Eurozone Public debt is heading towards Reinhart and Rogoff's magical (and somewhat mysterious) 90% of GDP, over $11 trillion which is, in short, a lot of cash. (I don't have specific numbers to be honest, but the numbers were based on estimates taken from here and here and partially also here it's worthing calling to attention how massively wrong the IMF's statistic's were, understating Eurozone debt by about 10-15% of GDP!).
Unsurprisingly (cough, as I predicted), the Commission has used this as an opportunity to promote integration.
Equally unsurprisingly, at least one National Government is cautious about ceding sovereignty to 'more Europe'. Perhaps a bit more surprising (but not really, given the context), the main national government opposing the move is Germany.
Nouriel Roubini, yet again finds himself the man of the hour after not just predicting in 2006 the (then) impending subprime mortgage crisis but also for warning, way ahead of the curve, of the serious risk of sovereign debt default in the Eurozone. Today, he has an interesting take on Europe's battalions of woes.
He makes the very important point that even if the ECB did take the leap of faith and start acting as a lender of last resort, that there's a good chance that someone in Germany is going to sue the ECB in the German Constitutional Court. Since the German Constitutional Court has a history of being jealous of the ECJ, the chances are pretty good that they would then win that case. Some ECB members could then face prosecution (urgh I saw this in a video a few days ago and can't find it now - readers, if any of you saw it, could you link it in the comments section on the blog?)!
Roubini's take is now that the most likely option is widespread debt-restructuring and a probable partial Euro-zone breakup. Other than 'nein' to all attempts at salvaging the Eurozone, its not clear what Merkel's response to Germany's failed bond auction will actually be.
The crisis is deepening day by day. Although French public debt looks not catastrophic on the face of things, the possibility of private debt being socialised in the event of peripheral defaults leading to bank insolvency is a serious threat (which, by the way, is what happened in Ireland which otherwise had been a very fiscally responsible country). French exposure to Italian debt is obscene. The data is a bit hard to pick through but from what I can make out, France is exposed to about half of Italy's externally owed sovereign debt according to the Bank of International Settlements.
At the same time, peripheral debt is either going to be taken on by Germany, the ECB, or Defaulted on. Right now, Merkel is effectively, forcefully insisting that it will be defaulted on. If it comes about, that will lead to massive payouts on Eurozone sovereign debt Credit Default Swaps and sovereign debt Derivatives (which Warren Buffet called in 2003, financial weapons of mass destruction- which could (and probably would) trigger a second financial crisis in the Eurozone, resembling the one that hit America after CDS's and CDO's on Sub-prime mortgages collapsed.
That scenario is sufficiently doomsday-esque that Merkel might, just might, be forced to pull back from it. But even if she does, there's no guarantee that ECB 'full fire power' intervention would actually save the situation. Since Euro-bonds are a more long term ambition anyway, there's no reason to think they are likely to make much impact in the short term.
The point of this post, other than to illustrate just how catastrophic the emerging and ever more likely doomsday scenario is, is to point out that one way of reading Germany's options is as a 'relative vs absolute' gains problem, common in the international relations literature.
Relative Gains become important when countries are more concerned about what happens to them relative to everyone else, as opposed to how well they do per se. For example, if Germany chooses a Doomsday scenario, even though salvaging the Eurzone would be better for everyone just because the costs of salvaging the Eurozone fall largely on Germany (note, Doomsday costs Germany even more, but it costs everyone equally) then it is making a relative gains decision.
An absolute gain decision would be if a country benefits from a decision, but not by as much as everyone else. Here, Germany would gain from saving the EU, but peripheral nations would likely gain even more. IF Germany went along with this, it would be making an absolute gains decision.
Realists in International Relations Theory tend to think countries, even the ones in the European Union, make decisions based on Relative Gains. Liberals think they make decisions based on Absolute Gains (at least on Economic Issues). This seems to me to be a possible test of that outcome.
Right now, things look good for the Realists.
