Group items tagged

Eastern Valencia said it was asking for central government help as it could not refinance loans that must be paid off this year.

Valencia, which has long been run by Rajoy's PP, is emblematic of Spain's current crisis. A property crash has hit both regional government income and the region's banks, with its three main banks having to be rescued. Local politicians, meanwhile, have a growing reputation for corruption and frivolous spending.

Valencia mopped up a quarter of the €17bn (£13.2bn) of extra money made available by central government in April to pay a backlog of regional government bills.

Last year the regions not only failed to meet government-set deficit reduction targets, but actually increased their joint deficit.

Analysts believe most regions will miss this year's 1.5 percent deficit target. The government last week asked at least eight of them to revise their 2012 budgets, threatening to take over the finances of some of them.

These countries have to do what they need to do. There’s no question there has to be fiscal consolidation. We can discuss the pace, but it has to happen. The other is competitiveness, which I see as much tougher of the two.

Take the big two, Italy and Spain. You can always dream of more, but I think they’re serious about doing it, both on the fiscal front and the structural-reforms front. I think it may well be that even if they do everything they can, and do it right, it’s still not enough. They have to have help — I would say when needed rather than if needed.

It’s not that I don’t care about the way it’s done. But I care about the result. These countries, if they’re doing the right things, they have to be able to finance themselves.

Some people say a euro depreciation would help Europe a lot. I think there is an argument for it, even in a multilateral context. You have to depreciate vis-a-vis somebody, so somebody has to appreciate. My sense is we would like most of the depreciation to be vis-a-vis emerging-market countries. Even if there was a depreciation vis-a-vis the dollar, I still think it would be a good thing.

Debt auctions in Italy at the end of last week came off better than some observers had expected and, although borrowing costs remain high, the successful debt sale has increased the prospect that the euro zone can avert another crisis during the summer break.

Mr. de Guindos said that debt purchases between countries within the 17-nation single currency area had virtually ground to a halt.

The ministers are expected to hold talks on Friday to agree to extend 30 billion euros for the rescue by the end of the month. By agreement of European Union leaders last month, the debt will go direct to banks, rather than being added to the Spanish government’s finances, once plans for a new regulatory structure for Europe’s banks is put in place.

The new agreement suggests that in the future, banks will be bailed out by the collective effort of Eurozone countries.

First, this arrangement is to be finalised by the end of the year. This means that, in the end, the Spanish debt will rise by €100 billion (the market participants who enthusiastically celebrated the decision by raising the price of Spanish bonds will eventually understand that). Ditto in the not unlikely case that some Italian or French banks wobble before December.

Third, the arrangement is linked to the establishment of a “single supervisory mechanism involving the ECB”. This could be a single Eurozone supervisor built inside the ECB, which would go a long way to plugging one the worst mistakes in the Maastricht Treaty (lack of a joint regulation and resolution regime for banks).

This is important because a contagious banking crisis that hits several large banks would require much more money than is available in the EFSF-EMS facilities.

Light conditionality, as they requested, is bound to collapse at the foot of the Bundestag, which must approve every single loan.

There was nothing on collapsing Greece, nothing on unsustainable public debts in several countries, and no end in sight to recession in an increasing number of countries.

Maybe Draghi’s policies can buy time for deeper “structural changes” in the periphery, although quite what those are and what difference they would make in the near term remains elusive

More likely, a shift in ECB policies would make the European situation uglier. For one, Draghi would essentially be conceding fiscal dominance, demonstrating that if governments run budget deficits, they can count on the central bank to finance them.

Perhaps Draghi is planning the same game with fiscal authorities that the Banca d’Italia used to play with Italian politicians in the 1980s and early 1990s -- keep interest rates low enough to prevent fiscal collapse, yet high enough to keep fiscal prudence as a priority. Make no mistake about it, inflation or not, this is a strategy of high real interest rates.

