Sunday, November 30, 2014

The Czech Republic‘s Interior Ministry is to tighten security measures at government offices after envelopes laced with poison were sent to two ministries.     "The central crisis committee agreed to raise security at selected state institutions, mainly ministries, and raise protection at other places," Reuters quoted Czech Interior Minister Milan Chovanec as saying on Friday.
The letters, which contained deadly doses of poison, were recently sent from Sweden and Slovenia by unknown persons and were stopped before reaching the intended addresses of Chovanec and Finance Minister Andrej Babis.   “We do not want to raise panic but... we need to adopt these security measures," Chovanec added.  The interior minister went on to say that hundreds of letters containing unusual substances are sent to government buildings each year, but this is the first case of harmful substances being used.    The Czech Republic, a European Union and NATO member, does not have any records of terrorist attacks over the past decades.
Across Europe, government bond yields are NEGATIVE, i.e. you have to PAY these bankrupt governments for the privilege of loaning them money.  And as IMF director Christine Lagarde said last week that a diet of high debt, low growth and high unemployment may yet become “the new normal in Europe”. Each of these data points signals an obvious long-term trend. We can see where this is going. But here’s the good news: none of this need affect you. The power is in your hands.
Even if the Swiss divorce themselves from prudent policy, and even if your government refuses to maintain sound money, you still have options.
You can choose to maintain a portion of your savings at a well-capitalized bank abroad in stronger currencies. You can choose to hold some physical precious metals (or even cryptocurrency) overseas at a secure location where it can’t be confiscated by a bankrupt government.
You can choose to own productive assets abroad or collectibles that cannot be conjured out of thin air by central bankers. All of these tools and resources already exist today. And for now, they’re available for anyone to take advantage of.
Herr Juncker, the head of the European Commission, is about to announce a plan whereby the EU puts $26 billion or so into an investment fund which is then geared up with private money to amount to a $390 billion fund that will revolutionize the European economy, light the flames of the white heat of technology and so drearily on. Sadly, the plan is based upon a simple misconception. It’s possible that there’s a case for public investment in a number of areas: there are such things as public goods, after all. It’s also possible that there’s a case for greater private investment in certain areas: that is how the economy advances, after all. But there’s no case at all for trying to make those public investments, potentially in public goods, on private sector terms. Yet that is what the fund is trying to do: I suspect that some have been reading a little too much Professor Mazzucato here (to the extent that Mazzucato’s “work” is not just an extended justification for this type of action).  The European Union is planning a 21 billion-euro ($26 billion) fund to share the risks of new projects with private investors, two EU officials said.  The new entity is designed to have an impact of about 15 times its size, making it the anchor of the EU’s 300 billion-euro investment program, said the officials, who asked not to be named because the plans aren’t final. European Commission President Jean-Claude Juncker is due to announce the three-year initiative in coming days.  The commission will pledge as much as 16 billion euros in guarantees for the vehicle, which will also include 5 billion euros from the European Investment Bank, the officials said. Loans, lending guarantees and stakes in equity and debt will be part of its toolbox, with the goal to jumpstart private risk-taking so that stalled projects can get off the ground.  Here’s what the problem with this sort of idea is. It’s absolutely true that there’re such things as public goods. These are, in the jargon, non-rivalrous and non-excludeable. No, don’t worry, it just means that it’s very difficult indeed to make money out of them. That people can’t make money out of them means that we think that private investment won’t produce enough of them. So, to get to the optimal level of their production we should have government, which doesn’t have to worry about making a profit, do the investing. This is the argument in favor of government funding basic research and even of their funding primary schools. It’s fine, it’s a simple argument that we see as far back as Adam Smith.  It’s also true that there’s things that will be funded, happily, by private investment. Assuming success it’s possible to make a profit so people have every incentive to gather in some capital, invest, and try to make a success out of whatever it is. There is no need for government funding here as the necessary incentives already exist. Government wouldn’t be helping here, at best they might crowd out private investment and more likely to, due to incomprehensible paperwork (yes, I have looked at such schemes myself, in my day job in business), slow down projects and even make them less likely to succeed.  So there is an argument for government investing. But that argument only holds for those public goods, where it’s not possible (or very difficult) to make a profit assuming success. Government investment where profit can already be made is contra-indicated. So what does this fund intend to do? Invest government money on commercial, private sector terms. To take equity and bond stakes in the projects funded. But if a project is viable, in the sense that it is possible to profit from success, then we don't need nor want the government involvement. Where we do want the government involvement, where there is one of those public goods, then we can't, by our very definition, appropriate the returns from that public goods component. So there’s nothing there that we can pay back that government portion of the investment from.  In fact, by forcing the commercial, non public goods, part of the investment to share the returns with the public sector we then lower returns for everyone and make the project less likely to happen, not more.