Thursday, 24 November 2011
Saturday, 19 November 2011
Guest Blog - Occupy Can Make the World Better
I heard someone say recently: “I’m not naïve enough to think that camping outside St Paul’s cathedral is going to bring down capitalism”. Call them the sceptic.
The sceptic is saying: “Protesting is extremely unlikely to bring down capitalism. Even if bringing down capitalism is a worthy goal, why bother protesting?”
The obvious reply to the sceptic is: all movements for social change start out small. But they grow and grow, until success looks inevitable. So scepticism is premature. As Schopenhauer said, “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.”
Both the sceptic and the dreamer accept this assumption: if the movement directly brings down capitalism, then it has succeeded. Otherwise it has failed.
But that assumption is wrong. There are other reasons to protest.
Democracy
Everyone likes democracy.
The definitive element of democracy is the feedback loop from the citizens to the leaders. The citizens tell the leaders what they want. The leaders are supposed to do things that the citizens want. If the leaders don’t do this, the citizens can make them leave. Because leaders don’t want to leave, the policies adopted tend to be ones that the citizens mostly agree with.
In the UK, the way this works is through elections. But elections are a crude way of achieving this feedback loop.
The quantity of feedback is pretty terrible too: turnout is low, and we vote roughly once every four years. Information-wise, it’s a choice on a menu. Worse, there are only two real alternatives: so the information coming to the government is just a set of binary yes/no answers.
The quality of feedback is poor, too. Elections focus on the wrong issues. If elections are the only reason for people to think about politics, then they end up not being very well informed on the majority of issues. Moreover, they don’t get to decide what we are talking about.
There’s a lot of evidence for this, and it’s easily found, so I will confine myself to one example. Americans want, by a 2-1 margin or higher, depending on which poll you look at, universal healthcare. When was the last time you saw universal healthcare seriously discussed in a Republican debate, or a Democratic debate, or an election debate? Instead they’re talking about putting tariffs on China, which will help nobody and hurt lots of people.
Leaders end up talking about unimportant things, acting however they want, and selling this to the citizens – which is not how it’s supposed to work. And citizens end up feeling either apathetic or angry.
After the great recession happened, a lot of apathetic people became angry.
Protest
‘Protest’ is the wrong word. It implies people shouting, ‘I don’t like this.’
Occupy is an organization, discussing how to improve the way things work. It’s a part of ‘civil society’. Democratic theorists like ‘civil society’, because:
It increases the quantity of feedback going to the leaders, both directly, by expressing citizens’ views, and indirectly, by encouraging people to talk more about politics, about the economy, the environment, and all the other things that elites would rather the people didn’t pay that much attention to.
It also increases the quality of feedback: by discussing politics, and thinking about politics, people learn. And because the issues being talked about are important, the value of discussing these things is higher. Moreover, the organization itself is way more democratic than the government in charge of us, and the quality of views expressed is much better than the media would like us to believe.
If you’re a democrat, and someone tells you that we can improve the quality and quantity of feedback to the leaders, you would have to welcome that. Your attitude to the protests would be: “Excellent. Let’s listen to them, and let’s talk.”
Most people’s response was far more negative than that. So most people must be anti-democratic, even if they don’t realize it.
What if they don’t end up bringing down capitalism? Who cares? That’s the wrong goal.
They’re making democracy work better.
Social change
Our picture of revolutions, and social change, is of lots of people marching through the streets and a defeated government eventually giving in and changing a law, or stepping down and being replaced by a set of heroes.
That picture is wrong. Revolutions can be much more gradual. You might not be able to point to a specific time when they happened.
For example, it used to be OK to call gay people ‘fairies’ and all sorts of ugly names. Casual racism was a standard part of the landscape in 70s Britain, as was blatant, overt sexism.
Now that’s unthinkable: people are growing up who are almost race-blind, i.e. the distinction between a brown person and a white person is ceasing to matter to people, just like the distinction between a ‘noble’ and a ‘base’ origin person has completely moved out of our minds now. A generation ago, that was unthinkable. Similarly, whether someone’s gay or straight is seen as unimportant. But there wasn’t a revolution. Nothing huge happened; change was gradual.