Banks like Goldman Sachs and Morgan Stanley are also looking into the severe legal challenges that would arise if a country exited the euro. Contracts that govern loans, bonds and derivatives in Europe rarely take into account such a situation.

The banks are also trying to protect their balance sheets if they do get stuck with large amounts of assets denominated in a new, weaker currency.

By doing so, they can better match their assets (the loans) within a specific country with their liabilities (the deposits). Then if a country left the euro zone, the value of the loan might fall in euros, but the banks wouldn’t owe as much to depositors in euros.

“These are not easy discussions,” Mr. Alverà said. “Most sellers are reluctant to sit down and give you big discounts. The more they wait the more they increase their profits.”

Still, analysts say it may take decades for Asia to switch from oil linkage to market pricing.

The authors come up with a variety of numbers, including one that has received a lot of attention: potential G.D.P.—broadly speaking, the level of G.D.P. consistent with stable inflation—“is currently about 7 percent below the trajectory it appeared to be on prior to 2007.” According to the latest figures from the Commerce Department, the G.D.P. is now close to seventeen trillion dollars, and seven per cent of that figure is $1.2 trillion. This is a lot of money to have gone missing, especially if it will never be recovered. Hence Krugman’s dire conclusion: “By tolerating high unemployment we have inflicted huge damage on our long-run prospects …. What passes these days for sound policy is in fact a form of economic self-mutilation, which will cripple America for many years to come.”

As well as figuring out the current level of potential G.D.P., the authors estimate its growth rate. This is the more important figure, because it’s what determines living standards over the long term

In the nineteen-eighties, Larry Summers and Olivier Blanchard, who is now the chief economist of the I.M.F., resurrected the idea and gave it a new name, which they borrowed from engineering: hysteresis. Blanchard and Summers examined hysteresis in Europe, where high rates of unemployment have long been a problem.

The good news is that things aren’t quite as bad as the figures in the Fed paper might suggest. If we can get policy right and sharply increase the level of over-all demand in the economy, most of the damage done in the past five years is reversible.

At the moment, sadly, there is no prospect of any more fiscal stimulus, let alone a war-sized one, and the onus is falling on the Fed to gee up the economy.

In 2005 its government brought in fertiliser subsidies. It reported a maize crop of 3.4m tonnes in 2006-7, up from 2.6m tonnes the year before. The aid lobby said this justified the subsidies and the budget support which enables them to be paid for.

Today, a fifth of U.S. energy consumption is fueled by coal, mainly from Appalachia and the West, a long-term energy source that has provided jobs for millions, a century-old way of life

Roughly speaking, burning coal produces twice as much carbon dioxide as burning the equivalent amount of natural gas. Almost all domestic coal is used to generate electricity—it produces 38 percent of the U.S. power supply. Fracking is swiftly changing this: in 2011, utilities reported plans to shut down 57 of the nation’s 1,287 coal-fired generators the following year. Largely in consequence, U.S. energy-related carbon-dioxide emissions have dropped to figures last seen in 1995. Since 2006, they have fallen more than those from any other nation in the world.

In the sort of development that irresistibly attracts descriptors like ironic, Germany, often touted as an environmental model for its commitment to solar and wind power, has expanded its use of coal, and as a result is steadily increasing its carbon-dioxide output. Unlike Americans, Europeans can’t readily switch to natural gas; Continental nations, which import most of their natural gas, agreed to long-term contracts that tie its price to the price of oil, now quite high.

Several researchers told me that the current towel-snapping between Beijing and Tokyo over islands in the East China Sea is due less to nationalistic posturing than to nearby petroleum deposits.)

What is known, says Timothy Collett, the energy-research director for the USGS program, is that some of the gulf’s more than 3,500 oil and gas wells are in gas-hydrate areas.

In Dutch-disease scenarios, oil weakens all the pillars but one—the petroleum industry, which bloats steroidally.

