EU, Texas Economics: Language, Money, Mobility

The Wall Street Journal compares, of all things, EU economics to Texan ones:

"Arguably, the heart of the euro zone's problem isn't a matter of culture or governance or remaining barriers to trade in goods. Rather, it's the huge hurdle that has always existed: Europe's multiplicity of languages. The fact that few Greeks or Portuguese have enough German to take on professional or even semi-skilled jobs in Germany removes the sort of safety valve that properly integrated federations rely on.

A case in point is the Texan economic miracle, the subject of considerable debate in the U.S. right now. Texan politicians make strong claims for the state's performance relative to the rest of the U.S. during the recovery. Doubters point to the fact that Texan unemployment remains high.

But a close reading of the data by Matthias Shapiro on his Political Math blog highlights something very interesting. Texan unemployment belies the strength of the state's economy because it has had considerable population growth during the past couple of years. Texas's strong employment growth has inspired people to flock to the state—so much so that the actual proportion out of work hasn't come down as fast as it might have done otherwise.

Since the start of the recession in December 2007, Texas's labor force has grown by 6%, astonishingly quickly for such a large state—more than twice as fast as the next-fastest state. When people are hit by hard economic times in one part of the U.S., they pack their bags and move to where the jobs are. The same doesn't happen in Europe.

For instance, the economically active population in Germany, Europe's economic powerhouse, has shrunk by about half a percentage point during the same time Texas has boomed. This is why Germany's unemployment rate has fallen much faster than that of Texas even as unemployment remains at stratospheric levels in countries like Spain.

Even in the years before the financial crisis, immigration to Germany from other European Union countries was equivalent to only about 0.4% of Germany's population, and most of that in the form of cheap labor from neighboring Poland.

Because it's harder for people from poorer euro-zone countries to move to the core, where there are jobs, fiscal transfers are crucial to address imbalances between the economies. But there's currently very little scope for these in Europe. EU spending as a percentage of GDP is less than a tenth of the U.S. federal government's.

 

ECB Code Words for Dummies

The Wall Street Journal's finance blog "The Source" analyzes European Central Bank chief Jean-Claude Trichet's use yesterday of the phrase "strong vigilance" in reference to the prospect of forthcoming interest rate raises, and what this means in numerical terms for market watchers. The Financial Times alternatively terms the code a "traffic light system" that indicates rate rises with a certain reliability.

Particularly interesting is the article's chart of ECB verbal expressions and their corresponding interest rate change metrics, which should demystify for all of us non-economists (myself included) some of the opaque language used by economists and finance folks on each side of the Pond. 

By the FT's count, the ECB has invoked the words "strong vigilance" and then raised rates seven out of nine times since 2005. 

The WSJ article surmised that Trichet's most recent use of the expression "strong vigilance" can be translated in layman's terms to, "we are worried about inflation and are leaning toward raising interest rates." 

Trichet's hawkish if nuanced rhetoric is widely perceived as a way of projecting a confident public front for the ECB in the face of grave concerns over the EU's economic recovery strategy on the eurozone's sovereign debt and the global financial crises.

If the past six years are anything to go by, turns of phrase such as "vigilance," "monitor closely" and in particular "strong vigilance" all preceded actual interest rate shifts orchestrated by the ECB. As the piece puts it,

“During the last tightening cycle, ‘strong vigilance’ was used one month prior to all policy moves (except for the one in March 2006, when only ‘vigilance’ was used). In addition, some form of ‘monitor closely’ or ‘monitor very closely’ was used in other months to signal that the rate normalization was not yet complete. Such code words could be used again this time."

Sources have varied widely on whether Trichet's words should be considered worrisome. Reuters says that the Frankfurt-based bank "stunned markets by indicating it could raise interest rates as soon as next month." In contrast, Seeking Alpha puts the odds of a rate hike at "above zero, [but] not much higher." 

Krugman's US-Euronomics

Consider this an info-dump of Nobel Prize winner Paul Krugman's latest postings at the New York Times. If this seems like something of an antidote to EurAmerican's atypically hawkish and euroskeptic posts from this week's Wall Street Journal, so much the better. Balance in partisanship -- that's what we like!

Krugman's pieces grow from the spark provided in this piece, also from the NYT, which takes the pulse of the current "we told you so" debate going on between Europe's solvents and debtors. It traces the germinations of the euroskeptic debate back to an obscure 1992 report from the Financial Times. In it the politologue Ed Balls observed a crucial and possibly disastrous difference between the nascent euro currency project and the environment of the US, another continent-wide monetary zone. The report concluded, to borrow the NYT piece's shorthand, that "Europe lacked the type of federal taxes and transfer payments used in the United States to ease economic divergences among its many states." 

