Communication at the ECB – All at Sea?

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I suppose it is no secret to regular readers of this blog that I have, at times, has been rather critical of the way they tend to do things over at the ECB. The logic behind my cricicisms has not so much been to do with their de-facto inability to stop what is happening from happening (this is after all a global crisis), but rather the seeming complacency with which ECB policy makers (with notable exceptions) have tended to view the present crisis.

However, following the remarks made in the press conference which followed the most recent rate setting meeting one is obviously tempted to conclude that the ECB as an institution is now seriously committed to considering alternative monetary tools and, indeed, adopt more drastic measures along the lines of its peers at the Fed, the BOE and the BOJ who have all in their own way been engaged in some form or other of Quantitative Easing for quite some time now. In its most recent print edition, the Economist provides us with a fine overview of global central banking in the midst of the current financial crisis; what has changed, whether there will be a “normal” again, and specifically whether central banks will emerge in new clothing, as it were, with new policy targets and objectives. Continue reading →

The Global Manufacturing Contraction Stabilises In April

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The global manufacturing recession continued in April, with rates of contraction for output, new orders and employment all showing what are effectively sharp contractions by historical standards. The rates of contraction however moderated almost universally, and this is now the fourth month where this moderation has been evident. Thus, while the contraction is far from over, it is reasonable to say the it has stabilised, and the big issue is at what rate it will hold in the months to come. The initial shock has now been absorbed, but that is a far cry from saying that we already have the worst behind us. The general deterioration in employment conditions raises the concern that as the impact of the government stimulus “shocks” in their turn wane, and as national banking systems come under the impact of the additional loan defaults the growing unemployment and falling property values will cause, then we may see a series of second round effects, not as severe as the initial “hit” last October, but certainly not to something to be taken lightly or “factored out of the picture” at this point. Continue reading →

Not opening the door just yet

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The latest awkward note in the Czech EU presidency is a statement immediately before Mayday making clear the displeasure of the Czech Republic and the other eastern European entrants from the 2004 accession cohort that Germany and Austria will maintain their transition restrictions on free movement of labor from these countries until 2011.  As the statement explains, Germany and Austria are the last two “western” countries to maintain the restrictions, and one suspects that the global recession played a significant role in their thinking.  One thing this highlights is the weakness of the G20 process.  G20 leaders worked themselves into righteous indignation a few weeks ago about the evils of “protectionism” — with protectionism carefully defined as additional restrictions on trade in goods and services and made to sound like something like all decent people must be against.  And definitely something easy to be against for people steeped in economic orthodoxy, as the people drafting these summit statements are.   But allow policymakers to conjure up an image of huge westward flows of unemployed labor as the crisis deepens, and a different protectionism instinct kicks in.   It’s not even clear how big the prospective flows would be.  Many of those most likely to leave Poland or the Baltics in search of work had gone elsewhere already.

This Little Piggie Went to Market

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The EU Health Commissioner recommends avoiding non-essential travel to Mexico, and the first case of this variant of swine flu in Europe has been reported in Spain. The WHO has already got its Emergency Committee working; they had their first meeting on Saturday. And the Organization’s web site has an admirably complete set of links – background info, audio of the press briefing and conference, and their long-standing guidance on pandemic preparedness and response. There’s good background at the Flu Wiki.

There’s good news and bad news in this older AFOE post that talks about H5N1 and reviews an excellent book on the Spanish influenza of 1918. The short version: the social conditions that contributed to the death toll of 1918 are not present today; monitoring and international cooperation are much, much better. On the other hand, high mortality among younger adults (rather than among infants and the elderly) is a potential common element of the Spanish flu and this year’s swine flu.

Looks like we’re about to find out how much all the awareness raising and contingency planning that was done for H5N1 was worth.

Bad Russian Radar

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An unexpected consequence of the North Korean attempted satellite launch was that it has demonstrated that Russian early-warning radar coverage is poor. Specifically, the Russians didn’t detect the North Korean launch at all; they picked up the object during its suborbital flight, but not during its ascent. This is worrying, because it suggests two things – first of all, that the Russians would only get warning of a missile launched from that direction when it was already about to re-enter the atmosphere, giving them very little time to analyse the situation, and secondly, that the US Groundbased Midcourse Defense interceptors based on the Pacific coast could, if launched to intercept a North Korean missile, appear on the Russian radars flying up over the edge of the Earth, as if they were incoming North Korean, Chinese, or US submarine-launched missiles.

This obviously involves some pretty awful risks, and it is another good reason to be sceptical of GMD; in a real crisis, would it actually be wise to fire it? If not, of course, it’s useless and the potential enemy can be expected to take account of that. Worse, however, is that the Russians are bound to consider a radar contact from that direction more threatening than one from over the Pole, from the West, or from the South, directions in which they have much better coverage. Therefore, the very fact of the weakness is destabilising; it increases the perceived importance of quick reaction, and therefore the coupling between Russian and other missile/radar complexes. With the increasing numbers of ballistic missiles in Asia – Indian as well as Chinese, North Korean, or submarine-based – this is not good news.

It’s been suggested that one solution would be a Joint Data Exchange Centre, a headquarters in Moscow in which US and Russian staff would swap information from their warning systems. This has a serious problem; if one party is willing to launch a first nuclear strike, they are surely also willing to feed fake data to the JDEC and to accept the imminent death of their representatives there. Unfortunately, it is unlikely to be credible. Hence another plan, RAMOS (Russian-American Missile Observation Satellite). This foresaw that the US would finance and help build a constellation of satellites similar to its own Defense Support Program birds, which detect rocket launches worldwide using infrared cameras, which would broadcast their data in the clear so that both powers (and anyone else) could receive it and use it independently. Both parties would participate in their development, and would be able to do anything they liked to verify the satellite before launching it on one of their own rockets. (Perhaps now we could publish the design under the GPL.)

