| Passenger numbers: Europe's passenger problem |
| AIRPORT traffic in Europe grew 7.3% in 2011, according to new figures from the Airports Council International (ACI). Having said that, it makes more sense to compare 2011’s traffic with a 2010 figure that does not include the traffic-reducing effect of the volcanic ash cloud. In this scenario the increase in traffic in 2011 is only 5.2%.Traffic grew more strongly in airports outside the European Union than those inside (12.2% v 6.3%). The slowdown in the euro zone was partly to blame for this discrepancy. For example, Athens saw the greatest drop in passenger numbers (-6.3%) out of the continent's 50 biggest airports, and—more alarmingly—its traffic dropped 10% year-on-year in December 2011.Problems in the euro zone explain why Olivier Jankovec, the director general of ACI Europe, expects the region's traffic to be less impressive in 2012 than in 2011.The odds are that 2012 will be a different story. Economies have come to a stand-still in many parts of Europe with the sovereign debt crisis, which is also having a ripple effect on growth prospects elsewhere. This will affect demand for air transport. At the same time, fuel costs and national aviation taxes are going to limit airlines ’ willingness to add capacity – a serious concern, especially for regional airports.Heathrow remains the biggest airport in Europe, with over 69m passengers passing through in 2011. Amsterdam ... |
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| The euro crisis: The ECB's tricky route to stabilisation |
| LAST fall, euro-zone banks and euro-zone sovereigns were locked in a vicious circle that seemed doomed to end in tragedy. As doubts about sovereign solvency grew, banks found it increasingly difficult to fund themselves and a major liquidity crisis threatened. And as banks teetered, the sovereigns that would have found themselves on the hook for resulting bail-outs watched their borrowing costs soar still higher. Only the power of the printing press seemed up to the task of salvaging the situation, and many observers, including The Economist, urged the European Central Bank to backstop the sovereign debt of troubled member countries.As is its wont, the ECB followed a different strategy, as this week's Free exchange column explains:When in 2009 the Federal Reserve and the Bank of England slashed interest rates towards zero and started quantitative easing (buying government bonds with central-bank money), the ECB was more circumspect. It was reluctant to cut its main rate below 1% and loth to buy government bonds directly.Instead it adopted its own non-standard measures. It offered unlimited loans to commercial banks for up to a year against a broad range of collateral. The ECB’s oblique approach had much the same effect as the route taken by the Fed and others. A flood of liquidity from a €442 billion ($611 billion) auction of one-year ECB loans in June 2009 pushed ... |
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| The euro zone crisis: ECB = FDIC |
| A SHARP point from the monthly note of the Bank Credit Analyst (always one of the best research reads). The writers agree that the ECB's LTRO loans have stopped the possibility of a dangerous bank run in the euro zone. To have confidence in money, citizens need to be reassured that the government stands behind the banks. Butsuch a backstop can only be credible if there are no doubts about the government's solvency. The problem in Europe is that deposit insurance schemes are administered at the national level. That is where the ECB comes in. While it would never admit it, through a rather circuitous route. the ECB has now assumed a role comparable to the US Federal Deposit Insurance Corporation (FDIC)It's understandable in the circumstances but not what those who set up the ECB had in mind. |
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| Fiscal policy: The stimulus questions |
| OVER at Democracy in America, my colleague summarises a number of recent debates about "fiscal stimulus" in a way that usefully illustrates the...confused nature of the discussion. Fiscal policy has been an intensely political subject over the last few years, and that, I think, has made it very difficult to figure out what, at any given time, people are arguing about. I think Tyler Cowen often overstates the utility of generosity toward one's opponents in a debate, but in this case he has a point—participants often seem more interested in winning an exchange than in working to clarify exactly what the disagreement is about in the first place.In fact, there have been several different arguments taking place since the beginning of the recession. They often run together but are worth thinking about discretely. (I may miss a few.)1) What is the appropriate time frame over which to balance government budgets? Other things equal, a government will suffer a deterioration in its budget balance when the economy weakens. Tax revenues decline, and social spending will often increase. Allowing the government to balance its budget over the business cycle—and therefore to run deficits during recessions—provides automatic stabilisation to the economy, the more so when governments have put in place generous, specific automatic stabilisers like unemployment insurance. By contrast, ... |
