"Be extremely cautious that you don't take more than you can
service. Try to issue liabilities that involve an element of risk sharing
between the creditor and the debtor," he said.
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Treat debt with caution: SARB - Times LIVE - 0 views
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"As for international contracts, be very careful that you treat the business cycle symmetrically. If you stimulate and borrow when the economy goes down then you must tighten... when the economy grows."
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He said governments of developing nations needed to be innovative in borrowing contracts they devised to grow their infrastructure.
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"Give, for instance, a 50 percent equity stake in some infrastructure project so that you share the risks as well as the returns. There you don't have the bankruptcy threats and the default threats which come with debt contracts."
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Buiter urged South Africans and the rest of the continent to "wear helmets for the rest of the decade". "The world is going to be a very dangerous place for the next 10 years, with advanced economies still needing about a decade, if you count the US and Japan, to get out of the debt problem that they got into," he said.
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"So there is going to be a fallout for developing economies like South Africa."
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Big trouble from little Cyprus - FT.com - 0 views
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The banks stand on the edge of collapse. But it is the European Central Bank that has pulled the plug by threatening not to accept Cypriot government debt as collateral against liquidity support.
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A restructuring of public debt is still likely. As Hamlet advises: If it be not now, yet it will come.
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Is there no alternative to the bail-ins? Yes: direct bank recapitalisation by the eurozone, for which the sum required is a small matter. If the banking union had been up and running, that would have happened. It is not, presumably because core countries do not want to bail out mismanaged banking systems,
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A big question is why ordinary Cypriot taxpayers should rescue banks at all?
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The first concern is the deal itself. The decision to impose losses on insured deposits is indeed a big error. (Yes, it is a default, not a tax.)
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Banks have so little loss-absorbing capacity that they stand permanently on the edge of disaster.
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The eurozone must either make the industry far more robust, by hugely increasing equity capital, or consolidate fiscal capacity and tighten regulation, to ensure adequate eurozone-wide oversight and fiscal support.
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Banking is dangerous everywhere. But it still threatens the eurozone’s survival. This has to change – and very soon.
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Robert Samuelson: A dishonest budget debate - The Washington Post - 0 views
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t’s the math: In fiscal 2012, Social Security, Medicare, Medicaid and civil service and military retirement cost $1.7 trillion, about half the budget.
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As a share of national income, defense spending ($670 billion in 2012) is headed toward its lowest level since 1940.
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States’ Medicaid costs will increase with the number of aged and disabled, which represent two-thirds of Medicaid spending. All this will force higher taxes or reduce traditional state and local spending on schools, police, roads and parks.
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Almost everything is being subordinated to protect retirees.
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“for how long will we continue to sacrifice investments in our nation’s children and youth ... to spend more and more on the aged?”
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In a Pew poll, 87 percent of respondents favored present or greater Social Security spending; only 10 percent backed cuts. Results were similar for 18 of 19 programs, foreign aid being the exception.
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an aging America needs a new social compact: one recognizing that longer life expectancies justify gradual increases in Social Security’s and Medicare’s eligibility ages; one accepting that sizable numbers of well-off retirees can afford to pay more for their benefits or receive less; one that improves generational fairness by concentrating help for the elderly more on the needy and poor to lighten the burdens — in higher taxes and fewer public services — on workers; and one that limits health costs.
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Government is being slowly transformed into a vast old-age home, with everything else devalued and degraded.
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Will bank supervision in Ohio and Austria be similar? A transatlantic view of the Singl... - 0 views
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At the inception of the euro, it was thought possible to have a centralised monetary authority and decentralised bank supervision, but the inability to separate sovereign-debt problems from those of bank stability has led the leaders of the member states of the EU to agree to centralise supervision in the Single Supervisory Mechanism.
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The states retained their powers to supervise the small number of state-chartered banks that seemed little threat to the stability of the new more tightly regulated national system.