Saturday, November 29, 2014

MEXICO CITY (AP) -- The U.S. Embassy in Mexico issued a security message Friday warning U.S. citizens to avoid the Pacific resort of Acapulco because of violence and protests.
In yet another blow to a coastal city once favored by U.S. movie stars and jet-setters in the 1950s and `60s, the embassy said its personnel "have been instructed to defer non-essential travel to Acapulco, by air or land," and added that it "cautions U.S. citizens to follow the same guidelines."
The alert noted that "protests and violent incidents continue in Guerrero state in response to the disappearance of 43 students there."  Demonstrators have blocked highways to Acapulco, hijacked buses and blockaded the city's airport to demand the government find the students who disappeared Sept. 26 in the nearby city of Iguala. Prosecutors say local police working for a drug gang probably turned the students over to gang members, who may have killed them and burned their bodies.
In early November, demonstrators blocked Acapulco's airport for hours carrying clubs, machetes and gasoline bombs, causing hotel reservations on a subsequent three-day holiday weekend to fall about 35 percent, said Javier Saldivar, head of Acapulco's business chamber. Hotel occupancy that should have neared 95 percent was only about 60 percent.  "We suffered a serious loss," Saldivar said.  While U.S. tourists account for about 55 percent of foreign visitors to Mexico, relatively few of them go to Acapulco any more. For example, while Mexico's most popular cruise ship port, Cozumel, handled 894 cruise ship arrivals in 2013, Acapulco had only 9.  Drug gang violence has also played a role. In recent years there have even been some shootouts on Acapulco's famed coastal boulevard, but those incidents have calmed somewhat in the last two years.  Acapulco was once a well-regarded destination. It was during a vacation there in the 1960s that novelist Gabriel Garcia Marquez came up with the idea for "100 Years of Solitude." It was there that Bill Clinton took a young woman named Hillary for a honeymoon in 1975.  But in the 1970s and `80s, the resort's infrastructure crumbled, and poor, crowded settlements sprung up inland from the bay, sparking rising problems of unemployment, crime and pollution.