Because the national petroleum company, with its gush of oil revenues, is the center of national economic power, “the ruler typically puts a loyalist in charge,” says Michael Ross, a UCLA political scientist and the author of The Oil Curse (2012). “The possibilities for corruption are endless.” Governments dip into the oil kitty to reward friends and buy off enemies. Sometimes the money goes to simple bribes; in the early 1990s, hundreds of millions of euros from France’s state oil company, Elf Aquitaine, lined the pockets of businessmen and politicians at home and abroad.

“How will the royal family contain both the mullahs and the unemployed youth without a slush fund?”

It seems fair to say that if autocrats in these places were toppled, most Americans would not mourn. But it seems equally fair to say that they would not necessarily be enthusiastic about their replacements.

But competitiveness based on cost, rather than brand value or innovation, makes the Polish economy vulnerable.

And Poland’s cost advantage would disappear if the złoty were to strengthen sharply.

the country must be careful about joining the exchange rate mechanism (ERM II) – the narrow band within which applicant currencies must operate for at least two years prior to adopting the euro. Doing so could cause the złoty to strengthen, as it did to the Slovak koruna, and wipe out Poland’s competitive advantage.

One in four employees is on a fixed-term contract or self-employed.

But flexible labor markets have disadvantages, too. Companies tend not to invest in talent or develop new skills, and the quality of existing skills can suffer. In the longer run, flexible labor markets also increase structural unemployment and fuel the informal economy.

Finally, Poland needs sound public finances – that is, fiscal space for automatic stabilizers during economic crises.

The election of 1989 marked the first time in more than 60 years that a civilian president had handed power to an elected successor.

the repeated recessions of the 1970s and 1980s, the hyperinflation of 1989-90, the economic crisis of 2001 and now the possibility of another crisis to come.

But three deep-lying explanations help to illuminate the country’s diminishment. Firstly, Argentina may have been rich 100 years ago but it was not modern. That made adjustment hard when external shocks hit. The second theory stresses the role of trade policy. Third, when it needed to change, Argentina lacked the institutions to create successful policies.

Railways transformed the economics of agriculture and refrigerated shipping made it possible to export meat on an unprecedented scale: between 1900 and 1916 Argentine exports of frozen beef rose from 26,000 tonnes to 411,000 tonnes a year. But Argentina mainly consumed technology from abroad rather than inventing its own.

External shocks duly materialised, which leads to the second theory for Argentine decline: trade policy.

Argentina raised import tariffs from an average of 16.7% in 1930 to 28.7% in 1933. Reliance on Britain, another country in decline, backfired as Argentina’s favoured export market signed preferential deals with Commonwealth countries.

an existing policy of import substitution deepened; the share of trade as a percentage of GDP continued to fall.

High food prices meant big profits for farmers but empty stomachs for ordinary Argentines. Open borders increased farmers’ takings but sharpened competition from abroad for domestic industry.

“One-third of the country—the commodities industry, engineers and regional industries like wine and tourism—is ready to compete,” says Sergio Berensztein, a political analyst. “Two-thirds are not.”

Property rights are insecure

Statistics cannot be trusted: Argentina was due this week to unveil new inflation data in a bid to avoid censure from the IMF for its wildly undercooked previous estimates.

hort-termism is embedded in the system

“We have spent 50 years thinking about maintaining government spending, not about investing to grow,” says Fernando de la Rúa, a former president who resigned during the 2001 crisis.

The country’s Vaca Muerta (“Dead Cow”) shale-oil and gasfield is estimated to be the world’s third-largest. If Argentina can attract foreign capital, the money could start flowing within a decade.

chief executive of Severstal North America, the United States subsidiary of Russia’s Severstal Group, which now owns the Rouge steel operations.