Courtesy The New York Times

The NYT piece goes on to juxtapose prominent voices from the euroskeptic and the pro-EU antipodes. Speaking about the current troubles, Norman Lamont, the former Conservative chancellor of the exchequer, had this to say about the euro in the near future:

“I have always said that the euro will break up,” Mr. Lamont said in a recent interview. “Not after the first crisis today, but after the second crisis, which could be 10 years away. This is, after all a political project, not an economic project.” 

In contrast, Jerzy Buzek, the current head of the European Parliament, used with these words during December's opening of the Europe House, headquarters of the European Union delegation in London:

“We remember what happened in the last big crisis — it was something horrible, and such a threat is always waiting for us... Let us answer by having more solidarity. Overcoming history is an imperative for us.” 

It bears noting that Buzek's tone on the euro crisis -- which is far from finished ravaging great swathes of Europe and the world -- suggests that the "last big crisis,"  as he puts it, is already past, and belongs to history. These pictures provide a markedly more compelling argument that the euro crisis is both ongoing and far more serious the Buzek's seemingly clueless tone would indicate.

Hewitt on Europe and Youth in 2010

Gavin Hewitt of the BBC has posted a wrap-up of the year 2010 in Europe. I'd like to underscore his recurring theme of the beleaguered status of European youth. He begins with three sketches of young people down on their luck: seemingly intelligent and educated young Spaniards queuing for unemployment benefits; a roomful of raised hands when Hewitt asks trade school students if they anticipate emigration; young Italians ready to riot at the broken promises of their government and the generation in power. 

Hewitt goes on to describe their lives in the crushing uncertainly of economic souring, and the new civic religion called "austerity" that most accept only begrudgingly -- because they see no other choice. The year 2011, according to Hewitt, portends to be no less bleak.

"Youth unemployment and austerity are a dangerous cocktail that will play out on the streets of 2011. Austerity challenges a deeply-held idea of a European way of life where the state offers layers of protection. Old certainties are being swept away. Social contracts snapped. An ever-expanding public sector is being pruned. Europe, in the long term, may benefit from a smaller state sector, but no one should underestimate the shock of the new. [...]

In 2011 the orthodoxy of austerity, I suspect, will be challenged. The Greeks are tiring of the lean years that seem to stretch out before them. A new government in Ireland may try and renegotiate the terms of the EU/IMF loan. Increasingly voices question the fairness of it all. In Ireland the banks' debts were taken onto the government's books and the country headed for insolvency. A proud country [and in Ireland's case, an overwhelmingly young one] has sacrificed its independence - that's how many in Ireland see it.

It is a fair bet that in 2011 one or more country will restructure its debt.

Increasingly, when one returns from the streets of Greece or France or Italy, Brussels seems a side-show. While the unemployment lines lengthen for young people Europe's elite is preoccupied with institutions, with their place in the world. They have strategies for growth - but in the distant future. The discussions too often appear inward-looking. Occasionally there is a flicker of reality. The European Parliament, for instance, led the way in challenging bankers' bonuses. [...]

"Foreign Policy? What Foreign Policy?" Recession-Era U.S. Voting

Andrew Kohut, President of the Pew Research Center, had this to say on US foreign-policy introspection in a recent article in The National Interest: 

"It is hard to recall a time when foreign policy issues played so diminished a role in the American public's thinking. Midterm election exit polls found only 8 percent of voters saying that a foreign policy issue was a voting consideration for them, and more generally, national polls show just 11 percent citing a foreign policy issue as the most important problem facing the nation. This is the lowest registration of international concerns since immediately before the 9/11 attacks."

 He goes on:

"Terrorism, the most immediate threat to [the United States], is a big issue now lacking either prominence in the public’s mind or a heated debate among policymakers. Americans have expressed a steady state of concern about terrorism since the 9/11 attacks, but the polling suggests that most have become somewhat inured to the possibility of another attack. For example, there is no indication this year of widespread anxiety in the wake of reports that terrorists attempted to place package bombs on flights destined for North America. Most Americans (59 percent) say they are worried about an imminent terrorist attack in the United States, but the level of concern today is about what it was in July 2007, and has remained relatively steady since 2003."

Kohut concludes with some interesting thoughts on America's worries in the Asian sphere, specifically China and the Korean peninsula:

"As with terrorism, the public has deep concerns about America's place in the world, but these worries do not evoke a strong policy debate. Yes a growing plurality thinks the U.S. now plays a less important role on the world stage, and majorities recognize China's growing power and worry about it. But for now at least, there is little edge to American attitudes as a consequence. Few regard China as an enemy (17 percent) or a partner (25 percent). As has been the case for more than a decade, China is seen as neither friend not foe by most Americans (52 percent). In fact, more Americans now hold a favorable view of China than did so in 2007 and 2008.