But that doesn’t mean that it was inevitable: it happened because people did something about it. Slowly, they changed the way we talk and the way we think. And the result is that whether someone is gay or straight or brown or white is becoming as unimportant to our view of them as, say, what flavor of ice cream they prefer. It just doesn’t matter as much as it used to.
Even if the Occupy movement doesn’t succeed in bringing down capitalism, they could accomplish something different – and better, by changing the way we talk and think, and by changing what we are talking about. If they continue, they could change the way we see things – which means changing the world.
Why ask them to stop?
Today's Blog entry is a guest post from Nabeel Qureshi, Casberd Scholar of Politics and Economics at St John's College, Oxford University and contested President of the Mensch Committee.
The sceptic is saying: “Protesting is extremely unlikely to bring down capitalism. Even if bringing down capitalism is a worthy goal, why bother protesting?”
The obvious reply to the sceptic is: all movements for social change start out small. But they grow and grow, until success looks inevitable. So scepticism is premature. As Schopenhauer said, “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.”
Both the sceptic and the dreamer accept this assumption: if the movement directly brings down capitalism, then it has succeeded. Otherwise it has failed.
But that assumption is wrong. There are other reasons to protest.
Democracy
Everyone likes democracy.
The definitive element of democracy is the feedback loop from the citizens to the leaders. The citizens tell the leaders what they want. The leaders are supposed to do things that the citizens want. If the leaders don’t do this, the citizens can make them leave. Because leaders don’t want to leave, the policies adopted tend to be ones that the citizens mostly agree with.
In the UK, the way this works is through elections. But elections are a crude way of achieving this feedback loop.
The quantity of feedback is pretty terrible too: turnout is low, and we vote roughly once every four years. Information-wise, it’s a choice on a menu. Worse, there are only two real alternatives: so the information coming to the government is just a set of binary yes/no answers.
The quality of feedback is poor, too. Elections focus on the wrong issues. If elections are the only reason for people to think about politics, then they end up not being very well informed on the majority of issues. Moreover, they don’t get to decide what we are talking about.
There’s a lot of evidence for this, and it’s easily found, so I will confine myself to one example. Americans want, by a 2-1 margin or higher, depending on which poll you look at, universal healthcare. When was the last time you saw universal healthcare seriously discussed in a Republican debate, or a Democratic debate, or an election debate? Instead they’re talking about putting tariffs on China, which will help nobody and hurt lots of people.
Leaders end up talking about unimportant things, acting however they want, and selling this to the citizens – which is not how it’s supposed to work. And citizens end up feeling either apathetic or angry.
After the great recession happened, a lot of apathetic people became angry.
Protest
‘Protest’ is the wrong word. It implies people shouting, ‘I don’t like this.’
Occupy is an organization, discussing how to improve the way things work. It’s a part of ‘civil society’. Democratic theorists like ‘civil society’, because:
It increases the quantity of feedback going to the leaders, both directly, by expressing citizens’ views, and indirectly, by encouraging people to talk more about politics, about the economy, the environment, and all the other things that elites would rather the people didn’t pay that much attention to.
It also increases the quality of feedback: by discussing politics, and thinking about politics, people learn. And because the issues being talked about are important, the value of discussing these things is higher. Moreover, the organization itself is way more democratic than the government in charge of us, and the quality of views expressed is much better than the media would like us to believe.
If you’re a democrat, and someone tells you that we can improve the quality and quantity of feedback to the leaders, you would have to welcome that. Your attitude to the protests would be: “Excellent. Let’s listen to them, and let’s talk.”
Most people’s response was far more negative than that. So most people must be anti-democratic, even if they don’t realize it.
What if they don’t end up bringing down capitalism? Who cares? That’s the wrong goal.
They’re making democracy work better.
Social change
Our picture of revolutions, and social change, is of lots of people marching through the streets and a defeated government eventually giving in and changing a law, or stepping down and being replaced by a set of heroes.
That picture is wrong. Revolutions can be much more gradual. You might not be able to point to a specific time when they happened.
