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Gene Ellis

Some thoughts on German politics and the saver's tax in Cyprus | Credit Writedowns - 0 views

www.creditwritedowns.com/...-the-savers-tax-in-cyprus.html

shared by Gene Ellis on 18 Mar 13 - No Cached
  • Now, the large 82.8% German government debt to GDP ratio is a source of shame for many because Germany was a driving force in enshrining the 60% government debt to GDP hurdle into the Maastricht Treaty that set out terms for the euro zone.
  • Moreover, the interest rate policy of the ECB, geared as it was to the slow growth core, produced negative real interest rates and credit bubbles in Spain and Ireland during the last decade. German banks piled in to those countries as prospects domestically stagnated.
  • “The average German worker feels like a cash cow being sucked dry by a quick succession of reforms and bailouts that take money out of her pocket. First it was for reunification, then for European integration, then to right the economy, then to bail out German banks, and finally to bail out the European periphery. Fatigue has set in.”
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  • The bottom line is that none of the major political parties in Germany are going to vote for bailouts for other euro zone countries unless massive strings are attached, since these bailouts are political losers.
  • The anti-bailout part of the FDP platform is the one part of their rhetoric which could successfully take them over the 5% hurdle. The FDP’s complicity in using German taxpayer money to bail out the so-called profligate periphery is a one-way ticket out of Parliament.
  • “First, the Greek reports come via statements made by Michael Fuchs, CDU deputy Bundestag head and a senior member of German Chancellor Angela Merkel’s party. Fuchs warned earlier today that Germany would veto further aid to Greece if the country has not met the conditions of its previous bailouts.
  • “Second, all along Germany has indicated that it is resistant to increasing funding of the ESM and EFSF bailout facilities. This presents a problem in the case of Spain and Italy because of the size of those economies.
  • Willem Buiter, Chief Economist at Citigroup, has been most vocal in predicting that these facilities will be inadequate when Spain and Italy hit the wall and that more extreme measures will have to be taken.
  • The basic dilemma here is that almost all of the eurozone governments including Germany carry high debt burdens in excess of the Maastricht Treaty. For example, Germany has been in breach of Maastricht Treaty in 8 of 10 years since 2002, has been over the Maastricht 60% hurdle in each of those ten years, and now carries a debt to GDP burden above 80%.
  • The long and short of it was that the Germans had reached the end of their ability to support bailouts.
  • All evidence is that this levy has created panic in Cyprus. After all, what is the use of having a deposit guarantee if government can arbitrarily circumvent it to impose losses on your deposits anyway?
  • One can't just blame Cyprus for this fiasco. The ECB, EC and European Union finance ministers signed off on the insured deposit grab too]
  • My view? It was inevitable that we would be in crisis again. The austerity world view of crisis resolution is completely at odds with the capacity of the euro zone’s institutional architecture to handle a crisis.
Gene Ellis

