Euro Summit: Chinese Help and Italian Trouble

The Economist just published this post on the element of this week's eurozone summit that would involve Chinese cash as a part of the currency zone's recapitalization plan. Ever instructive, the article lays out the China factor in some of the magazine's trademark economics-in-layman's-terms. I didn't know, for example, that the EU is China's biggest trading partner. Given all the hub-bub stateside, wouldn't most Americans assume that position was enjoyed (or maligned) by the United States? 

Yet the piece's author makes an effort to signal that the appeal for Chinese cash is neither revolutionary nor a particularly important change in the status quo. He takes a longer-term view on the EU-Chinese relationship, which of course bears direct influence on the American role between the two. 

"Grand political bargains between China and Europe—money in return for more representation at the IMF, or market-economy status—seem wildly improbable. These prizes will eventually come anyway; and weak though parts of Europe are, the EU cannot be seen to trade them too nakedly. Bargaining of this sort would also require both parties to change their positions markedly. China is keen not to be seen as a source of “dumb money”, but requiring big political concessions in return for cash is a pretty clear signal that this is not a commercially attractive investment. As for the euro zone, it can hardly claim that senior Spanish and Italian debt is now safe for institutional investors if it has to horse-trade too hard to get China on board."

And further along the pessimism spectrum is the Wall Street Journal, which, true to form, has expressed typical euro-skepticism on the summit's results and bemoaned the plan's lack of detail and the risks that remain for U.S. companies and stakeholders. Though the European Financial Stability Facility will "backstop" troubled eurozone countries against default, the paper says, this week's decisions fall short of the muscular moves called for by experts and do relatively little to stem fears of a backslide toward recession in Europe and worldwide. 

Both articles signal the lingering dangers of the tenuous Italian situation, where fractious politics in Silvio Berlusconi's government has dimmed hopes for any kind of meaningful action against the euro's woes. Italy is heavily in debt and, as the third-largest economy on the euro, its future determines that of a host of other dependent nations both in and outside the monetary bloc.

Courtesy of the Wall Street Journal and ICAP

Though the chart refers to Italy only, its title -- "Brief Relief" -- sounds just as appropriate for the whole of the eurozone for the many observers that continue to be concerned about the currency's immediate and middle-term prospects.

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." 

Media Battle Over Tuscon Shooting Remarks

The best thing for safeguarding integrity in the media, it turns out, is the media.

Krugman: "Was it something I said?"

Following a column by New York Times columnist Paul Krugman about the possibility that the recent shooting in Arizona could be attributed to the incendiary rhetoric associated with the Tea Party and far-right groups, the Wall Street Journal editorialist James Taranto lashes back with this excoriating rebuke, lambasting the Princeton professor over what he sees as Krugman's hypocritical rejection of "eliminationist rhetoric." 

James Taranto, flagbearer of civility

EurAmerican is no stranger to Krugman's writings (see here), but agrees that Krugman went too far. I should hasten to observe, however, that a level-headed reading of both Krugman's and Taranto's pieces could judge them both as impassioned, which isn't actually bad, and exaggerated, which is.

Krugman's controversial comment is as follows, pulled from a piece called "Climate of Hate," a not-unironic title given the acrimony it has spawned:

"Where’s that toxic rhetoric coming from? Let’s not make a false pretense of balance: it’s coming, overwhelmingly, from the right. It’s hard to imagine a Democratic member of Congress urging constituents to be “armed and dangerous” without being ostracized; but Representative Michele Bachmann, who did just that, is a rising star in the G.O.P.

"And there’s a huge contrast in the media. Listen to Rachel Maddow or Keith Olbermann, and you’ll hear a lot of caustic remarks and mockery aimed at Republicans. But you won’t hear jokes about shooting government officials or beheading a journalist at The Washington Post. Listen to Glenn Beck or Bill O’Reilly, and you will.

Here's part of Taranto's response several days later in the WSJ:

"If the broader claim--that the "rhetoric" of Republican politicians and the nonliberal media was to blame for last Saturday's act of mass murder--is true, why can't it be presented without false factual assertions? Krugman's little lie undermines the big lie he and his newspaper are attempting to purvey.

"Krugman and his colleagues on the Times editorial board are not skilled enough to be effective liars. That is far from the worst thing you can say about newspapermen. But when did the people who run the New York Times forget that their job--their duty--is to tell the truth?"

We'll see what happens in the coming days as to whether Krugman will apologize and retract his remark, or whether he and his publisher will dig in their heels and lead the charge against the Wall Street Journal and followers toward a bitterly vitriolic rhetorical bloodbath. Given they're two of the finest papers in New York, if not the world, it's sure to be a spectacular fight. And maybe afterwards they can both bandage themselves up and get back to the objective, civil discourse that was once the pride of the American news industry -- and, here's hoping, back to media integrity at the same time.