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What was not anticipated was that the more stable national banks would fail to adequately supply credit to the economy.
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States, not the federal government, regulated securities markets and insurance, leaving little oversight for interstate business.
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The 1930s New Deal reforms added more agencies, including the Securities Exchange Commission and the Federal Deposit Insurance Corporation, complicating political oversight by giving them distinctive missions,
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Yet, it was the trust companies, lacking access to emergency liquidity that caused the 1907 crisis to erupt and spread to the banks.
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To remedy these defects, the Federal Reserve System, established in 1913, was to act as a lender of last resort, bringing all systemically important institutions – national banks , large state banks and trust companies – under the federal supervision of the Office of the Comptroller of the Currency or the Federal Reserve banks.
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Consequently, when onerous rules, such as the prohibition on branch banking prevented banks from financing the emerging giant corporations, markets, assisted by more lightly regulated trust and insurance companies, stepped in.
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But, they have not converged, especially with regard to state banks that often pressure state regulators.
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Surveillance of a bank is not dependent on the geographic scope of its operations, as in the US, but on its systemic significance measured in several dimensions and whether it receives financial assistance from the European Stability Mechanism.
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the ECB’s direct authority is more encompassing.
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The ECB will not be directly involved in crisis management and bank resolution, which will be the responsibility of the national authorities. This autonomy will not be incentive compatible until EU directives are adopted for a unified deposit insurance system and a funded single resolution authority.
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The Eurozone's Delayed Reckoning by Nouriel Roubini - Project Syndicate - 0 views
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For starters, the European Central Bank’s “outright monetary transactions” program has been incredibly effective: interest-rate spreads for Spain and Italy have fallen by about 250 basis points, even before a single euro has been spent to purchase government bonds.
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The introduction of the European Stability Mechanism (ESM), which provides another €500 billion ($650 billion) to be used to backstop banks and sovereigns, has also helped, as has European leaders’ recognition that a monetary union alone is unstable and incomplete, requiring deeper banking, fiscal, economic, and political integration.
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But, perhaps most important, Germany’s attitude toward the eurozone in general, and Greece in particular, has changed. German officials now understand that, given extensive trade and financial links, a disorderly eurozone hurts not just the periphery but the core.
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GDP continues to shrink,
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Moreover, balkanization of economic activity, banking systems, and public-debt markets continues, as foreign investors flee the eurozone periphery and seek safety in the core.
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Likewise, competitiveness losses have been partly reversed as wages have lagged productivity growth, thus reducing unit labor costs, and some structural reforms are ongoing.
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but countries like Germany, which were over-saving and running external surpluses, have not been forced to adjust by increasing domestic demand, so their trade surpluses have remained large.
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either the eurozone moves toward fuller integration (capped by political union to provide democratic legitimacy to the loss of national sovereignty on banking, fiscal, and economic affairs), or it will undergo disunion, dis-integration, fragmentation, and eventual breakup.
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German leaders fear that the risk-sharing elements of deeper integration
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imply a politically unacceptable transfer union whereby Germany and the core unilaterally and permanently subsidize the periphery.
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Of course, Germany fails to recognize that successful monetary unions like the United States have a full banking union with significant risk-sharing elements, and a fiscal union whereby idiosyncratic shocks to specific states’ output are absorbed by the federal budget. The US is also a large transfer union, in which richer states permanently subsidize the poorer ones.
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These are key features, built into the over-representation of the poorer, smaller, more agricultural, states; as well as in the central institutions.
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But the fundamental crisis of the eurozone has not been resolved, and another year of muddling through could revive these risks in a more virulent form in 2014 and beyond. Unfortunately, the eurozone crisis is likely to remain with us for years to come, sustaining the likelihood of coercive debt restructurings and eurozone exits.
