No Fire Without Smoke

First a bit of ‘breaking news’ for German readers: the main factor which has lead to the massive round of cost cutting and staff reductions in Germany has not been the activity of a small group of hedge funds, the main culprit, let’s get it out of the cupboard, has been the high euro.

Whilst the contents of G7 meetings are never formally disclosed, it has been a more or less open secret that for some time now that the focus of recent meetings has been on how to overcome perceived imbalances in the global economy, and in particular how to force through ‘structural reforms’ in countries like Germany and Japan where such reforms are enormously politically unpopular. So the structural reforms have been pushed via the indirect route: making them virually inevitable due to cost pressures in export dependent economies.
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Just In Time?

Tony Blair inched home to a historic Labour third term in the UK last week. But looking at the changing tempo of the British economy over the last couple of months, you could be tempted to ask: was this a case of ‘just in time’ electioneering?

At the present time there seems to be a general consensus that Blair will back down during this parliament, and that the natural heir apparent is Economics Minister Gordon Brown. However if Blair won the election despite the Iraq war, and thanks mainly to economic prosperity, we could ask ourselves whether changing winds of fortune might not make the heir rather less apparent when the time for handing over actually comes.
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ECB: Plus ?a Change?

The ECB met earlier today to conduct the monthly review of interest rate policy. It came as a surprise to noone that the outcome was to leave everything just as it is. Surprisingly though the decision this month is surrounded by a little more controversy than has been the case of late since Italy’s Berlusconi and economic opinion in Germany have been suggesting that some reduction of rates might be no bad thing, whilst Spain’s economy minister (and former EU commisioner) Pedro Solbes is reported to have been pushing for an increase. Why the difference?
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China’s Currency and Trade

Currency traders around the globe lazily staring into their screens must have found themselves transfixed last Friday when the flatline indicating the value of the Chinese yuan (or renminbi if you prefer) suddenly jumped to life. And so it was that during a brief 20 minute interval the yuan surged to a level of 8.270 to the dollar from the hypnotic and seemingly eternal value of 8.276. Now 6 thousandths of a dollar isn’t really a very big deal, but it is the sheer fact that it happened that is causing all the fuss.
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Germany Leads

Not just in the production of reigning Popes, but also, according to according to a report from the Commission, in subsidies. (As reported in a German newspaper whose website really could be better organized.)

Germany spend ?16.5 billion on subsidies in 2003, the latest year for which statistics are available, nearly one-third of the EU-15 total of ?53 billion. Part of the lead is the natural result of Germany having the largest economy in the EU. The next closest subsidizers are France (?9 billion) and Italy (?7 billion). The EU’s fourth G7 economy, the UK, spent ?4.2 billion, a share of GDP that was less than half the Union average.

As a share of GDP, Finland leads (1.41%), followed by Portugal (1.24%), Germany (0.77%) and Ireland (0.69%).

This was also interesting: “Of the ?9.7 bn of aid (in cases for which the aid amount is known) declared illegal by the Commission and due to be recovered under decisions adopted since 2000, some ?6.7 bn (including interest) had been effectively recovered by the end of 2004. Four Member States (Germany, Spain, Italy and France) account for more than 90% of the pending recovery cases.”

The new members were assessed separately earlier in the year. They were also assessed somewhat differently (transition to a market economy and all that), although interestingly the top two subsidizers in GDP terms were not post-Communist countries but Malta (3.9%) and Cyprus (2.9%).

Germany trails, however, in economic growth. Alas.

Turkey and the EU: Poles apart?

Like most numbers of the Spectator, the festive, XL-sized holiday edition is marred by the presence of Mark Steyn. But don’t let that put you off, there’s some good stuff there as well. And one of the better bits is an essay by Prof. Norman Stone on Turkey (Potential EU Accession of) (reg. req.).