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| Afghanistan: Violating the prime directive again |
| NOTHING in my life has made me as pessimistic about development aid as the course of the American intervention in Afghanistan. The New York Times' Graham Bowley reports that unsurprisingly, the country is set to drop into a drastic recession as foreign aid dries up over the next few years. That's because foreign aid amounted to 97% of the economy in 2010, and will largely disappear by 2018.Already, the housing bubble is deflating. A typical house normally costs $30,000 to $230,000 depending on size and location, but deals dried up and prices dropped by $10,000 to $50,000 last year as people worried about the pullout, though prices bounced back in December, Mr. Babakarkhail said.The same tremors are being felt about 20 miles away on the icy hills north of Kabul, where Miraj Din, 48, who used to deliver food and firewood in a wheelbarrow, now manages Mumtaz’s Car Salesroom, selling imported cars to the country’s elite. Last year, he sold about a dozen cars a month, but this year he is selling only one car a month as Afghans with enough money to buy these fancy vehicles delay their purchases or move their money abroad, he said.I think I've seen figures showing that foreign aid was actually greater than the country's entire GDP in 2011. That sounds impossible, but I'd imagine it reflects the fact that foreign aid is often spent on salaries for Western consultants and equipment ... |
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| Economics: The weekly papers |
| TODAY'S recommended economics writing:• Recruiting intensity during and after the Great Recession (Steven Davis, R. Jason Faberman, John Haltiwanger)• Why is unemployment duration so long? (Rob Valletta and Katherine Kuang)• Nominal stability and financial globalization (Michael Devereux, Ozge Senay, and Alan Sutherland)• The empirics of firm heterogeneity and international trade (Andrew Bernard, J. Bradford Jensen, Stephen Redding, and Peter Schott)• Housing market and current account imbalances in the international economy (Maria Teresa Punzi)• Real sector imbalances and the Great Recession (Mark Setterfield) |
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| Global growth: Footing regained, for now |
| LAST fall, as the crisis in the euro zone threatened to spin out of control, clouds darkened across the global economy. Globally, industrial production began contracting for a brief period and concern grew that a major European financial crisis would sink the world back into recession. Then, the European Central Bank stepped in with massive, long-term lending to banks, and threat of an immediate meltdown nearly vanished. In the relative calm generated by the ECB's intervention, activity stabilised and is now rising again in many cases, according to the latest industrial production figures from around the world.Globally, production accelerated from December to January, though it remains only barely in expansionary territory at 51.2. Around the world, conditions remain mixed. Activity in China stayed in contractionary territory, as its export outlook weakened. India's economy, on the other hand, which had lots of observers nervous late last year as capital flooded out of the country, showed the strongest manufacturing growth in 8 months, and a big acceleration from December. Activity in Britain swung from shrinking to growing in January, and American manufacturing growth quickened, as well. Recovery still looks dicey, but after last year's stumble the early-2012 jump is encouraging.Europe, however, remains a mess. Manufacturing activity in the euro zone fell again in January. ... |
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| Debating economic policy: Stimulus, austerity and the weltgeist |
| BEFORE his big speech last week, liberals advised Barack Obama to stay away from arguing about the merits of the American Recovery and Reinvestment Act (ie, the stimulus bill of 2009). While independent economists generally agree that the stimulus saved or created somewhere in the neighbourhood of 2m jobs, it remains unpopular with the general public; the sense was that there was no point engaging on this issue, regardless of the merits. Now ProPublica's Mike Grabell is out with a book-length investigation of the stimulus, titled "Money Well Spent?"In an interview last week on NPR's Fresh Air, Mr Grabell said the stimulus effort had its good points and its bad points. On the one hand, money funneled to states to forestall budget cuts saved huge numbers of jobs for teachers, firefighters and other employees, and delayed cutbacks in infrastructure spending. He subscribes to the general wisdom that unemployment probably would have hit 12% in 2009 rather than 10% without it. On the other hand, the administration had to drop an idea that almost certainly would have made sense—building a national electric smart grid—because the jurisdictional and red-tape problems made it impossible to implement fast enough. Instead the administration decided to invest in clean energy; but those investments placed their bets too heavily on individual companies, some of which then went ... |
