Tuesday, July 12, 2005

Living in Eurowonderland

Christian Noyer, Governor of the Bank of France, in an interview in the FT was asked about eurozone break up.

But financial markets now talk about the eurozone possibly breaking up?

”To me, that is an absurd scenario. From an economic point of view, in my judgement that would be extraordinarily harmful and highly risky.”
Convergence and solidarity over several decades has been “sufficient for the political acceptance of sharing a single currency and to ensure that it works economically”.
It might be harmful, and highly risky in economic terms but it doesn’t mean that it couldn’t happen. Joachim Fels of Morgan Stanley put it well in his comment of last Friday.
Recent events suggest that a break-up of the euro, long derided as the euroskeptics’ pipe dream, has become a distinct possibility.

First, the French and Dutch voters’ rejection of the EU constitution should have made it abundantly clear that hopes for a European political union remain elusive -- and illusory. Second, rising anti-market sentiment in the euro area threatens to block the move toward greater wage and price flexibility, which is a necessary condition for a well-functioning monetary union without a fiscal transfer mechanism. And third, there are worrying signs that the “stability consensus” regarding fiscal and monetary policy within the euro area is crumbling, thus undermining the very basis of the euro.

Full text @ The Disunited States of Europe -
Behind this issue lies that of the prospects for an improvement in the Eurozone economy. Broadly speaking the general view is that some recovery in growth will take place in the latter part of this year however it won’t take much to throw it off course – further terrorist attacks in EU member states, a spike in oil prices, a rise in tensions over Iran’s nuclear programme etc. etc. Naturally the European Commission, not wishing to feel left out, has developed its own plans see – 3 year blueprint for growth and jobs.

It all looks very impressive on paper / screen but the reality is that without the ability to enforce adherence to such guidelines the European Commission can do little other than talk about it ad infinitum!

The European Commission has no mandate over the labour / employment / social protection policies pursued by EU member state governments. Given this fact it begs the question why, after the failure of the Lisbon Agenda, the European Commission is once again making "plans"? Perhaps the Commissioners in Brussels are suffering delusions of grandeur and think they are omnipotent central planners - the centrally planned economies of the Soviet Union and its satellites suffered enormously from exactly such delusions! Is there any other explanation for such behaviour??

Tuesday, July 05, 2005

Reforming the ECB

The Financial Times leads today that:

The ECB is not the main cause of Europe's economic malaise. Its effectiveness is constrained by inflexible labour markets, weak public finances and underdeveloped retail financial markets. But it is part of the problem.
By responding too slowly to shocks the ECB has allowed output to drift away from potential. By taking an extreme position on central bank independence it has prevented effective co-ordination of monetary and fiscal policy, and structural reform. We have seen this before - in Japan - and it resulted in a decade of stagnation.
To carry on regardless, relying on its formidable legal independence, would be unwise. Sooner or later change - probably of the wrong sort - would be imposed from outside. What Europe needs is leadership from within the ECB to make it part of the solution to the continent's economic woes.

Making the bank part of the solution
So far so good, and one can even agree with the FT when it states that “Consensus-based decision-making by national central bank governors at a time of persistent economic divergences is a formula for inaction.”

However they then go on to suggest that the ECB should engage in closer dialogue with Eurozone governments and move towards majority decisions. This sounds good in theory but closer dialogue with governments could lead onto sticky ground – governments are not allowed to attempt to influence the ECB and such dialogue could give rise to charges of influence or favouritism. As for majority decisions - the divergences between member states as to what is a suitable interest rate for the Eurozone are now so wide that I imagine this approach might do more harm than good. And, those who lose out might be bitter enough about it to indulge in more of the kind of posturing that Italy and Germany have recently engaged in – with conferences on the risks of break-up and noises about having a referendum on withdrawal etc. etc.

Then there is the small matter of enlargement of the €uro area and the implications this has for monetary policy ....... Currently there is no political authority to back up the single currency and with gradual enlargement of the Eurozone that lack of political authority will become more and more apparent. The longer there is no political authority behind the €uro, and the ECB, then the greater the risks of instability and possibly eurozone break-up.

