Tag Archives: EU

A Coalition Of The Willing?

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Thursday’s edition of the International Herald Tribune features an interesting article concerning the recent European rows about state interference in favour of so-called national champions.

Quoting Elie Cohen, the Tribune’s authors – Katrin Bennhold and Graham Bowley – suggest that both the French government’s allegedly new/refound role as M&A consultant in the Suez and Gaz de France deal (to avoid a bid from Italy’s ENEL) as well as the Spanish government’s attempt to thwart a takeover of Endesa, a Spanish utilty by E.ON, the German power corporation, are indicative of a resurgence “nation state” as a political concept in the Europe of the 21st century.
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Oh We Are The Champions

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Yes we are really, aren’t we. Especially if we are called Arcelor, or Danone, or Endesa, or Eni, or Enel, or Banca Antonveneta or Pekao. And what these champions have in common, and it is this which sets them so much apart from their footballing equivalents, is not the ability to win anything, but rather their capacity to lose, especially in a take-over battle from a foreign pretender. And just for this very reason it is, it seems, ok for you to include the referee in your line-up. Indeed such is the sporting prowess of these ‘champions’ that it is deemed that what they are most in need of is not the cold harsh wind of competition, but rather protection, and indeed protectionism, anything rather than face outright competition from would-be global rivals. A rare breed of champions these.

I think before I go further, I would like to draw attention to one idea which holds us all together here at Afoe:

“Purity of race does not exist. Europe is a continent of energetic mongrels. – H.A.L. Fisher”
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Viva Ricardo!

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Guy of these pages recently spoke to a “source” who has an interesting counter-take on the Italian economy and the Italian government’s debt problem to that frequently discussed here. Apparently, the feller says, there’s no chance of “an Argentinian-style blowout” because of the low levels of private debt.

The source is essentially arguing that Ricardian equivalence holds for Italy. That is to say, private and public savings ratios match each other-when the government borrows, the private sector saves, and vice versa. Hence the recovery path after a debt crisis would be that firms and households load up on debt to invest and consume, kick starting a Keynesian recovery.

Now, it’s an observable fact that the Italian government is up to its neck in debt and households are hoarding cash, but that doesn’t necessarily mean that Ricardian equivalence holds. Correlation does not imply causation, and Ricardian equivalence itself is anything but uncontroversial. In fact, it’s not so much an economic theory as a point for discussion, despite having been around almost as long as economics itself. There are some cases that support it – Israel in the 1980s being the classic – but a lot that don’t.

Arguments that fit the facts are always preferable to ones that don’t, but yer man is a braver man than me if he is basing his business decisions on this theory. Especially, I’m not at all clear on what the intermediate analysis/microfoundations are meant to be-how do we get from here to there? Presumably the Eurocrisis option would be one – out of the €, deep devaluation, export-led recovery and follow through to the domestic economy. But the pain of such a course would be epic. And it’s still worth pointing out that I still haven’t met a European business person who considers it even within the realm of the non-crazed (perhaps I don’t deal with enough Italians). More seriously, the panic and Weltuntergangsstimmung that would accompany such a course would have dramatically depressing effects on those ol’ animal spirits.

What of a forced Ricardian equivalence, about the only other story I can see that would satisfy our man’s argument? Imagine that the Italian government retires large quantities (perhaps massive quantities in the course of a debt crisis) of bonds from private and institutional investors and refinances them with the banks. Government paper is a reserve asset, and an increase in reserve assets should mean a multiple increase in credit creation to the private sector. One may recall that some monetarist-minded governments have been keen on manipulating the balance between T-bill-like assets held by banks and bonds held by funds and individuals in order to influence the creation of credit, usually in a deflationary direction – so why not in an inflationary direction?

It’s a bit like reversing the economic flux capacitor, and it’s certainly what in computing we would call a horrible, kludgy hack, and the inflationary bit could easily go well out of kilter, and the whole thing would be dependent on a lot of good will from a lot of banks, but it bears a passing resemblance to some proposals of Paul Krugman’s regarding Japan in the late 1990s. Edward Hugh will no doubt call attention to the similarities between the problems.

Does the weirdness of the solutions mark the optimism of the “source’s” argument? Or is it a long shot..but it might just work? A key number will clearly be the percentage of Italian government debt held by banks.

Expansiveness

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I’ve been editing reports on Central and Eastern Europe for a bank that’s well regarded for its links to the region. (Since the reports aren’t in circulation yet, I won’t name it.) Its authors believe that Bulgaria and Romania will join the EU on schedule in 2007. They think that the delivery of Ante Gotovina to The Hague has helped Croatia’s chances, but they see the schedule nontheless slipping from 2009 to 2010, at the earliest.

In the summer of 2004, I laid down my bets here. I had all three joining in time to vote in the European Parliament elections in 2009. I think I’ll stick with that estimate.

