It’s interesting to look back at international financial surveillance in the run-up to the global economic crisis and look at which risks were foreseen and by whom. 2006 is highly relevant, because it was the last full year before the crisis (which blew up in late summer 2007). Below is a couple of paragraphs from the IMF’s surveillance report for the UK in 2006 relating to financial sector supervision. Remember this is the system that was created by, and ultimately overseen by, Gordon Brown.
Even More DTAG Surveillance Scandal
The slow-motion Privacy Chernobyl at Deutsche Telekom goes on. Handelsblatt reports that investigators in the spying scandal there have discovered a document which proves that the company was spying on the members of its management board (Vorstand), as well as the members of the trade-union works council (Betriebsrat) and the supervisory board (Aufsichtsrat), and a whole gaggle of financial analysts and business and tech journalists.
Hilariously, it turns out that one of the targets of the illegal surveillance was none other than the current finance director; the company has been unconvincingly trying to deny that anyone in the current management was involved. Now it looks like they were involved both as participants and as targets. Surveillance cultures get like that. It was bad enough when they were just doing table joins across Lufthansa and Deutsche Bahn records and every expense account in Germany, but what I find specifically offensive about this story is that one of the human sources the snoopers used was…a journalist.
It will come as no surprise that the stool-pigeon was from the Bild Zeitung; I can’t wait to hear what the BildBlog has to say.
A European option in Afghanistan
What to do in Afghanistan? It’s essentially impossible that there will ever be enough international troops available to mount a huge counter-insurgency effort to crush the Taliban; renewed big-scale civil war doesn’t bear thinking about. And at the moment, much of the international effort there is counterproductive and fairly immoral. Don’t ask me; ask hugely influential counter-insurgency expert David Kilcullen, who makes the obvious point that air strikes into the Hindu Kush probably aren’t helping win the support of the people.
Surely, what we need is a solution under which a reasonable Afghan government would be left in place, the intrusion of foreign forces, their road convoys, fortified camps, heavy weapons, and inflationary spending removed, and as many pieces of the diverse coalition of forces that make up the Taliban reconciled? Perhaps there is one; but first, it’s necessary to remove some of our preconceptions. Everyone knows about Afghanistan, right? Soviet invasion, daring resistance, Western secret aid, eventual withdrawal in 1989, mujahedin triumph, and then it all goes horribly wrong.
Well, this is actually quite misleading. The war began before the Soviet intervention, and in a sense even earlier, in the form of the bitter internal troubles inside the Afghan communist movement. More importantly, the mujahedin/future civil warriors/further future Taliban didn’t win in 1989. To considerable surprise, they failed to take even one town from the Afghan government until 1992. Many important mujahedin leaders were willing to be reconciled with the government as long as the Red Army was withdrawn and, of course, the government made it worth their while. The ones who fought on only succeeded because all assistance to the Afghan government was cut off at the end of the Soviet Union – which included things like wheat, diesel fuel, cash, and ammunition.
In fact, the withdrawal was about the best idea the Soviets had in Afghanistan. Having decided to go, they pursued a policy of building up the Afghan government, changing the military strategy to one based on defending the bulk of the population (to stop this happening) and leaving the mountain wilds to the enemy, pouring in aid of all kinds, negotiation with those who were willing, and leaving a strong advisory mission in place. Here is a US Army study of the withdrawal (pdf); I should hope we could avoid providing the Afghan police with their own ballistic missiles. Seriously – the Najibullah government insisted on having its own Scuds, and assigned them to a unit of the secret police. They eventually fired over 300 of the things.
But the principles apply quite well. Turn down the intensity of the war. Don’t state an explicit timetable, to retain bargaining power. Pursue population security. Build up Afghan authorities. Deliver aid and a strong advisory mission. Open all-party talks. And start removing foreign combat forces. Interestingly, polls of Afghan public opinion, for what they are worth, seem to suggest this may be a good idea.
According to the US Army study, the continuing assistance to the Afghan government cost the Soviet Union about $3-4bn annually – obviously those are 1989 dollars, but in the light of the huge cost of maintaining manoeuvre brigades in Afghanistan (twice as much as Iraq), that’s got to be better. The Soviet aid airlift consisted of 15 Il-76 aircraft a day; currently about 15 mixed Il-76 and AN-12 head to Afghanistan from the UAE a day from the private sector. You could call it a civilian surge if you like; you could also call it ending the Afghan war, if you’re a German Christian Democrat. Certainly, you’d have to involve Iran from the word go – after all, they have the only railhead near Afghanistan and plan to build the railway on into the country. It could be the shortest way from Europe.
It’s got to beat more wedding parties, with the twist that the Russians get to play politics with every transit shipment. Speaking of Russians, however, the man we want to hear from is Makhmut Gareev, who led the Soviet advisors after 1989. Call it the European option.
MMM III
This is the 3003rd post at A Fistful of Euros. An odd number for an observance, but things are coming fast and furious these days, and I just missed MMM.
That is all.
Spain Finally, Finally Makes That Recession To Beat All Recessions “Official”
Spain, Europe’s fifth-biggest economy, entered recession in the fourth quarter for the first time in 15 years official data from the National Statistics Office showed this week. Gross domestic product contracted by 1.0 percent during the last three months of 2008 over the level of the previous quarter and was down by 0.7 percent from the fourth quarter 12 months earlier. The statistics office also reported that the economy shrank by a revised 0.3 percent in the third quarter from the previous quarter. Really there is nothing especially new here when compared with the earlier Bank of Spain report.
