Archive for February, 2013

UK Only Article: 
standard article

Issue: 

Send in the clowns

Fly Title: 

Italy's election

Rubric: 

How Beppe Grillo and Silvio Berlusconi threaten the future of Italy and the euro

Main image: 

20130302_LDP001_0.jpg

A SENSE of humour in adversity can be attractive, but it is not always useful. Confronted by the worst recession in their country since the 1930s and the possible implosion of Europe’s single currency, the people of Italy have decided to avoid reality. In this week’s election a quarter of the electorate—a post-war record—did not even bother to show up. Of those who did, almost 30% endorsed Silvio Berlusconi, whose ruinous policies as a clownish prime minister are a main cause of Italy’s economic woes. And a further 25% voted for the Five Star Movement, which is led by a genuine comedian, Beppe Grillo. By contrast, Mario Monti, the reform-minded technocrat who has led Italy for the past 15 months and restored much of its battered credibility, got a measly 10%.
This result is a …

via Economic Crisis http://www.economist.com/news/leaders/21572763-how-beppe-grillo-and-silvio-berlusconi-threaten-future-italy-and-euro-send?fsrc=rss

PAUL KRUGMAN quips:This is the way the euro ends: not with the banks but with bunga-bunga.As he says, the market gyrations spurred by Italy’s discomfiting election are not a sign of the single currency’s imminent demise, but they are a clear warning that Europe’s crisis is anything but over. There are quite simply too many ways for things to go wrong and so few ways for things to go right. An exit from recession remains elusive—unsurprisingly, given the continent wide commitment to budget cuts and too-tight monetary policy. And recession is exerting consistent and intense pressure on governments across many different countries. For the crisis to remain in check, political systems in every country must withstand that pressure. Because when they don’t, there are spillover effects; Italy’s mess is generating a rise in Spanish bond yields.Today’s market jitters are the creaks and groans of a shaky euro-zone infrastructure straining under the heavy weight of macroeconomic weakness. Ideally, Europe’s leaders would work to shore up that infrastructure and lesson the economic load. Instead, they seem determined to make us all wait and watch, to see if the flimsy structure will stand or collapse. Maybe it will stand. But it only takes the failure of one little strut to bring the whole thing down. And there are so many little struts.

via Economic Crisis http://www.economist.com/blogs/freeexchange/2013/02/euro-crisis-2?fsrc=rss

MARTIN WOLF condenses my recent euro-crisis fretting into a succint point:Those who believe the eurozone’s trials are now behind it must assume either an extraordinary economic turnround or a willingness of those trapped in deep recessions to soldier on, year after grim year. Neither assumption seems at all plausible.We can’t yet speak to the willingness of those trapped to soldier on. The extraordinary economic turnaround, however, remains a distant dream. Flash estimates of euro-zone economic activity showed a quickening downturn in February, ruining hopes that the slower pace of contraction in January might represent green shoots. The worst news? French economic activity slowed ever faster, touching a 47-month low. And so the pressure in the cooker rises…

via Economic Crisis http://www.economist.com/blogs/freeexchange/2013/02/euro-crisis-1?fsrc=rss

TYLER COWEN says he “still [does] not believe that the Chinese ‘recovery’ is for real”. He quotes a recent Financial Times story, which reads in part:Chinese credit issuance surged to a record high in January on the back of a boom in shadow banking, stoking concerns that the economy could overheat.And he adds:I will admit, at the very least, to needing to revise my views on how often the fires can be restoked. I had been expecting 3 to 5 percent “real growth” for China in 2012.Mr Cowen goes on to cite some interesting new estimates of Chinese growth for 2011 and 2012. One, by Standard Chartered economist Stephen Green, suggests that the economy expanded by just 7.2% in 2011 and 5.5% in 2012. What exactly is Mr Cowen worried about? Well, there are plenty of ways for an economy in China’s position to fail. One, and this may be Mr Cowen’s worry, is to squander resources needed to secure future growth. China, in other words, may be misdirecting investment in an effort to prop up growth, leading to a corresponding underinvestment in public goods needed to maintain future growth and development. Future growth might then prove disappointing, leading to downward revisions of assessments of China’s ability to service public and private debts, thereby sparking a period of stagnation or crisis.I don’t know how much to fear such things. Is China actually skimping on important …

via Economic Crisis http://www.economist.com/blogs/freeexchange/2013/02/multiple-equilibria?fsrc=rss

