Are the two crises alike? Consider the similarities. In each, an unexpected event in a forgotten part of the system ends up having global ramifications. The unexpected event occurs in a system that needs constant motion for its effective operation: as long as the securities/passengers can be moved on to the next stage, the system keeps functioning. When one part of it stops working, the rest quickly breaks down. But there’s more.
Author Archives: P O Neill
The cruelty of Polish history
News item – In the village of Gorzno, in northern Poland, the streets were largely empty as people stayed home to watch television.
“It is very symbolic that they were flying to pay homage to so many murdered Poles,” said resident Waleria Gess, 73.
“I worry because so many clever and decent people were killed,” said high school student Pawel Kwas, 17. “I am afraid we may have problems in the future to find equally talented politicians.”
The much over-used word “irony” doesn’t capture the link between a Katyn forest commemoration and the deaths of so many people from today’s government of Poland. God bless Poland.
No borrower solidarity
Greek Prime Minister, George Papandreou, on BBC 1’s The Andrew Marr Show —
ANDREW MARR: It has been reported that you’d appealed to the Chinese and indeed possibly also to the Russians for financial support, that you wanted to sell bonds to those countries.
GEORGE PAPANDREOU: Well actually …
ANDREW MARR: Can you clear that up?
GEORGE PAPANDREOU: Yes. Well actually we haven’t, but we are of course open to diversify our portfolio.
ANDREW MARR: So you wouldn’t rule out Chinese or Russian …
GEORGE PAPANDREOU: I wouldn’t rule out different sovereign funds being interested in our bonds. Also we would like to diversify and will do so if that’s possible.
From the Abu Dhabi newspaper The National, quoting a person familiar with the Dubai World debt restructuring talks —
The Abu Dhabi Government intervened in the Dubai World situation last December with an injection of $10bn of bonds that enabled Nakheel to pay a $4.1bn bill for a sukuk Islamic bond. Some $4.9bn of that total sum has been spent, the person said, with the balance still available for the DFSF. “The $10bn will be enough because it has to be enough,†he said.
“It is akin to Greece. If the EU just bailed out Greece, it would be like throwing good money after bad.â€
Two things to note. The Greek PM did not restrict himself to Russia or China in the specification of possibly interested sovereign funds vis-a-vis Greek government debt. Gulf funds would be an obvious alternative. But The National’s probably well-connected source makes it sound like Abu Dhabi might be viewing Greece and Dubai as similar situations and thus sees its portfolio weight already as high as it wants for such circumstances. And that’s despite their differences. Dubai World is a state-owned but commercial company already in debt restucturing negotiations while Greece clearly has some fiscal restructuring to do, but not debt. But still. If they’re hoping to sell bonds in the Gulf, they may have some marketing to do first.
Is the capital account a Trojan horse?
From the European Commission assessment and recommendations for Greece’s stability and growth plan —
Over the last several years, the external accounts of the Greek economy have deteriorated significantly, with the high and persistent external imbalances mirroring to a large extent, the marked deterioration of the country’s fiscal position. The net international position has markedly worsened since 2004. The negative net international investment position already exceeds 115% of GDP in 2009. Consequently, the government sector is not only absorbing the main part of the available external financing, but also crowding out private-sector access to financing (p19).
That’s one way to look at it. The government has done all the borrowing from abroad in recent years. The other way is to ask: what if that same public borrowing had to be done domestically?  Then you’re into the simple Keynesian mechanics whereby the only way to achieve domestic lending to the government is to compress economic activity so much that the private sector becomes a net saver. Current account correction through expenditure reduction. That’s Ireland. And note: even on the revised figures, Greece will have had an extremely mild recession in 2009 and 2010 by global standards. Yes there are structural problems. This highlights one key thing. The hawks who compare Greece to, say, Ireland, present the matter as coming down to the willingness to take on the public sector. But it’s also about the willingness to pull the rug from under your GDP. You’re only crowding out your private sector when there’s a private sector generating enough activity to be crowded out.
Europe’s friend, George Bush
To anyone who wasn’t immersed in the finer details of the Treaty of Lisbon, January was a confusing month. Lisbon was supposed to put an end to that rotating presidency of the European Union by establishing a permanent Council presidency headed by Herman Van Rompuy and a high representative for foreign policy, in which case Henry Kissinger’s famous question — if I want to phone Europe, who do I call? — seemed to have been reduced to a fairly small number of people.