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Europe's Two-Speed Future by Jean-Claude Piris - Project Syndicate - 0 views
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relatively small size,
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aging populations,
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excessive indebtedness
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insufficient investment in research and development
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lack of energy resources
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But the eurozone’s architecture – in which monetary policy is centralized, but budgetary and economic policies are left up to individual governments – is not viable in the long term
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establishing a “two-speed Europe” – in which a core group of countries pursues deeper integration more quickly than the rest – is the EU’s best option for reaching the level of cooperation needed to escape the crisis intact.
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Pursuing this option would require that the decision-making process be legitimate. In the Council, as in all cases of “enhanced cooperation,” only participating members have the right to vote. In the European Parliament, by contrast, all 27 EU members participate in the decision-making process, even concerning measures that will affect only the 23 “eurozone plus” countries (the 17 eurozone members and the six that have agreed to the Euro Plus Pact) – a method that could pose a political problem.
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Reinventing the European Dream by Anne-Marie Slaughter - Project Syndicate - 0 views
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Natural-gas fields in the Eastern Mediterranean are estimated to hold up to 122 trillion cubic feet, enough to supply the entire world for a year. More gas and large oil fields lie off the Greek coast in the Aegean and Ionian Seas, enough to transform the finances of Greece and the entire region. Israel and Cyprus are planning joint exploration; Israel and Greece are discussing a pipeline; Turkey and Lebanon are prospecting; and Egypt is planning to license exploration.
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But politics, as always, intervenes. All countries involved have maritime disputes and political disagreements. The Turks are working with Northern Cyprus, whose independence only they recognize, and regularly make threatening noises about Israel’s drilling with the Greek Cypriot government of the Republic of Cyprus. The Greek Cypriots regularly hold the EU hostage over any dealings with Turkey, as has Greece. The Turks will not let Cypriot ships into their harbors and have not been on speaking terms with the Israelis since nine Turkish citizens were killed on a ship that sought to breach Israel’s blockade of Gaza. Lebanon and Israel do not have diplomatic relations.
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The Electric Car's Short Circuit by Bjørn Lomborg - Project Syndicate - 0 views
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Recent research indicates that electric cars may reach break-even price with hybrids only in 2026, and with conventional cars in 2032, after governments spend €100-150 billion in subsidies.
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A life-cycle analysis shows that almost half of an electric car’s entire CO2 emissions result from its production, more than double the emissions resulting from the production of a gasoline-powered car.
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Proponents proudly proclaim that if an electric car is driven about 300,000 kilometers (180,000 miles), it will have emitted less than half the CO2 of a gasoline-powered car. But its battery will likely need to be replaced long before it reaches this target, implying many more tons of CO2 emissions.
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Even if driven much farther, 150,000 kilometers, an electric car’s CO2 emissions will be only 28% less than those of a gasoline-powered car. During the car’s lifetime, this will prevent 11 tons of CO2 emissions, or about €44 of climate damage.CommentsView/Create comment on this paragraphGiven the size of the subsidies on offer, this is extremely poor value. Denmark’s subsidies, for example, pay almost €6,000 to avoid one ton of CO2 emissions. Purchasing a similar amount in the European Emissions Trading System would cost about €5. For the same money, Denmark could have reduced CO2 emissions more than a thousand-fold.
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Chinese Auto Market Shifts Toward Larger Cars - NYTimes.com - 0 views
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Virtually all of the vehicles sold in China are manufactured either by Chinese automakers or, more often, by multinationals in joint manufacturing ventures with Chinese automakers. Most Chinese automakers in turn are owned by local governments that also have considerable control over local courts, making the automakers nearly invulnerable to private litigation.
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Mr. Socia of G.M. and other executives said that their factories could barely keep up with demand in China.
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New-Car Sales Fall 10.2% in Europe, Continuing Slump - NYTimes.com - 0 views
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New vehicle registrations in the European Union fell 10.2 percent from a year ago, the European Automobile Manufacturers’ Association reported from Brussels,
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Across Europe, more than 26 million men and women are unemployed, according to official data,
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the overall economy is expected to contract in 2013 for a second straight year.