Brazil’s finance minister coined the term “currency wars” in 2010 to describe how the Federal Reserve’s quantitative easing was pushing up other countries’ currencies. Headline writers and policy makers have resurrected the phrase to describe the Japanese government and central bank’s pursuit of a much more aggressive monetary policy, motivated in part by the strength of the yen.The clear implication of the term “war” is that these policies are zero-sum games: America and Japan are trying to push down their currencies to boost exports and limit imports, and thereby divert demand from their trading partners to themselves. Currency warriors regularly invoke the 1930s as a cautionary tale. In their retelling, countries that abandoned the gold standard enjoyed a de facto devaluation, luring others into beggar-thy-neighbor devaluations that sucked the world into vortex of protectionism and economic self-destruction.But as our leader this week argues, this story fundamentally misrepresents what is going on now, and as I will argue below, what went on in the 1930s. To understand why, consider how monetary policy influences the trade balance and the exchange rate.Typically, a central bank eases by lowering the short-term interest rate. When that rate is stuck at zero, it can buy bonds, i.e. conduct quantitative easing (QE), or verbally commit to keep the short rate low for …

via Economic Crisis http://www.economist.com/blogs/freeexchange/2013/02/what-qe-means-world?fsrc=rss

Ed Miliband’s fortunes have improved of late. His personal polling is close to that of David Cameron at the same stage in his leadership. His conference speech last year, which ushered in the slogan “One Nation Labour”, drew praise from acolytes and critics alike. The latest Guardian/ICM poll gives Labour its largest lead since 2003—and puts the party ahead of the Conservatives on the economy.So far, so mid-term. Most Tories are relatively sanguine. All oppositions do well between elections, they say, pointing to Labour’s two-time election loser, Neil Kinnock. Even a modest economic recovery would give David Cameron a compelling electoral argument, they add: now things are finally getting better, do you really want to give the keys back to the people who crashed the car?This flirts with over-confidence. All the same, Mr Miliband needs a riposte. In a speech this morning, he ventured one: economic recovery is only half of the battle; ensuring that the benefits of growth flow to ordinary folk is the other. The two imperatives are mutually dependent, he argued, and the government is failing on both.Though its emphasis was on the current government’s failings, the Labour leader’s argument spanned the economic policies of the last 30 years. His contention was that even before the economic downturn, the British economy was out-of-gear: even when the engine (growth …

via Economic Crisis http://www.economist.com/blogs/blighty/2013/02/labours-influences?fsrc=rss

UK Only Article: 
standard article

Issue: 

The missing $20 trillion

Fly Title: 

The global economy

Rubric: 

The world should welcome the monetary assertiveness of Japan and America

Main image: 

20130216_LDD001_0.jpg

OFFICIALS from the world’s biggest economies meet on February 15th-16th in Moscow on a mission to avert war. Not one with bombs and bullets, but a “currency war”. Finance ministers and central bankers worry that their peers in the G20 will devalue their currencies to boost exports and grow their economies at their neighbours’ expense.
Emerging economies, led by Brazil, first accused America of instigating a currency war in 2010 when the Federal Reserve bought heaps of bonds with newly created money. That “quantitative easing” (QE) made investors flood into emerging markets in search of better returns, lifting their exchange rates. Now those charges are being levelled at Japan. Shinzo Abe, the new prime minister, has promised bold stimulus to restart growth and vanquish …

via Economic Crisis http://www.economist.com/news/leaders/21571888-world-should-welcome-monetary-assertiveness-japan-and-america-phoney-currency-wars?fsrc=rss