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| The euro crisis: "Merely useless" |
| CHARLEMAGNE files a dispatch from the latest EU summit:Their compact—now called the “treaty on stability, co-ordination and governance in the Economic and Monetary Union”, has as its main aim the imposition of balanced-budget rules on members. This may be a useful discipline in good times. But many worry that, at a time of widespread crisis, such pro-cyclical rules risk imposing too much austerity too widely, thus darkening the spectre of recession and making it even harder to balance budgets. This may explain why leaders suddenly want to be seen talking about their plan (declaration is here in PDF) for growth and jobs, particularly in tackling the problem of youth unemployment.Nevertheless, Angela Merkel, the German chancellor who had pushed hard for the treaty, hailed it as a great success. Many others, however, dismiss the compact with so much faint praise. “It is an important distraction”, says one diplomat. “It has gone from damaging to merely useless,” says a member of the European Parliament. Even Mario Monti, these days everybody’s favourite Italian, judged the compact little more than “a decorative songbird”.Set aside, for the moment, are decisions about just what to do with Greece and how best to boost the euro zone's "firewall" fund—the financial money pot needed to fend off attacks on troubled banks and sovereigns. On the latter score, there have been calls to ... |
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| The EU summit: A deal, but to what end? |
| BY THE standards of past summits, European leaders finished early—shortly before 10pm on January 30th. And by the acrimonious standards of past gatherings, notably last month’s bust-up with Britain, this event was uneventful, even amicable. Agreement was reached on the fiscal compact, the new treaty to toughen budget rules, in record time: less than two months.A final row between France and Poland over who gets to attend which summits was resolved with a complicated compromise. This involves variable configurations of meetings involving 17 countries (the euro zone), 23 (the largely-forgotten Euro-Plus Pact, 25 (the signatories of the fiscal compact), 27 (all EU member states, still in charge of the single market) and 28 (involving soon-to-join Croatia). It shows that, at the very least, European leaders can negotiate rapidly when they have the political will to do so—and when the British and the Czechs decide to step aside. Whether electorates will be quite so quick to shackle themselves to Germanic fiscal rules is another matter. But did the leaders achieve anything useful to stem the crisis in the latest of their interminable summits? Their compact—now called the “treaty on stability, co-ordination and governance in the Economic and Monetary Union”, has as its main aim the imposition of balanced-budget rules on members. This may be a useful discipline in good times. ... |
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| Britain's economy: Austerity, or something else? |
| BRITAIN'S economy shrank a bit in the fourth quarter of 2011 and odds are good that it will contract in the first quarter of this year, putting it in semi-official recession territory. British growth has been very sluggish for a couple of years now, such that its present recovery now looks a bit worse, on some measures, than that from the Depression. What's going on? Paul Krugman credits excessive austerity. Scott Sumner suggests there isn't much austerity and credits tight money. In the past, he's argued that supply-side issues are to blame. Is any of this right?The first thing to note is that the trajectory of British growth, particularly over the past year, isn't much different than that in Europe and America. Industrial production in Britain tracked that in America pretty closely in 2011. It likely faces some meaningful structural problems—import-substitution has been slow to respond to weak sterling, and Britain remains very dependent on financial services—but it's not a total oddball among rich countries.The private employment performance has been pretty good in Britain for much of the past couple of years, and it largely succeeded in offsetting public sector job cuts until recently. Over the past few months, unemployment has risen as private job growth has slowed. It looks like a demand-side slowdown. Mr Sumner argues against an austerity explanation, citing ... |
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| Daily chart: A stuck record |