Friday, November 28, 2014

In mid-April 2003, German author Hans Magnus Enzensberger published a piece in the daily Frankfurter Allgemeine Zeitung in which he celebrated the fall of Saddam Hussein. He wrote of his "deep," even "triumphant" joy upon learning of the end of Iraq's brutal dictatorship. The article was also full of derision and mockery for the skeptics who warned against the wisdom of US President George W. Bush's invasion.  At the time, I was thrilled about Enzensberger's contribution. His was one of very few voices that dared counter the almost unanimous public opposition to the American offensive in Iraq. Just before the outbreak of the war, I visited northern Iraq, including the town of Halabja, where Saddam murdered thousands of Iraqi Kurds with poison gas in 1988. The gas killed children playing in the streets and women on their way to the market. I met with survivors whose lungs were almost destroyed: people who had been dying a painful death for the 15 years since the attack. More than any other city, Halabja is symbolic of the crimes Saddam perpetrated against his own people. Although I was not in favor of the Iraq war, my visit made it clear to me that the overthrow of a dictator is cause for joy.   But in the end, the skeptics were proven right. In 2003, Enzensberger believed forecasts that up to 200,000 people would die in Iraq as a result of the invasion were absurdly high. But serious studies have suggested that that number has been significantly exceeded in the 11 years since Saddam's fall. Iraq and the entire region have descended into chaos and anarchy, clearing the way for the radicalization fostered by Islamic State. There are many reasons to be gratified by the end of a dictatorship. For one, it means that a criminal is no longer in a position of power. And there's the prospect that democracy could take root in its stead. Some people also believe that anything is better than despotism.  But that last belief is incorrect ... The last decade has shown that there is something worse than dictatorship, worse than the absence of freedom, worse than oppression: civil war and chaos. The "failing states" that currently stretch from Pakistan to Mali show that the alternative to dictatorship isn't necessarily democracy -- all too often, it is anarchy. In the coming years, global politics will not be defined by the polarity between democratic and autocratic states as much as it will by the contrast between functioning and non-functioning ones.  Rule is order. For Thomas Hobbes, the father of modern political science, the intrinsic function of the state was to impose legal order in order to subdue the "state of nature." In "Leviathan," which he wrote in the 17th century under the shadow of the English Civil War, he argued that the state's monopoly on violence was legitimate when used to protect the lives and possessions of the state's citizens. When the state was no longer able to guarantee order, the threat of "war of every man against every man" loomed. The latter was the state of nature that the state, symbolized by the Leviathan, was tasked with taming.    In his 1525 article "Against the Murderous, Thieving Hordes of Peasants," Martin Luther also argued in favor of a severe sovereign putting a stop to the German Peasants' War. Luther was largely sympathetic to the complaints of the peasants, but he was turned off by the rampant violence and anarchy of their rebellion. The rebels, Luther wrote, should be dealt with "just as one must kill a mad dog."   Germany last experienced an extended period of anarchy almost 400 years ago during the Thirty Years' War. In the long period of peace and stability that has followed World War II, we in the West have come to view political continuity as the norm. During the decades of the Cold War, the threat to Western Europe did not come from weak states, warlords and terrorist organizations but from Communism. The era was marked by the confrontation between Western democracy and socialist dictatorship: The opposite of dictatorship was democracy.
The peaceful revolutions in Eastern Europe in the 1990s confirmed this view. In those countries, the collapse of the socialist dictatorships led not to anarchy but to the installation of a new, democratic order. This created the illusion that one merely had to remove obstacles for democracy to appear, almost automatically.... But in Russia the transition from the Soviet system to democracy failed. After the end of socialism, Russians were able to vote in more-or-less democratic elections and the economy was privatized. But the rule of law did not take hold. Instead, capriciousness and corruption gained the upper hand; power was monopolized by the strong. Chechnya began fighting for independence and the state started to disintegrate.  Such was the situation when Boris Yeltsin named Vladimir Putin prime minister in 1999. To Yeltsin, Putin, the head of domestic intelligence, seemed to be the only person capable of keeping the country together. Putin's task when he took over the Russian presidency a short time later was to return a crumbling state to functionality.
He was also being asked to lead a vast, sparsely populated country where state control had always been fragile: "Russia is large and the czar is far away," holds one Russian proverb. The specter of the "Smuta" -- a period of chaos and anarchy in the early 17th century -- continues to hang over Russian history. The iron-fisted Brezhnev era, by contrast, is considered by many in the country to be among the happiest periods in recent times.  In Yugoslavia, it also later became apparent that it is much easier to topple dictators than to establish democracies. Although a few weeks of bombing is generally sufficient to mortally wound autocratic regimes -- such as those run by Milosevic, Saddam, Gadhafi or Mullah Omar -- even in Europe, in relatively small territories such as Bosnia-Herzegovina and Kosovo, it took years to establish halfway stable countries with reasonably democratic governments.  The effort -- both in terms of money and labor -- was enormous. For years, control in Bosnia was largely in the hands of the High Representative in Bosnia and Herzegovina -- an office created by the Dayton Peace Agreement -- while in Kosovo, the United Nations ran the country...All of which raises the question: Is stability a value in and of itself? Those who answer in the affirmative are often seen as cynics who place little importance in freedom and human rights. But the uncomfortable truth is that dictatorship is often preferable to anarchy. Were people given a choice between a functioning dictatorship and a failing or failed state, the dictatorship would often be seen as the lesser evil. And most people believe that a more-or-less secure livelihood and a modicum of justice are more important than individual freedoms and unimpeachable democracy.
It is easy to label these kinds of attitudes as backwards from the comfort of a Western democracy. When I ask my Iranian friends why they don't rebel against the Islamic system they hate, they say they don't want a revolution because it might worsen the situation. And they know what they are talking about -- the last revolution in Iran was just 35 years ago.  Political instability triggers the yearning for order, sometimes at any price -- and thus often paves the way for extremists. That was true in Germany at the end of the Weimar Republic; in Russia, Stalinism followed the revolution and civil war; in Afghanistan, the period of unrest following the Soviet withdrawal spurred the rise of the Taliban. And now Islamic State has appeared in Iraq and Syria.  That is why the swath of political instability stretching from Pakistan to Mali is so disconcerting. In Iraq, Syria, Yemen and Libya, central governments have lost control over vast portions of their territory and entire countries are becoming ungovernable. Tribes and clans are fighting with each other while warlords are exerting regional control -- at least, until they lose it again.  The failed democratization of Iraq and the unsuccessful "Arab Spring" in Syria have fed the rise of Islamic State. In neither of these countries does democracy currently have realistic prospects for success. The best solution for Syria -- and this is not cynicism speaking -- would perhaps be a military putsch against Assad. It would rid the country of its dictator while leaving the country's last center of power, the Syrian army, intact and able to resist Islamic State.  This kind of argument isn't particularly attractive -- smelling, as it does, of cool realpolitik. It is an admission of the West's impotence -- of its limited ability to export its values and lifestyle. It feels like a selling out of ideals. The argument is also often used to justify doing business with dictators and, even worse, provides dictators with justification for their own policies of oppression.  But that doesn't make it wrong. There are an increasing number of failed states in the world. According to the Fragile State Index assembled by the Fund for Peace, the number of states receiving a rating of "very high alert" or "high alert" has increased from nine to 16 since 2006. The spread of democracy and freedom, by contrast, has hardly made any progress. According to Freedom House, following a significant increase in the number of free countries at the beginning of the 1990s, there has been little change since 1998.   Democracy can only function in an environment where there is at least a minimum of stability. And it cannot necessarily establish this stability itself. In Iraq and Egypt, that process has failed, at least for the time being. In Afghanistan, the power of President Hamid Karzai, who made way for his successor at the end of September, never extended much beyond the city limits of the capital, Kabul, despite massive Western support. It is debatable whether the rudimentary rule of law established there after 13 years of Western involvement can survive ISAF's departure at the end of this year.  Free countries, as constitutional law expert Ernst-Wolfgang Böckenförde once wrote, flourish in conditions that they themselves are unable to guarantee. Without a cultural learning process -- like the one undergone by Europe over the centuries -- the toppling of a dictator and the holding of elections are not sufficient to establish democracy. As such, the West should value functioning states to a greater degree in the future.
Even as it longs to see the departure of autocrats in Russia, China, Central Asia and elsewhere, the alternatives must be seriously examined. And the next time an intervention is considered -- whether this means military force, sanctions, or the support of opposition powers -- the West must consider what will follow the toppling of the dictator. Indeed, that is exactly the argument US President Barack Obama used recently to justify his reticence to use force: "That's a lesson that I now apply every time I ask the question, 'Should we intervene militarily? Do we have an answer (for) the day after?'"     Hans Magnus Enzensberger now sees the toppling of Saddam and the Iraq War as an illustration for the fact that it is necessary every now and again to change one's opinion. At an August literature festival in Potsdam, he said that, with the opinion piece he wrote, he "fell heavily on my face."