At Severstal’s Dearborn factory, for example, carmakers including Ford and others account for 70 percent of sales,

The shift to aluminum is gaining momentum. Automakers are under increasing pressure to meet strict new fuel-economy standards by 2025

United States Steel has invested $400 million in a joint venture with Kobe Steel of Japan to make advanced high-strength steel in a Leipsic, Ohio, factory expected to produce 500,000 tons annually.

Inside Severstal’s steel mill on a cold January day, hissing heavy machinery removed oxides from steel sheets, reducing their thickness to the equivalent of five human hairs.

For nearly a century, Ford’s River Rouge factory and its neighboring steel mill have worked in close harmony

new federal fuel-efficiency standards that will require a fleetwide average of 54.5 miles per gallon by 2025, a significant boost from the roughly 25 m.p.g. that vehicles average today.

“Sometimes there is a push from the aluminum side, and they win over with a particular model, and steel tends to be the comeback kid, with more innovation,” said Felix Schuler, a Munich-based partner in the Boston Consulting Group’s metals and mining practice.

What seems certain is that ordinary steel is likelier to lose out to its new and improved cousin than to aluminum, Mr. Schuler said.

Novelis is investing nearly $550 million to upgrade plants in Oswego, N.Y., and Nachterstedt, Germany, and to build a new factory in Changzhou, China, to triple its capacity from a year ago to 900,000 tons annually.

Alcoa, the country’s biggest aluminum producer, is investing about $670 million in its Iowa, Tennessee and Saudi Arabia facilities.Continue reading the main story

“Henry Ford was a control freak, and he wanted to control as much of the manufacturing as possible,” Mr. Casey said. “He made the steel, he made the glass, he made the tires.”

In some countries, especially those with the highest youth unemployment rates, short-term contracts are nothing more than opportunities for employers to take advantage of the weak labor market.

But because of her work hours, she still does not qualify for the Netherlands’ monthly minimum wage of €1,477 (about $2,000), and her new career was a long way from where she had always hoped to end up.

An estimated 100,000 university graduates have left Spain, and hundreds of thousands more from Europe’s crisis-hit countries have gone to Germany, Britain, and the Nordic states for jobs in engineering, science and medicine. Many others have gone farther afield to Australia, Canada and the United States.

The move in Europe to monetary union for weaker countries was a credibility enhancing mechanism that would lower borrowing costs. For countries that had strong creditor positions, the attractions of monetary union lay in the depoliticizing of the adjustment process (James 2012). The Eurozone worked quite well as a disciplining mechanism before it entered into effect, but much less well afterwards.

Banking expanded after the establishment of the euro (Shin 2012). No adequate provision on a European basis existed for banking supervision and regulation, which like fiscal policy, was left to rather diverse national authorities. An explosion of banking activity occurred simultaneously with the transition to monetary union and may well have been stimulated by the new single money.

Opinion poll data shows a major increase in hostility to the EU in peripheral countries, but with no corresponding unpopularity of the common currency.

One aim of the exercise is to identify the bad debts that are fouling up euro-zone banks and preventing the flow of new credit. This is important because parts of the single-currency area are crippled not just by public borrowing but by private debt, most of which is sitting on banking books.

High private debt is more detrimental to growth than high public debt, according to recent research by the IMF.

Other balance-sheet indicators also suggest that Italian business is in a bad way. For example, 30% of corporate debt is owed by firms whose pre-tax earnings are less than the interest payments they have to make. That share of frail companies is even higher in Spain and Portugal (40% and nearly 50% respectively).

Little progress has been made to lighten the private-debt burden since the crisis began. Though it eased in Spain from 227% of GDP in 2009 to 215% in 2012, it rose over the same period in Cyprus, Ireland and Portugal. In Britain, by contrast, private debt fell from 207% of GDP in 2009 to 190% in 2012 thanks to improvements by both households and firms.

Firms that have overborrowed are reluctant to embark on new ventures, and banks are in any case reluctant to lend because their balance-sheets are peppered with bad debts. This unhappy state of affairs prevails throughout southern Europe though its precise causes vary.