one minute to get 10 minutes of power and use. When closed, the hinge forms a handle and the AC cord can function as a carrying strap, according to Negroponte. The laptops will be ruggedized and probably made of rubber, he said. They will have four USB (Universal Serial Bus) ports, be Wi-Fi- and cell phone enabled and come with 1GB of memory. Each laptop will act as a node in a mesh peer-to-peer ad hoc network, Negroponte said, meaning that if one laptop is directly accessing the Internet, when other machines power on, they can share that single online connection.

The lab will initially target Brazil, China, Egypt, South Africa and Thailand, according to Negroponte, as well as the U.S. state of Massachusetts, which has just committed to equipping every schoolchild with a laptop. Negroponte hopes to start mass production of some 5 million to 15 million laptops for those markets towards the end of 2006. Come December 2007, he estimated production of the laptops at between 100 million and 150 million, three times the number of annual shipments of commercial laptops.

Kurdish TV in Denmark

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One of the many reasons I continue to support the Turkish EU accession process is because I think it will be good for human rights and democracy in Turkey, and good for the Kurds. This latest spat between Turkish prime minister Tayyip Erdogan and his Danish hosts, is simply another good example of this at work. The pressure is constantly on Turkey.

Turkish prime minister Tayyip Erdogan boycotted a joint press conference with the Danish leader in protest at the presence of a Kurdish TV station on Tuesday (15 November), highlighting European values on free speech.

“There is a fundamental difference between Turkey and Denmark in matters of freedom of expression,” the Danish prime minister Anders Fogh Rasmussen said at the press conference his Turkish counterpart avoided.

The Turkish prime minister was visiting the Danish capital Copenhagen as the first stop in a tour around EU capitals to discuss the prospects of Turkey’s EU membership. Mr Erdogan stayed away from the press conference in protest at the presence of a journalist from the Danish-based TV channel Roj TV.

Turkey has repeatedly urged Denmark to close the channel, which sends news, entertainment, debate and children’s’ programs to Kurds in Denmark, arguing it is financed by the Kurdish rebel party, the PKK, which is on the EU’s list of terrorist organisations. Danish police are investigating the station, but have not found evidence of links to forbidden organisations so far.

Source: EU Observer

UK Growth and Inflation News

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The UK economy is still very much hanging in the balance between going up and going down IMHO. The latest BoE growth estimates, coupled with not especially good employment numbers, and indications that inflation may be coming down (and hence interest rates may follow) has caused a noteable pressure on the pound sterling. BoE governor Mervyn King has put it like this: there are “substantial risks” both to the outlook for inflation and growth. The risks are “broadly balanced” so that the eventual outturn is ” just as likely to be stronger or weaker than the forecast”.

Inflation in the UK has fallen for the first time in more than a year, increasing the chance that the next move in interest rates will be down. The annual consumer price index, which is the Bank of England’s target measure, fell from 2.5 per cent in September to a weaker-than-expected 2.3 per cent in October, according to official figures.
Source: Financial Times

Unemployment in the UK continued to rise in October, but there was little evidence of inflationary pressure on pay as the growth in average earnings and bonuses fell slightly, according to official figures published on Wednesday. The claimant count, which measures unemployment as those out of work and claiming benefit, increased by 12,100 to 890,100 in October, the ninth consecutive month it has nudged higher.
Source: Financial Times

Between A Rock And A Hard Place

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US Economist Arnold Harberger once asked what Thailand, the Dominican Republic, Zimbabwe, Greece, and Bolivia had in common that merited their being placed in the same growth regression analysis. I can’t help having the same feeling about Germany, France, Italy and Spain. As I indicated in a post on A Few Euros More yesterday, its sometimes hard to see the common thread.

Be that as it may, this post is only about one of the ‘big four’: Italy. As I say in the Afem post, Italy is bucking the trend. Unfortunately it is bucking it in the wrong direction.
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More Growth In The Eurozone

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I think I’d better rephrase that: more overall growth, but a very mixed bag. In deriving aggregate numbers for the zone, four big economies really matter: Spain, France, Germany and Italy. Now each of these economies actually has different characteristics, so it is not clear what ‘the general picture’ means here.

Spain is the European economy whose current growth characteristic seem to resemble most those of the USA: above average growth (around 3.5% per annum), high dependency on housing and construction for the ‘extra growth’, high and rapidly growing private indebtedness (around 20% y-o-y) and a large current account deficit. Where Spain doesn’t resemble the US is in productivity, which has been more or less negative in recent years.

France is , as I’ve been suggesting, relatively ebullient despite the lack of all those labour reforms, and seems to be ‘on a roll’ at the moment. Driven by internal consumer demand and exports France managed an annualised 2.8% in the third quarter. Ironically, possibly France represents the big-four Eurozone economy with the most sustainable and balanced growth trajectory right now.

The German economy is growing at an unexpectedly high rate, but this extra-spurt is virtually all explained by the rapid increase in exports (helped of course by the fall in the euro).Investment, fuelled by the demand for all those exports, was also up. Meanhwile internal consumer demand is possibly even falling. (Growth in the third quarter was at an annual rate of 2.4% up from an annualised 0.8% in the second quarter).

And Italy, which as I keep mentioning is definitely now the ‘poor sister’ of the eurozone, with an identity crisis about what kind of economy it actually is, and a rapidly ageing population producing huge fiscal pressure. (On this see Morgan Stanley’s Vicenzo Guzzo yesterday). Italian growth actually bucked the trend in the third quarter and was lower than in the second quarter (dropping from a 2.8% annual rate to a 1.2% one).

All of this leaves me with the feeling: ‘Eurozone’ which eurozone?

Are They Really Sure About This?