Thursday, November 27, 2014

“Our expectation for a moderate recovery in 2015 and 2016 remains in place,” Mr. Draghi said.
His statement, though incrementally more upbeat, was consistent with others he has made in recent months, in which he has left the door open to the same “quantitative easing” used by the Federal Reserve in the United States and other central banks to stimulate their economies.  The European Central Bank has been edging closer to large-scale purchases of government bonds, which are seen as an essential component of quantitative easing. But the bank also seems to hope that this controversial step will not be necessary.  Mr. Draghi said he thought that previous measures by the bank were beginning to show results, including low interest rates and a program that grants loans to banks on very favorable terms, if they in turn lend the money to businesses and individuals.  In a speech, a European Central Bank official said that the bank could also buy gold, stocks or other securities traded on exchanges.  But the official, Yves Mersch, a member of the bank's six-member executive board, listed numerous reasons why quantitative easing, and in particular large-scale purchases of government bonds, might not work as well in Europe as it did in the United States.  The Federal Reserve “operates in a completely different environment than the E.C.B.,” Mr. Mersch said at a banking conference in Frankfurt.  Bond purchases aimed at pushing down long-term interest rates would have less effect in Europe, Mr. Mersch said, because most credit flows through banks rather than capital markets.He also expressed concern that if some governments defaulted on debt purchased by the bank, it would face a conflict between printing money to cover the losses and keeping inflation under control.  Mr. Mersch acknowledged that quantitative easing could have a positive psychological effect on markets. But he said he was concerned that government bond purchases by the bank would effectively make eurozone taxpayers liable for each country’s debt, without the approval of elected officials. National governments in the eurozone are ultimately liable for any losses suffered by the bank.  “It is questionable to what extent it would be justifiable to communalize credit risks,” Mr. Mersch said.  He noted that many of the calls for the E.C.B. to begin quantitative easing come from the United States and Britain.  Mr. Mersch said he wished “that these well-meaning suggestions were based on thorough understanding of the institutional and legal limits of the E.C.B. as well as the economical particularities of the euro area.”