For the most part Stone paints a picture of the old Ottoman Empire as something much less uniformly Islamic than some think. You should already be aware, of course, that what would later (in truncated form) become Turkey was a multicultural, multiethnic, multireligious state, but if you weren’t, Stone gives you a quick background. (By the time it fell apart, the Ottoman Empire had become the ‘Sick Man of Europe’; but for centuries it was a success.) What you might not have known, though, was that the orthodox Christians of the Ottoman realms were only too happy to be part of a nominally Islamic polity. The orthodox patriarchs and the Muslim sultans saw in the latinate West a common foe. Indeed my own suspicion is that the Greeks felt a keener enmity than the Turks. The sultan, understandably, might well have seen the theological differences between orthodoxy and Roman Catholicism as obscure and uninteresting (how many of us in the post-Christian lands of the west are aware of, let alone take much interest in, the distinctions between the theravada and mahayana strains of Buddhism?) To the bishops of the orthodox world, though, the sultan served (whether he cared about this or not) as a bulwark against the centralising domination of their brother-bishop at Rome.

But what set Stone off was a recent article in Die Zeit by Prof. Hans-Ulrich Wehler. The title of Wehler’s article, which formed part of the contra side in a Zeit-sponsored debate on Turkish accession to the EU, has some unfortunate historical echoes: “Das T?rkenproblem“.
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Meanwhile, in Romania

One country over from the Ukraine, Romania is also about to have elections. Election day is tomorrow, Sunday the 28th.

Romania is a sort of borderland right now. It joined NATO last year, and it’s an EU candidate member, with full membership scheduled (at the moment) in 2007. The economy has been growing briskly, and foreign investment is rising rapidly (albeit from a very low base).

But the country is still desperately poor — per capita income, even adjusted for the lower cost of living, is less than a third of the EU average. Corruption is still pervasive. Political life is still dominated by the old Communist nomenklatura.

So whether Romania is doing well or badly is very much a relative question. Compared to, say, Hungary or Poland, they’re very much the poor Eastern cousins. Compared to Ukraine, never mind Belarus or Moldova, though, Romania is an economic and political success story.

And then there are these elections. Let me start with an obvious question: could the Romanian elections be stolen, in the same way that the Ukrainian elections have been? Will the incumbent government allow its candidates to lose?
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What’s It All About Alfie?

Well I suppose it’s better to end the week on a bang rather than a whimper, so here I go with another of those posts. What really ended the week on a high note (or should I say a low one) was the US labour market. And since I am arguing that the euro-dollar parity is being driven at the moment by US labour market data, this news can only mean one thing: more upward pressure on the euro. Which makes me only want to re-iterate, and even more strongly, that an important opportunity was wasted yesterday to take some remedial action by lowering the interest rate. Remedial action which would also have supplied a much needed lifeline to Germany’s beleagured economy. But this, like so many things, was not to be.
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Outsourcing and the Global Optimum

The last week has seen the ‘great US ousourcing debate’ hit both new highs, and new lows. On the plus side would be the declarations of the oft maligned Greg Mankiw to the effect that the “outsourcing” of jobs is beneficial to the United States economy (even with the qualification ‘perhaps’ this has merit – since despite the fact that the suggestion may not be as well-founded as Mankiw imagines, it is at least courageous in a situation where the President he is advising doesn’t appear any too clear on the question himself). Among the more evident examples of the low points would be the statement from the Democratic Presidential aspirant John Kerry to the effect that company leaders who promote business process outsourcing are ‘Benedict Arnold CEO’s’.
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Globalise or Die?

I don’t know if he had Europe specifically in mind, but this is the message from Singapore’s finance minister Lee Kuan Yew in this interview in the latest issue of Yale Global Online. As he puts it:”If you’re not driven by profit, and do what the communists used to, which means price equals cost plus, then your economy will collapse.” Is this message being heard here in the EU? If the comments my posts on Indian outsourcing are anything to go by, it isn’t. And if the results of the survey mentioned in my last post are well founded, the consequences of this neglect may not be long in making themselves felt. To give a measure of where we may be on this one, France currently has China at number 16 on its list of trading partners, behind Peru. Turning your back on global supply chains won’t save your job, it will only completely finish it off.
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