"Neither the recent North Korean bombardment of South Korea as it stands, nor foiled terrorist attack in Portland Oregon seems likely to rouse the American public. If history is any judge, it will take a foreign policy crisis of a major order, to awaken public opinion on international affairs. And when Americans stir, it is hard to predict the new direction of their thinking. What is likely however is that a change in direction of public opinion will be relatively short lived. That has certainly been the case so far in post–Cold War America."

Kohut's last paragraph is his most poignant, and one that identifies a structural American gene within the national political DNA. This level of isolationism would strike European publics as downright otherworldly. Europe is small compared to the U.S., and its foreign policy thoughts are often foremost in mind given that they are always closer to home. The United States has the singular peculiarity of being separated from both allies and enemies by an ocean on each side. So when other matters become pressing, in this case the national economic crisis, unemployment and widespread disillusionment with Obama's platform of hope and change, U.S. citizens traditionally put foreign policy thoughts on a very distant back burner.

Paradoxically, the U.S. seems to be ignoring the very wars it launches, and Europe is just as (if not more) preoccupied with world affairs in which the United States is at work. 

This cockamamie balance of today's Atlantic ring countries results in the world's progress toward multipolarization, a status much distrusted by many of the classical powers in the West. 

And yet some see beyond this, toward a future power balance in which the West will dull its appetite for world predominance with a healthy slice of humble pie. Just last week Hubert Vedrine, the former French foreign affairs minister, hit the radiowaves asserting that the transatlantic community was guilty of "Western arrogance" and that its member nations are "no longer the masters of the world." The recent economic tremors certainly don't help matters, where in Europe the Euro currency seems ready to crumble. The United States are faring no better, with the latest studies putting the jobless rate at a disastrous 9.8%.

Of course, the obvious insinuation of Kohut's piece is that Transatlantics, while struggling to steady a rocking economic boat, shouldn't take their eye off of the horizon. Prolongued economic travails will only increase the likelihood that one or several Western states drops the ball in a fateful moment of  security absent-mindedness. 

Should this risky position continue, Kohut's forebodings of a "foreign policy crisis of a major order" -- we're all probably thinking September 11th -- may come to pass. As for predicting the new direction in Americans' thinking should another disaster happen, well, the last lurch in U.S. opinion led to the Iraq War. Yes it was strongly resisted, both in the U.S. and abroad, but it happened anyway. 

American voters and the greater West risk more than they know while spending so much time navel-gazing over their domestic problems. They should also keep a watch on the dangers creeping just beyond its borders, and hone their global affairs literacy to know how best to act should action become necessary.

The Economist on the US Mid-Term Elections

Count on The Economist to deliver detached, informed, and dispassionate assessments of the US political scene. This UK news source is far removed from the red-and-blue squabble here in Washington, as well as the political phase cancellation that renders both parties' politicking all but inaudible. 



  
The piece is titled "Angry America," recognizing the palpable angst caused by historically high joblessness rates and the giant question mark looming over the day-to-day of many Americans' lives and plans. Yet it urges the US populace  to "cheer up" over their immediate future, a rare cadence within the polarized American commentariat.

"(...) America is now an uncharacteristically uncertain place. Abroad it seems unsure of who its friends and enemies are. At home there are too many imponderables: over how the health bill will play out in practice; over what might happen to energy prices if carbon-pricing is resurrected via executive action; most of all, over what Mr Obama can do about those yawning deficits. People do not like uncertainty; so if Americans are angry, it is hardly surprising.

Mr Obama seems curiously unable to perceive, let alone respond to, the grievances of middle America, and has a dangerous habit of dismissing tea-partiers and others who disagree with him as deluded, evil or just bitter. The silver tongue that charmed America during the campaign has been replaced by a tin ear. Some blame this on an emotional detachment his difficult upbringing forced on him, others on the fact that he has lived all his life among tribal Democrats. Whatever the reason, he does not seem to feel America’s pain, and looks unable either to capitalise on his administration’s achievements or to project an optimistic vision for the future.

Which ought not to be so hard. Despite its problems, America has far more going for it than its current mood suggests. It is still the most innovative economy on earth, the place where the world’s greatest universities meet the world’s deepest pockets. Its demography is favourable, with a high birth rate and limitless space into which to expand. It has a flexible and hard-working labour force. Its ultra-low bond yields are a sign that the world’s investors still think it a good long-term bet. The most enterprising individuals on earth still clamour to come to America. And it still has a talented president who can surely do better than he has thus far."