This Clinton administration idea, however, failed to get funding back in 1999 and was promptly canned by the Bush administration as far too sane. Perhaps it could be resurrected. Or alternatively, whatever the Americans think, why shouldn’t the European Union do it? The radar position is not as bad in our direction, but the Russians have their own missile-defence interceptors that do fly out our way, and there was that horrible business with the Norwegian research rocket. We have a serious space industry, and the French would be wholly delighted; they consider space power to be a major national priority anyway. It’s better than relying on another Stanislas Petrov.

That man again

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In a long line of EU summits with global counterparts, there is an EU-Japan summit on 4 May.  As is customary, the European Council is represented by the presidency country which of course is the Czech Republic.  And as is customary, the PM would lead the Presidency delegation.  Except of course that the Czech Republic only has a caretaker interim prime minister (before an interim PM who will be economist and statistics office chief Jan Fischer takes office).  So Czech President Vaclav Klaus has exercised his prerogative and will represent the Council himself.   For a man who we’re constantly assured has no real power, he gets around.  Klaus has been revelling in the circumstances, pushing the “global cooling” meme and extracting every last drop of suspense from the still unratified Lisbon treaty.   One irony is that the meeting with Japan will occur in the context of a Kyoto Treaty — the bete noire of the global coolists — windfall for the Czech Rep., as it sells hundreds of millions of euro of carbon credits to Japan.  Nice to have during a global financial crisis.

New Road in the Caucasus

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Armenia and Turkey have agreed on “a comprehensive framework for normalisation of their bilateral relations,” according to a joint communique from the two governments. “Within this framework, a roadmap has been determined,” they said. Details and initial reactions here, here, here and here.

The timing is significant, as April 24 is the traditional date for commemorating the mass killings of Armenians in the Ottoman Empire during World War I. Coming on the eve of the most sensitive date in the two countries’ relations, the announcement is surely meant to signal that normal relations, probably including an opening of the border, are very close. The governments have been in high-level talks since last year, and a very interesting sign of progress was noted at AFOE last month.

Quick two cents’ worth: Normalization is clearly a big win for Armenia. Open borders to the west would substantially improve its links with the world, while also making it less dependent on Russia as its main great-power ally. Also a win at the margins for Georgia, as a larger regional role for Turkey means a relatively lesser role for Russia. Normal Turkish-Armenian relations also means clearer paths for European institutions, if only because it means one obstacle less. For Turkey, this will help to lessen an irritant in its relations with the rest of Europe. If the current Turkish position on the massacres (whatever that turns out to be when relations are resumed) is good enough for Armenia, Turkish emissaries will surely contend, it ought to be good enough for France and the rest of the EU.

There’s also an element of domestic Turkish politics. I am on rather shakier ground here, but I think that the most rigid Kemalists have also been the ones most supportive of Azerbaijan’s position over Nagorno Karabakh. By marginalizing that view through better ties with Armenia, the current government is also putting its domestic opponents in their place. Further, the AK is stronger than the opposition in the parts of eastern Turkey that stand to gain from increased trade within the region; opening the border will also help the government’s friends who hold local power. Azerbaijan come out the main loser here. Turkish support of Azeri views on Karabakh has been a major element of the country’s foreign policy. But sixteen years of solidarity changed the situation in Karabakh, and clearly enough people in Ankara felt that the blockade had passed its sell-by date to risk Baku’s irritation.

Down the Republic

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Paul Krugman turns his attention to Ireland in Monday’s NYT column.  Of course we’re flattered by the attention.  But there’s an important point.  The casual reader of the column could come away with the following narrative about the Irish crisis: lightly regulated banks made bad property loans.  The government was mostly an innocent bystander, except for the tax revenue that came in from the property boom.  Now the boom is a bust and those meanies in the ratings agencies are making the government pursue contractionary economic policies to maintain Ireland’s creditworthiness.  And the USA could be like this in a few years.   It’s a tempting story but one which omits a critical ingredient: crony capitalism, Irish style.

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VIPs have data too

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For years there have been concerns about the voracious appetite for personal data on citizens created by governments and the private sector, and facilitated by technology.  If one thing might be changing, it’s a series of incidents where politicians get to experience for themselves what happens when personal data works its way into the public domain.  Does UK Home Secretary Jacqui Smith have an increased awareness of privacy issues with her husband’s PPV purchases being tabloid fodder?  And now the jinxed Czech Presidency of the European Union council uses a Saturday press release to confirm a story from Finland that passport and schedule details for the EU delegations at the EU-US summit were left on a computer at a Prague hotel.   The press release implies that a person deemed to be responsible has been disciplined in some way, but this just shows that for all the talk about safeguards and firewalls, this type of data is ultimately handled by fallible people, even if well-intentioned.   Hopefully, incidents like this move data privacy issues higher on the political agenda.

The ECB schism

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You might think that enough has already been written about dealing with deflation and unconventional monetary policy tools.  But apparently not enough to settle the question of whether the European Central Bank should in fact further cut interest rates and shift to quantitative easing i.e. outright purchases of debt.  This Bloomberg story puts names on who is arguing for what, with an extended Hellenic phalanx (George Provopoulos, Athanasios Orphanides and Lucas Papademos) pushing for quantitative easing but the Bundesbank’s Axel Weber arguing that the ECB is already near its limits on any type of loosening.

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