After Bangladesh, Seeking New Sources - NYTimes.com - 0 views

www.nytimes.com/...adesh-seeking-new-sources.html

shared by Gene Ellis on 16 May 13 - No Cached
  • Dozens of impoverished countries make T-shirts and other very basic clothing. But only a few countries — really just China, Bangladesh, Vietnam, Indonesia and to some extent Cambodia and Pakistan — have developed highly complex systems for producing and shipping tens of thousands or even hundreds of thousands of identical, high-quality shirts, blouses or trousers to a global retailer within several weeks of receiving an order.
  • The clothing needs to be labeled correctly so that it travels smoothly through a large retailer’s distribution centers
  • The process requires formidable numbers of skilled workers who can oversee quality control as well as labeling and shipping of garments.
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  • Big retailers and fashion companies have repeatedly tried and failed to develop alternatives, experimenting in India, Africa and Latin America, only to run into infrastructure bottlenecks and shortages of skilled managers or workers.
  • India was not organized for large-scale, timely production,
  • Africa did not have enough workers with the right skills for high-volume labeling and shipping,
  • and Latin America did not have enough workers interested in operating sewing machines.
  • In Guatemala, the quality was excellent, he said, but, “They can’t handle big orders and they’re slow on delivery.”
  • What may save Bangladesh from a sharp, immediate drop in export orders is simply that most Southeast Asian factories are already fully booked with orders from multinationals fleeing China’s ever-rising costs.
  • “For this year, it’s impossible — we’re already full,”
  • Indonesia’s national training center for seamstresses — women make up 98 percent of the students — is here in Semarang, producing 12,000 graduates a year. But even that isn’t enough. Four factories with a combined employment of 30,000 are to open in the next year in Semarang, and many more factories are being built nearby.
  • “It’s going to take time, but it’s going to eventually filter out all over the place,” he said. “It’ll take two or three years.”
  • Newly opened factories have started competing for scarce seamstresses by offering free meals and free health insurance
  • Dozens of impoverished countries make T-shirts and other very basic clothing. But only a few countries — really just China, Bangladesh, Vietnam, Indonesia and to some extent Cambodia and Pakistan — have developed highly complex systems for producing and shipping tens of thousands or even hundreds of thousands of identical, high-quality shirts, blouses or trousers to a global retailer within several weeks of receiving an order.
  • He said that he and a couple of other suppliers of elite retail chains always worried about Bangladesh’s reliance on high-rise factories,
Gene Ellis

Europe Can't Handle the Euro - 0 views

www.nber.org/...wj020800.html

shared by Gene Ellis on 31 May 12 - No Cached
  • When leaders of the 11 nations that agreed to combine their currencies gathered in January 1999, they predicted great things: the single currency would shift global portfolios to euro assets, depressing the value of the dollar relative to the euro, and the new eurozone would be a strong player in the global economy, reflecting the size of an integrated European market. Instead the euro plummeted, Europes economy remains weak, and unemployment is more than twice the U.S. level.
  • The ECB will eventually be judged not by its words but by whether it achieves low inflation and does so without increasing cyclical unemployment. I am not optimistic about either part of this goal.
  • The ECB must make monetary policy for "Europe as a whole," which in practice means doing what is appropriate for Germany, France and Italy, the eurozones three largest countries. Last year demand conditions in those countries were relatively weak, while demand conditions in Spain and Ireland were very strong. That meant a monetary policy that was too expansionary for Spain and Ireland, causing a substantial acceleration of their inflation and threatening their competitiveness.
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  • Such disparities of demand conditions will undoubtedly persist in the future because European countries differ substantially in industrial composition and in a variety of economic policies.
  • the time will come when the ECB will set a policy that is too tight for the outliers, leading to substantially higher unemployment than if they were free to set their own monetary policies. Even without discretionary monetary policies, the interest rates in countries with weak demand would naturally decline, and the external values of their currencies would fall, both acting as offsetting stabilizers of the countries weak demand. But this will not be possible within the EMU, where a single interest rate and a single exchange rate prevail. Result: higher average cyclical unemployment.
  • In the U.S., a fall in regional demand leads to lower wages, which help to maintain employment; to movements of labor to regions where demand is stronger; and to a net fiscal transfer from Washington (because lower regional income means lower federal tax liability). None of this happens in Europe, where wages are inflexible, mobility is severely limited by language and custom, and there are no significant fiscal transfers.
  • Politicians can now blame the ECB for high unemployment and complain that it is a powerful force beyond national control. Instead of seeking to make labor markets more flexible, European governments are talking more about "social wages," about mandatory 35-hour workweeks, and about rolling back even the small reductions in social benefits Germany achieved under Helmut Kohls government. Worse yet, there are attempts to eliminate differences in labor practices and even differences in wages among the EMU countries.
  • Moreover, these policies reduce the international competitiveness of many European industries and encourage the adoption of protectionist policies to keep out non-European products.
  • Forcing a single monetary policy on all of Europe will cause the countries that suffer what they regard as unnecessarily high unemployment to resent the actions of others. Attempts to force a Europewide tax system, especially if taxes are used to redistribute incomes among European countries, will compound the potential for conflict.
  • EMU is meant to be a marriage made in heaven with no possibility of divorce.
Gene Ellis