Three Points to Remember

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February in Paris, 1983. A group of student leaders are ushered into the presence of President Mitterand by huissiers. They stay slightly more than an hour, discussing Marxism-Leninism, youth, and society with the ever-inconsistent, sometimes brilliant, sometimes crooked, sometimes socialist and sometime fascist president. Years later, one of them, Jean-Claude Cambalebis remembers the three questions Mitterand advised him to deal with if he wanted to “avoid becoming Minister of Public Works”.

They were as follows: the first, he said, was Poland, or more specifically that spiritual power had defeated political power there. The second was the way Britain would never be European and would always prefer to maintain ties with its favoured trading partners in the Commonwealth. For the third, Mitterand produced an electronic listening device (un puce electronique) from his pocket and remarked that such things would “turn the organisation of work upside-down”.

23 years down-range from that meeting with the UNEF executive committee at the Elysée Palace, and ten years on from Mitterand’s death, how do those part-predictions, part-suggestions stack up?

More in the geek hole..
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Picking Cherries or Dead As A Duck?

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There are opinions to suit all taste this week. According to EurActiv:

EU leaders have almost all declined a proposal by French President Jacques Chirac to save the EU Constitution by splitting it up into single chapters and integrating those into the existing EU framework.

The EU observer puts it more bluntly – The Hague says constitution is ‘dead’:

The Dutch foreign minister Bernard Bot has said the EU constitution is “dead” for the Netherlands, rejecting EU leaders’ recent pleas for a resuscitation of the charter.

So it seems, at the end of the day, there will be no low-lying fruit, like cherries, just there for the pickin. Time to start building some ladders I think.

Guilty Or Not-Guilty?

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There is an interesting debate going on at present about whether or not the ‘rigours of the Stability and Growth Pact’ should apply to the UK which is, let it be remembered, (a) not member of the eurozone and (b) hardly a laggard in implementing the core of the Lisbon Agenda. New Economist is pretty blunt – Brown to EC – Sod Off – but in so doing is only following in the already well-trodden footsteps of the venerable Gordon Brown himself. Any of our readers feel in the mood to take offence?

Austria Presses On

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Not content with simply being the ‘Energy Presidency’, Austria it seems is hell bent on also moving forward the Consitution issue, even if this is only in the rather tame form of a Brussels debate among Europe’s leaders on the way forward for the new treaty. Actually rather than a constitution per-se, what we may see is the consolidation of the “Cherry Picking” model:

One option is to “cherry pick” key institutional aspects of the text such as the creation of an EU foreign minister or greater openness at councils of ministers.

Words Said In More Than Jest

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This news is surely not as grave as it seems, but the placing under house arrest of the commander of the Spanish Land Forces is hardly to be taken as a trifle. In a move which is reminiscent of the environment surrounding the military coup of 1981., the decision of Defence Minister José Bono to place Lt. Gen. Jose Mena Aguado under house arrest and relieve him of his duties may seem to be a strong one (Aguado was to have resigned in only a few months), as there is really surely no imminent danger of a military coup. It does however reveal just how sensitive the issue is in a country which has seen both civil war and attempted Coup d’Etat. The military is definitely not a welcome participant in the political process here.

What exactly did Aguado do? Well essentially he chose the opportunity of an occassion which is something like army day’ to cite in a speech a clause in the Spanish constitution that calls on the armed forces to intervene if needed to guarantee the unity, independence and sovereignty of Spain, using the example of the proposed reform to the Catalan Statute of Autonomy as an explicit case in point. He did not specify how he thought the armed forces should intervene.

So the rapid response of Bono is both welcome, and unsurprising, what is more surprising – or given recent events, perhaps it isn’t – is the reaction of the opposition Partido Popular:

Only the right wing Popular Party, the most vociferous opponent of the Catalan charter, pulled back from condemning the officer, saying his comments were the logical result of the uncertainty triggered by the charter debate.

So those who claim to be the staunchest defenders of the Spanish constitution turn out to be the most blasé when someone rattles some sabres which might actually threaten its integrity.

Turkey And Avian Flu

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While a lot of our attention this week is focused on the EU’s energy needs, we shouldn’t neglect this piece of news. Basically I had it right on Monday: unfortunately poor Muhammet Ali Kocyigit did test positive for the H5N1 virus, and the Turkish health minister Recep Akdag was guilty of spreading disinformation earlier in the week when he said that even if the cause of death was unknown, it definitely wasn’t avian flu.

As I also suggest here, Turkey’s progress towards a sophistocated modern democracy will be a long and hard one (that’s why we’ve given them ten years, isn’t it). Equally those of us still able to remember the role of the UK Ministry of Agriculture during the BSE outbreak will be aware that those who live in glass houses shouldn’t throw too many stones.