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".

Hands Off The ECB

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Deep seated as my criticisms are of the dithering and lack of imagination and vision over at the ECB, the situation would not be improved by giving national governments more say. I have only one response then to M de Vil-lepin: hands off.

“Mr de Villepin suggests the 12 finance ministers of the eurozone should open a ?dialogue? with the European Central Bank about how to deal with low growth and high unemployment by defining a common economic government. Although he stresses the eurogroup must respect the ECB’s independence, his remarks are bound to be seen as a further sign of European politicians’ desire to have a greater say over monetary policy.“

Spain’s Florida

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Spain’s governing Socialist party celebrated yesterday the conquest of the northwest region of Galicia (the Gallegos are the third of Spain’s ‘historic nationalities’, together with the Basques and the Catalans). The result follows a cliff-hanger election that ousted the centre-right Popular party and its octogenarian president, Manuel Fraga, from power. This result will undoubtedy give power to the elbow of those who are pushing for fundamental reform in Spain towards a federal system. The FT has the story.

“The contest in Galicia a conservative bastion and the birthplace of Francisco Franco, the Spanish dictator, as well as the present Popular party leader, Mariano Rajoy had all the drama and suspense of the Florida vote recount in the 2000 US presidential elections.“

They Huffed, and They Puffed, and They….

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China’s campaign to buy up ‘known brands’ continues. This time it is the US centenarian bicycle manufacturer Huffy. This bid has an interesting twist: Huffy is in bankruptcy, apparently for problems with a defined benefit pension scheme. IMHO this could be the tip of a looming iceberg. Best known canditates for forthcoming problems here would be Ford and GM. With the pace at which things are moving, you need to ask how long they can hold out?

“Chinese suppliers and an agent of China’s government are poised to take control of Huffy Corp. (HUFCQ.PK: Quote, Profile, Research) , a venerable U.S. brand name, as the bicycle maker restructures under bankruptcy protection, it said on Tuesday.

Huffy, making bikes for Americans for more than a century, said it had agreed to a reorganization plan which would allow it to terminate its staff pension plans. The company would turn responsibility for the benefits over to the Pension Benefit Guaranty Corp., a unit of the federal government that insures pension plans.“

An Interesting Result

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The consumer confidence index calculated by the the Nuremburg based GfK market research group fell this month to 3.5 from a revised 4.3 in May. This suggests that while Germans may vote in large numbers for a change of government, they are extremely guarded about the possibility that this will produce any notable turn-round in the economic situation, at least in the short term. (Also see this from the FT).

“Despite the announcement that the election will be held in the autumn this year, there are no signs yet of the consumer climate trend reversing,” the Nuremburg-based GfK research group said. “Germans are still uncertain about future financial pressures or relief and do not feel confident about making plans for their future.“

Cannons To The Right Of Me, Cannons To The Left Of Me

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Gerhard Schröders electoral troubles only seem to increase. With Merkel’s lead seemingly consolidating rather than reducing, a recent poll now shows the alliance between the former communists in the east and Election Alternative in the west set to win 8% of the vote:

Experts say the new group could attract votes from Social Democrats in the west unhappy with Schroeder’s efforts to trim social programs, and from unemployed people in the economically depressed east fed up with his recent cuts in unemployment benefits.

A poll showed the alliance getting 8 percent ? well over the 5 percent barrier needed for representation in parliament. Schroeder’s party had 27 percent, trailing the conservative Christian Democrats of challenger Angela Merkel at 44 percent.

The poll, for ZDF television by the Mannheim Election Research Group, surveyed 1,175 people June 21-23. The margin of error was plus or minus 2.7 percentage points.

The new group showed its appeal Tuesday when veteran Social Democratic legislator in the state of Baden-Wuerttemburg defected to take up its cause. Ulrich Mauer, the party’s former regional head, said he was joining the left alliance because it was “the only chance” to stop the advance of the center-right.

The Soap Bubble

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Apart from the fact that the alleged origin of the prize exhibit at Art Basle – a bar of soap, displayed on a square of black velvet, purportedly made from Italian Prime Minister Silvio Berlusconi’s fat, which was removed during liposuction – may be in bad taste in terms of historical precedents, something else struck my untypically prudish eye: the yield inversion on contemporary over historic works of art. Sign of the times, Jack, sign of the times.

