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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

General Electric Adds to Its 'Industrial Internet' - NYTimes.com - 0 views

bits.blogs.nytimes.com/...dds-to-its-industrial-internet

big data internet

shared by Gene Ellis on 10 Jan 14 - No Cached
  • “The rise of industrial big data is moving at twice the speed of other big data. That’s a great opportunity.” said William Ruh, the head of global software at G.E. “There’s all kinds of experiences that we’re going to create.”
  • The other is a kind of application software to help power companies figure out how to best build out and operate their turbines. By October, G.E. hopes to have similar applications out for railway, mining, and oil and gas companies.
  • Effectively, G.E. is taking the data-driven tools and strategies used by Google and Facebook to the much larger global economy.
  • ...7 more annotations...
  • G.E. already manages more than 100 million data-gathering “tags” on its products, and foresees putting out far more than that while also collecting sensor data around the surrounding environment.
  • By 2020, GE figures, total spending on the Industrial Internet will be $23 billion. Better management of processes and understanding of systems will yield $1.279 trillion in value, the company said.
  • What G.E. does not yet have nailed is just how its new products will be used.
  • Cisco Systems is in the middle of an “Internet of Everyhing” strategy that involves selling software and services for a world rich in sensors. This is aimed more at things like traffic and water systems than manufacturing, however.
  • Phillips is also offering data-gathering connectivity in both its health care and lighting products, hoping to boost the efficiency of things like a patient’s medication adherence, or tuning lights
  • compliment
  • “Everybody knows they’ll need this technology, but they don’t know exactly what they’ll do with it yet,”
Gene Ellis

A European Energy Executive's Delicate Dance Over Ukraine - NYTimes.com - 0 views

www.nytimes.com/...licate-dance-over-ukraine.html

shared by Gene Ellis on 19 Feb 15 - No Cached
  • A European Energy Executive’s Delicate Dance Over Ukraine
  • Major Western oil companies like BP and Exxon Mobil have extensive exploration deals in Russia that they fear could be jeopardized if the United States and European Union impose stiffer sanctions on the Putin regime.
  • “This is by far the toughest time for European energy security that I have seen,” said Mr. Scaroni. “This issue might stop the supply of Russian gas.”
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  • The goal is to be able to ship gas to Ukraine at an annual rate of more than three billion cubic meters by the time the heating season begins in the autumn, increasing the flow to up to 10 billion cubic meters annually by next spring. Last year Ukraine imported nearly 30 billion cubic meters of gas, according to a recent report by the Oxford Institute for Energy Studies.
  • Part of his message is that, even though gas demand in Europe has been weak because of sluggish economies, imports from Russia actually rose last year by about 16 percent as other sources of supply including Norway and Algeria declined. Europe, he warned, is simply not prepared to do without gas from Russia.
  • But with the gradual introduction of more competitive pricing in the European markets, the gas business has become much less attractive for ENI and other big gas middlemen. They are stuck with high-priced long-term contracts to a handful of suppliers like Gazprom and Sonatrach, the Algerian state-owned company, while their customers are able to secure gas at often lower spot market prices — assuming the gas is flowing.
  • The pipeline would be a major new source of Russian gas for energy-hungry Europe. But European Union authorities have become deeply skeptical about the South Stream plan, seeing it as just another way of making Europe more dependent on Russian energy.
  • Given the balance of interests, tighter sanctions by Western governments might more likely aim to stem the technology that Russia needs to increase its future production, rather than to cut off gas supplies to Europe,
  • hose outages in 2006 and 2009 are a top reason that the European Union had already been trying to chip away at Europe’s dependence on Russia even before the Crimea annexation.
  • One of the most acrimonious battles is between the bloc’s antitrust authorities and Gazprom. That standoff began in 2011 when the European Commission carried out surprise raids on natural gas companies across Europe, including Gazprom affiliates, seeking evidence of blocking access to networks, charging excessive prices and raising barriers to diversification of supplies.
  • That is partly because powerful Eastern European countries like Poland argue that such clean-energy policies would impede their ability to reduce Russian dependence by mining more coal or developing their own shale gas resources.
  • nd this month, the European Commission issued rules aimed at reducing the subsidies that governments use to support the wind and solar industries,
Gene Ellis

