Roubini Topic Archive: Monetary Policy and Inflation
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On the Shoulders of Giants – How Spain Is Destined to Follow in Germany’s Footsteps
The current generation of policymakers seem to be like Captains of large ocean liners, out there on the high seas, bereft of either compass or adequate charts, trying hard to calm there worried passengers by telling them nothing is amiss. But the charts are there, if only they would look at them, and in the present Spanish case, unlike the old refrain, the future is ours to see, and it has a name: Germany.
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The Baron Münchhausen Effect
Karl Friedrich Hieronymus, Freiherr von Münchhausen was a German baron born in Bodenwerder in the eighteenth century. Made famous by the Hollywood director Terrence Gilliam, the baron first came to public attention for his ability to recount outrageously tall tales about his adventures while fighting abroad in the Russian army. Among the astounding feats which legend attributes to him are riding cannonballs and travelling to the Moon. But perhaps his best known marvel is the story of how he managed to escape from a swamp by pulling himself out by his own hair (or by his bootstraps, depending on who tells the story). Which puts me directly in mind of the way some people are now expecting an export-dependent German economy to drag the rest of Europe – and with it the whole global train – up and out of the ditch in which it is currently sunk, simply by exporting to everbody else. Sounds just like one of those tall tales, doesn’t it. A very tall one.
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Do the Latest European Bank Lending Numbers Reveal a Major Headache Looming For the ECB?
According to Ralph Atkins, writing in the Financial Times:
“Eurozone mortgage borrowing grew last month at the fastest pace in almost two years in a sign that bank lending across the 16-country region may be flickering back to life. Lending for house purchases rose at an annual rate of 3.4 per cent in June – the fastest since September 2008, according to European Central Bank data published on Tuesday. The acceleration pointed to a revival in consumer confidence and an increased willingness by banks to fuel the economic recovery with loans to the private sector.”
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Angela Calling
Angela Merkel is a Chemist. In her doctoral thesis – entitled “Untersuchung des Mechanismus von Zerfallsreaktionen mit einfachem Bindungsbruch und Berechnung ihrer Geschwindigkeitskonstanten auf der Grundlage quantenchemischer und statistischer Methoden” – she demonstrated herself to be a thoroughgoing expert when it comes to analysing the speed of disintegration of chemical compounds once the bonds which hold them together are weakened. Unfortunately she is now having to apply all this acquired expertise and know-how in a determined attempt to avoid the break up and falling apart, not of a highly complex chemical substance, but of an even more complex economic and political one, and the bonds which are the focus of all her attention right now are not chemical, but financial and social.
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Why Not Unravel the IMF Too While We’re at It?
If you’re really good at making a pigs ear of things, why not join the EU? Of course, this is not meant as a piece of solid advice, rather it is a cry of frustration at being impotently forced to watch so many things done so badly, each in turn, and one after the other. Southern Europe’s problem is essentially a competitiveness problem, and not a fiscal one, and if many states have been having growing difficulty with their negative fiscal balances, this is a symptom of the problem, and not its cause. Even in the worst of cases – countries like Greece and Portugal – the rising recourse to fiscal outlays has been a response to lack of “healthy” growth, and the root cause of this continuing difficulty in generating real growth has been the underlying lack of competitiveness, and the inability to export your way out of trouble once the burden of debt starts to rise, so simply pruning the fiscal side isn’t going to cure the problem, and by now that simple point should be obvious, I would have thought.
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Serious Problems Emerge for the F-UK-De Group of Countries
Well, I for one can’t help thinking that it’s now well time we all stopped getting carried away with the use of so many acronyms. Not only may one man’s meat easily prove to be another’s poison, it may even be that for some the entire meal will be so distasteful as to prove totally indigestable. And so it is with the latest set of proposals to appear on that diagnostic lab bench which has been hastily erected in the search for that magic “cure all” for the eurozone’s many ills.
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Hanging in the Balance over at the ECB
It’s not often that I await the ECB after-meeting press conference statements of Jean Claude Trichet with such an intense feeling of anxiety and bated breath. But this time, as the song goes, it will be different. This time there are plenty of reasons to think that, having been the first off the mark in looking for the exit, Europe’s monetary leaders may sound a note of caution at tomorrow’s meeting, and indeed indicate there may well be solid grounds for at least taking a time out, if not engaging in a longer process of pausing for extended thought. My advice: if you don’t actually have any pressing need to hit the eject button, then don’t do it.
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Too Soon to Cry “Victory” on Latvia
“Doom-mongers” – the Economist tells us – “are licking their wounds”. And why exactly are they licking their wounds? Well for two years now (apparently) they have been telling us that “the struggle to save the lat’s peg to the euro was bound to end in tears”. As you could imagine right in the very forefront of these so called doom-mongers is to be found yours very truly (and here), and of course Nobel Economist Paul Krugman (and here).
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Hungary isn’t another Greece……..Now is it?
I couldn’t help being struck earlier this week by the following statement in an interview the Financial Times had with Hungarian Finance Minister, Peter Oszkó:
“Structural reforms of the pension and social welfare systems, plus a rebalancing of the tax system, should allow the government to report a 3.9 per cent budget deficit in 2009, on a par with the preceding year and in line with IMF requirements”.
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The Italian Lion Sleeps Tonight, and Yet Awhile……….
“If we look at public-sector debt and interest payments, Greece isn’t doing particularly worse than Italy,”
-Peter Westaway,Chief Economist Europe at Nomura International