Pension Reform Mobilizes French of All Ages

The crisis in France is coming to a boil as mass protests against retirement benefit reform throttle the country. The malaise is now spreading to all generations, as shown through the nascent student movement rising up in solidarity with those fighting to preserve their once and future pensions. (See video from Euronews here.)

The genesis of the demonstrating is President Nicolas Sarkozy's move to up the minimum retirement age from 60 to 62, a result of aching public coffers that are weathering recovery from the global economic crisis only with extreme duress. The pension cuts have met ferocious resistance and has generated nearly a full week of open-ended general strikes. 

Multiple reports of car fires and clashes with police have ricocheted throughout Europe as troublemakers mix with demonstrators, some still in high school, to join the anti-reform groundswell. 

Young people expressed both anger over the reform, seen in much of the country as draconian, and fears over recession-time prospects in the transition from their status of student to job seeker.

In a separate but no less serious development, French oil refinery workers have jumped on the bandwagon for the resistance by refusing to work while motorists of all stripes panic over how their fuel is to last. The oil industry lobby estimates that shortages will be felt by mid-week if no major change takes place.    

... Roger Cohen of the International Herald Tribune counters, "this reform is a no-brainer. Come on, France, get real!"

UPDATE: "France, the Unions and Fiscal Reality," 10/19/10. 

Roubini on European Recession : "Hangover"

The economist fabled to have predicted the global financial crisis shoots from the hip on European recovery -- and describes a still-dire bill of economic health for the Old Continent. Nouriel Roubini, professor at New York University, dubs the European condition a "hangover" and one sure to continue galling livers for a good while to come.

The professor employs a host of disparaging idioms in his take on the EU's present status, decrying 1) the policies that "stole demand from the future," 2) the laughable "stress tests" (quote marks his) that only "kicked the can down the road,"  and 3) the lingering "fundamental problems of the eurozone." He singles out sitting EU president and Belgian head of state Yves Leterme as "unable to keep his own country together, let alone unite Europe."

He also dismisses the notion that the EU bail-out created anything beyond transient relief. Though Brussels policy heads managed in May to slap together a rescue fund, risk spreads have returned to their pre-bail-out levels for several European countries. Roubini sniffs that operatives "fudged" this summer's round of financial "stress tests" for European markets, serving to pep up world markets' frail confidence only temporarily -- a move that is already beginning to wear thin.

Even the sunniest eurozone example, Germany, suffers Roubini's ire, and he shrugs off that country's supposed promise as the EU's post-crisis front-runner:

"Even Germany’s temporary success is riddled with caveats. During the 2008-2009 financial crisis, GDP fell much more in Germany – because of its dependence on collapsing global trade – than in the United States. A transitory rebound from such a hard fall is not surprising, and German output remains below pre-crisis levels."

In what may bear nightmarish implications,  the "double dip" recession so feared throughout the world may actually be taking root as we read his words.

"Indeed, the latest data from Germany – declining exports, falling factory orders, anemic industrial-production growth, and a slide in investors’ confidence – suggest that the [double dip] has started."

His forecast on current and future European politics provides little sustenance for optimists. He cites a litany of bummer political events ranging from Angela Merkel's recent shallacking in German regional elections, to unlikely odds that Sarkozy will initiate real (Roubini says "cosmetic") structural reforms in France -- and that is concurrent with sobering competition prospects from the Socialist Party's presidential likely, one Dominique Strauss-Kahn. Similarly unpopular leaders also face grim predictions across the EU's southern belt, from the vulnerable Presidents Silvio Berlusconi (Italy) and Jose Luis Rodriguez Zapatero (Spain), to the bete noire of EU fiscal cohesion, George Papandreou (Greece).

If all that wasn't enough, Roubini finishes by going for broke on two scenarios for the eurozone's future. The first, the "best" case scenario (though hardly a good one) says the monetary bloc limps on some years longer. The second -- this is the 800-pound gorilla whose presence EU public officials from across the 27 states refuse to entertain -- predicts that "the eurozone will break up, owing to a combination of sovereign debt restructurings and exits by some weaker economies."

Trichet Calls for "Credible Alertness" on Post-Crisis Euro

European Central Bank President, Jean-Claude Trichet

Financial Times editor Lionel Barber interviews President of the European Central Bank, Jean-Claude Trichet. Couldn't embed the video here, but get it via the link at this twitter account: willfleeson

Watch for the nice EU-US comparison around minute mark 3:30, when Barber says the EU cannot boast a common currency and treasury, as can the US. "This is not Massachusetts," he points out, a statement of the obvious that only transatlantic wonks like EurAmerican may find appreciable. 

