To QE3 Or Not To QE3, That Is The Question

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Back in July 2010, in introducing a blog post with the title “Is There Global Economic Slowdown In The Works?” I couldn’t help posing the following question:

“According to Ralph Atkins writing in the Financial Times last week, “the pace of Germany’s recovery is helping dispel fears of a “double dip” recession across the continent as a result of the crisis over public finances in southern European countries”. Coincidentally, however, on the very same day, Alan Beattie writing from Washington informed us that the IMF feel “the risk of a slowdown in the global economic recovery has risen sharply”. This left me asking myself which is it: is the global recovery a question of up up and away, or are we at the start of a renewed slowdown (whether or not you wish to term this a “double-dip”)? So I thought I would take a look through some of the most recent data (both hard and soft) to see if I could make any sense of the situation”.

Strangely, just this week, and nearly 12 months later, I now find myself asking almost the very same question. Naturally I am not alone in this. Here’s a link to ECRI’s Lakshman Achuthan talking with MSNBC’s Tom Roberts about the US May jobs report and the reality of a global industrial slowdown. As Achuthan emphasises, in the US context this is still all about growth, about less growth rather than more growth, since we are not talking about recession, merely slower growth, but at the same time it isn’t simply a “soft-patch” either, since the many “exceptional factors” which are lined up (like supply chain problems following the Japan tsunami, or bad weather in the US) aren’t sufficient on their own to explain the scale of the phenomenon. Continue reading →

BELLS in Hell that Don’t Go Ting-a-Ling-a-Ling

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After the BRICS, came the PIGS. Now a new acronym is being born, that of the BELLS. These particular “ding-dongs”, however, are not a set of hollow cast-metal instruments suspended from the vertex and rung by the strokes of a clapper, they are countries, countries which may, like those unfortunate WWI British soldiers whose love of their country and sense of duty lured them into one of the most senseless conflicts of modern European history, be headed towards their own pretty unique form of modern purgatory. Continue reading →

The War on Christmas comes early

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Former European Union Commissioner Frits Bolkestein takes to the opinion pages of the Wall Street Journal Europe to decry “Europe’s Cultural Masochism.”  As an aside, and noting that this is indeed the Bolkestein of Frankenstein Directive fame, it now seems quaint to recall the time when the biggest threat to the European Union was seen as foreign plumbers offering cut price services, as opposed to the serial bailout crisis in which the Eurozone now finds itself.  But anyway, excerpting from his main theme of Europe’s cultural self-hatred, we are informed that:

If they have any doubt about the importance of Christianity in contemporary Western life, these non-European Christians need only look to locales such as England’s Oxford. There, in a land with an established Christian church, the municipality has decided to replace Christmas with a “Winter Light Festival.” According to a spokesman, this ensures that equal attention is paid to all religions.

Now if you’re worried that on your next trip to Oxford, the name of Christchurch College will have been blacked out in a wave of hypersensitivity, fear not.  A quick run through the Google reveals that this “Oxford bans Christmas” meme is one that played out 2 years ago, and it wasn’t Oxford council but a council-sponsored charity, and the move was roundly ridiculed by the town’s non-Christian faiths, and anyway everyone was still able to call the Christmas tree a Christmas tree etc etc.

Of course, the broader issues of immigration and European identity are up for grabs, and one suspects a link, though hard to prove, between Europe making the migration valve a little tighter over the last couple of years and a bottling up of tensions in North Africa culminating in the Arab Spring.   But it doesn’t contribute much to such debates to deploy some hoary old chestnuts of the conservative outrage! circuit in lieu of tackling those broader issues.

Ladies and gentlemen, we are floating in the Mediterranean

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Now we know that between them, the British and French air forces have flown 2,500 sorties over Libya, compared to 2,000 for the US, can we perhaps have a little less of this stuff? As the Dougs say:

I haven’t seen a single one saying “France is short of precision munitions because they switched contractors last year, and the new guys are having production line issues.” Or “France decided to dramatically cut procurement of these systems because it didn’t fit their five-year strategic vision plan for 2010-15, which didn’t envision this kind of campaign.” Or “France has enough precision munitions, but honestly? Libya’s not actually that high a priority right now — the bombing is kinda half-hearted, because France thinks Qaddafi is going to cave soon anyway.” Or even “France has plenty of precision munitions, but they’re all with forces that got deployed to French Guyana last year as part of a diplomatic-strategic initiative to play carrot-and-stick with Hugo Chavez; they’re on a boat now and will arrive next week.”

No, it’s France lacks precision munitions because /they spend too much money on day care/.

The Guardian’s count up also tells us something about how the war has changed in the last few weeks. It’s also criticised by David Cenciotti on some details. The most interesting point is that the focus has moved to Misrata in a big way – almost as many air missions have been flown against targets around it as have been around Tripoli, and far more than between Benghazi and Sirte.

One of the consequences of this is laid out in this classic report from C.J. Chivers – since the mines were swept up from the port of Misrata, the siege has effectively been lifted and the rebels can use the sea. So can NATO – British and French ships have been firing on shore targets in support of the rebels around the port area, trying to keep it open and gradually expand the rebel zone. (Jean-Dominique Merchet’s blog reports that French observers were on the ground, adjusting the fire.) The latest news is the deployment of attack helicopters aboard the ships Ocean and Tonnerre.