Some Views
Morgan Stanley forecasts that the “sizeable” infrastructure spending announced by the government will become noticeable only at the end of 2009 with a “muted recovery” likely the following year.
Capital Economics is a bit more pessimistic. It predicts that it might not be until 2011 before the Spanish economy stages any meaningful recovery.
And Edward Hugh (that’s me) predicts that there is no recovery in sight, only a very painful correction in the current account deficit and downsizing on the construction sector as prices fall some 20% or so relative to the eurozone average, so that exports can take over as the growth driver (deleveraging and recovery in household balance sheets to be the tonic regulating internal demand from now to 2015). 2011 will be the hardest year as it becomes increasingly difficult for the government to borrow money externally and the deficit has to be capped, while a second credit crunch will take hold internally, as the walking dead builders and property developers finally find it impossible to keep rolling over their non-performing loans.
And if you think I am being to strong, just remember, apart from pumping in money to keep the property sector alive till 2011, no one (neither the PP nor the PSOE) is planning to embark on anything in the way of deep structural reform to transform the economy if the responses to Bank of Spain Governor Miguel Fernandez Ordoñez’s proposals (earlier this week) are anything to go by. Not even worth talking about, just no, no and no! So I guess we all now know what to expect.
Hungary’s Second Recession In Two Years Worsens
Hungary’s gross domestic product fell by 2.1% year on year in the fourth quarter of 2008 following a 0.7% increase in Q3, according to the first estimate by the Central Statistics Office (KSH). Quarter on quarter GDP fell by 1.0% GDP, even more sharply than the 0.5% (revised) contraction in the third quarter. The Hungarian economy has now registered quarterly contractions four times in the past eight quarters. And the worst is yet to come. According to most economists’ estimates, GDP could contract by anything between 3% and 5% in 2009.
Before the Baltic Tigers
Former PM of Estonia Mart Laar has an interesting opinion piece in the Wall Street Journal today; incidentally his bio notes that besides his stints as PM, he was (is?) an economics advisor to the government of Georgia. Anyway, being an opinion piece, he’s pushing his view that bad government policy decisions have played an underestimated role in the economic crisis, and in an age when we’ve seen private sector leaders shown the door far more quickly than top government officials, he has a point. But his view of what constitutes good government policy seems to be amount to whether or not the country had a flat tax. So for instance, he gives his homeland a relatively good grade for its economic condition, compared to Latvia, but then we get the news from Edward today that Estonia turned in the 2nd worst EU growth performance in Q4 last year.  But glaring in its absence from his list of European liberalisers is Ireland, and there’s a reason for that.
Italy’s Recession Deepens
Italian fourth-quarter gross domestic product declined at the fastest quarterly rate in nearly 30 years, sending Europe’s fourth-largest economy off into an even deeper recession. According to ISTAT preliminary estimates, Italian GDP fell 1.8% between Q3 and Q4 in seasonally and working day adjusted terms. If confirmed, this quarterly decline would be the sharpest recorded since 1980. GDP fell in the previous quarter by 0.6%. Year on year, overall output in the Italian economy dropped by 2.6% in Q4, down from both the 1.7% contraction expected and Q3’s annualized fall of 1.1%.
Across 2008 as a whole, the Italian economy fell 0.9%, ISTAT said, the most pronounced decline recorded since 1993.The Italian economy officially fell into recession in the third quarter of 2008. And one more interesting detail, Italian GDP is now back at the same level it was in Q4 2005, and falling. This is pretty worrying, and even more so given there are quite a lot more people in Italy then there were in 2005.
Estonia’s Economy Contracts At Record Pace At The End Of 2008
Estonia’s economy contracted at the fastest year on year rate in at least 15 years in the fourth quarterof 2008. Commenting on the news the Estonian Finance Ministry restricted himself to the obvious, “the recession may deepen this year”, he said. The economy shrank an annual 9.4 percent, the second-worst performance in the European Union (after Latvia), following a 3.5 percent year on year contraction in the third quarter. The contraction was 4.2% quarter over quarter. That is 16.8% annualised. Absolutely horrible.
“This is the worst economic crisis in Estonia since Estonian independence†in 1991, Lars Christensen and Violeta Klyviene, analysts at Danske Bank A/S said in an e-mail today. “Nobody can now deny that the crisis in the Baltic economies is at least as bad as the Asia crisis of 1997-1998 or the Argentinean crisis of 2001-2002.â€
The Czech Republic Probably Entered Recession At The End Of 2008
Well as forecast on this blog (see also here), the Czech Republic’s economy contracted in the last quarter of 2008. Since the economy is still contracting sharply, we will more than likely now see a second quarter of negative growth, which means the CR is now in recession.
The Czech economy contracted less than expected in the fourth quarter but the outlook for this year remained grim due to collapsing demand in the euro zone slashing Czech exports. The Czech Statistical Bureau said on Friday the central European country’s output dropped by 0.6 percent quarter-on-quarter, adjusted for seasonal and calendar effects, the worst number since 1997. Year-on-year, the economy eked out 1.0 percent growth, much better than 0.2 percent expansion forecast in a Reuters poll of analysts but a drop from 4.2 percent growth in the third quarter. “It doesn’t really change the outlook going forward,” said Raffaella Tenconi, analyst at Wood & Company. “We’re looking at -2.0 percent growth for all of 2009, and if anything, there are downside risks to it,” she said.
