EconoMonitor

The Kapali Carsi

The Trouble with Holland and Hollande

I am sure the Dutch Consul General in Turkey is extremely disappointed.

You can find out why he is disappointed in my latest Hurriyet Daily News column.

I am not sure if this is my best column; I will actually argue below that it is far from being that, but it is certainly one of my best-timed columns: Quite a few news articles and columns appeared on the same topic after I submitted it on Friday. Here are a few of the ones I liked (yes, I do a lot of reading): First, the weekend International Herald Tribute was holding an austerity-bashing special edition: In addition to a general piece and a more specific article on Spain, there were columns by Paul Krugman and Christina Romer, which were basically saying the same thing: Austerity is not good for Europe.

By the way, if you are wondering, I am not sure who first picked up on the austerity backlash story, but I first saw in at The Financial Times exactly a week ago. The FT then followed up with stories on who was violating the fiscal compact the most and how Holland was starting to be perceived outside the core, as measured by the correlation of government bond rates. Speaking of Holland, it is interesting to note that this former bastion of fiscal austerity and one of the few remaining AAA-rated Eurozone countries was completely off the map until last’s week’s budget melee. To illustrate, I wanted to tag this column at the blog and found out, to my surprise, that there isn’t really an Economonitor tag for the country:)…

Coming back to the FT, they also have published quite a few austerity-bashing op-ed’s, like the ones by their own Wolfgang Munchau as well as a guest contribution from Larry Summers. They have also extended the scope to include Ireland and Spain. And for those who don’t want to give up on the Fiscal Compact altogether, Stephen King (not the author, although the Eurozone saga is really turning into a horror novel), offers some suggestions. I should not appear to be a boring finance type who only reads the FT and WSJ, so I should also recommend the Ambrose Evans-Pritchard column in The Telegraph, where he argues that Hollande means the end of German hegemony in Europe.

Today’s papers are continuing their push with the theme: The IHT argues that the week’s economic calendar is shaped by austerity backlash. Another piece in today’s paper notes that austerity has strengthened fringe political parties in Greece. The WSJ has a piece on austerity backlash in Romania- I couldn’t link to that, as my Pressreader account suddenly went amok:), but it is at the back page if you have access to the actual paper- and FT Alphaville had a similar piece as well.

OK, enough links already- and to add to my column, which was, according to reader Burak Tekes, “must be my highest linked/unlinked-word (LTULW) ratio column ever”. He is probably right:), but coming back to the column, I think I am right on track with my skepticism with Hollande: The WSJ argues, as I did in the column, that Hollande has no intention of pursuing labor reform.

Finally, reader Sam Stevens was right on track when he commented at the Daily News webpage: “So ? I feel this article is incomplete.” His spider-senses are right on track. The article IS incomplete, and for a reason: The drama is still playing on: Of course, he and other readers would want me to tell them how this story will conclude, but I really have no magic ball. And since I am not a market economist, I am not under pressure to offer projections that will turn out to be completely untrue because of “unforeseen circumstances”:).  But I have nevertheless given some clues in the column: That if Hollande just tries to throw off the Fiscal Compact unilaterally, he will be punished by markets. But fiscal restraint is not working , either, at least in its current form, so we may see changes there soon. And I guess we are going through a solution where the ECB will have to step up with extensive bond-buying and lower rates- in exchange for higher inflation in the near term. Oh shit: I already made a projection that is likely to be proven wrong soon:)…

4 Responses to “The Trouble with Holland and Hollande”

Emre Deliveli edeliveliApril 30th, 2012 at 6:07 pm

Thanks for your comment. I'm glad to know at least one person agrees with me, but I guess we are definitely not in the minority:)…Sent by BlackBerry Internet Service from Turkcell

Jon, a BritMay 1st, 2012 at 8:59 am

I would also like to give my vote of support to your analysis. In fact I suspect that a lot of the stuff we read is related to a dangerous interpretation of inflation. The view that has most convinced me is that inflation represents, as it does in accounting a system which pushes the income statement (and the cash flow) to the fore, and pushed the balance sheet into the background, as less interpretable. It emphasises the importance of growth against the conforts of stability, and empowers the young against the old, and the retired.
Thus Germany, (negative population growth, rapidly ageing) is more sensitive to monetary stability, and fears inflation, and India and Brazil doesn't really care much about this as an issue. Turkey probably shouldn't either.
Of course inflation reduces the future value of the stock of debt the young will inherit to pay the pensions of the old, and therefore negatively impacts those pensions……

Emre Deliveli edeliveliMay 2nd, 2012 at 6:01 pm

Thanks for the comments. Your interpretation is very interesting. There are indeed models/frameworks that look at the intemtemporal effects of inflation…Sent by BlackBerry Internet Service from Turkcell