As Panama Canal Expands, West Coast Ports Scramble to Keep Big Cargo Vessels - NYTimes.com - 0 views

www.nytimes.com/...cramble-to-keep-big-ships.html

shared by Gene Ellis on 05 Feb 15 - No Cached
  • Making Everything Shipshape
  • The ports in Tacoma, Seattle, Oakland, Los Angeles, Long Beach and elsewhere offer much shorter sailing times than Gulf Coast and East Coast ports. But for shippers of some goods, the web of logistics, including trucks and railroads, ends up being less expensive if they go through the Panama Canal.
  • While the widened Panama Canal will allow an all-water route for big ships to the East Coast, the project — originally scheduled to open this year — has been plagued with construction delays. And the authorities have yet to announce toll charges for passing ships. In the end, it might be too expensive for some ships to use.
  • ...3 more annotations...
  • At the same time, sailing patterns may shift as Asian manufacturing continues to move from China to countries to the south, like Singapore and Vietnam, which are actually closer by sea to East Coast ports through the Suez Canal than to West Coast ports across the Pacific.
  • For trade with China, Prince Rupert’s appeal is proximity. Prince Rupert is two to three days closer than the western coast of the United States, helping ships cut fuel costs.
  • While the railways and truck lines in Canada have a history of labor instability, cargo carriers sailing into the country can avoid taxes levied by the United States government.
Gene Ellis

Big Banks' Tall Tales by Simon Johnson - Project Syndicate - 0 views

www.project-syndicate.org/...-of-megabanks-by-simon-johnson

shared by Gene Ellis on 25 Apr 13 - No Cached
  • In the second narrative, the world’s largest banks remain too big to manage and have strong incentives to engage in precisely the kind of excessive risk-taking that can bring down economies. Last year’s “London Whale” trading losses at JPMorgan Chase are a case in point. And, according to this narrative’s advocates, almost all big banks display symptoms of chronic mismanagement.
  • But a great myth lurks at the heart of the financial industry’s argument that all is well. The FDIC’s resolution powers will not work for large, complex cross-border financial enterprises.  The reason is simple: US law can create a resolution authority that works only within national boundaries. Addressing potential failure at a firm like Citigroup would require a cross-border agreement between governments and all responsible agencies.
  • I had the opportunity to talk with senior officials and their advisers from various countries, including from Europe. I asked all of them the same question: When will we have a binding framework for cross-border resolution?CommentsView/Create comment on this paragraphThe answers typically ranged from “not in our lifetimes” to “never.” Again, the reason is simple: countries do not want to compromise their sovereignty or tie their hands in any way.
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  • This form of government support amounts to a large implicit subsidy for big banks.
  • What other part of the corporate world has the ability to drive the global economy into recession, as banks did in the fall of 2008?
Gene Ellis

China's Hurdle to Fast Action on Climate Change - NYTimes.com - 0 views

www.nytimes.com/...ct-fast-on-climate-change.html

shared by Gene Ellis on 18 Feb 15 - No Cached
  • China’s Hurdle to Fast Action on Climate Change
  • Any hopes that American commitments to cut carbon emissions will have a decisive impact on climate change rely on the assumption that China will reciprocate and deliver aggressive emission cuts of its own.
  • Fast economic growth in China and India is projected to fuel a substantial increase in carbon pollution over coming decades, despite big improvements in energy efficiency and the decarbonization of their energy supply
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  • The country accounts for over a quarter of global greenhouse gas emissions.
  • Over the next 20 years, China’s CO2 emissions will grow by an amount roughly equal to the United States’ total emissions today,
  • Even assuming that China’s population does not grow at all over the next 30 years, that the energy efficiency of its economy increases at a faster pace than most developed and developing countries and that it manages to decarbonize its energy sources faster than pretty much anybody else, China would still be emitting a lot more carbon in 2040 than it does today, according to E.I.A. calculations.
  • Can the United States or anybody else do anything to speed China down a low-carbon path?
  • The latest report from the United Nations Intergovernmental Panel on Climate Change, issued in April, suggested several ways to allot responsibilities. If one starts counting in the 18th century and counts only emissions from industry and energy generation, the United States is responsible for more than a quarter of all greenhouse gases that humanity has put into the air. China, by contrast, is responsible for 10 percent.But if one starts counting in 1990, when the world first became aware that CO2 was a problem, and includes greenhouse gases emitted from changes in land use, the United States is responsible for only 18 percent, and China’s share rises to 15 percent. Rich and poor countries, unsurprisingly, disagree on the proper measure. Photo
  • Not everybody will meet their Copenhagen pledges. Japan, which unplugged its nuclear energy after the disaster at the Fukushima nuclear power plant, will fall behind. So will Canada and Australia, whose new conservative governments have lost interest in the pledges of their predecessors.
Gene Ellis