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“We expect the French, Italian and Spanish markets to continue their decline over the rest of the year in the absence of any major government intervention to encourage vehicle buying or replacement,” he said.
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The data released on Wednesday showed that sales in Germany, the largest economy in the European Union, fell 17.1 percent.
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The Collateral Damage of Europe's Rescue by Hans-Werner Sinn - Project Syndicate - 0 views
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According to a study by Goldman Sachs, France would have to depreciate by around 20% relative to the eurozone average, and by about 35% vis-à-vis Germany, to restore external-debt sustainability.
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In order to stop these securities’ downward slide – and thus to save itself – the ECB bought these government bonds and announced that, if need be, it would do so in unlimited amounts.
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In short, Europe’s rescue policy is making the eurozone’s most serious problem – the troubled countries’ profound loss of competitiveness – even more difficult to solve.CommentsView/Create comment on this paragraph
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Op-Ed Columnist - The Making of a Euromess - NYTimes.com - 0 views
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No, the real story behind the euromess lies not in the profligacy of politicians but in the arrogance of elites — specifically, the policy elites who pushed Europe into adopting a single currency well before the continent was ready for such an experiment.
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Consider the case of Spain, which on the eve of the crisis appeared to be a model fiscal citizen.
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But with its warm weather and beaches, Spain was also the Florida of Europe — and like Florida, it experienced a huge housing boom. The financing for this boom came largely from outside the country: there were giant inflows of capital from the rest of Europe, Germany in particular.
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The result was rapid growth combined with significant inflation: between 2000 and 2008, the prices of goods and services produced in Spain rose by 35 percent, compared with a rise of only 10 percent in Germany. Thanks to rising costs, Spanish exports became increasingly uncompetitive, but job growth stayed strong thanks to the housing boom.
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Then the bubble burst.
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But the flood of red ink
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was a result, not a cause, of Spain’s problems.
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The nation’s core economic problem is that costs and prices have gotten out of line with those in the rest of Europe. If Spain still had its old currency, the peseta, it could remedy that problem quickly through devaluation — by, say, reducing the value of a peseta by 20 percent against other European currencies. But Spain no longer has its own money, which means that it can regain competitiveness only through a slow, grinding process of deflation.
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Now, if Spain were an American state rather than a European country, things wouldn’t be so bad. For one thing, costs and prices wouldn’t have gotten so far out of line: Florida, which among other things was freely able to attract workers from other states and keep labor costs down, never experienced anything like Spain’s relative inflation. For another, Spain would be receiving a lot of automatic support in the crisis: Florida’s housing boom has gone bust, but Washington keeps sending the Social Security and Medicare checks. But Spain isn’t an American state, and as a result it’s in deep trouble.
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None of this should come as a big surprise. Long before the euro came into being, economists warned that Europe wasn’t ready for a single currency.
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What we’ll probably see over the next few years is a painful process of muddling through: bailouts accompanied by demands for savage austerity, all against a background of very high unemployment, perpetuated by the grinding deflation I already mentioned.
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Yes, some governments were irresponsible; but the fundamental problem was hubris, the arrogant belief that Europe could make a single currency work despite strong reasons to believe that it wasn’t ready. More Articles in Opinion »
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Op-Ed Columnist - The Euro Trap - NYTimes.com - 0 views
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The fact is that three years ago none of the countries now in or near crisis seemed to be in deep fiscal trouble.
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And all of the countries were attracting large inflows of foreign capital, largely because markets believed that membership in the euro zone made Greek, Portuguese and Spanish bonds safe investments.
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Then came the global financial crisis. Those inflows of capital dried up; revenues plunged and deficits soared; and membership in the euro, which had encouraged markets to love the crisis countries not wisely but too well, turned into a trap.
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During the years of easy money, wages and prices in the crisis countries rose much faster than in the rest of Europe. Now that the money is no longer rolling in, those countries need to get costs back in line.