For example, it used to be OK to call gay people ‘fairies’ and all sorts of ugly names. Casual racism was a standard part of the landscape in 70s Britain, as was blatant, overt sexism.
Now that’s unthinkable: people are growing up who are almost race-blind, i.e. the distinction between a brown person and a white person is ceasing to matter to people, just like the distinction between a ‘noble’ and a ‘base’ origin person has completely moved out of our minds now. A generation ago, that was unthinkable. Similarly, whether someone’s gay or straight is seen as unimportant. But there wasn’t a revolution. Nothing huge happened; change was gradual.
But that doesn’t mean that it was inevitable: it happened because people did something about it. Slowly, they changed the way we talk and the way we think. And the result is that whether someone is gay or straight or brown or white is becoming as unimportant to our view of them as, say, what flavor of ice cream they prefer. It just doesn’t matter as much as it used to.
Even if the Occupy movement doesn’t succeed in bringing down capitalism, they could accomplish something different – and better, by changing the way we talk and think, and by changing what we are talking about. If they continue, they could change the way we see things – which means changing the world.
Why ask them to stop?
Today's Blog entry is a guest post from Nabeel Qureshi, Casberd Scholar of Politics and Economics at St John's College, Oxford University and contested President of the Mensch Committee.
Thursday, 17 November 2011
SOPA - Protecting the Internet
The internet is a truly amazing place. Despite concerns, which are probably true, that it has cost jobs in the western world, the internet has been a place for free expression (sometimes shockingly so), discussion, organization and so much more.
The real magic of the internet is its freedom. But that freedom, at least in the United States, is now seriously under threat. A bill that received a Congressional Hearing yesterday wants to, effectively, put an end to all that. The idea is supposed to be to protect intellectual property violations, which are, admittedly, widespread on the internet. But the law seeks to give the government the ability to effectively ban or blacklist websites on which users post violating links, videos or any other material. If the law had been in place, YouTube, Wikipedia and many other websites which we rely on today (quite probably including facebook and certainly including Google) would never have taken off.
Its absolutely critical to the future of free expression - and arguably therefore for humanity itself - that this bill does not go through.
This video provides a useful vantage point:
The real magic of the internet is its freedom. But that freedom, at least in the United States, is now seriously under threat. A bill that received a Congressional Hearing yesterday wants to, effectively, put an end to all that. The idea is supposed to be to protect intellectual property violations, which are, admittedly, widespread on the internet. But the law seeks to give the government the ability to effectively ban or blacklist websites on which users post violating links, videos or any other material. If the law had been in place, YouTube, Wikipedia and many other websites which we rely on today (quite probably including facebook and certainly including Google) would never have taken off.
Its absolutely critical to the future of free expression - and arguably therefore for humanity itself - that this bill does not go through.
This video provides a useful vantage point:
PROTECT IP Act Breaks The Internet from Fight for the Future on Vimeo.
For those keen to contribute ideas to the Occupy Movement
This is the link to contribute ideas to the occupy movement, as well as expressing your own views on how good currently submitted ideas are.
Occupy London Manifesto Voting
And this is the summary
Occupy London Manifesto Voting
And this is the summary
Links & E-petitions
Strictly off topic post, but may interest some readers:
Links to a few good reads:
Curious happenings at twitter
Martin Wolf vs Bob Diamond
Google takes another swipe at Apple (it all comes down to NFC, really)
Paul Krugman is wrong - and in an interesting way! (he says so himself)
Really interesting 1% datasets
Funny & Interesting post by Tim Harford on Polygamy
Links to a few E-Petitions:
Teach our kids to code
Tax Justice
Remove ban on gay people donating blood
Legalise cannabis
British Support for Palestinian Statehood
Links to a few good reads:
Curious happenings at twitter
Martin Wolf vs Bob Diamond
Google takes another swipe at Apple (it all comes down to NFC, really)
Paul Krugman is wrong - and in an interesting way! (he says so himself)
Really interesting 1% datasets
Funny & Interesting post by Tim Harford on Polygamy
Links to a few E-Petitions:
Teach our kids to code
Tax Justice
Remove ban on gay people donating blood
Legalise cannabis
British Support for Palestinian Statehood
Wednesday, 16 November 2011
The Great Unravelling
The European Central Bank intervened in debt markets yesterday & earlier today, driving down (ever so slightly) bond yields. Those bond yields are now already back up to where they were before the intervention, according to the FT.