Op-ed: The End of the Euro: A Survivor's Guide - 0 views

www.iie.com/...oped.cfm

EUROCRISIS

shared by Gene Ellis on 16 Jun 12 - No Cached
  • Ms. Lagarde's empathy is wearing thin and this is unfortunate—particularly as the Greek failure mostly demonstrates how wrong a single currency is for Europe.
  • The Greek backlash reflects the enormous pain and difficulty that comes with trying to arrange "internal devaluations" (a euphemism for big wage and spending cuts) in order to restore competitiveness and repay an excessive debt level.
  • During the next stage of the crisis, Europe's electorate will be rudely awakened to the large financial risks which have been foisted upon them in failed attempts to keep the single currency alive. When Greece quits the euro, its government will default on approximately 121 billion euros of debt to official creditors and about 27 billion euros owed to the IMF.
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  • More importantly and less known to German taxpayers, Greece will also default on 155 billion euros directly owed to the euro system (comprised of the ECB and the 17 national central banks in the euro area). This includes 110 billion euros provided automatically to Greece through the Target2 payments system—which handles settlements between central banks for countries using the euro. As depositors and lenders flee Greek banks, someone needs to finance that capital flight, otherwise Greek banks would fail. This role is taken on by other euro area central banks, which have quietly lent large funds, with the balances reported in the Target2 account. The vast bulk of this lending is, in practice, done by the Bundesbank since capital flight mostly goes to Germany, although all members of the euro system share the losses if there are defaults.
  • But between Target2 and direct bond purchases alone, the euro system claims on troubled periphery countries are now approximately 1.1 trillion euros (this is our estimate based on available official data). This amounts to over 200 percent of the (broadly defined) capital of the euro system.
  • No responsible bank would claim these sums are minor risks to its capital or to taxpayers. These claims also amount to 43 percent of German Gross Domestic Product,
  • Jacek Rostowski, the Polish Finance Minister, recently warned that the calamity of a Greek default is likely to result in a flight from banks and sovereign debt across the periphery, and that—to avoid a greater calamity—all remaining member nations need to be provided with unlimited funding for at least 18 months. Mr. Rostowski expresses concern, however, that the ECB is not prepared to provide such a firewall, and no other entity has the capacity, legitimacy, or will to do so.
  • The most likely scenario is that the ECB will reluctantly and haltingly provide funds to other nations—an on-again, off-again pattern of support—and that simply won't be enough to stabilize the situation.
  • he automatic mechanics of Europe's payment system will mean the capital flight from Spain and Italy to German banks is transformed into larger and larger de facto loans by the Bundesbank to Banca d'Italia and Banco de Espana—essentially to the Italian and Spanish states. German taxpayers will begin to see through this scheme and become afraid of further losses.
  • there will be recognition that the ECB has lost control of monetary policy, is being forced to create credits to finance capital flight and prop up troubled sovereigns—and that those credits may not get repaid in full. The world will no longer think of the euro as a safe currency; rather investors will shun bonds from the whole region, and even Germany may have trouble issuing debt at reasonable interest rates.
Gene Ellis

