Following the recent confirmation of the key contenders, we now have a date. Italy is to have elections on April 9 next.
Show your love
You will all remember the Satin Pajama awards with great fondness, I trust. Lots of new blogs for everybody, staggeringly opulent prizes for the favoured few, and a juicy whiff of scandal into the bargain — good clean fun for the whole family.
Well, if you like that sort of thing, you’ll want to check out this year’s Koufax awards at the Wampum website. Unlike the Satin Pajamas, the Koufax awards are American, and unabashedly leftist1. But they will introduce you to some terrific writing, and your blogroll will be the better for it.
Here’s the thing, though: in America, bandwidth (like quality health care or influence over Republican politicians) apparently costs money. And because they are feckless socialist layabouts, the Wampumites aren’t showered with bushels of sweet, sweet cash from Richard Mellon Scaife and his like. So if you want to help them spread embittered Marxist-Leninist falsehoods, you should send them some money. PayPal and Amazon make this easy and painless. Or, if you prefer, you can send big chests stuffed with pirate gold to their snail mail address.
Continue reading
Never Change a Winning Team.
Gentle readers, as you may have noticed, following our recent move to a new hosting provider, afoe has been riddled with problems, both on the front and on the back end, making it rather diffictult for us to post, and sometimes for you to read and comment. Should you publish something online yourselves, be warned – if fiddling around with servers and software configurations for hours is not your favorite passtime and changing hosts is not entirely unavoidable, just don’t do it.
We had to, unfortunately, due to a number of considerations. So as much as we would like to concentrate on non-technical issues, a lot of our energy is currently absorbed by bits and bytes flowing in the wrong direction. We are working on the problems, but doing so might include some open heart surgery. So don’t be surprised should some parts of afoe not work as expected. Please bear with us.
Narinci?
Meanwhile on the borderlands, SueAndNotU sends a reminder that Azerbaijan will be holding parliamentary elections on November 6. The country’s current president, Ilham Aliyev, essentially inherited the job from his father, who had also been Azerbaijan’s communist boss before the collapse of the Soviet Union. Add oil, ubiquitous corruption, the loss of nearly a fifth of the country’s land in a dispute over an Armenian-settled area called Nagorno-Karabakh and something like half a million internally displaced persons resulting from this conflict, and you have a situation ripe for popular discontent. Which is indeed what we find.
Continue reading
Behind the Scenes
This is just to let everyone know that we are doing various things behind the Euro curtain right now: fiddling with our MovableType installation, evaluating a new design, and so forth. Most of it takes place in the dead of night, Central European Time. If you’re reading us in the late afternoon or early evening from the US west coast, you might notice, but we hope there are no interruptions.
Also, if you’re getting errors when you view any of our pages, or comments, please let us know in the comments to this entry. Thanks.
This Just Looks Bad
Is the new double-decker Airbus vulnerable to sudden drops in cabin pressure? That’s the kind of problem suspected in this summer’s crash of a Helios Airways plane that killed all 121 people on board.
The former chief engineer for the company that designed the microchips controlling the motors that runs the pressure valves thinks so. The company, TTTech Computertechnik AG, of Vienna, fired him for going public with his concerns. For good measure, it has sued him in both civil and criminal court. Austria has no laws to protect whistleblowers.
Continue reading
Prodi vs Belusconi
It now seems to be more or less official: after Romano Prodi won a convincing 75 percent support among centre-left voters in what were effectively the first American-style primaries in Italian history, and Marco Follini resigned as leader of the Union of Christian Democrats (UDC) after a failed attempt to persuade his coalition colleagues that Berlusconi should not be their candidate for premier, the stage now looks set for a Berlusconi-Prodi showdown in next years Italian elections.
Currency Volatility and Hungary
As I noted last week, Hungary now seems to have lost the ‘anchor’ of a 2010 eurozone entry expectation. (see also this, and this ). As I am also indicating currency markets may well be driven at the moment by a combination of interest rate yield variations and expectations of future movements, and this may lead to increasing volatility.
Now, if we assume that between the relatively calm waters of ‘eurozone closing’ and the choppy waters of swimming alone in the open sea there must be a break point somewhere, it might not be unreasonable to ask whether Hungary may not be presently in danger of crossing that imaginary thin red line? With Hungarian interest rates currently at 6% clearly growth-needs indicate a measured pace of reductions (particularly with core inflation around 1.5%) , but CA deficits and government funding deficits in the 6% to 7% range anything substantial in the way of rate reductions looks problematic. This is why ‘slipping anchor’ on the euro-docking objective could turn out to be especially problematic in Hungary’s case, in particular given the high levels of non-forint-denominated borrowing, and the potential for secondary ‘balance sheet’ effects.
More On Exchange Rates and Policy Rate Differentials
Morgan Stanley’s Stephen Len is obviously on the same page as I am about how the rising interest rate differential between Europe and the US is likely to drive short term currency movements:
Policy rate differentials are especially important now for the currency markets, and it pays to focus on central banks these days.
Reason 1. Global monetary paths are diverging, not converging. Among the major economies, only the US has an output gap small enough to support tightening. I doubt either the ECB or BOE will be in a position to tighten rates this year. Many now understand quantitative easing must be terminated by early next year, but no one has proposed actually raising interest rates from zero. Therefore, monetary paths are diverging, with the rest of the world having trouble keeping up with the Fed. This makes the Fed much more important for the USD than in ‘normal’ times.
Reason 2. Global equity portfolios are likely to be out of balance. Since 2003, there have been massive equity flows into Euroland and Japan. Since much of these flows occurred when the USD was still in structural decline, and some of the outflows reflected fears of a USD crash, it makes sense to suspect hedge ratios are quite low on these equity outflows. With the rise in the FFR and resilient dollar, the cost of running these currency exposures is increasingly unjustifiable. The equity market cap-weighted short-term interest rate differential between the US and the major markets is now around 180 bp, and still rising. If the Fed takes the FFR to 5.0% by end-2006, the differential will reach levels last seen in 2000.
Issing Gives Inflation Warning
More evidence today of how the Central Bankers and their economic advisers are doing their best to sound the inflation alarm. This time it is ECB Chief Economist Otmar Issing:
European Central Bank Chief Economist Otmar Issing said a surge in oil prices may lead to higher-than- expected inflation in 2006, as the bank edges closer to raising interest rates for the first time in five years.
“Rising oil prices are not only affecting current inflation rates but they’re also overshadowing next year,” Issing said in an interview on Oct. 14 at a banking event in Frankfurt. “It can’t be ruled out that risks for price developments will deteriorate that much over the medium term that we might have to expect the annual inflation rate to slightly exceed 2 percent.”
The comments were the second in three days suggesting the bank may raise its inflation estimate of 1.9 percent for 2006. The bank projects the level this year at about 2.2 percent. ECB President Jean-Claude Trichet said at a briefing after the annual meeting of the Group of 20 industrial and developing near Beijing yesterday that he can’t exclude inflation being “over and above” the bank’s 2 percent ceiling.
My view: this very much depends on the evolution of oil prices. There is little evidence of any strong impact on ‘core prices’ at this point, there is plenty of evidence of growth weakness. There is thus little justification from a purely eurozone perspective for any short term increase in interest rates, and certainly no justification whatsoever in the case of Germany.