Carmakers Are Central Voice in U.S.-Europe Trade Talks - NYTimes.com - 0 views

www.nytimes.com/...for-us-europe-trade-talks.html

shared by Gene Ellis on 18 Feb 15 - No Cached
  • With the dexterity of thieves stripping a vehicle for parts, they remove each van’s engine, bumpers, tires, drive shaft, fuel tank and the exhaust system.
  • Next, the crews pack everything into steel freight containers, which begin a journey by river barge and cargo ship to Ladson, S.C., near the port of Charleston. There, American teams put the vans back together again.
  • It would be more efficient to ship the vans in one piece, of course. But with current trade rules, efficiency is seldom the goal.
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  • Daimler’s stripped-down vans travel by cargo ship to Ladson, S.C., where a token portion of assembly occurs to avoid a costly American tariff.
  • It was first imposed on European light trucks during the 1960s in retaliation for German and French trade restrictions on American chickens.
  • The importance of European-American auto production, meanwhile, was highlighted by Volkswagen’s announcement on Monday that it would open a new production line in Chattanooga, Tenn., to make sport utility vehicles.
  • In Europe, discussion about the economic benefits of an agreement has been overshadowed by fears that more open trade would expose the Continent to what are widely perceived as less stringent safety and environmental standards in the United States. (And once again, chickens play a big role.)
  • Trucks, cars and other transportation equipment such as airplanes make up the second-biggest category of merchandise traded between the United States and Europe, just behind chemicals.
  • n the first three months of 2014 alone, the United States exported $2.6 billion in motor vehicles and parts to the European Union, and imported $12.3 billion worth.
  • The engines and other components used in Freightliner heavy trucks made in Portland, Ore., are similar to those installed in Mercedes-Benz heavy trucks made in Wörth, Germany. But Daimler must design and engineer many parts twice — and submit them for regulatory certification twice — to meet different United States and European rules.
  • The reason that Daimler goes to the trouble of finishing assembly in Germany in the first place is that the vehicles must be test-driven before they leave the factory. It would be too costly to set up a separate testing operation in the United States, the company said.
  • Industries like chemicals and pharmaceuticals are even trickier, and food is a particularly emotional issue in Europe.
  • there is a fixation on American chickens disinfected with chlorine, which local consumers find repellent
Gene Ellis

Once Celebrated in Russia, the Programmer Pavel Durov Chooses Exile - NYTimes.com - 0 views

www.nytimes.com/...pavel-durov-chooses-exile.html

shared by Gene Ellis on 18 Feb 15 - No Cached
  • Once Celebrated in Russia, the Programmer Pavel Durov Chooses Exile
  • Mr. Putin’s big challenge is falling oil prices, which Mr. Durov calls “the only chance” for economic and political reform.“When the petrol prices are high, there is no incentive for those reforms,” he said. “It can stay like this forever; nobody really cares.”
  • Mr. Durov has also described himself, with tongue in cheek, as a Pastafarian, a quirky atheistic “faith” that can involve wearing a colander on your head.
Gene Ellis

