The Forex Lending Crunch Means Trouble Is Looming Large In Poland

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Poland now looks set to become the latest shoe to drop in the ongoing crisis which is steadily extending its reach from one country top another, right across the whole of Central and Eastern Europe – the latest and possibly the last in the sense that if Poland does role belly side up this will probably be the one which finally does turn the apple cart well and truly over.

Italy’s UniCredit, the biggest lender in emerging Europe, said on Wednesday there was a clear risk of the global credit crunch gripping the region and it was up to international banks to help to avert it. UniCredit board member Erich Hampel said in a presentation at the Euromoney conference in Vienna that the bank was committed to fund its subsidiaries in those countries and would continue to lend to consumers and companies. It called on other banks active in the region, the European Union, the International Monetary Fund, other institutions and the countries concerned to launch a joint plan to stem the threat that funds could stop flowing and choke economic growth. “The international financial crisis is questioning future developments and the risk of a credit crunch is clear,” said Hampel, who steers most of UniCredit’s emerging European units as head of its Bank Austria arm. “A number of interested parties are involved and the support to the region should come from all of them together,” Hampel said. “Coordination is essential and a ‘Plan for CEE’ should be designed.”

Eastern Europe is – as Unicredit’s Eric Hempel argues in the extended quote above – quite simply falling headlong into a very severe credit crunch, as funding for bank lending steadily dries up. And, unfortunately, as the evidence mounts that Poland is caught in the teeth of this crunch, its real economy falls deeper and deeper into the dreaded pit with each passing day. FT Alphaville’s Izabella Kaminska has the forex loan story here (see also see here last Friday). Basically all I have to add are some charts (and some real economy analysis) to add a bit more weight to the point and illustrate more explicitly the speed with which things are now moving forward. Continue reading →

A Little Housekeeping

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The administration here isn’t changing, but we are doing a little cleaning up. At the moment, it’s confined to the blogroll. First, I’ll be pruning the blogs that have gone on hiatus. Then, probably some time next week, we will add new ones. We always want to hear about good blogs writing about Europe, but now is a particularly good time to let us know. Comment here, or drop me a note at the address under “Contact” to the right.

Turkey and the EU: not yet a marriage of true minds

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Some of us had an early start to the week in Brussels, with Turkish Prime Minister Recep Tayyip ErdoÄŸan addressing a breakfast meeting of the European Policy Centre in the swanky surroundings of the Conrad Hotel, accompanied both by his new EU chief negotiator, Egemen Bağış, and the outgoing EU negotiator, foreign minister Ali Babacan. It was a significant event, ErdoÄŸan’s first appearance in Brussels since the EU summit of December 2004; he had paved the way with a speech to Turkish immigrants in Hasselt the previous evening, appealing to them to integrate into their new homes, which got rather good coverage in the Belgian press. The audience was generally sympathetic (most Brussels insiders are in favour of Turkish membership of the EU, whatever one may hear from the French and Austrians).

Continue reading →

“They Said This Day Would Never Come”

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“They said our sights were set too high. They said this country was too divided, too disillusioned to ever come together around a common purpose. But on this January night, at this defining moment in history, you have done what the cynics said we couldn’t do. … You have done what America can do in this new year, 2008.” – Barack Obama, January 3, 2008, on winning the Democratic Iowa caucuses

The Long And Difficult Road To Wage Cuts As An Alternative To Devaluation

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Well it’s pretty clear to me at least that there is now one, and only one, major and outsanding topic towering head and shoulders above all those other pressing and important problems those of us following the EU economies currently find lying in our macro-policy in-trays: the issue of wage cuts. Not since the 1930s has the possibility of such a generalised reduction in wages and living standards loomed out there before policymakers, and doubly so if we now hit – as I fear we may well for reasons to be explained at the end of this post – systematic price deflation in a number of core European economies.

