There are a small number of policy makers whose views actually matter in Europe right now, and up to recently it wasn’t clear to me that they held the right views. And so, it is extremely reassuring to read
Jean-Claude Trichet, the head of the European Central Bank, said that only emergency measures would help the world recover. “We live in non-linear times – the classic economic models and theories cannot be applied, and future development cannot be foreseen,” he said.
OK, we might query whether ‘linear’ or ‘convex’ is more appropriate, but the sense of urgency is very welcome.
A second piece of good news is the widely flagged rethink in Berlin regarding options for financing eurozone economies. If Juergen Stark wants EMU to survive in the long run, he should welcome such initiatives, since in the long run they will be necessary.
A third piece of good news is that Gordon Brown appears to be going along with Continental demands for greater regulation of financial markets. This is going to be a necessary part of any European Grand Bargain going forward, and in turn it is important that Europe speak with one voice at the London conference in April.
9 replies on “Some good news”
Perhaps we should be reading Mandelbrot’s classic “The (Mis)Behavior of Markets: A Fractal View of Risk, Ruin, and Reward”. Economics are complex adaptive systems with multiple inputs and outputs and simply changing one thing may not achieve predictable results.
I may not be paying sufficient attention, but I think that the good news is the absence of bad news.
That is, the international news has recently been dominated by companies cutting costs. This is bad news for those that lose their jobs or see their wages fall, but it is the first step towards economic recovery. Government stimuli are the other big part of the news. This hurts fiscal hawks, but it is another step towards recovery.
Recently, there have not been stories about bursting bubbles or financial institutions falling over. People have made protectionist noise, but there has not much action on this front.
If my reading is correct, then we have not seen events that trigger and deepen the recession. We have entered the recovery phase.
Don’t get me wrong: Economic adjustment and recovery is painful — but at least there is light at the end of the tunnel.
Don’t get me wrong: I’m talking about the world economy. There is still a reasonable chance that our dear leaders mess up the Irish economy for a decade or more.
Maybe I’m just too optimistic, but things seem to be looking up.
I was directed to this article on a US investor site.
It makes interesting if scary reading. Is Eastern Europe really in that big a mess? Why don’t we hear about this in the business commentary here. After all they are our fellow Europeans and presumably we will be bailing them out. Well they will be ahead of us in the queue.
@Stuart, Wolfgang Munchau has a good piece in the ft on the Eastern European Crisis.
We have not (as one commenter suggests) entered the recovery phase or anything like it.
The toxic debt/black hole has not even been looked into. In the US the “stress test” are only beginning.
Obama’s not moving as fast as I would like, and I thought maybe avoiding what has to be done- nationalization, or if you prefer – just plain old – taking control, and that will happen as soon he sees what he won‘t believe; that being, – for the last (not ten years, but without going too far) twenty five years – money has been made on (nothing) pure debt, not worth the paper it’s written on, a pure fantasy that will put Madoff in the ha’penny places.
If you’re still doubting things are nowhere near seeing light, take AIB, a chairman and chief executive who are scandalously still drawing salaries.
AIB’s estimates are going up month by month- since 2008 it changed its estimate from 950 million to €1.8 billion. The €3.5 billion recapitalization is goin’ down fast, and how much is left and just how much debt that we don’t know about will swallow up the rest of it.
Pumping €7billion into what might be €40billion seems (from where I am) not even a beginning, never mind a light anywhere.
Reading about regulation (by the same ones who got us into this mess) and the ”secret Banking Act” on the same page seems twisted for want of a better word.
The investor market model has failed and there is nothing for the powers that be to take its place, because it means the end to expansion and the vision of ”free global trade” or as I see it ”free global slavery.”
Having the emerging economies China, India, and so, was a golden opportunity to have cheep industry produce cheep goods, while the rest of the ”superior powers” developed there (education) engineering skills in all things – high-tech – a step beyond the vulgar industrial.
Ha, funny thing if you think about it. Ireland somehow decided it was all in house property, and a few high-tech US companies making use of the ”well educated.”
Who ever they are, they’re certainly not in Government. Maybe they’re the ”Golden Circle.” Anyway!
I finish off by saying: Have any of you considered the IMF the FED running out.
Do you think America can go on printing money forever?
@Stuart: there was a lengthy piece in Saturday’s Grauniad: http://www.guardian.co.uk/business/2009/feb/21/global-recession-eastern-europe
Since you did ask, about Eastern Europe here’z a few comments regarding Poland:
The article quoted by Stuart Blythman not only selective quotes data to paint a bleak picture but is also factually wrong on several counts.
Yes, the zloty did depreciate by some 40%. But since interest rates in Switzerland and elsewhere dropped mortgage payments did not double, but thus far increased by up to 50%. That is a lot, but so far there has not been a noticeable increase in late payments.
Banks too big to save, is not an Eastern European phenomenon. But rather a problem of small West European countries with oversize banking systems, as well as, possibly the UK. Just for the record the total liabilities of Poland’s banks to GDP amount to c.a. 85%.
Recession? Well, last year Poland’s GDP grew at some 4-5%. This year it is likely to grow at 1-2%. The worst is still ahead of us here in Poland. But not bad, considering that most of our trading partners are in recession.
Currency mismatch in bank balance sheets? It may exist at level of individual banks, but for the commercial banking system as a whole the ratio of foreign assets and domestic loans in foreign currency, to foreign liabilities and foreign financing stands at a pretty balanced figure of 1,09.
p.s. that does not mean to say that there are not some huge risks threatening the Polish economy — but this being a blog on the Irish economy, and the linked articles not raising these issues I will end here.
I don’t think we’ll get regulation right because creative finance will find ways around it or move to areas that are unregulated. In fact, part of the attraction in Ireland for companies from other countries is our less restrictive regulatory environment, that’s not to say i’m for or against, just stating the facts.
as for ‘linear’ solutions or otherwise, i don’t think this means another decade of free german money, this time there will be strings attached and it would be better if we solved our own problems.
i remain an optimistic bear.
The bill Mr. President
The cost of developing eastern Europe to the boom market (the pursuit of happiness) has backfired naturally when the model they were given to believe in was a hoax- a pyramid scam.
It’s all going to fall back on the United States at an enormous cost, and we know the US are hard pressed to keep their own head above water.
The rats/investors are leaving the ship; in fact are there any left, because there’s no debt (and we know how attractive debt is for investors as it has no bottom) to invest in (except toxic debt) and that’s too (uncertain) long term.
Again there’s no light at the end of the tunnel because there is nothing to dig with. The instruments are blunt.
Get used to it boys.