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Now that Greece and Germany share the same currency, however, the only way to reduce Greek relative costs is through some combination of German inflation and Greek deflation. And since Germany won’t accept inflation, deflation it is.
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The problem is that deflation — falling wages and prices — is always and everywhere a deeply painful process. It invariably involves a prolonged slump with high unemployment. And it also aggravates debt problems, both public and private, because incomes fall while the debt burden doesn’t.
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Earlier this week, when it downgraded Greek debt, Standard & Poor’s suggested that the euro value of Greek G.D.P. may not return to its 2008 level until 2017, meaning that Greece has no hope of growing out of its troubles.
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Until recently, most analysts, myself included, considered a euro breakup basically impossible, since any government that even hinted that it was considering leaving the euro would be inviting a catastrophic run on its banks. But if the crisis countries are forced into default, they’ll probably face severe bank runs anyway, forcing them into emergency measures like temporary restrictions on bank withdrawals. This would open the door to euro exit.
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Op-Ed Columnist - Bubbles and the Banks - NYTimes.com - 0 views
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Bear in mind that the implosion of the 1990s stock bubble, while nasty — households took a $5 trillion hit — didn’t provoke a financial crisis. So what was different about the housing bubble that followed?
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The short answer is that while the stock bubble created a lot of risk, that risk was fairly widely diffused across the economy. By contrast, the risks created by the housing bubble were strongly concentrated in the financial sector. As a result, the collapse of the housing bubble threatened to bring down the nation’s banks. And banks play a special role in the economy. If they can’t function, the wheels of commerce as a whole grind to a halt.
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Why did the bankers take on so much risk? Because it was in their self-interest to do so.
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Of course, that conflict of interest is the reason we have bank regulation. But in the years before the crisis, the rules were relaxed — and, even more important, regulators failed to expand the rules to cover the growing “shadow” banking system, consisting of institutions like Lehman Brothers that performed banklike functions even though they didn’t offer conventional bank deposits.
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And here’s the thing: Since that aid came with few strings — in particular, no major banks were nationalized even though some clearly wouldn’t have survived without government help — there’s every incentive for bankers to engage in a repeat performance.
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The Two Innovation Economies by William Janeway - Project Syndicate - 0 views
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The strategic technologies that have repeatedly transformed the market economy – from railroads to the Internet – required the construction of networks whose value in use could not be known when they were first deployed.
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Consequently, innovation at the frontier depends on funding sources that are decoupled from concern for economic value;
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Financial speculation has been, and remains, one required source of funding. Financial bubbles emerge wherever liquid asset markets exist. Indeed, the objects of such speculation astound the imagination: tulip bulbs, gold and silver mines, real estate, the debt of new nations, corporate securities.
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Complementing the role of speculation, activist states have played several roles in encouraging innovation.
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Occasionally, the object of speculation has been one of those fundamental technologies – canals, railroads, electrification, radio, automobiles, microelectronics, computing, the Internet – for which financial speculators have mobilized capital on a scale far beyond what “rational” investors would provide. From the wreckage that has inevitably followed, a succession of new economies has emerged.
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In the United States, the government constructed transformational networks (the interstate highway system), massively subsidized their construction (the transcontinental railroads), or played the foundational role in their design and early development (the Internet).
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For countries following an innovative leader, the path is clear. Mercantilist policies of protection and subsidy have been effective instruments of an economically active state.
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List noted how Britain’s emergence as “the first industrial nation” at the end of the eighteenth century depended on prior state policies to promote British industry. “Had the English left everything to itself,” he wrote, “the Belgians would be still manufacturing cloth for the English, [and] England would still have been the sheepyard for the [Hanseatic League].”
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To begin, the “national champions” of the catch-up phase must be rendered accessible to competitive assault. More generally, the state’s role must shift from executing well-defined programs to supporting trial-and-error experimentation and tolerating entrepreneurial failure. And the debilitating “corruption tax” that seems inevitably to accompany economic revolutions must be curbed, as it was in Britain during the nineteenth century and America during the twentieth.