The real problem, though, is that all this is tactics, or at the very best, operational art. It’s still very far from clear what happens if and when the rebels get to Tripoli, or if Gadhafi eventually gives up, or indeed if none of these look like happening within more months.

NATO is quite capable of providing a operational-level response to a military problem. Like the EU, it has a wider sense in which it is possible to use the infrastructure, operating procedures, and habits of cooperation without formally activating all the committees. (Gadhafi declared “Committees Everywhere!” as a principle in his Green Book. Surely no institution can have followed him more faithfully…) That worked, too. In comparison, the EU seems to be struggling to come up with more than day by day tactical responses to its economic problem. Of course, playing for time can help.

But neither of them have anything you could call a strategy. One of the things not having a strategy helps you avoid is thinking about the structural consequences of your tactics. Whatever the next plan-of-the-nanosecond to come out of the ECB, ECOFIN, the Eurogroup, or whatever will be, it’s fair to say that it will be deflationary and it will suit the interests of major exporters in the eurozone. Whatever NATO’s next move in Libya will be, it’s fair to say it will be violent, and it will probably also suit the interests of major exporters in the eurozone. Among others. After all, it appears we’re still training the Saudi National Guard, a force which exists only to repress the internal enemies of the House of Saud, although these days they lend it out.

An unholy alliance

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Sonia Le Gouriellec at Alliance Géostrategique quotes Bernard Badie on the Ivory Coast and the fact that democracy is a lot more than just elections.

Prenons-la [la démocratie] comme un idéal, c’est-à-dire faisons-en une valeur partagée par tous, c’est-à-dire reconstruite par ceux-là même auxquels elle est censée s’adresser. Sa faiblesse se trouve dans sa dérive procédurale, dans son universalisme naïf, dans son formalisme, dans la volonté de plaquer et d’imposer de l’extérieur des modèles tout faits auxquels on ne cherche même pas à faire adhérer ceux auxquels on veut l’adresser. Peut-être que le fond du problème est là ; nous avons oublié chez nous que la démocratie était un idéal, nous n’en retenons plus que l’aspect facile de technique de gouvernement : on l’exporte telle quelle et on veut en faire en plus une technique d’action diplomatique ; on a alors tout faux.

This is, arguably, something the EU got right but the UN usually doesn’t. It’s never enough to put on an election, as you put on a play. In fact, it’s often the worst thing that could happen.

But at least it’s not the newly invigorated and enlarged Gulf Cooperation Council. Marc Lynch (he’s a serious these days so we can’t call him Abu Aardvark any more) covers this in some detail. Basically, what is emerging is a new reactionary international institution – a sort of NATO for dictators. In fact, it’s something like all the most radical criticisms of NATO, if they were all true, rolled into one. It doesn’t have nukes but it does want a nuclear industry.

Instead, it seems to be evolving into a club for Sunni Arab monarchs — the institutional home of the counter-revolution, directed against not only Iran but also against the forces for change in the region. Where the United States fits in that new conception remains distinctly unclear.

You bet, as they say. As it seems to be evolving into a police-military alliance, perhaps the closest parallel would be one of the reactionary alliances Europe tried out in the 19th century.

How I was wrong about the euro

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This Transitions Online piece is fascinating – as south-eastern Europe has changed, the location of “Europe” or “the West” has swung around all over the place. Once upon a time, Bulgarians and Romanians looked at Yugoslavia as the future, a better version of their own society, and both a reasonable substitute for Germany or Italy and a transit route on the way there. People watched Yugoslav TV illegally. Then, the earthquake, the nightmare. Nobody wanted to be anything like it. People in what had been Yugoslavia looked east, both because there was peace, because that was where the smuggled fuel came from, and also for political support.

Meanwhile, people in the rest of the Balkans looked north at Hungary or south at Greece. Of course, that was because the European Union came to them. Now, well, not so much. If there was ever a time to be eurosceptic, this is the moment. Greeks are quite possibly looking north and wishing they weren’t in the eurozone.

I remember that in the mid-1990s, I was quite sceptical about the single currency for the usual reasons from the left – basically, Keynesian concerns. Having grown up in a succession of recessions, the prospect of joining the Stability & Growth Pact and signing up to the monetarist second pillar of what wasn’t then the ECB didn’t seem great. However, I was (still am) very pro-European on all other issues and eventually I came round to it for not much of a better reason than that it offended the right people. Also, this was the early 2000s and economic policy based on rules seemed to be a pretty good idea. As it happened, of course, when a dose of stimulus was wanted this didn’t keep anyone’s hands out of the medicine chest. Neither did the austerity hold back anyone who was determined to have a monster property boom.

