Gordon Brown does a nice job of grabbing the headlines with Peter Mandelson’s return to the Cabinet as Business Secretary. It’s hard to divine what this means for the European Commission. Catherine Ashton will take his place as Trade Commissioner and there’s nothing in her background that indicates that she’s as ready as Mandy was to push the WTO negotiations to the point of irritating the EU’s agriculture-intensive states. In any event, trade has slipped down the list of headlines with the global financial crisis and Mandy has a well-timed opinion piece in the Guardian that clearly crosses into Charlie McCreevy’s banking regulation turf, so it was likely drafted with one eye already on the next job.  In fact, the kind of protectionism that used to draw concern on trade issues has, at least in an intra-EU context, shifted to finance with banking guarantees and bailouts. As much as anything, Mandelson probably saw better of waiting around another year to push through a trade deal that no one cares about right now. But can he keep out of trouble in the new job?
Russia’s Crisis Spreads Right Across The Domestic Credit Market
Well the action in Russia this week has moved on slightly, and the damage has started to spread from pressure on the domestic stock market (accompanied by capital flight) to the real economy – via a very rapid tightening in credit conditions for Russian domestic users. We are also seeing a rapid slowdown in Russian manufacturing industry as internal demand slows while the inflation-driven decline in cost competitiveness continues to make imported products (where available) an attractive alternative to the home produced variant.
Emerging-market bonds have been generally falling this week as the U.S. Senate’s approval of a $700 billion bank rescue package did little to revive demand for riskier debt, and Russia has, unsurprisingly, been among the worst affected. The extra yield investors demand to own developing-nation bonds rather than U.S. Treasuries rose 8 basis points yestreday to 4.14 percentage points after widening 12 basis points on Wednesday, according to the JPMorgan Chase EMBI+ index. At the same time the MSCI Emerging Markets Index of stocks fell 0.3 percent to 783.79, its lowest point in four days. While such data readouts do not of course exclusively define the outlook for the Russian economy, they do give us a good indication of the context within which economic activity occurs, and they also give us a very clear measure of the current level of global risk sentiment whose influence, as we will see below, lies right at the heart of the immediate shock that is hitting Russian households and businesses. Continue reading
A Moment of Blatant Self-Regard
Five years, one month and one day ago, A Fistful of Euros went live with its first posts.
Thanks to David, for getting the ball rolling and keeping it rolling; thanks to Tobias for keeping the back end running and the front end looking good; thanks to all of the writers; thanks to the commenters, for keeping us on our toes; thanks to the advertisers for keeping this little venture self-financing; thanks to the politicians and other public types for giving us such rich material to work with; and thanks to the readers, hope that you keep coming back for more.
Competitive guarantees
One of the diagnoses of why the Great Depression was so bad is that countries engaged in “competitive devaluation” — weakening their exchange rates to make exports cheaper, but when all try to do this, no one gains, and confidence runs out. One wonders today if Ireland has created a new version of this risk with the dramatic government announcement that it is providing a public guarantee to all liabilities of banks with their HQs in the Republic of Ireland. That means every debt that these banks have to anyone: to their depositors, interbank lenders, and bondholders.Â
Elections in Bavaria: Huh.
Bavaria also had elections this weekend. (I posted about the campaign last week.)
Surprise: the Christian Social Union, which has ruled Bavaria without a break since forever, lost big. For the first time since 1962, they won’t have enough seats in Parliament to rule alone; they’ll have to take on a partner, most likely the FDP.
The big winners were the small parties — the FDP, Free Voters, Left/Linke, and Greens. Die Linke dididn’t quite reach the 5% threshold for getting seats, but they put on an impressive show anyway, jumping from nothing to 4.3%… not bad for a bunch of ex-commies plus Oskar Lafontaine, running in a rich, conservative Catholic state.
So what does it mean? Continue reading
Elections in Belarus: Um…
Belarus also held parliamentary “elections” this weekend.
Going into the elections, supporters of President Lukashenko and his government held all 110 seats in the country’s House of Representatives: there was no parliamentary opposition.
As of 9:00 this morning, it was clear that government supporters had won… all 110 seats in the House of Representatives. There will be, again, no parliamentary opposition. Continue reading
Elections in Austria: Yuck
Short version: for the last two years, Austria has been run by a “grand coalition” government of the two largest parties, the Social Democrats and the center-right People’s Party. Everybody hated this arrangement, though, and it didn’t get much done. So they called new elections, which were held yesterday.
Result: both large parties got hammered badly. The Social Democrats seem to have dropped from about 36% to 30%, and the People’s Party from 35% to 26%. (Ironically, it was the People’s Party that pulled the plug on the coalition last month.) Continue reading
Oddly enough
The same reporter on the Globe & Mail is a fan of Randy McDonald’s blog.
Join!
Canada is interested in a huge bilateral agreement with the European Union, which going by the details given would almost amount to membership in the EEA. Cool.
Ironically, in the years when the British Empire was either trying to recast itself as an EU-like economic union or trying to get into the ECSC/EEC with all its members, Canada was notably the least enthusiastic state – and given that this included South Africa, that was saying something. Had the cards fallen differently, you can almost imagine Canada leading the effort to get the UK to join.l
It wasn’t that long ago that there were people in the Conservative Party who thought the UK should leave the EU and join NAFTA; it’s amazing what a few years’ rampant misgovernment will do. It’s almost a cliche of American discourse that Canada is almost France; you wonder what the Eurosceptics and their creepy ideological friends in the US will think when it happens.
Revisiting regulatory wisdom
When the dust settles on whatever form of banking bailout the US Congress eventually approves, attention will turn to reassessing the philosophy that got the US to this point. But perhaps Europe will have to revisit some conventional wisdom too. Consider the case of Benelux financial services giant Fortis, which if this evening’s reports are to be believed, will soon be getting some kind of bailout of its own, most likely with the Belgian and Dutch central banks taking on some of the bad assets. Fortis has been stuck for cash since it joined a Royal Bank of Scotland consortium bidding for ABN Amro against Barclays — the latter bid being trumped by the higher cash portion in the former. The consortium’s idea was to break up ABN Amro, whereas Barclays was bidding for the group as a whole. The Dutch central bank was uneasy about the breakup idea, but just over 15 months ago, it was seen as the brave new world of cross-border European banking. Now it looks like classic winner’s curse. Barclays lost but since got to pluck the meat from Lehman Brothers. And Europe gets sucked into banking bailouts, big time.