Buttonwood's notebook

WHETHER your trade account is deteriorating or improving is not the only measure of competitiveness, of course. As many noted, Germany kept the lid on its unit labour costs in the early years of euro membership but other nations did not. Correcting the internal imbalances requires other countries to reduce their costs, relative to those of Germany. So here is a condensed version of the figures from Eurostat, covering the same years and countries as the trade data.

Continue reading "Competitiveness, part two" »

FOLLOWING the success of the Iowa electronic markets in picking Mitt Romney as the presidential nominee (highlighted in this January post), it seems worth seeing what they think about the November election. Although the opinion polls are close, gamblers clearly think the President will be re-elected. Mind you, the 60-40 margin is well below the 80% confidence level they had in Romney four months ago. And if a euro-zone collapse undermines the US economy, the gamblers could well change their minds.

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WHEN people argue we can muddle our way through after the debt crisis, they often cite the period after 1945 as an example.* But it is worth remembering the state of European economies after the Second World War.

There are some good examples in the excellent book Postwar by the late Tony Judt. First of all, workers could be switched from military service to productive work. In 1945, 10 million British men and women were in uniform or making arms, out of an employed population of 21.5 million adults.

Meanwhile one forgets how much of the mid-20th century economy was devoted to agriculture. in 1950, 23% of the West German population worked in farming, while the figure in France was nearly 30%.

Continue reading "Post-war reflections" »

YESTERDAY'S Bellwether Europe conference was not particularly cheerful. It was opened by a speech from Axel Weber, now executive chairman of UBS and formerly of the Bundesbank and ECB. He argued that there was no alternative to reform policies in order to improve the growth rate of Europe; it was thanks to the reforms of Gerhard Schroder that German unemployment rate is so low while the unemployment rate in other countries is so high. Alternative policies such as expanding the money supply or building up higher debt-to-GDP ratios via fiscal stimulus simply added to the fragility of the system and created the risk of a bigger crisis later on.

Continue reading "Gloomy messages" »

TOMORROW your blogger will be chairing a conference in London on the outlook for Europe and I hope to report back from the proceedings. Among the speakers are Axel Weber, once of the ECB and now of UBS, Adair Turner, the chairman of Britain's Financial Services Authority, Bill Winters, once of J P Morgan and a member of the Vickers Commission, Alistair Darling (former chancellor), and John Kay (of the Kay review). Listening to that group for a day should make me (and thus, you) much better informed on the  euro zone debt crisis and the system of financial regulation. If any commenters feel like posting questions today, I shall try to ask them tomorrow (the polite queries, at least).

Continue reading "Following the bellwether" »

TAKE two countries. One has a government "inflexibly committed to austerity", lacking a Plan B and dragging the economy down, according to its critics. The second country has a new President who has just declared that his victory is a rejection of austerity. The victory has been hailed as a new dawn for European politics.

The first country, the UK, is aiming to balance its budget by 2017. The second country, France, plans to balance its budget by, er, 2017. Funny old world.

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SOCRATES said: "As for me, all I know is that I know nothing." And we should all be humble enough to follow the great man's example, especially with regard to economics, where it is impossible to run counterfactual tests (what would have happened had we done X instead of Y), where Nobel prize-winners disagree and where the forecasting record of the average economist has been so poor.

So here are a few questions that bug me and that readers might like to think about.

1. It is easy to understand the case that European austerity is self-defeating.

Continue reading "Some genuine uncertainties" »