Oversize Expectations for the Airbus A380 - NYTimes.com - 0 views

www.nytimes.com/...tions-for-the-airbus-a380.html

shared by Gene Ellis on 18 Feb 15 - No Cached
  • this aircraft, which can hold more than 500 passengers. The plane dwarfs every commercial jet in the skies.
  • Its two full-length decks total 6,000 square feet, 50 percent more than the original jumbo jet, the Boeing 747.
  • The A380 was also Airbus’s answer to a problematic trend: More and more passengers meant more flights and increasingly congested tarmacs. Airbus figured that the future of air travel belonged to big planes flying between major hubs.
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  • Airbus has struggled to sell the planes. Orders have been slow, and not a single buyer has been found in the United States, South America, Africa or India.
  • While the A380 program has been a boon for the European aerospace industry, Airbus is unlikely to recover its research and development costs. The best it can now expect is to break even on production costs, according to analysts, provided that it can keep orders going.
  • Airbus made the wrong prediction about travel preferences. People would rather take direct flights on smaller airplanes, he said, than get on big airplanes — no matter their feats of engineering — that make connections through huge hubs.
  • “It’s a commercial disaster,” Mr. Aboulafia says. “Every conceivably bad idea that anyone’s ever had about the aviation industry is embodied in this airplane.”
  • Airline executives were wary of expanding their fleets aggressively, especially for a costly, four-engine fuel hog.
  • And there are a fair number of those routes. Around 15 of the 20 largest long-haul routes by passenger volume in the world today are slot-constrained,
  • “The A380 is not made for every route, but it is ideal for high-traffic routes, high-volume routes that are congested, or where there are flying constraints,”
  • A little more than a decade ago, the two dominant airplane makers, Boeing and Airbus, looked at where their businesses were headed and saw similar facts: air traffic doubling every 15 years, estimates that the number of travelers would hit four billion by 2030 — and came to radically different conclusions about what those numbers meant for their future.
  • Boeing, too, is facing lukewarm demand for its latest jumbo jet upgrade, known as the 747-8. The company has received just 51 orders for this big plane, which can seat about 460 passengers and lists at $357 million. By contrast, it has sold more than 1,200 twin-engine 777s, which sell for as much as $320 million.
  • Richard H. Anderson, Delta’s chief executive, has said the A380 is “by definition an uneconomic airplane unless you’re a state-owned enterprise with subsidies.”
  • Bruno Delile, Air France’s senior vice president for fleet management, says that there are a limited number of routes in its network with enough daily traffic to justify the expense of such a big plane. “The forecasts about traffic growth and market saturation haven’t exactly panned out,” he says.
  • Not only do airlines take a big risk on the size and cost of the A380, but they also have to gain the cooperation of airports to modify gates and widen taxiways to make room for the plane.
  • With versions that seat 210 to 330 passengers, and with a range of about 9,000 miles, the 787 allows airlines to fly pretty much anywhere in the world and connect smaller airports without going through a hub.
  • And passengers are willing to pay more to avoid a connection
  • f most airlines appear skeptical of the A380, Emirates is a true believer. It stunned the industry in December when it ordered 50 more of the planes, beyond the 90 it already had on order, throwing Airbus a much needed lifeline
  • The airport handled 66 million passengers last year, rivaling Heathrow as the busiest international hub.
  • for Emirates, the biggest selling point of the A380 is its ability to pack in more business-class seats and create an environment that appeals to big-spending passengers.
Gene Ellis

Intel Says It Will Cut 1,500 Jobs in Costa Rica - WSJ.com - 0 views

online.wsj.com/...702304819004579489860932369306

shared by Gene Ellis on 25 Apr 14 - No Cached
  • Intel, based in Santa Clara, Calif., has been grappling with the effects of a slowdown in sales of personal computers that use its microprocessor chips. The company has also been slow to build a sizable business in chips for smartphones and tablets.
  • Brian Krzanich and Renee James —appointed last May as Intel's chief executive and president, respectively—have been studying Intel operations and concluded that reducing the assembly and test operations in Costa Rica made most economic sense, said Chuck Mulloy, an Intel spokesman. "We have to be more efficient and effective," he said. Most of Intel's chips are fabricated in the U.S., Ireland or Israel and then sent to other companies to be encapsulated in packaging and tested. Those chores now handled in Costa Rica will be moved to existing Intel operations in Malaysia, Vietnam and China, Mr. Mulloy said.
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