Also see insightful commentary on economic globalization after nine and a half minutes.

The Wane of Danish "Flexicurity" and European Safety Nets

Liz Alderman, economist and blogger on the NY Times' Economix blog, has some compelling things to say about the down-scaling of Denmark's welfare programs in light of the global recession, and how the northern country serves as a cautionary study on social safety nets and "two-speed markets" in Europe and the U.S. (...)

Italy and the Dimming of Old-World Artisanship

The sensibilities of old-world artisans and 21st-century economic forecasters collide in this NY Times article on the sinking industry of Italian textile manufacturing. Veteran clothier Luciano Barbera claims "this tradition is finita," lamenting the demise of his label with its "spa for yarn" where the Barbera line alchemizes its top-end menswear -- and tries to sell $4,000 suits in a global recession. 

Meanwhile, American outsourcers such as Jos. A. Bank are doing just fine, with the Maryland-based brand reporting $770.3 million in profits over the last fiscal year. Is this another death knell for Old Europe traditions, precipitated by globalization?

For Italy in and of itself, economist Francesco Giavazzi deplores the white-knuckle grip of the "associazioni di categoria" and other guilds and unions on the Italian economy. The article describes:

"... Economists said that worrying about [the decline of artisanship] was like fretting about the head cold of a patient with Stage 3 cancer. They see a country with a service sector dominated by guilds, which don’t just overcharge but also raise the barriers to entry for the millions in ill-fated manufacturing jobs who might otherwise find work as, for instance, taxi drivers. They see a timid entrepreneur class. They see a political system in the thrall of the older voters who want to keep what they have, even if it dooms the nation to years of stasis. 

They see a society whose best and brightest are leaving and not being replaced by immigrants, because Italy has so little upward mobility to offer. 

To Professor Giavazzi, the future here doesn’t look like Greece. It looks like Argentina. 

“Before World War II, Argentina was rich,” he says. “Even in 1960, the country was twice as rich as Italy.” Today, he says, you can compare the per capita income of Argentina to that of Romania. “Because it didn’t grow. A country could get rich in 1900 just by producing corn and meat, but that is not true today. But it took them 100 years to realize they were becoming poor. And that is what worries me about Italy. We’re not going to starve next week. We are just going to decline, slowly, slowly, and I’m not sure what will turn that around.” (...)"

Europe the profitable?

One could do worse than to take a lesson from The Economist magazine on straddling European and American market perspectives. A recent editorial describes "Europe's dark secret" on the prevalence of free-market capitalism in Europe, with a special focus on France, bête noire of those in the US who would paint the land of May '68 as antithetical to free and unregulated market economics.

The Hexagon is indeed far more capitalist than even its center-right President Nicolas Sarkozy can admit publicly without political points lost. France's commonly-thought anemic business sensibilities have still produced goliaths like Airbus, Axa, Areva -- and those are just some A's from the French corporate alphabet... To say nothing of the tax-revenue factories (and how they are taxed) in Spain, Italy, the Netherlands, et cetera. This op-ed excerpt demonstrates the might of French and European market performance globally:

"Perhaps, however, it is time to let the French, as well as other corners of market-averse Europe, in on a dark secret. The truth is that theirs is a capitalist society. For while Europe’s leaders rail against profits and wealth, its firms stride into new markets and rack up giant profits. Spain’s Inditex dresses men and women in Zara outfits in 76 countries. Belgium’s Anheuser-Busch InBev, which makes Budweiser, is the world’s leading brewer. France boasts more Fortune 500 companies than Germany. A French company, Sodexo, is chief caterer to the American marine corps."

Such rarefied market status seems easily enviable by aspiring corporate empire-makers, whether they hail from the business-ho culture of the United States, or the more socialized (yet apparently, equally profit-minded) République.

This comes alongside new calls from Berlin and Paris in the ongoing project to build an "economic governance" model for Europe. And it seems to sketch a schizophrenic portrait of European realities just at a time when the bloc seeks unity of thinking -- and action -- on economic cooperation following the current recession's arrival in 2008. Watch this space for more on the EU's paradoxical, if not downright contradictory, economic maneuverings.

Long-Term Unemployment in America

Thank you, Rich Morin and Rakesh Kochnar, authors of the most recent and always-interesting findings by the Pew Research Center. Their report is titled "Lost Income, Lost Friends -- And Loss of Self-Respect." Note their use of the phrase Great Recession, without quotation marks or other hints of a newly-coined phrase, which is to say it's been here a while (too long) now.

The abridged version is in article form here. The full report is in giant pdf form here. Also enjoy the interactive graphic.