| The latest European Union summit focuses on growth. It is about a decade lateEUROPEAN UNION leaders are meeting in Brussels to talk about how to get their economies growing. There is general agreement that the euro zone will be unable to deal with its public debt problems or make a dent in the increasigly horrifying unemployment numbers without better economic performance. The problem, as Charlemagne pointed out recently, is that there are at least three, contradictory recipes for how to get it. What's more, the arguments made on each side do not seem to have been altered by the financial crisis. The EU's failure to do much about growth in the fat years meant that many of its members went into the downturn with high rates of unemployment. Its economies would now need to grow at breakneck speed to soak up all that unused labour, even as they deleverage. |
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| Scandal in Slovakia: The multi-million euro gorilla |
| THE "invisible gorilla" experiment (follow the link if you're unfamiliar with this remarkable study) is a useful reminder of how easy it can be to miss what should be obvious. Similarly, the gorilla of sleaze has regularly been an important player in the cosy world of Slovak politics. But too often few Slovaks have chosen to notice it. “Gorilla” is the codename given to a wiretapping operation in 2005-06, the details of which were, it is alleged, revealed in a secret-service file leaked on to the internet in December. It has shaken Slovak politics to the core. The file, supposedly compiled by the Slovak Information Service (SIS), does not contain direct transcripts of the wiretaps, but purports to provide raw intelligence based on them. It discusses privatisation deals conducted during the second term of Mikuláš Dzurinda, a reformist prime minister in office between 1998 and 2006 (and foreign minister in Iveta Radičová's current caretaker government).Some Slovaks have interpreted Gorilla as an unwelcome reminder that the dodgy links between politics and business that thrived in the 1990s, an altogether murkier period in Slovakia, may not have been entirely severed. Today hundreds of Slovaks threw eggs and bananas at the parliament building in protest.At the heart of the scandal lie allegations that bribes worth millions of euros were paid to officials to win various ... |
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| Britain and globalisation: To the barricades, British defenders of open markets! |
| MY new column looks at today's seemingly distinct debates about British capitalism, executive pay, welfare caps, the squeezed middle and immigration, and concludes that behind them lies something bigger, simpler and more dangerous. Without properly acknowledging it, Britain is having a row about globalisation.WITH your back to the open sea, an island can feel encircled, even claustrophobic. Turn to face the waves and an island feels like a starting point, a place surrounded by a variety of bracing possibilities, both good and bad. Britain has the politics of an island. At worst, its political debate can be parochial, even tin-eared about the world outside. Yet Britain is an outrider for openness, standing out among large European nations for its faith in free trade, liberalised markets and undistorted competition. In many neighbouring countries, calls to reject free trade and embrace protectionism attract a quarter or more of the vote. Not in Britain. Yet in island politics, the temptation to gaze inward is never far away.Debates about capitalism dominate British politics. The Conservative prime minister, David Cameron, his Liberal Democrat deputy Nick Clegg, and the leader of the opposition Labour Party, Ed Miliband, have repeatedly spoken about building a fairer economy. Responding to voter anger, they talk of reining in bankers’ bonuses and pay packages ... |
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| Grameen’s business empire: Grabbing Grameen |
| UK Only Article:
standard article
Issue:
China and the paradox of prosperity
Fly Title:
Grameen’s business empire
Rubric:
Property rights in peril in Bangladesh
Main image:
Some day, all this will belong to the state
Some day, all this will belong to the state
HE IS probably Bangladesh’s most celebrated citizen. Muhammad Yunus, winner of the 2006 Nobel peace prize, founded Grameen Bank in 1983 to provide tiny loans to poor rural women. Grameen became a global model for microfinance. It also spawned 48 other firms in sectors that stretch from textiles to mobile phones. Yet the Bangladeshi government seems determined to take Mr Yunus down a peg.
In May 2011 the government pushed him out of his job as boss of Grameen Bank, saying that he was past the retirement age for someone running a government bank. (Grameen Bank mostly belongs to its borrowers but the state owns a slice.) Mr Yunus says this is just a pretext for a power grab. The government now wants to assert more control over other ... |
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| Schumpeter: The power of tribes |
| UK Only Article:
standard article
Issue:
China and the paradox of prosperity
Fly Title:
Schumpeter
Rubric:
Businesspeople need to reckon with the Anglosphere, the Sinosphere and the Indosphere
Main image:
20120128_WBD000_0.jpg
EVER since the collapse of the Soviet Union ended the old, neat division between East and West, people have been inventing new ways of dividing up the world. In the 1990s it was fashionable to talk about America, Europe and Japan. Today pundits draw the line between emerged and the emerging markets.