Prices are soaring for star-quality artists, topping levels charged for the old masters in a market that has an estimated $20 billion annual turnover, making veteran art experts wonder if this feeding frenzy can really last. Cellphones clamped to their ears, clutching lists, buyers clad in high-fashion gear dash from booth to booth. They exchange prices in the clipped shorthand of a seasoned trader. “Six-eight for that? Or two at 20?” said one, pointing from a Donald Judd minimalist sculpture to photographs. Nothing sells here with less than three zeros added to the price. Like Internet stocks, bonds, real estate and commodities before it, contemporary art today is luring the type of glitzy investment where anything that sniffs of a potential blockbuster is flying off the walls.

Ibarretxe Follows Rumsfeld Lead

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Is Basque President (Lehendakari) and Christian Democratic Basque Nationalist Party leader Juan Jose Ibarretxe taking a leaf out of Donald Rumsfeld’s manual? Regular readers will remember that earlier this week, when questioned about possible negotiations with representatives of armed insurgents in Iraq, Rummy said “I would not make a big deal out of it. Meetings go on frequently with people.” Maybe this is what Ibarretxe should reply to his socialist and PP critics. Really though, this is an important issue. I personally think Ibarretxe is doing the right thing, and for the same reason I think it necessary to ‘talk-in’ if possible the Sunni insurgents in Iraq: because the priority is dealing with Zarqawi and his like. It is time the Basque question inside Spain was resolved, and talking, with whoever, is one of the ways to do this.

“To reach a true dialogue, a round table between the parties, it is necessary to live without ETA violence and without urban violence,” moderate nationalist Ibarretxe told parliament as he was sworn in for a third term…..

He proposed including Batasuna, the banned political mouthpiece of ETA, blamed for some 800 deaths in a four-decade campaign for an independent state straddling the Pyrenees to include parts of southwestern France.

However, the Spanish political establishment, led by the ruling Socialists and the conservative opposition Popular Party (PP) rejected the proposal.

Ibarretxe criticised the Socialists, judging it “contradictory that they (the Socialist government in Madrid) talk with them (Basque radicals) in private but on the other hand reproach us for counting on Batasuna’s presence for this round table of discussions”.

S&P Downgrade Portugal Debt

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The credit rating agency Standard and Poors yesterday cut Portugal’s long-term sovereign debt rating from AA to AA-. The downgrade isn’t exactly earthshattering, but it is a sign of the times.

“The downgrade is the result of the reported sharp deterioration in public finances . . . and the depth of fiscal reform required to reverse the deterioration seen in recent years,” said Trevor Cullinan, an S&P credit analyst.

The Euro and Structural Reform

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New Economist has a useful post one the euro and the reform process. He picks up on the point that as much as interest rate cuts, what the eurozone needs are the Lisbon Reforms. He also points to the fact that having cheap money in the southern part of Europe may be impeding and not facilitating reform. What can I say, I agree:

Nonetheless, I hope the ECB eventually do cut rates. Even if the stimulus to growth proves to be modest, it can’t hurt (likewise a weaker Euro). But of course what’s really needed in Europe is structural reform of product and labour markets, greater competition and the extension of the single market to services.

This makes the findings of new research by OECD economists Romain Duval and Jorgen Elmeskov, delievered at a recent ECB conference, all the more disturbing. Their paper, The effects of EMU on structural reforms in labour and product markets (PDF), points to:

…the apparent slowdown in the reform process after the formal advent of the euro and by the limited ability of EMU countries ? with the exception of few small ones and of reforms to retirement schemes ? to carry out needed reforms in areas where political resistance is normally strong.

This is consistent with their finding that:

…the absence of monetary policy autonomy seems to be associated with lower structural reform activity in large, more closed economies.

…Obviously these simple findings should not be exaggerated. However, if additional testing suggests that they are robust it would point to a potentially problematic aspect of EMU. In particular, an effect of EMU in the direction of weakening the incentives for structural reform in the larger member countries would be a cause for concern.