Wednesday, November 26, 2014

BRUSSELS - European Commission president Jean-Claude Juncker is to unveil his highly-anticipated €300bn investment plan next week (24-30 November) with most of the focus set to be on how much is 'new' money and how much is just recycled from existing funds.
The plan, announced by Juncker before he was elected into office, has taken on a significant symbolic importance as it is meant to be a way of kickstarting the struggling EU economy.
But although the idea was welcomed from the offset, it was immediately dogged with questions about where the money would come from, and how much would be from the public and private sectors.
The commission has already indicated that it will include a recently-announced German public investment programme, of €10bn, in its calculations but has also said several times that the new funds should not create new debt in member states.
Meanwhile, the EU's 'growth pact', announced in 2012, casts a long shadow. It largely failed in its bid to generate growth and relied heavily on leveraging €10bn of new money for the European Investment Bank to give the pact its headline €120bn of funds.
The investment fund is set to be decided Tuesday (25 November) and formally unveiled before parliament on Wednesday. This gives time for the entire commission to attend a motion of censure against Juncker, filed by eurosceptics in the European Parliament, on Monday evening.

Tuesday, November 25, 2014

It is unclear whether the OMT case will in fact clear the air. Euroceptic groups and professors in Germany are already planning to file a fresh case against QE at the German Constitutional Court if the purchases escalate, arguing that the scale entails large liabilities for the German taxpayer and circumvents the budgetary sovereignty of the Bundestag.
They argue that QE is fiscal policy by stealth, conducted outside democratic control. Some experts say such a case would give the Bundesbank the legal excuse it wants to step aside from any ECB bond purchases, effectively rendering the ECB action null and void.
Mr Six said QE is a necessary condition for recovery in Europe, but is not sufficient in itself. “The question is where does this bridge take us,” he said. "The eurozone can survive a couple more years of miserable growth but it can’t go on forever like this before people lose hope. There is political risk almost everywhere."   On Britain, the agency said the “output gap” used to measure how far the economy is falling short of its potential is still 4.5pc of GDP. This is much higher than the 1pc estimate used by the Bank of England to justify talk of early rate rises. 
Mr Six said the UK capital stock has been less damaged than widely assumed by the economic crisis, while abundant immigration has created a pool of cheap labour that is holding down wages.
Economists are deeply split over the size of the output gap: a soft indicator that is very hard to measure, but has nevertheless acquired totemic status. The International Monetary Fund and the OECD club of rich states both have estimates close to 1pc, while the Office for Budget Responsibility is at 1.4pc.   Yet a number of private analysts agree with Standard & Poor’s. Andrew Goodwin from Oxford Economics said the gap is 4.4pc based on weak productivity trends and historic evidence that financial crises do not destroy much existing plant. 
“There is still a lot of spare capacity in the UK economy. The fact that wage growth has stayed so low for so long is evidence of this. We don’t think there should be any rate rises until the end of the next year at the earliest, and we don’t think there will be any either,” he said.
Standard & Poor’s praised the Bank of England for doing a“very smart job” in its response to the financial crisis by allowing inflation to overshoot its target at crucial phases, effectively eroding the debt burden by boosting nominal GDP. “This has improved Britain’s debt ratios,” Mr Six said.
The contrast with much of the eurozone is striking. The ratio of public debt to GDP has been rising fast in the most heavily indebted EMU economies, overwhelming any gains from austerity cuts.