Joel Kotkin, a geographer, suggests another frame of reference. In “The New World Order”, a paper for the Legatum Institute, a think-tank in London, he looks at the world through the prism of culture. The ties of history and habit—of shared experiences and common customs—can explain a lot about who does business with whom. Mr Kotkin quotes Ibn Khaldun, a 14th-century Arab historian: “Only tribes held together by a group feeling can survive in a desert.” Substitute ... |
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| Austerity and the markets: The perils of prudence |
| UK Only Article:
standard article
Issue:
China and the paradox of prosperity
Fly Title:
Austerity and the markets
Rubric:
More evidence that austerity can backfire
Location:
WASHINGTON, DC
THE fiscal hawks should be pleased. For all the hand-wringing about public profligacy, budget deficits across the rich world fell by about 1% of GDP last year. Moreover, that was almost all the result of policy actions (spending cuts and tax rises) rather than cyclical effects.
Germany, France, Spain and Italy all managed to reduce their structural budget deficits, the latter three thanks to austerity. All are expected to reduce those deficits further this year, the International Monetary Fund said on January 24th. But this may not be good news. Austerity can unnerve markets, not calm them.
The IMF studied the correlation between credit-default-swap spreads and a variety of economic indicators last year. Long-run indicators—for deficits, economic growth and spending on pensions and health care—had little impact on ... |
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| Bagehot: Global Britain, SOS |
| UK Only Article:
standard article
Issue:
China and the paradox of prosperity
Fly Title:
Bagehot
Rubric:
A very British row about fairness is, deep down, a fight about globalisation
Main image:
20120128_BRD000_0.jpg
WITH your back to the open sea, an island can feel encircled, even claustrophobic. Turn to face the waves and an island feels like a starting point, a place surrounded by a variety of bracing possibilities, both good and bad.
Britain has the politics of an island. At worst, its political debate can be parochial, even tin-eared about the world outside. Yet Britain is an outrider for openness, standing out among large European nations for its faith in free trade, liberalised markets and undistorted competition. In many neighbouring countries, calls to reject free trade and embrace protectionism attract a quarter or more of the vote. Not in Britain. Yet in island politics, the temptation to gaze inward is never far away.
In this sectionThe changing face of ... |
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| China: The paradox of prosperity |
| UK Only Article:
standard article
Issue:
China and the paradox of prosperity
Fly Title:
China
Rubric:
For China’s rise to continue, the country needs to move away from the model that has served it so well
Main image:
20120128_LDP001_1.jpg
IN THIS issue we launch a weekly section devoted to China. It is the first time since we began our detailed coverage of the United States in 1942 that we have singled out a country in this way. The principal reason is that China is now an economic superpower and is fast becoming a military force capable of unsettling America. But our interest in China lies also in its politics: it is governed by a system that is out of step with global norms. In ways that were never true of post-war Japan and may never be true of India, China will both fascinate and agitate the rest of the world for a long time to come.
Only 20 years ago, China was a long way from being a global superpower. After the protests in Tiananmen Square led to a massacre in 1989, its ... |
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| Markets and monetary policy: Things are terrible. Whoopee! |
| SO THE Federal Reserve has indicated that it will need to keep interest rates low until late 2014 (rather than 2013). Should that really be the cause for an equity market rebound, as occurred last night?Otherwise intelligent people tend to reason as follows. The price of a stock should equal the discounted value of future cashflows. If the discount rate is lower, then the present value is higher (one heard this argument a lot during the dotcom bubble). This is true if other things are equal. But other things aren't equal. Why is the Fed keeping rates low for so long? Clearly, it is worried about the economic outlook and has lowered its expectation from "moderate" to "modest" growth. These crisis levels of interest rates are needed for a very extended period, just like Japan. Given that background, it makes sense for future profits expectations to be reduced, leaving the present value of equities unchanged.There are other explanations for the rally. The Fed did for the first time set an inflation target. While this was an unremarkable 2% (which most people figured was the Fed's aim), the actual measure was for the deflator of personal consumption expenditure, not for the consumer price index. Since the PCE deflator has tended to rise more slowly than CPI (thanks to house prices), the effect could be to increase inflation expectations. To the extent that markets were worried ... |
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