German and French banks call the shots - European, Business - Independent.ie - 0 views

www.independent.ie/...ks-call-the-shots-2607577.html

german french banks ireland debt

shared by Gene Ellis on 11 Jul 12 - No Cached
  • German and French banks call the shots Print Email  NormalLargeExtra Large ShareNew  0  0   Also in European Debt crisis: European shares edge lower and growth worries persist Bank of England's Tucker 'wasn't encouraged to lean on Barclays' Draghi keeps door open to further interest rate cuts Marks and Spencers sales hit by summer deluge Spain's debt tops 7pc danger level as Madrid gets more time European Home "Shocking" 2012 HoroscopeWhat Does 2012 Have In Store For You? Shockingly Accurate. See Free!www.PremiumAstrology.comExpat Health InsuranceQuick, Compare, Trusted Website Expatriate Health Insurance Quoteswww.ExpatFinder.com/Instant-Quoteshttp://www.googleadservices.com/pagead/aclk?sa=L&ai=BMEejVeb8T8fDKoSG_QaAhrTCB-q_1OYBmoqphxvAjbcB0NkREAMYAyDgw6kIKAU4AFD4gumFAmCpsL6AzAGgAairsfEDsgESd3d3LmluZGVwZW5kZW50LmllyAEB2gFfaHR0cDovL3d3dy5pbmRlcGVuZGVudC5pZS9idXNpbmVzcy9ldXJvcGVhbi9nZX
  • d, for reasons best
  • known to itself, the ECB -- in clear contravention of both previous market precedent and financial logic -- has insisted that the senior bondholders be repaid in full and has lent the Irish banks, institutions which it must have known were hopelessly insolvent, €70bn to do so.
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  • Top of the list are German banks, to whom we owe €92bn with a further €38bn of other exposures. Does the fact that Irish banks potentially owe their counterparts up to €146bn explain the German government's implacable opposition to any write-down of the Irish banks' debts? After the British and the Germans, it is the French banks -- with total Irish bank loans of almost €32bn and a further €23bn of other exposures -- who have the biggest exposure to Ireland. Does this provide at least a partial explanation for French president Nicolas Sarkozy's truculence when faced with Irish requests that senior bondholders be forced to accept a haircut?
Gene Ellis

Cyprus adds to Europe's confusion - FT.com - 0 views

www.ft.com/...4a-11e2-a4fa-00144feabdc0.html

shared by Gene Ellis on 29 Mar 13 - No Cached
  • First, the eurozone does indeed have the capacity to do the right thing in the end, though not before first exhausting all the alternatives.
  • It protects the small deposits and imposes a rational resolution process.
  • Second, a euro is indeed not a euro everywhere.
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  • A consensus on the principle that creditors, not taxpayers, should pay if a bank becomes insolvent does not yet exist across the eurozone. Does anybody imagine the German government would not rescue Deutsche Bank if it were in trouble? Of course it would.
  • Yet, as Guntram Wolff of Bruegel notes, a currency union with internal exchange controls is a contradiction in terms. Only the willingness of the European Central Bank to finance Cypriot banks without limit could end these controls in the near future. Will it be willing to act soon?
  • The outcome in Cyprus underlines the fact that the value of a euro of bank liabilities depends on the solvency of the bank itself and the solvency of the government standing behind the bank. If both bank and state are insolvent, lenders are likely not only to lose a big proportion of their money outright, but to find that the rest is frozen behind controls,
  • The ideal conclusion from the Cypriot imbroglio would be that all eurozone banks should have more capital.
  • A final lesson of this crisis is that what I have called the “bad marriage” that binds the eurozone members together has become worse.
  • Thus the eurozone limps on through crisis after crisis. Can – or will – this continue indefinitely? I do not know.
Gene Ellis