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Europe in Depression? by Federico Fubini - Project Syndicate - 0 views
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For Italy, Europe’s fourth-largest economy, the current slump is proving to be deeper than the one 80 years ago. Meanwhile, huge savings and potential demand for consumer and capital goods remain locked up next door.
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How did this happen? As Kemal Derviş has pointed out, the cumulated current-account surplus of the Scandinavian countries, the Netherlands, Austria, Switzerland, and Germany is now around $500 billion. This dwarfs China’s surplus at its mercantilist peak of the mid-2000’s, when the G-7 (including Germany) regularly scolded the Chinese for fueling global imbalances.
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The second exception is France. Over the last year, France’s external deficit deteriorated further, from a 2.4% to 3.5% of GDP. France now faces zero or negative growth in 2013, and seems to have reached the point at which it must reverse course on competitiveness or risk more trouble ahead.
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For example, in November 2011, interest rates on Italian sovereign bonds were around 8% all along the curve, even as the government faced refinancing needs totaling nearly 30% of GDP over the following year. Because debt monetization was not an option, austerity had to ensue at that point, regardless of what Merkel – or anyone else – had to say.
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Southern countries, still largely in denial, should accept the need for deeper, competiveness-enhancing reforms. Germany and its allies, for their part, should accept that running high external surpluses is damaging the eurozone and themselves, and that it is time for them to put part of their huge excess savings to work to support growth.
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Sting operations reveal Mafia involvement in renewable energy - The Washington Post - 0 views
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But as he attempted to sidestep a push by organized crime to control the renewables sector — eschewing efforts to use mob-connected developers and refusing to make a customary payments of 2 percent of profits — his business came under attack.
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“It’s not only the criminal infiltration but the corrupt bureaucracy that makes it difficult to do business here,” Moncada said.
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Indeed, the mafia has targeted legitimate businesses in Sicily beyond renewable energy, with a 2008 probe revealing the island’s largest supermarket chain to be a front for mafia cash.
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Citing its poor finances and a mountain of debt, the Italian government is now curbing new subsidies for renewable energies.
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Luring Back the Chinese Who Study Abroad - Room for Debate - NYTimes.com - 0 views
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First, the rate of return has remained approximately 30 percent for decades.
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in 2009, more than 240,000 Chinese students went abroad to study at all levels — high school, undergraduate and graduate degrees, a tenfold increase over 2004.
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Second, the return rate among Chinese who received Ph.D.’s in the United States is shockingly low. Approximately 92 percent of all Chinese who received a science or technology Ph.D. in the U.S. in 2002 were still in the U.S. in 2007. This rate was well above India’s, which is in second place with 81 percent.
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In late 2008, the Chinese Communist Party began the “1,000 Talents” program, aimed at these supremely talented Chinese. Through a wide variety of terrific incentives — sometimes as much as $1 million — the party has encouraged academic and research institutes, as well as municipal governments, to “bring back the best.”
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Most important, it must weaken the power of academic and scientific administrators.
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Similarly, in many institutions, promotion depends on your relationship with the dean or senior faculty and not your academic pedigree.
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Returnees, or those who hesitate to return, often say that in China, “personal relationships are too complex” – a code for the backstabbing and petty jealousies and the need to cultivate ties with leaders in your own field.
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Tunisia enters 'phase of absurdity' - FT.com - 0 views
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“No development model will be able to find a solution to unemployment,” he says bluntly, citing the grim reality that at about 800,000 are already unemployed and another 100,000 enter the labour force every year. “The best we can do is create 100,000 jobs a year but you still have the 800,000. The solution should be immigration. There’s no other way.”
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But to where?
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The government also has raised with European partners the prospect of absorbing some of the highly skilled graduates. But while immigration could alleviate some of the pressure, surely it cannot be the solution.