Can Japan cut public debt before it gets old?
Today’s ratings downgrade by S&P for Japanese public debt has brought further attention to Japan’s huge and growing debt burden. Yet with each round of concern, there’s always a viable response that says “So what, yields are still low.” And it’s true; if you were looking for sustainability concerns to be expressed in the level of yields, it’s hard to find — and those low yields coupled with the yen policy provided the key ingredients of the boom-era carry trade. An interesting working paper from the IMF looks in-depth at the reasons for the chronically low yields on Japanese public debt and comes to 2 conclusions.Â
Is the Eurozone an optimal language area?
Some interesting linguistic thoughts from ECB President Jean-Claude Trichet in an interview with Focus —
FOCUS: Has the fact that you have learnt German helped you?
Trichet: It certainly has. At the ECB, we mostly talk in English. But in the corridors you’re just as likely to hear German, French, Italian or Spanish, and many other languages besides. Having some knowledge of the German language has enabled me to better understand the culture of the country. Oversimplifying, I would say that the French and English languages seem to be very much designed to “communicateâ€. My understanding of the German language is that it is very much designed to “thinkâ€, with its verbs at the end of the sentence. I am not surprised that it is such a good language for philosophy.
FOCUS: Are you trying to say that Germans are not as good at small talk?
Trichet: Not at all! I just want to say that the German language itself is particularly well suited to reflection. In speeches, for example, speakers let the audience think along with them. Only at the end of a sentence is the audience able to understand exactly what is actually meant. This is why it is pretty unacceptable for people in the audience to whisper during a speech.
Among other things, it highlights the huge backdoor influence of the Eurozone’s most significant non-member. Which seems like an advantage for Ireland.
Government by Acronym
Haiti is a country with at least 9 million people and GDP of $7 billion (pre-quake). Think about that size of that latter number in relation to the usual magnitudes that we discuss on this blog. But anyway, given its long-standing economic plight, Haiti also has extensive relations with international financial and development organizations and as part of that relationship, it has a poverty reduction strategy. In February 2009, the government published a progress report on implementation of that strategy. Here’s a paragraph on implementation (para. 37) —
Strategic-level entities: the Strategic Orientation Investment Council (COSI), the Donor Advisory Committee (DAC), and the Priority Arbitration Committee (CAP) are not yet officially up and running. At the operational level, the Interministerial Committee for Implementation Coordination and Monitoring (CICSMO) is up and running and is chaired by the Minister of Planning and External Cooperation. The Executive Secretariat of CICSMO, the key entity for the entire implementation mechanism, the Interministerial Subcommittee for Sectoral Coordination and Monitoring (SCTICSMO), and the Departmental Subcommittees for Implementation Coordination and Monitoring in the regions (SCDCSMOs) have been established. SCTICSMO is holding its ninth monthly coordination and monitoring meeting.
Does this sound like the kind of administrative weight that a country like Haiti could handle? And with the government now essentially destroyed by the earthquake, does it sound like the kind of thing they should rush to re-establish? And yet as the demands come in for a “coordinated” approach to aid delivery, how does one avoid exactly this kind of structure emerging again? There is going to be a clear tradeoff between getting aid delivered quickly and establishing any meaningful role for the government of Haiti in the crisis mitigation and recovery process. Can you build a nation without a government?
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The Theory Strikes Back
In November of last year, an economic research paper appeared on the website of the European Commission’s Economic and Financial Affairs section entitled The euro: It can’t happen, It’s a bad idea, It won’t last. US economists on the EMU, 1989-2002. It’s by Lars Jonung and Eoin Drea. There are 2 ways to read it.
When airport security is part of the problem
A bizarre story from Dublin. Short version: A Slovak agency was running a covert security check at an airport, which is presumably Bratislava. The test involves planting explosive materials in the bags of unsuspecting passengers. 8 packages in total. 7 found. One made it on to a plane to Dublin, and was brought home by the Slovak migrant who now lives there. Apparently this was 3 days ago. It’s not clear whether embarassment or delay in figuring out what had happened got us to today, when Irish police located the explosives and presumably various diplomatic notes are now being exchanged. The timing suggests that the test was run into response to the Detroit bomb. One wonders how much of this stuff goes on — perhaps the “someone must have put it there” excuse needs more credibility.
UPDATE: Initial word was sent by telex to the baggage handlers and not the Dublin airport authority. Who uses telex anymore?