"A Centerless Euro Cannot Hold" by Kenneth Rogoff | Project Syndicate - 0 views

www.project-syndicate.org/...a-centerless-euro-cannot-hold

euro hold kenneth project syndicate GDP

shared by Gene Ellis on 05 Apr 12 - No Cached
  • The bad news is that it has become increasingly clear that, at least for large countries, currency areas will be highly unstable unless they follow national borders.
  • With youth unemployment touching 50% in eurozone countries such as Spain and Greece, is a generation being sacrificed for the sake of a single currency that encompasses too diverse a group of countries to be sustainable?
  • What of Nobel Prize winner Robert Mundell’s famous 1961 conjecture that national and currency borders need not significantly overlap? In his provocative American Economic Review paper “A Theory of Optimum Currency Areas,” Mundell argued that as long as workers could move within a currency region to where the jobs were, the region could afford to forgo the equilibrating mechanism of exchange-rate adjustment.
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  • if intra-eurozone mobility were anything like Mundell’s ideal, today we would not be seeing 25% unemployment in Spain while Germany’s unemployment rate is below 7%.CommentsView/Create comment on this paragraph
  • Peter Kenen argued in the late 1960’s that without exchange-rate movements as a shock absorber, a currency union requires fiscal transfers as a way to share risk.
  • Europe, of course, has no significant centralized tax authority, so this key automatic stabilizer is essentially absent.
  • Many Germans today rightly feel that any system of fiscal transfers will morph into a permanent feeding tube, much the way that northern Italy has been propping up southern Italy for the last century. Indeed, more than 20 years on, Western Germans still see no end in sight for the bills from German unification.
  • Later, Maurice Obstfeld pointed out that, in addition to fiscal transfers, a currency union needs clearly defined rules for the lender of last resort. Otherwise, bank runs and debt panics will be rampant. Obstfeld had in mind a bailout mechanism for banks, but it is now abundantly clear that one also needs a lender of last resort and a bankruptcy mechanism for states and municipalities.
  • A logical corollary of the criteria set forth by Kenen and Obstfeld, and even of Mundell’s labor-mobility criterion, is that currency unions cannot survive without political legitimacy,
  • European policymakers today often complain that, were it not for the US financial crisis, the eurozone would be doing just fine. Perhaps they are right. But any financial system must be able to withstand shocks, including big ones.
Gene Ellis

David Ignatius: Mervyn King's hard lessons in Keynesian economics - The Washington Post - 0 views

www.washingtonpost.com/...2-b6fd-ba6f5f26d70e_story.html

king lessons economics

shared by Gene Ellis on 25 Apr 13 - No Cached
  • As King struggled with the crisis, he concluded that the biggest vulnerability was the solvency of the banking system itself. The crash wasn’t just a liquidity squeeze caused by toxic assets; the problem was that big banks around the world were undercapitalized and, in many cases, insolvent.
  • King pushed the banks to recapitalize and, later, to accept more regulation. This upset a financial elite that, as King says, was the only sector of the British economy that had escaped the market revolution of the Margaret Thatcher years.
  • For King, the past decade reinforced the lessons Keynes drew from the 1930s: One is the psychological quirkiness of investors, which Keynes described as “animal spirits” on the upside and “extreme liquidity preference” on the down.
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  • Then and now, monetary policy could not persuade frightened people to spend and invest.
  • The second Keynesian lesson was the need for some international structure to balance surplus and deficit nations.
  • Those global institutions are weak, but the real crisis has been within the euro zone, which has no effective internal balancing mechanism: It lacks a federal structure to transfer money from surplus Germany to deficit Greece, and it lacks flexible internal exchange rates that could allow a Greece or Spain to devalue its currency and find its own equilibrium.
  • Europe has responded to the crisis with the very British approach of muddling through, but King predicts it won’t work. Creating a true federal union, while an admirable goal, will be the work of a hundred years; the only quick way for countries to adjust is the breakup of the euro zone. King thinks the euro zone must confront the basic choice between accepting a transfer union or changing the membership of the monetary union. “Muddling through” isn’t a serious option.
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

The tragedy of Argentina: A century of decline | The Economist - 0 views

www.economist.com/...hat-went-wrong-century-decline

shared by Gene Ellis on 19 Feb 14 - No Cached
  • The tragedy of Argentina A century of decline
  • In the 43 years leading up to 1914, GDP had grown at an annual rate of 6%, the fastest recorded in the world.
  • The country ranked among the ten richest in the world, after the likes of Australia, Britain and the United States, but ahead of France, Germany and Italy.
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  • Its income per head was 92% of the average of 16 rich economies
  • Its income per head is now 43% of those same 16 rich economies; it trails Chile and Uruguay in its own back yard.
  • 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.
Gene Ellis