The other big concern was the optimal currency-area problem – could the interest rate be right for the whole eurozone? This is about the most conventional critique of the euro there is. In the UK, it used to be quite a commonplace that the country itself wasn’t an optimal currency area, with the corollary that it therefore didn’t matter so much about the euro. I never quite grasped the logic here, although I admit I may have used the argument. Perhaps the underlying thinking was that there is really no such thing as an optimal currency area – a currency system that was sufficiently decentralised to offer an optimal credit environment in its whole territory would have such high transactions costs it wouldn’t be worthwhile, and therefore we would always have to tolerate some inefficiency due to this effect.

So I was very pro-euro and pro-European while it was a live issue in the UK (about 2003, IIRC – I wonder what happened then?).

What I don’t remember anyone discussing much was the Eurosystem as opposed to the Euro or the ECB – the transactional, flow-of-funds financial workings between the member central banks and the ECB. Nor do I remember anyone talking very much about the fact that the ECB doesn’t have an explicit lender-of-last-resort function. And even discussing whether member states should do anything to manage their trade balances with one another – that was so far out of fashion, of course, that even I didn’t give it any thought.

Of course, this was the bit that bit us.

To put it another way, we argued enormously about the fiscal aspects of the Euro, which turned out to be absurdly easy to fudge when it became necessary to do so. We argued quite a bit about interest rate policy. We hardly even mentioned banking or the issue of money. This is quite a cock-up when you remember we were talking about setting up a new central bank. No wonder west is north and east south.

Is this just my fault? Was there serious discussion of how the Eurosystem might work or not in a financial crisis back in the 90s? Working on my own private black swan theory – apparently unlikely events are both predictable and usually predicted, but they tend to be ones it was unrespectable to predict – somebody must have been.

Also, has anyone else in Britain changed their mind, or is it only me?

French political update: surveillance, sex, and surveys

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A quick look over the fall-out in French politics from DSK. Le Monde has a fascinating article on government surveillance of public figures’ sex lives. The most trivial point is that Strauss-Kahn had been allegedly caught frequenting prostitutes, but far more interestingly, this information had been swept up the police food-chain and delivered privately to the president’s desk and also to Nicolas Sarkozy’s presidential campaign, which leaked it to the press.

However, nobody thought it particularly newsworthy. Also, the surveillance continued, and various officials in the president’s office were in the habit of boasting about their access to intelligence on DSK’s sex life to journalists. But again, nobody seems to have found that newsworthy – and you do wonder what, exactly, they were sitting on. In a sense, this is another version of the conspiracy of silence. The people involved, a circle of police, spooks, and political operatives from the old days of the Balladur campaign, are exactly the same names who came up in the Woerth-Bettencourt affair. The point is made both that Nicolas Sarkozy made very sure to get the right people into key posts in the police-intelligence network and also that this is not new – the last three presidents have all been interior ministers.

(It may also be worth knowing that the poly/swinger scene is extensively monitored by the police, and various people are in the habit of passing lists of guests to the internal secret service.)

There’s more here, but you’d be a fool to assume that the damage will be confined to any one political party. For example, enter Georges Tron. Although he’s surely no DSK he is on the right, and his case also involves a complex score-settling with the FN over a real-estate scandal. (It’s not a proper scandal without property developers.) He’s gone, the fifth government minister to quit in 12 months.

So, what’s the upshot of all this at the macro level? Nouvel Observateur has a complex survey, laid out to illustrate the full set of cross-breaks. The upshot is that Sarkozy’s polls are still in the toilet – depending on who runs against him, he’s polling between 22 and 24.5%. The vote for the extreme Left has evaporated, while Marine Le Pen is running steadily a few points behind Sarkozy.

On the PS side, the volcanic eruption has had surprisingly little effect. The race is developing into a head-to-head between Hollande and Aubry, with Hollande holding the lead and also holding the best numbers in the head-to-heads with the other candidates. Either would beat Sarkozy, but Hollande would take the first round by 9 points and the second by twice that.

If all this doesn’t shift the polls, what will? Sarkozy might not stand for re-election. He’s suggested it before, but how willing to give up power is he really? Like a lot of politicians who enjoy being around entrepreneurs, he’s actually devoted his entire career to politics. That would have serious consequences – there is no obvious candidate and hardly even a plausible candidate, especially if Christine Lagarde moves to the IMF. And that now looks like the original racing certainty.

Is Italy Not Spain The Real Elephant In The Euro Room?

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Looking through the latest round of EU GDP data, one thing is becoming increasingly obvious: when it comes to future monetary policy decisions at the ECB, and to exactly how many more interest rate hikes we are going to see, then the performance of the Italian economy is going to be critical. The growth pattern now is clear enough: Germany and France move forward at a lively pace, while the so called “peripheral” economies (Portugal, Ireland, Greece, and Spain) either remain in or continually flirt with recession. They are constrained bythe combined burden of their lack of international competitiveness, their over-indebtedness and the contractionary impact of their austerity programmes. Continue reading →

Who’s Next at the IMF?

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Now that Strauss-Kahn has resigned, the IMF needs a new director. Traditionally, the job has gone to a European, but since quota weights were realigned last year, it’s possible that the new boss may come from outside Europe.

I will go ahead and take a flyer no Kemal Dervis, on account of being both European and non-European, and well regarded for his work in Turkey and the international arena. Other ideas?

UPDATE: Well, heck. He say’s he’s not in the running.