French-German bond spreads have widened at an alarming rate, indicating that France is about to get sucked into the vortex of 'peripheral' countries with dubious abilities to handle their debt burdens.
Meanwhile unemployment climbs, with Youth Unemployment in the UK reaching the pretty scary figure of 1 million, with 2.62 million on the records unemployed in the UK. Growth in the first half of 2012 expected to be below 1% (in other words, the output gap is going to widen, if anything), and the only weapon governments are using to change this is the terminally ineffectual Quantitative Easing program, which they are hindering with fiscal austerity. Experience has shown us that the money is being using to shore up balance sheets, not lend to businesses and as a result the stimulative effect is very limited. QE should either be a 'helicopter drop' direct to businesses who need it, or else should come with strict lending requirements for the banks (for example, we can demand Banks improve balance sheets by doing more to raise capital, as opposed to shrinking assets). Consumer price inflation, by the way, is still at 5%, although it is expected to come down, since wage inflation is low.
At the same time, in the US, it is now expected that 2012 will be (another) recession year, according to the Federal Reserve Bank of San Francisco. That will hurt exports in the rest of the world, and could well prompt the election of Mitt Romney, who is arguing for what amounts to starting a Smoot-Hawley style trade war with China (which he excuses on the grounds that there is already a trade war going on between the two countries, apparently).
This really is a quite terrifying situation. If the Eurozone breaks up, as is looking ever more likely, then even the European Commission's cataclysmic prediction of 0.5% Eurozone growth in 2012 and 1.5% in 2013 look hugely optimistic (the same report puts recession in 2012 at a probability just a fraction under 50%).
This is all, very, VERY bad.
PS on the inflation issue, see this BoE report, which Krugman described as 'courageous'. The speed of declining Inflation estimates definitely look 'courageous' to me!
French-German bond spreads have widened at an alarming rate, indicating that France is about to get sucked into the vortex of 'peripheral' countries with dubious abilities to handle their debt burdens.
Meanwhile unemployment climbs, with Youth Unemployment in the UK reaching the pretty scary figure of 1 million, with 2.62 million on the records unemployed in the UK. Growth in the first half of 2012 expected to be below 1% (in other words, the output gap is going to widen, if anything), and the only weapon governments are using to change this is the terminally ineffectual Quantitative Easing program, which they are hindering with fiscal austerity. Experience has shown us that the money is being using to shore up balance sheets, not lend to businesses and as a result the stimulative effect is very limited. QE should either be a 'helicopter drop' direct to businesses who need it, or else should come with strict lending requirements for the banks (for example, we can demand Banks improve balance sheets by doing more to raise capital, as opposed to shrinking assets). Consumer price inflation, by the way, is still at 5%, although it is expected to come down, since wage inflation is low.
At the same time, in the US, it is now expected that 2012 will be (another) recession year, according to the Federal Reserve Bank of San Francisco. That will hurt exports in the rest of the world, and could well prompt the election of Mitt Romney, who is arguing for what amounts to starting a Smoot-Hawley style trade war with China (which he excuses on the grounds that there is already a trade war going on between the two countries, apparently).
This really is a quite terrifying situation. If the Eurozone breaks up, as is looking ever more likely, then even the European Commission's cataclysmic prediction of 0.5% Eurozone growth in 2012 and 1.5% in 2013 look hugely optimistic (the same report puts recession in 2012 at a probability just a fraction under 50%).
This is all, very, VERY bad.
PS on the inflation issue, see this BoE report, which Krugman described as 'courageous'. The speed of declining Inflation estimates definitely look 'courageous' to me!
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