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According to the EU Observer this morning:

“The new German government plans to use its 2007 presidency of the EU to revive the ratification of the EU constitution, according to a coalition deal struck on Friday (11 November).”

“We pledge to continue the ratification of the European constitutional treaty after the first half of 2006 and to give new impulses to [the ratification] under the German presidency in the first half of 2007,” the deal reads.

I’ll believe it when I see it, but the unreality of all this really dopes make one want to ask questions about the viability of what’s in the rest of the agreement.

Something Is Moving

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The FT reports this morning that France may be about to ease restrictions on certain highly regulated service industries and on business start-ups as part of a package to create jobs in poor suburbs. It is possible that these initiatives might be a test bed for broader economic reform throughout France. French finance minister, Thierry Breton, told the Financial Times:

France had failed its immigrant communities, largely housed in bleak areas of high unemployment where rioters have left one pensioner dead and burned 7,000 cars. “We have put a lot of money into the suburbs over the past 20 years,” Mr Breton said. “But obviously it wasn’t enough. We need to work on how to create more jobs and growth in those areas.”

Among the initiatives being considered is an easing of regulations in the specially designated “zones franches”. Currently companies are encouraged to locate in these areas of high unemployment through a limited range of tax breaks. However, the Finance Ministry is considering a form of “positive economic discrimination” that would exempt companies from certain rules in place elsewhere. These include relaxing professional qualifications on businesses such as hair salons and taxi companies, and increasing the level of state guarantees for business loans.

The French Consumer Is Alive And Well

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Some good news on the economic front to counter all that bad news on the social one. The French economy grew at an annualised rate of 2.8% in the third quarter of 2005 (or by 0.7% over the prebious quarter). Driving this growth: strong spending by French consumers. At this rate the French economy will be growing at a faster rate than the UK one in 2005.

France’s economy expanded at the fastest pace in more than a year in the third quarter, suggesting European growth is accelerating and providing central bankers leeway to raise interest rates. Gross domestic product increased 0.7 percent from the second quarter, when it rose 0.1 percent, the government said today in Paris.

In the euro region, where France accounts for about one- fifth of the economy, growth probably accelerated to about 0.4 percent in the third quarter from 0.3 percent the previous three months, the European Commission said Oct. 13. This quarter, the economy may expand 0.6 percent, it said. French consumers stepped up spending as oil prices retreated from a record and government-subsidized hiring pushed down unemployment from a 5 1/2 year high.

The French Unrest and the Labour Market

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Morgan Stanley’s Eric Chaney has what I consider to be a very sensitive and perceptive analysis of the economic backdrop to the French urban unrest:

Turning to economic causes, many analysts have pointed to mass youth unemployment as the main cause of the political unrest in low-income suburbs. The numbers are striking: the French unemployment rate reached 21.3% in the 15-24 age bracket in 2004, vs. 13.4% for the OECD as a whole. However, the headline unemployment rate is misleading because, at the same time, the participation rate of the 15-24 age group is particularly low in France: 37.5%, vs. 49.9% in the OECD. Practically, this means that 7.8% of the population aged between 15 and 24 is unemployed in France, vs. 6.5% in the OECD. The difference is not that large. What makes France different from other countries is the very low participation rate of young people, not particularly massive unemployment. In other words, the young in France take fewer jobs than their counterparts in other developed countries……”

“That brings us to a more fundamental point: why is it so difficult to create jobs in France? I have discussed this point in a previous note (“Making France Work”, June 21, 2005). In my view, the causes of the job disease fit reasonably well with the “insider-outsider” model developed by labor economists, provided that it is extended to products and services markets. I will elaborate only on labor market issues, starting with the minimum wage, which I believe is the major hurdle to job creation for young and less skilled workers. However, highly regulated product and services markets, which allow various interest groups to keep markets closed to competition and thus reduce employment opportunities, are another important cause of the job disease……….”

“Originally, the minimum wage was introduced as a protection against excessive employers’ bargaining power (“monopsomy” cases). Over the years, it became a protection against competition from cheap labour. Many studies on French data have shown that a rise in the minimum wage is very negative for employment. Although estimates may differ, they converge qualitatively. For instance, Bernard Salanié (Columbia University) and Guy Laroque (CREST) estimated that a 1% rise in the minimum wage could cost 29,000 jobs (“Une décomposition du non-emploi en France”, Economie et Statistique N331, 2000-1). As a consequence, each minimum wage rise, often seen as a “social measure” in French media, would increase the proportion of people living only on social benefits. This point is particularly important for young and low qualified workers, whose parents are often also unqualified: they suffered twice from the generous increases in the minimum wage in terms of fewer job opportunities for them and their parents and, thus, a lower income for their household.

Europe’s Digital Divide

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“A digital divide has appeared among Europeans, with age, income and education determining whether the continent’s citizens use the Internet”, at least this is the conclusion of a new study conducted by Eurostat on behalf of the EU commission.The largest divide by educational level was found in Portugal, and the smallest in Lithuania, only in the Netherlands did more than half of the retired population use the internet. Only in Sweden (70%), Denmark (64%), Finland (54%) and Germany (51%) did more than half of the lower educated use the internet during the first quarter of 2004, while the proportion of the higher educated who used the internet fell below 50% only in Lithuania (38%) and Greece (48%). Now why do I not find all this particularly surprising?

In the EU25, 85% of students (aged 16 or more in school or university) used the internet during the first quarter of 2004, as did 60% of employees, 40% of the unemployed and 13% of the retired, compared to an EU25 average of 47% for individuals aged from 16 to 74. This divide by employment status is also found by educational level: only 25% of those with at most lower secondary education used the internet during the first quarter of 2004, while the proportion rose to 52% for those who had completed secondary education, and 77% for those with a tertiary education.