EZ crisis and historical trilemmas | vox - 0 views

www.voxeu.org/...risis-and-historical-trilemmas

shared by Gene Ellis on 30 Oct 13 - No Cached
  • The big difference in the EZ is that nations cannot go off the euro as they went off the gold standard
  • A major part of Lenin’s analysis, for instance, was devoted to the demonstration that Russia had become a quasi-colony as a result of the large scale capital imports, and that the foreign creditors in effect controlled Russia’s foreign policy.
  • The linkages of these issues can be summarized as a series of impossible trinities or trilemmas.
  • ...5 more annotations...
  • 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.
  • The implicit national government backstop was really only credible because of the international commitment to the European integration project. It was that commitment that led markets to believe that – in spite of the no bailout provisions of the Maastricht Treaty – there were almost no limits to the amount to which debt levels could accumulate both in the private and the public sector.
  • When the democratic/popular backlash occurs, it takes the form of rejection of international/cross-border political commitment mechanism.
  • Opinion poll data shows a major increase in hostility to the EU in peripheral countries, but with no corresponding unpopularity of the common currency.
Gene Ellis

Germany's strange parallel universe - FT.com - 0 views

www.ft.com/...89-11e3-8905-00144feab7de.html

shared by Gene Ellis on 29 Oct 13 - No Cached
  • Germany experienced a mild recession in 2003; today’s vulnerable countries are suffering depressions.
  • today’s vulnerable countries are pursuing adjustment in a period of chronically weak demand.
  • They have to improve their competitiveness. But the only one in which nominal wages have fallen substantially is Greece. Elsewhere, it is rising productivity that has improved competitiveness. But that is the other side of the coin from the unemployment.
  • ...5 more annotations...
  • All these countries are going to end up with gross public debt at more than 100 per cent of GDP. This will be hard to manage.
  • Ongoing fiscal transfers seem neither desirable nor feasible.
  • But better insurance mechanisms for sovereigns and banks are needed in the long run. Yet all this will be academic if the eurozone does not allow its members to return to economic health over a reasonable time period.
  • Meanwhile, Germany is redirecting its surpluses outside the eurozone.
  • But it also will not work, for two reasons: first, the eurozone is far too big to achieve export-led growth, as Germany has done; and, second, the currency is likely to appreciate still further, thereby squeezing the less competitive economies all over again.
Gene Ellis

Europe has to do whatever it takes - FT.com - 0 views

www.ft.com/...49-11e4-8472-00144feabdc0.html

shared by Gene Ellis on 05 Feb 15 - No Cached
  • Europe has to do whatever it takes By Martin Wolf
  • Astonishingly, yields on Italian and Spanish 10-year debt have fallen from 6.3 per cent and 7.0 per cent, respectively, at the beginning of August 2012, to a mere 2.3 and 2.1 per cent early this month. That is below the yield on UK gilts.
  • Fiscal policy also continues to tighten, even though interest rates are at the zero bound: the OECD has forecast that the cyclically adjusted fiscal deficit of the eurozone would shrink from a mere 1.4 per cent in 2013 to an even more austere 0.9 per cent in 2014.
  • ...8 more annotations...
  • Huge divergences in competitiveness remain
  • This is forcing vulnerable countries into deflation, which raises the real level of their debt.
  • Furthermore, it is clear that the ECB would be taking on credit risk. It would be charged with monetary financing of governments. I believe it should go ahead. But the row between northern and southern Europe would surely be deafening.
  • It also hopes that, through this and other programmes it has announced, it will be able to expand its balance sheet
  • back to where it was two years ago.
  • Moreover, the range of measures taken reinforce the ECB’s forward guidance. It has locked itself into ultra-accommodative monetary policies for years, as it should.
  • this year Germany’s current account surplus might be as big as 8 per cent of gross domestic product.
  • What else is left? One possibility, suggested in Mr Draghi’s speech, is active use of fiscal policy.
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