Extremists honour Kadar

Political extremists are still alive and well in Hungary.

Workers Party chairman Gyula Thurmer praised Janos Kadar at a commemoration on Saturday marking the 16th anniversary of the Communist leader's death. Speaking at Kadar's grave in the Fiumei ut cemetery, Thurmer said Imre Nagy, leader of the 1956 Uprising, had taken the path of reformists and traitors, while Kadar had taken the way of the revolutionaries. "Our choice was Janos Kadar," he declared.

.... Thurmer criticised Prime Minister Ferenc Gyurcsany for refusing to return the Red Star to the working class, then described the Socialist Party as a right-wing party in the service of foreign and Hungarian big capital. "Just because we do not like Fidesz, it does not mean that we shall support the Socialists," he said.

....... Attila Vajnai, head of the internal opposition in the Workers' Party, was taken away in handcuffs by police for wearing the Red Star at a Saturday ceremony marking the 16th anniversary of the death of Communist leader Janos Kadar. The emblem has been banned in Hungary as a symbol of tyranny. Vajnai said in a statement issued on Sunday that he will continue to use the "international emblems of the working class movement" despite the "police brutality".

Quotes from Political News @ Hungary Around the Clock -
As well as the Red Star, the Hammer and Sickle, and various Nazi symbols such as the Swastika are also banned in Hungary. Extremist socialists are challenging the ban of their symbols at EU level.

Friday, July 01, 2005

The quest for the legendary White Hind

For the weekend why not go in search of the White Hind.

According to legend, Eneth, the first wife of the great oriental king Nimrod the Hunter – great grandson of Noah and builder of the Tower of Babel - bore him two twin sons, Hunor and Magor. The sons of Hunor became the Huns, and the sons of Magor became the Magyars, the Hungarians.

The lark's aloft from bough to bough,
the song is passed from lip to lip.
Green grass grows o'er old heroes now,
but song revives their fellowship

Forth to the hunt they ride again
two brave sons that fair Enéh bore,
Hunor and Magyar, champions twain,
Ménrót's twin sons in days of yore

Wild beasts in pools of blood they drag;
they slaughter all the elk they find;
they have already killed the stag,
and now they all pursue the hind.

Continues @ The Legend of the miraculous hind by János Arany

From - In Quest Of The Miracle Stag: The Poetry Of Hungary

Even the Council of Europe appear to be involved in the quest ........ perhaps at some future date the EU will produce an "authorised" version .... anything is possible.

There is something rotten in the European Union

Insider brands Brussels a “bureaucratic nightmare”

Jim Dougal, who quit a year ago as head of the Commission's UK representation in London, launches a vitriolic attack on what he calls the “Brussels machine” on the eve of Britain's assumption on Friday of the European Union presidency.

“It is not just that the Commission fails to explain what the EU is for . . . Its modus operandi displays an outrageous lack of common sense . . . It became intolerable to work within what had come to seem like a bureaucratic nightmare that makes Whitehall look a model of simple efficiency.”

Accusations of overbearing bureaucracy are the hallmark of eurosceptic attacks on the EU but it is rare for a Brussels aficionado to echo those concerns.

In his article, Mr Dougal says: “The Brussels machine has no idea of how it should even begin to sell itself to the British public”. Mr Dougal was hired to brief the Commission on UK affairs and to help improve the British public's understanding of its workings but he describes how he quickly realised his job was impossible.

He gives a damning insight into the red tape that critics say hampers the Commission's operation. Mr Dougal also describes José Manuel Barroso, Commission president, as “hardly the first choice” and “the lowest common denominator” on which member states could agree.

And, as if we really needed any further evidence of sheer the asininity of many EU politicians, a Financial Times editorial also concludes that:
The strategic reasons for enlargement have not changed. What has been exposed is a crisis of leadership: EU politicians prefer to blame "Brussels" rather than confront potentially unpopular Europe-wide issues. This craven capitulation is enlarging the constituency for populist and nationalist demagogues - not least in Turkey

See - Nervousness about EU enlargement