The issue that has suddenly and even violently erupted onto the European macro horizon over the last week (as if we didn’t already have sufficient problems to be getting on with) is, quite simply, how, if they either don’t want to, or can’t, devalue, do politicians successfully go about the business of persuading the people who, at the end of the day, vote them into office (or don’t) to swallow a series of large and significant wage cuts? And this is no idle and abstract theoretical problem, since in the space of the last week alone the issue has raised its ugly head in at least four EU member states – Ireland, Greece, Latvia and Hungary.

In the case of the first two of these devaluation simply isn’t an option, since there is no a local currency to devalue, while in the case of the latter two the presence of prior large scale foreign currency borrowing means that authorities are nervous about anything that smacks of devaluation (since the providing banks would take large losses following the inevitable defaults, and the cooperation of these providing banks is necessary in the future if the economies in question are ever to recover). This latter view (no devaluation) prevails even though many economists, (including myself), would argue that is a highly questionable one, since wage deflation on a sufficient scale will ultimately produce those very same defaults (with the added schadenfreude, as Paul Krugman points out, that even those who have borrowed in the domestic currency are also pushed into default). Continue reading →

Spain Sovereign Credit Rating Cut to AA+ From AAA by S&P

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Credit Rating agency Standard & Poor’s announced this morning that it was cutting Spain’s AAA long-term sovereign rating to AA+. The euro fell to a session low of $1.3217 from around $1.3278 after the news was announced, while the yield spread between 10 year Spanish bonds and German Bunds held steady around 114 basis points following the downgrade after rising earlier to a record 122.

Fuller background on all this can be found here.

Lift Every Voice and Sing

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“This Land is Your Land”
Verses four and five, as performed at the pre-inaugural concert:

A great high wall there tried to stop me
A great big sign there said “Private Property”
But on the other side …. it didn’t say nothin!
That side was made for you and me!

Nobody living can ever stop me,
As I go walking that freedom highway;
Nobody living can make me turn back
This land was made for you and me!

Update: HBO has put up a sign on the video saying “Private Property”. Search YouTube for Seeger and Obama; I found half a dozen or more. This song is made for you and me.

What’s wrong with the phrase ‘war on terror’?

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Normblog – ‘the weblog of Norman Geras’ – is often quite good and I read it when I get the chance, but this recent post of his was pretty bad. Norman says that those who, like Shirley Williams, dislike the phrase ‘war on terror’ have “trouble coming up with compelling reasons for their dislike” of that phrase.

Specifically, Norman argues, crime is not exclusively a civil affair: actions against criminals may include actions of war. I think Norman’s making some sort of synecdochal error here. Wars are always fought between political entities and hence in a war there are always multiple actors – both leaders and followers – on both sides. This has major implications for considerations of criminality and legitimacy.

All actors in a war (it’s assumed) are willing to use violence; that is to do, in wartime, things which in peacetime would be considered criminal. This said, some may do things which even in the special circumstances of war will be considered criminal. These are war criminals, and they may well include the leaders of a side. Other war leaders may be considered criminal for things they did before war explicitly began. Perhaps their involvement in starting war is their crime. Nonetheless, when you’re fighting a war leader (criminal or otherwise) you’re very likely not fighting him in person; you’re fighting his army. Your opposition to Tojo, say, may be founded in his criminality but your use of violence is legitimised by the fact that millions on Tojo’s side – some of whom won’t ever be thought criminal – present a threat to you which can only be countered by use of violence. After all, if it were just Tojo, you’d send in the police. The police can’t get to Tojo because of his army? Frustrating, yes, but not in itself justification for violence.

And so – the standard criticism goes – use of the phrase ‘war on terror’ suggests that we are under threat in a way which justifies violence, as in a war. If we disagree that this is so, then naturally we won’t want to hear the phrase ‘war on terror’ used in political discourse by way of presenting options for action. Our situation has been described incorrectly. The ‘war on terror’ is only a metaphor? (I think Norman has been misled by this one, somehow.) Maybe. But then, I can take it, so is the call to send in the air force. Count me with Shirley Williams.