The Head Heeb: A murder in Cote d’Ivoire
“While unsuccessful attempts continue to break Cote d’Ivoire’s political deadlock, the latest scandal to arise concerns the murder of a local gang leader by French peacekeepers”
Jonathan’s conclusion:
“Absent a political solution in Cote d’Ivoire, however, it is unlikely that this will be the last or only such case. The French are being dragged, unwillingly but inexorably, toward the point where peacekeeping becomes occupation.”
Saturday over at European Tribune says:
In the past few days, everyone talked about Franz Müntefering’s resignation as SPD chairman. I did, too. That is why I nearly missed one of the most important news in German politics for months (or maybe even years):
SPD and CDU/CSU have agreed on the most contentious points of federal reform. Federal reform will be the first big reform project of the coming grand coalition.
Can an Iron Fist Put Power in Bosnia’s Hands? – New York Times
“There is a growing consensus that Paddy Ashdown, Bosnia’s high representative, may be doing as much harm as good by holding back the development of democracy.”
This line of criticism has been put forward by some at least since Bildt was succeeded by the spaniard in 97, but naturally become more widespread and vocal over time. It hitting the NYT online frontpage may be a sign of some kind of turning point.
As for the the substance, the criticism souds sensible, but I don’t have any strong opinion. Curious what the Dougs and Brussels Gonzo think.
Review-essay in Haaretz on Raymond Aron and the war in Algeria. Very interesting. Via the Heab Heeb
Slate’s Steven A. Cook arguesTurkish military are still plenty powerful.
Their wings have been clipped, but they’re still the big winners in the EU membership process.
The Portuguese government has announced plans to reduce its fiscal deficit. The aim is to cut the deficit from an expected 6.2 % of GDP this year to below 3% – the theoretical maximum ceiling permitted under the EU’s growth and stability pact – by 2008. Most of the savings will come by addressing the cost of public sector workers – of whom there are some 700,000 in Portugal (total population a little over 10 million). Promotions are to be frozen, salaries pegged to a 2% rise, and retirement ages raised from 60 to 65. All this is provoking a storm of threatened protests, so I guess the proof of the pudding will be in the eating.
Following the recent confirmation of the key contenders, we now have a date. Italy is to have elections on April 9 next.
It now seems to be more or less official: after Romano Prodi won a convincing 75 percent support among centre-left voters in what were effectively the first American-style primaries in Italian history, and Marco Follini resigned as leader of the Union of Christian Democrats (UDC) after a failed attempt to persuade his coalition colleagues that Berlusconi should not be their candidate for premier, the stage now looks set for a Berlusconi-Prodi showdown in next years Italian elections.
As I noted last week, Hungary now seems to have lost the ‘anchor’ of a 2010 eurozone entry expectation. (see also this, and this ). As I am also indicating currency markets may well be driven at the moment by a combination of interest rate yield variations and expectations of future movements, and this may lead to increasing volatility.
Now, if we assume that between the relatively calm waters of ‘eurozone closing’ and the choppy waters of swimming alone in the open sea there must be a break point somewhere, it might not be unreasonable to ask whether Hungary may not be presently in danger of crossing that imaginary thin red line? With Hungarian interest rates currently at 6% clearly growth-needs indicate a measured pace of reductions (particularly with core inflation around 1.5%) , but CA deficits and government funding deficits in the 6% to 7% range anything substantial in the way of rate reductions looks problematic. This is why ‘slipping anchor’ on the euro-docking objective could turn out to be especially problematic in Hungary’s case, in particular given the high levels of non-forint-denominated borrowing, and the potential for secondary ‘balance sheet’ effects.
Morgan Stanley’s Stephen Len is obviously on the same page as I am about how the rising interest rate differential between Europe and the US is likely to drive short term currency movements:
Policy rate differentials are especially important now for the currency markets, and it pays to focus on central banks these days.
Reason 1. Global monetary paths are diverging, not converging. Among the major economies, only the US has an output gap small enough to support tightening. I doubt either the ECB or BOE will be in a position to tighten rates this year. Many now understand quantitative easing must be terminated by early next year, but no one has proposed actually raising interest rates from zero. Therefore, monetary paths are diverging, with the rest of the world having trouble keeping up with the Fed. This makes the Fed much more important for the USD than in ‘normal’ times.
Reason 2. Global equity portfolios are likely to be out of balance. Since 2003, there have been massive equity flows into Euroland and Japan. Since much of these flows occurred when the USD was still in structural decline, and some of the outflows reflected fears of a USD crash, it makes sense to suspect hedge ratios are quite low on these equity outflows. With the rise in the FFR and resilient dollar, the cost of running these currency exposures is increasingly unjustifiable. The equity market cap-weighted short-term interest rate differential between the US and the major markets is now around 180 bp, and still rising. If the Fed takes the FFR to 5.0% by end-2006, the differential will reach levels last seen in 2000.